Good Earth Emporium Inc.

vs Court of Appeals
194 SCRA 544 [GR No. 82797 February 27, 1991]

FACTS: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty
Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning
November 1, 1981 and ending October 31, 1984 at a monthly rental of Php 65,000. The building which was
the subject of the contract of lease is a five story building located at the corner of Rizal Avenue and Bustos
Street in Sta. Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had defaulted in the
payment of rentals, as a consequence of which, private respondent Roces-Reyes Realty Inc. filed on
October 14, 1984 an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka
Ring. After the latter had tendered their responsive pleading, the lower court on motion of Roces rendered
judgment on the pleadings dated April 17, 1984 to which petitioners were ordered to vacate the premises
and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution which was
opposed by petitioners on May 28, 1984 simultaneous with the latters filing of a notice of appeal. On April
6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I"
and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full
satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court, thereby
quashing the motion for execution. CA reversed the RTC decision.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation.

Held: No. There is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the
judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of
Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the obligation embodied
therein had something to do with petitioners' judgment obligation with respondent corporation.

Under article 1240 of the civil code of the Philippines Payment shall be made to the person in whose
favor the obligation has been constituted, on his successor in interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in
interest nor is there positive evidence that payment was made to a person authorized to receive it. No such
proof was submitted but merely inferred by the RTC from Marcos Roces having signed the lease contract
as President which was witnessed by Jesus Marcos Roces. The later, however, was no longer President or
even an officer of the Roces-Realty Inc at the time he received the money and signed the sale with pacto de
retro. He, in fact denied being in possession of authority to receive payment for the respondent corporation
nor does the receipt show that he signed in the same capacity as he did in the lease contract at a time when
he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an
officer or stockholder of a corporation does not make ones property also of the corporation, and vice-
versa, for they are separate entities. Share owners are in no legal sense the owners corporate property which
is owned by the corporation as a distinct legal person. As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholders debt or credit that of the corporation.
Traders Royal Bank vs Court of Appeal
269 scra 15 [GR No. 93397 March 3, 1997]

Facts: Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates
of Indebtedness (CBCI). These certificates are actually proof that FGAC has the required reserve
investment with the Central Bank to operate as an insurer and to protect third persons from whatever
liabilities FGAC may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters Finance
Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB
comes with a right to repurchase on a date certain. However, when the day to repurchase arrived, PUFC
failed to repurchase said CBCI hence TRB requested the Central Bank to have said CBCI be registered in
TRBs name. Central Bank refused as it alleged that the CBCI are not negotiable; that as such, the transfer
from FGAC to PUFC is not valid, having acquired the certificate through simulation . What happened was
PUFC merely borrowed CBCI No . D891 from Filriters , a sister corporation , to guarantee its financing
operations. In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of authority, the transfer was invalid. Since it was invalid, PUFC
acquired no valid title over the CBCI; that the subsequent transfer from PUFC to TRB is likewise invalid.

TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRBs name.
TRB averred that PUFC is the alter ego of FGAC; that PUFC owns 90% of FGAC; that the two
corporations have identical sets of directors; that payment of said CBCI to PUFC is like a payment to
FGAC hence the sale between PUFC and TRB is valid. In short, TRB avers that that the veil of corporate
fiction, between PUFC and FGAC, should be pierced because the two corporations allegedly used their
separate identity to defraud TRD into buying said CBCI.
ISSUE: Whether or not Traders Royal Bank is correct.
HELD: No. Traders Royal Bank failed to show that the corporate fiction is used by the two corporations to
defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere
alter ego or business conduit of a person. TRB merely showed that PUFC owns 90% of FGAC and that
their directors are the same. The identity of PUFC cant be maintained as that of FGAC because of this
mere fact; there is nothing else which could lead the court under the circumstance to disregard their
corporate personalities. Further, TRB cant argue that it was defrauded into buying those certificates. In the
first place, TRB as a banking institution is not ignorant about these types of transactions. It should know for
a fact that a certificate of indebtedness is not negotiable because the payee therein is inscribed specifically
and that the Central Bank is obliged to pay the named payee only and no one else.
Rizal Light and Ice Co., vs The Public Service Commission and Morong Electric Co., Inc.
25 SCRA 285 [GR No. L-20993 - September 28, 1968]

Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong,
Rizal. On August 15, 1949, it was granted by the Commission a certificate of public convenience
and necessity for the installation, operation and maintenance of an electric light, heat and power
service in the municipality of Morong, Rizal. The Commission, on the basis of the inspection
reports of its engineers, found that the petitioner had failed to comply with the directives
contained in its letters dated May 21, 1954 and September 4, 1954, to raise its service voltage
and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission, and
to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of the
generating unit.

Petitioner had violated the conditions of its certificate of public convenience as well as the rules
and regulations of the Commission. Morong Electric, having been granted a municipal franchise
on May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light
and power service in said municipality approved by the Provincial Board of Rizal on August 31,
1962 filed with the Commission an application for a certificate of public convenience and
necessity for said service.

Petitioner opposed in writing the application of Morong Electric, alleging among other things, that
it is a holder of a certificate of public convenience to operate an electric light, heat and power
service in the same municipality of Morong, Rizal, and that the approval of said application would
not promote public convenience, but would only cause ruinous and wasteful competition. But
before said motion could be resolved, petitioner filed another motion, dated January 4, 1963, this
time asking for the dismissal of the application upon the ground that applicant Morong Electric
had no legal personality when it filed its application on September 10, 1962, because its
certificate of incorporation was issued by the Securities and Exchange Commission only on
October 17, 1962. The Commission approved the application of Morong Electric and ordered the
issuance in its favor of the corresponding certificate of public convenience and necessity.

The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the
proposition that since a franchise is a contract, at least two competent parties are necessary to
the execution thereof, and parties are not competent except when they are in being. Hence, it is
contended that until a corporation has come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter into
any contract as a corporation. The certificate of incorporation of the Morong Electric was issued
by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical
personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric
on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the
Commission's consideration.

On the other hand, Morong Electric argues, and to which argument the Commission agrees, that
it was a de facto corporation at the time the franchise was granted and, as such, it was not
incapacitated to enter into any contract or to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval
or disapproval thereof can be properly determined by the Commission.

Issue: Whether Morong Electric should not have been granted the certificate of public
convenience and necessity because it did not have a corporate personality at the time it was
granted a franchise and when it applied for said certificate;

Ruling: Petitioner's contention that Morong Electric did not yet have a legal personality on May 6,
1962 when a municipal franchise was granted to it is correct. The juridical personality and legal
existence of Morong Electric began only on October 17, 1962 when its certificate of incorporation
was issued by the SEC. Before that date, or pending the issuance of said certificate of
incorporation, the incorporators cannot be considered as de facto corporation. But the fact that
Morong Electric had no corporate existence on the day the franchise was granted in its name
does not render the franchise invalid, because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance with the terms and conditions
thereof.

This view is sustained by eminent American authorities. Thus, McQuiuin says:

The fact that a company is not completely incorporated at the time the grant is made to it by a
municipality to use the streets does not, in most jurisdictions, affect the validity of the grant. But
such grant cannot take effect until the corporation is organized. And in Illinois it has been decided
that the ordinance granting the franchise may be presented before the corporation grantee is fully
organized, where the organization is completed before the passage and acceptance. (McQuillin,
Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)

Fletcher says:

While a franchise cannot take effect until the grantee corporation is organized, the franchise may,
nevertheless, be applied for before the company is fully organized.

A grant of a street franchise is valid although the corporation is not created until afterwards.
(Fletcher, Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881)

And Thompson gives the reason for the rule:

(I)n the matter of the secondary franchise the authorities are numerous in support of the
proposition that an ordinance granting a privilege to a corporation is not void because the
beneficiary of the ordinance is not fully organized at the time of the introduction of the ordinance.
It is enough that organization is complete prior to the passage and acceptance of the ordinance.
The reason is that a privilege of this character is a mere license to the corporation until it accepts
the grant and complies with its terms and conditions.

The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as
shown by its action in prosecuting the application filed with the Commission for the approval of
said franchise, not only perfected a contract between the respondent municipality and Morong
Electric but also cured the deficiency pointed out by the petitioner in the application of Morong
EIectric. Thus, the Commission did not err in denying petitioner's motion to

dismiss said application and in proceeding to hear the same. The efficacy of the franchise,
however, arose only upon its approval by the Commission on March 13, 1963. The reason is that

Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant
electric franchises, subject to the approval of the provincial board and the President. However,
under Section 16(b) of Commonwealth Act No. 146, as amended, the Public Service Commission
is empowered "to approve, subject to constitutional limitations any franchise or privilege granted
under the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of
the Philippines when, in the judgment of the Commission, such franchise or privilege will properly
conserve the public interests and the Commission shall in so approving impose such conditions
as to construction, equipment, maintenance, service, or operation as the public interests and
convenience may reasonably require, and to issue certificates of public convenience and
necessity when such is required or provided by any law or franchise." Thus, the efficacy of a
municipal electric franchise arises, therefore, only after the approval of the Public Service
Commission.