Sulo Ng Bayan vs Araneta (72 SCRA 347)

Sulo Ng Bayan Inc. vs Gregorio Araneta Inc.
72 SCRA 347 [GR No. L-31061 August 17, 1976]

Facts: On April 26, 1966, plaintiff-appellant Sulo ng Bayan Inc., filed an action de revindicacion with the Court of First Instance of Bulacan, fifth judicial district, Valenzuela, Bulacan, against defendant-appellees to recover the ownership and possession of large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the Torrens system in the name of defendants-appellees’ predecessors-in-interest. The complaint as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monter, Bulacan; that its membership is composed of natural persons resident at San Jose del Monte, Bulacan; that the members of the plaintiff corporation through themselves and their predecessor-in-interest, had pioneered in the clearing of the forementioned tract of land, activated the same since the spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world; that the defendant-appellee Gregorio Araneta Inc. sometime in the year 1958, through force and intimidation ejected the members of the plaintiff corporation from their possession of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question had been either fraudulently or erroneously included by direct or constructive fraud in original certificate of title no. 466 of the land of records of the province of Bulacan issued on May 11, 1916 which title is fictitious non-existent and devoid of legal efficacy due to the fact that no original survey nor plan whatsoever appears to have been submitted as basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because no such notice proceeding was given to the members of the plaintiff corporation who were then in actual possession of said properties; that as consequence of the nullity of the original title, all subsequent titles derived therefrom such as TCT no. 7573 in the name of Gregorio Araneta Inc. TCT No. 4988 issued in the name of the National Waterworks & Sewerage System TCT No. 4986 issued in the name of Hacienda Caretas Inc. and another transfer certificate of title in the name of Paradise Farms Inc. are therefore void.

Issue: Whether or not the plaintiff corporation can represent the stockholders in the proceeding for the properties involved.

Held: No. It is a doctrine well established and obtains both at law and equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders a members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders as owners although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, even in the case of a one-man corporation. The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of the corporation, since the president as individual, and the corporation are separate similarities. Sincerely, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof, to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for title, especially against parties other than corporation.

It must be noted, however, that the juridical personality of the corporation,as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak for fraud or illegality, or to work an injustice, or where necessary to achieve equity.

Thus when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. The same is true where a corporation is a dummy and serves no business purpose and is intended only as blind, or an alter ego or business conduct for the sole benefit of the stockholders. This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes. Or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship or when necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. The aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud illegality or injustice.

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