Cagayan Fishing Dev. Co., Inc. v. Teodoro Sandiko65 Phil.

223 (1937)

Facts:
Manuel Tabora is the registered owner of four parcels of land and he wanted to build aFishery.
He loaned from PNB P8,000 and to guarantee the payment of the loan, hemortgaged the said
parcels of land. Three subsequent mortgages were executed infavor of the same bank and to
Severina Buzon, whom Tabora is indebted to. Taborasold the four parcels of land to the plaintiff
company, said to be under process of incorporation subject to the mortgages in favor of PNB
and Severina Buzon and, to thecondition 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 indebtednessto PNB. The articles of incorporation were filed and the company sold the
parcels of land to Sandiko on the reciprocal obligation that Sandiko will shoulder the
threemortgages. A deed of sale executed before a notary public by the terms of which
theplaintiff sold, ceded and transferred to the defendant all its rights, titles and interest inand to
the four parcels of land. A promissory note for P25,300 was drawn by the defendant in favor of
the plaintiff,payable after one year from the date thereof. Further, a deed of mortgage
executedbefore a notary public in accordance with which the four parcels of land were given
assecurity for the payment of the said promissory note. Sandiko failed to pay, thus theaction for
payment. The lower court held that deed of sale was invalid.

Issue/s:
1. Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.
2. Can promoters of a corporation act as agents of a corporation?

Ruling:
1. The Court held in the negative. The transfer made by Tabora to the Cagayan Fishing
Development Co., Inc., plaintiff herein, was effected on May 31, 1930and the actual
incorporation of said company was effected later on October 22,1930. In other words,
the transfer was made almost five months before the incorporation of the company. 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. The law requires the filing of articles
of incorporation. In the instant case, although there is a presumption that all the
requirements of law have been complied with, it cannot be denied that the plaintiff was
not yet incorporated when it entered into the contract of sale. 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. General laws 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. The Court further
explained 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. Untilorganized as authorized by the
charter there is no corporation, nor does it possessfranchises or faculties for it or others
to exercise, until it acquires a complete existence.”

2. The contract here was entered into not only between Manuel Tabora and a non-existent
corporation but between Manuel Tabora as owner of four parcels of land on the one
hand and the same Manuel Tabora, his wife and others, as mere promoters of a
corporation on the other hand. For reasons that are self-evident, these promoters
couldnot have acted as agents for a projected corporation since that which had no lega
lexistence 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, but under the
peculiar facts and circumstances of the present case, the Court declines to extend the
doctrine of ratification which would result in the commission of injustice or fraud to the
candid and unwary. The transfer by Manuel Tabora to the Cagayan Fishing
Development Company, Inc. was null because at the time it was effected the corporation
was non-existent.

Rizal Light vs. Public Service Commission

FACTS:
Petitioner Rizal Light & Ice Co., Inc. 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.

Respondent Municipality of Morong filed a petition asking the Commission to revoke petitioner’s
certificate of public convenience and to forfeit its franchise on the ground that it failed to comply
with the conditions of said certificate and franchise. The Commission then rendered a decision,
finding that petitioner had violated the conditions of its certificate of public convenience as well
as the rules and regulations of the Commission. Accordingly, it ordered the cancellation and
revocation of petitioner’s certificate of public convenience and the forfeiture of its franchise.

Petitioner moved for reconsideration. However, eight days before said motion, Morong Electric
had already been granted a municipal franchise to install, operate, and maintain an electric
heat, light and power service in the municipality. It likewise filed with the Commission an
application for a certificate of public convenience and necessity for said service.

Consequently, petitioner opposed and asked for the dismissal of the application on 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 (SEC) only on October 17, 1962. But this motion was denied by the Commission
on the premise that applicant Morong Electric was a de facto corporation. Hence, this petition.

STATEMENT OF THE CASE:

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 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.

ISSUE:
Whether Morong Electric should be granted the certificate of public convenience and necessity
albeit the lack of a corporate personality at the time it was granted a franchise and when it
applied for the certificate

RULING:
YES. Indeed, petitioner’s contention that Morong Electric did not yet have a legal personality
when a municipal franchise was granted to it is correct. The juridical personality and legal
existence of Morong Electric began only 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. However, 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.

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.

Furthermore, the conclusion herein reached regarding the validity of the franchise granted to
Morong Electric is not incompatible with the holding of the Court in Cagayan Fishing
Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner leans heavily in support
of its position. In said case, the Court held that a corporation should have a full and complete
organization and existence as an entity before it can enter into any kind of contract or transact
any business. However, the Court did not say in that case that the rule is absolute or that under
no circumstances may the acts of promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. A contract made by the promoters of a
corporation on its behalf may be adopted, accepted, or ratified by the corporation when
organized.

DISPOSITIVE PORTION:
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be,
as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co.,
Inc.
45. Missionary Sisters of Our Lady of Fatima
vs.
Alzona
876 SCRA 309 (2018)
FACTS:
The Missionary Sisters of Our Lady of Fatima (petitioner), is a religious and charitable group.
Mother Ma. Concepcion R. Realon is the petitioner's Superior General. The respondents, on the
other hand, are the legal heirs of the late Purificacion Y. Alzona, a spinster and the registered
owner of parcels of land and a co-owner of another property located in Calamba City, Laguna.
Purificacion through Mother Concepcion, donating to the petitioner her house and lot at F.
Mercado Street and the riceland at Banlic, both at Calamba, Laguna. On the same occasion,
Purificacion introduced Mother Concepcion to her nephew, Francisco Del Mundo, and niece,
Ma. Lourdes Alzona Aguto-Africa. Purificacion, instructed Francisco to give a share of the
harvest to Mother Concepcion, and informed Lourdes that she had given her house to Mother
Concepcion.
At the request of Purificacion, Mother Concepcion went to see Atty. Nonato Arcillas. During their
meeting, Atty. Arcillas asked Mother Concepcion whether their group is registered with the SEC,
to which the latter replied in the negative. Acting on the advice given by Atty. Arcillas, Mother
Concepcion went to SEC and filed the corresponding registration application on August 28,
2001.
On August 29, 2001, a day after Mother Concepcion filed the registration with SEC, Purificacion
executed a Deed of Donation Inter Vivos (Deed) in favor of the petitioner, conveying her
properties covered by TCT Nos. T-67820 and T-162375, and her undivided share in the
property covered by TCT No. T-162380. The Deed was notarized by Atty. Arcillas and
witnessed by Purificacion's nephews Francisco and Diosdado Alzona, and grandnephew, Atty.
Fernando M. Alonzo. The donation was accepted on even date by Mother Concepcion for and
in behalf of the petitioner. Thereafter, Mother Concepcion filed an application before the BIR
that the petitioner be exempted from donor's tax as a religious organization to which the BIR
granted.
Subsequently, the Deed, together with the owner's duplicate copies and the exemption letter
from the BIR was presented for registration. The Register of Deeds, however, denied the
registration on account of the Affidavit of Adverse Claim filed by the brother of Purificacion,
respondent Amando Y. Alzona.
On October 30, 2001, Purificacion died without any issue, and survived only by her brother of
full blood, Amando, who nonetheless died during the pendency of this case and is now
represented and substituted by his legal heirs, joined as herein respondents. On April 9, 2002,
Amando filed a Complaint before the RTC, seeking to annul the Deed executed between
Purificacion and the petitioner, on the ground that at the time the donation was made, the latter
was not registered with the SEC and therefore has no juridical personality and cannot legally
accept the donation. RTC dismissed the petition. However, on appeal, the CA modified the
lower court’s decision and declared the donation void.
Issue: WoN the Deed executed by Purificacion in favor of the petitioner is valid and binding.
Ruling: Yes. Article 737 of the Civil Code provides that "the donor's capacity shall be
determined as of the time of the making of the donation." While Article 738, in relation to Article
745, states that all those who are not specifically disqualified by law may accept donations
either personally or through an authorized representative with a special power of attorney for the
purpose or with a general and sufficient power. Thus, the Court finds that for the purpose of
accepting the donation, the petitioner is deemed vested with personality to accept, and Mother
Concepcion is clothed with authority to act on the latter's behalf.
However, the CA correctly pointed out that the RTC erred in holding that the petitioner is a de
facto corporation. Jurisprudence settled that "the filing of articles of incorporation and the
issuance of the certificate of incorporation are essential for the existence of a de facto
corporation." Therefore, it is the act of registration with SEC through the issuance of a certificate
of incorporation that marks the beginning of an entity's corporate existence. Since the Certificate
of Incorporation was issued on August 31, 2001, or two (2) days after Purificacion executed a
Deed of Donation. Clearly, at the time the donation was made, the Petitioner cannot be
considered a corporation de facto.
Nevertheless, a review of the attendant circumstances reveals that it calls for the application of
the doctrine of corporation by estoppel as provided for under Section 21 of the Corporation
Code.
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. Moreover, the doctrine
of corporation by estoppel is founded on principles of equity and is designed to prevent injustice
and unfairness. It applies when a non-existent corporation enters into contracts or dealings with
third persons. In which case, the person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any action involving such
contract or dealing.
The doctrine of corporation by estoppel applies for as long as there is no fraud and when the
existence of the association is attacked for causes attendant at the time the contract or dealing
sought to be enforced was entered into, and not thereafter. It rests on the idea that if the Court
were to disregard the existence of an entity which entered into a transaction with a third party,
unjust enrichment would result as some form of benefit have already accrued on the part of one
of the parties.
In this controversy, Purificacion dealt with the petitioner as if it were a corporation. While the
underlying contract which is sought to be enforced is that of a donation, and thus rooted on
liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit therefrom
so as to prevent the application of the doctrine of corporation by estoppel. In fine, the subject
deed partakes of the nature of a remuneratory or compensatory donation, having been made
"for the purpose of rewarding the donee for past services, which services do not amount to a
demandable debt." Therefore, under the premises, past services constitutes consideration,
which in turn can be regarded as "benefit" on the part of the donor, consequently, there exists
no obstacle to the application of the doctrine of corporation by estoppel.
Precisely, the existence of the petitioner as a corporate entity is upheld in this case for the
purpose of validating the Deed to ensure that the primary objective for which the donation was
intended is achieved, that is, to convey the property for the purpose of aiding the petitioner in
the pursuit of its charitable objectives.