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G.R. No. L-11442 – 103 Phil. 757 – Mercantile Law – Corporation Law – Separate and Distinct Personality – When Not Applicable
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land to PFPC in exchange of rental payments plus shares from the sales of crops. However, PFPC failed to comply with its obligations and so in 1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against Refuerzo’s property (there being no property under PFPC). Refuerzo moved for reconsideration on the ground that he should not be held personally liable because he merely signed the lease contract in his official capacity as president of PFPC. Garlitos granted Refuerzo’s motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was not actually registered with the Securities and Exchange Commission (SEC) hence Refuerzo should be personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its incorporators and as such the incorporators cannot be held personally liable for the obligations of the corporation. However, this doctrine is not applicable to unincorporated associations. The reason behind this doctrine is obvious: since an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute 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. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be limited or restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction.
