International Academy of Management and Economics (I/AME) vs.

Litton
and Company, Inc., G.R. No. 191525, December 13, 2017

Doctrine: The piercing of the corporate veil may apply to corporations as well as
natural persons involved with corporations. This Court has held that the
“corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation.” We
have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate.

Facts:
Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by
Litton, owed the latter rental arrears as well as his share of the payment of
realty taxes. Consequently, Litton filed a complaint for unlawful detainer
against Santos before the MeTC of Manila. The MeTC ruled in Litton’s favor and
ordered Santos to vacate A.I.D. Building and Litton Apartments and to pay
various sums of money representing unpaid arrears and realty taxes, among
others. After the grant of the revival judgement and the same being final and
executory, the sheriff of the MeTC of Manila then levied on a piece of real
property covered by Transfer Certificate of Title (TCT) No. 187565 and
registered in the name of International Academy of Management and
Economics Incorporated (1/AME), in order to execute the judgment against
Santos. The annotations on TCT No. 187565 indicated that such was “only up
to the extent of the share of Emmanuel T. Santos.”

I/AME filed with MeTC a “Motion to Lift or Remove Annotations Inscribed in

TCT No. 187565 of the Register of Deeds of Makati City. The said motion was
denied. However, upon motion for reconsideration of I/AME, the MeTC reversed
its earlier ruling and ordered the cancellation of the annotations of levy as well
as the writ of execution. Litton then elevated the case to the RTC, which in turn
reversed the Order granting I/AME’s motion for reconsideration. I/AME then
filed a petition with the CA to contest the judgment of the RTC, which was
eventually denied by the appellate court. CA upheld the Judgment and Order
of the RTC and held that no grave abuse of discretion was committed when the
trial court pierced the corporate veil of I/AME. It concluded that Santos merely
used I/ AME as a shield to protect his property from the coverage of the writ of
execution; therefore, piercing the veil of corporate fiction is proper.

Petitioner thus filed this Petition, arguing that:

(1) the doctrine of piercing the corporate veil applies only to stock corporations,
and not to non-stock, nonprofit corporations such as I/AME since there are no
stockholders to hold liable in such a situation but instead only members
(2) the piercing of the corporate veil cannot be applied to a natural person in
this case, Santos – simply because as a human being, he has no corporate veil
shrouding or covering his person.

Issues:
1. WON the piercing of the corporate veil does not apply to non-stock
nonprofit corporation
2. WON the piercing of the corporate veil cannot be applied to a natural
person

Ruling:
1. No. In determining the propriety of applicability of piercing the veil of
corporate fiction, this Court, in a number of cases, did not put in issue
whether a corporation is a stock or non-stock corporation. Further, In the
United States, from which we have adopted our law on corporations, non-
profit corporations are not immune from the doctrine of piercing the
corporate veil. Their courts view piercing of the corporation as an equitable
remedy, which justifies said courts to scrutinize any organization however
 organized and in whatever manner it operates. Moreover, control of
ownership does not hinge on stock ownership.

The concept of equitable ownership, for stock or non-stock corporations, in

piercing of the corporate veil scenarios, may also be considered. An
equitable owner is an individual who is a non-shareholder defendant, who
exercises sufficient control or considerable authority over the corporation to
the point of completely disregarding the corporate form and acting as
though its assets are his or her alone to manage and distribute. Given the
foregoing, this Court sees no reason why a non-stock corporation such as
I/AME, may not be scrutinized for purposes of piercing the corporate veil or
fiction.

2. No. The piercing of the corporate veil may apply to corporations as well as
natural persons involved with corporations. This Court has held that the
“corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation.”

We find similarities with Arcilla and the instant case. Like Arcilla, Santos:
(1) was adjudged liable to pay on a judgment against him; (2) he became
President of a corporation; (3) he formed a corporation to conceal assets
which were supposed to pay for the judgment against his favor; (4) the
corporation which has Santos as its President, is being asked by the court
to pay on the judgment; and (5) he may not use as a defense that he is no
longer President of I/AME (although a visit to the website of the school
shows he is the current President).

This Court agrees with the CA that I/AME is the alter ego of Santos and
Santos – the natural person is the alter ego of I/AME. Santos falsely
represented himself. President of I/AME in the Deed of Absolute Sale when
he bought the Makati real property, at a time when I/AME had not yet
existed. Uncontroverted facts in this case also reveal the findings of Me TC
showing Santos and I/ AME as being one and the same person:
1. Santos is the conceptualizer and implementor of I/AME;
2. Santos’ contribution is P1,200,000.00 (One Million Two Hundred
Thousand Pesos) out of the P1,500,000.00 (One Million Five Hundred
Thousand Pesos), making him the majority contributor of I/AME; and,
3. The building being occupied by I/AME is named after Santos using his
known nickname (to date it is called, the “Noli Santos International
Tower”).

This Court also applied reverse piercing or reverse corporate piercing or

piercing the corporate veil “in reverse” from American parlance.

As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited
Partnership, “in a traditional veil-piercing action, a court disregards the
existence of the corporate entity so a claimant can reach the assets of a
corporate insider. In a reverse piercing action, however, the plaintiff seeks to
reach the assets of a corporation to satisfy claims against a corporate
insider.”

“Reverse-piercing flows in the opposite direction (of traditional corporate

veil-piercing) and makes the corporation liable for the debt of the
shareholders.”

It has two (2) types: outsider reverse piercing and insider reverse
piercing. Outsider reverse piercing occurs when a party with a claim
against an individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant. In contrast,
in insider reverse piercing, the controlling members will attempt to ignore
the corporate fiction in order to take advantage of a benefit available to the
 corporation, such as an interest in a lawsuit or protection of personal
assets.

Outsider reverse veil-piercing is applicable in the instant case. Litton, as

judgment creditor, seeks the Court’s intervention to pierce the corporate veil
of I/AME in order to make its Makati real property answer for a judgment
against Santos, who formerly owned and still substantially controls I/AME.

Solido, Jr. vs. Amaraywan Metals, GR No. 233857

Facts:
San Juan, Mangune and Salido, and four other individuals (Salido faction),
agreed to form two mining corporations, namely Aramaywan and Narra
Mining Corporation. They entered into an Agreement to Incorporate wherein it
was stipulated that San Juan would advance the paid-up subscription for
Aramaywan amounting to P2,500,000.00 and would assure the payment of
the subscription of the capital stock of Narra Mining. In exchange, San Juan
would own 55% of the stocks of Aramaywan and 35% of the stocks of Narra
Mining. In line with this, San Juan advanced the P2,500,000.00 paid-up
subscription of Aramaywan evidenced by a Standard Chartered Bank
Certificate deposited in San Juan's name as treasurer, held by him in trust
for the corporation. The Board of Directors of Aramaywan had its first Board
Meeting wherein the Salido faction claimed that San Juan delivered only
P932,209.16 alleging that San Juan breached his obligation under the
Agreement. Because of this, Salido made a proposal to reduce San Juan's
shares in Aramaywan from 55% to 15%.

Issue:
WON San Juan’s share validly reduce or WON his share validly converted into
treasury shares

Ruling:
No. the records are bereft of any showing that Aramaywan had unrestricted
retained earnings in its books at the time the reduction of shares was made.
During that time, Aramaywan had just been existing for a few months, and had
not in fact been able to perform mining activities yet. It is thus both highly
doubtful and unsupported by the record that Aramaywan had unrestricted
retained earnings to be able to purchase its own shares.

In this case, there was no showing that, at the time the reduction of San
Juan's shares was made, Aramaywan had unrestricted retained earnings in its
books. Neither was it shown that it did not have creditors or that they were
already paid before the agreement to release San Juan was made.

Considering that San Juan's subscriptions have been fully paid, Aramaywan
cannot reduce his shares without a corresponding return of his investment.
The Corporation Code has provided a procedure for the demand of such
payment and the holding of a delinquency sale in case of continued non-
payment. Thus, even assuming that San Juan had unpaid subscriptions,
simply agreeing in a meeting for their reduction, thereby releasing the
stockholder from his obligation to pay the unpaid subscriptions, cannot be the
mode by which said unpaid subscriptions are settled. To allow corporations to
do such an act would violate the trust fund doctrine.

Under the trust fund doctrine, "the capital stock, property, and other assets
of a corporation are regarded as equity in trust for the payment of corporate
creditors, who are preferred in the distribution of corporate assets." 27 Thus,
"[t]he creditors of a corporation have the right to assume that the board of
directors will not use the assets of the corporation to purchase its own stock
for as long as the corporation has outstanding debts and liabilities. There can
be no distribution of assets among the stockholders without first paying
corporate debts."

Roy vs. Herbosa

"beneficial owner" or "beneficial ownership" is defined in the Implementing Rules and

Regulations of the Securities Regulation Code (SRC-IRR) as:

[A]ny person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power (which includes the power to vote or direct the
voting of such security) and/or investment returns or power (which includes the power to dispose of,
or direct the disposition of such security)

If the Filipino has the voting power of the "specific stock", i.e., he can vote the stock or direct
another to vote for him, or the Filipino has the investment power over the "specific stock", i.e., he
can dispose of the stock or direct another to dispose of it for him, or both, i.e., he can vote and
dispose of that "specific stock" or direct another to vote or dispose it for him, then such Filipino is
the "beneficial owner" of that "specific stock." Being considered Filipino, that "specific stock" is then
to be counted as part of the 60% Filipino ownership requirement under the Constitution. The right to
the dividends, jus fruendi - a right emanating from ownership of that "specific stock" necessarily
accrues to its Filipino "beneficial owner."

Facts:
The Supreme Court issued the Gamboa Decision ruling that the term “capital”
in Section 11, Article XII of the 1987 Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus only to common shares,
and not to the total outstanding capital stock (common and nonvoting
preferred shares).

On October 18, 2012, the Gamboa decision attained finality. Pursuant to the
Court’s directive in the Gamboa Decision, the SEC issued SEC-MC No. entitled
“Guidelines on Compliance with the Filipino-Foreign Ownership Requirements
Prescribed in the Constitution and/or Existing Laws by Corporations Engaged
in Nationalized and Partly Nationalized Activities.” Section 2 of SEC-MC No. 8
provides:
Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.

Corporations covered by special laws which provide specific citizenship

requirements shall comply with the provisions of said law.

Petitioner Roy, as a lawyer and taxpayer, filed the Petition, assailing the
validity of SEC-MC No. 8. He seeks to apply the 60-40 Filipino ownership
requirement separately to eachclass of shares of a public utility corporation,
whether common, preferred non-voting, preferred voting or any other class of
shares.

Issue:
Whether the term ‘capital’ in Section 11, Article XII of the Constitution refers to
the total common shares only or to the total outstanding capital stock
(combined total of commonand nonvoting preferred shares).
Ruling:
The Court rules that SEC-MC No. 8 is not contrary to the Court’s definition
and interpretation of the term “capital.” (Pronouncement in
Gamboa)Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting rights,
the term “capital” in Section11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in
the election of directors, then the term “capital” shall include such preferred
shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors.

In short, the term “capital” in Section 11, Article XII of the Constitution refers
only to shares of stock that can vote in the election of directors. The evident
purpose of the citizenship requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to the national interest. The
Court noted that the foregoing interpretation is consistent with the intent of the
framers of the Constitution to place in the hands of Filipino citizens the control
and management of public utilities; and, as revealed in the deliberations of the
Constitutional Commission, “capital” refers to the voting stock or controlling
interest of a corporation.

However, mere legal title is insufficient to meet the 60 percent Filipino -owned
“capital” required in the Constitution. Full beneficial ownership of 60 percent of
the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals in accordance with
the constitutional mandate. Otherwise, the corporation is “considered as non-
Philippine national.

Both the Voting Control Test and the Beneficial Ownership Test must be
applied to determine whether a corporation is a “Philippine national” and that a
“Philippine national” is “a Filipino citizen, or a domestic corporation “at least
sixty percent (60%) of the capital stock outstanding and entitled to vote,” is
owned by Filipino citizens. A domestic corporation is a “Philippine national”
only if at least 60% of its voting stock is owned by Filipino citizens.” (Foreign
Investments Act of 1991)

The right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.

If the voting right of a share held in the name of a Filipino citizen or national is
assigned or transferred to an alien, that share is not to be counted in the
determination of the required Filipino equity. In the same vein, if the dividends
and other fruits and accessions of the share do not accrue to a Filipino citizen
or national, then that share is also to be excluded or not counted.

Notes:
*The full beneficial ownership test – the full ownership up to 60% of a public
utility encompasses both control and economic rights, both of which must stay
in Filipino hands. Filipinos, who own 60% of the controlling interest, must also
own 60% of the economic interest in a public utility.

If the Filipino has the “specific stock’s” voting power (he can vote the stock or
direct another to vote for him), or the Filipino has the investment power over
the “specific stock” (he can dispose of the stock or direct another to dispose it
for him), or he has both (he can vote and dispose of the “specific stock” or
direct another to vote or dispose it for him), then such Filipino is the “beneficial
owner” of that “specific stock” — and that “specific stock” is considered (or
counted) as part of the 60% Filipino ownership of the corporation.

Narra Nickel vs. Redmont, GR No. 195580

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality," pertains to the control test or the liberal rule.

On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as Philippine nationality," pertains to the stricter,
more stringent grandfather rule.

Facts:
Redmont is a domestic corporation interested in the mining and exploration of
some areas in Palawan. Upon learning that those areas were covered by MPSA
applications of other three (allegedly Filipino) corporations – Narra, Tesoro, and
MacArthur, it filed a petition before the Panel of Arbitrators of DENR seeking to
deny their permits on the ground that these corporations are in reality
foreignowned. MBMI, a 100% Canadian corporation, owns 40% of the shares of
PLMC (which owns 5,997 shares of Narra), 40% of the shares of MMC (which
owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in
turn, owns 5,997 shares of Tesoro).

Aside from the MPSA, the three corporations also applied for FTAA with the
Office of the President. In their answer, they countered that (1) the liberal
Control Test must be used in determining the nationality of a corporation as
based on Sec 3 of the Foreign Investment Act – which as they claimed admits of
corporate layering schemes, and that (2) the nationality question is no longer
material because of their subsequent application for FTAA.

Issue:
W/N the Grandfather Rule must be applied in this case

Ruling:
Yes. It is the intention of the framers of the Constitution to apply the
Grandfather Rule in cases where corporate layering is present.

First, as a rule in statutory construction, when there is conflict between the

Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. Corporate layering is admittedly allowed by the FIA, but if it is
used to circumvent the Constitution and other pertinent laws, then it becomes
illegal.

Second, under the SEC Rule1 and DOJ Opinion, the Grandfather Rule must be
applied when the 60-40 Filipino-foreign equity ownership is in doubt. Doubt is
present in the Filipino equity ownership of Narra, Tesoro, and MacArthur since
their common investor, the 100% Canadian-owned corporation – MBMI, funded
them.
Under the Grandfather Rule, it is not enough that the corporation does have
the required 60% Filipino stockholdings at face value. To determine the
percentage of the ultimate Filipino ownership, it must first be traced to the
level of the investing corporation and added to the shares directly owned in the
investee corporation. Applying this rule, it turns out that the Canadian
corporation owns more than 60% of the equity interests of Narra, Tesoro and
MacArthur. Hence, the latter are disqualified to participate in the exploration,
development and utilization of the Philippine’s natural resources.

Gamboa vs. Teves, GR No. 176579

Facts:
In 1969, General Telephone and Electronics Corporation (GTE), sold 26 percent
of the outstanding common shares of PLDT to Philippine Telecommunications
Investment Corporation (PTIC). In 1977, Prime Holdings, Inc. (PHI) became the
owner of 111,415 shares of stock of PTIC. In 1986, the 111,415 shares of stock
of PTIC held by PHI were sequestered by the Presidential Commission on Good
Government (PCGG). The 111,415 PTIC shares, which represent about 46.125
percent of the outstanding capital stock of PTIC, were later declared by this
Court to be owned by the Republic of the Philippines.

In 1999, First Pacific, a Bermuda-registered acquired the remaining 54 percent

of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-
Agency Privatization Council (IPC) of the Philippine Government through a
public bidding sold the same shares to Parallax Venture who won with a bid of
P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first
refusal as a PTIC stockholder and buy the 111,415 PTIC shares by matching
the bid price of Parallax. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of
the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of

46.125 percent of PTIC shares is actually an indirect sale of 12 million shares
or about 6.3 percent of the outstanding common shares of PLDT. With the sale,
First Pacific common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of foreigners in PLDT to
about 81.47 percent. This, according to petitioner, violates Section 11, Article
XII of the 1987 Philippine Constitution which limits foreign ownership of the
capital of a public utility to not more than 40 percent.

On 28 February 2007, petitioner filed the instant petition for prohibition,

injunction, declaratory relief, and declaration of nullity of sale of the 111,415
PTIC shares.

Issue:
Does the term "capital" in Section 11, Article XII of the Constitution refer to the
total common shares only or to the total outstanding capital stock of PLDT, a
public utility?

Ruling:
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such
citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

The intent of the framers of the Constitution in imposing limitations and

restrictions on fully nationalized and partially nationalized activities is for
Filipino nationals to be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Court ruling upholding respondent's
arguments were to be given credence, it would be possible for the ownership
structure of a public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks. Following the
Trial Court ruling adopting respondent's arguments, the common shares can
be owned entirely by foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders, control the public
utility corporation.

The term "capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred shares.

Indisputably, one of the rights of a stockholder is the right to participate in the

control or management of the corporation. This is exercised through his vote in
the election of directors because it is the board of directors that controls or
manages the corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred shares have
the same voting rights as common shares. However, preferred shareholders are
often excluded from any control, that is, deprived of the right to vote in the
election of directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the same
manner as bondholders. In fact, under the Corporation Code only preferred or
redeemable shares can be deprived of the right to vote. Common shares cannot
be deprived of the right to vote in any corporate meeting, and any provision in
the articles of incorporation restricting the right of common shareholders to
vote is invalid.

Considering that common shares have voting rights which translate to control,
as opposed to preferred shares which usually have no voting rights, the term
"capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In
short, the term "capital" in Section 11, Article XII of the Constitution refers only
to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the

Constitution to place in the hands of Filipino citizens the control and
management of public utilities. Thus, 60 percent of the "capital" assumes, or
should result in, "controlling interest" in the corporation and thus in the
present case, only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares).

Petition was GRANTED.

Missionary Sisters vs. Alzona, GR No. 224307, Aug. 6, 2018

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. 41 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 leading out of or involving such contract or
dealing. While the doctrine is generally applied to protect the sanctity of dealings with
the public,42 nothing prevents its application in the reverse, in fact the very wording of
the law which sets forth the doctrine of corporation by estoppel permits such
interpretation. Such that a person who has assumed an obligation in favor of a non-
existent corporation, having transacted with the latter as if it was duly incorporated, is
prevented from denying the existence of the latter to avoid the enforcement of the
contract.

Facts:

The Missionary Sisters of Our

Lady of Fatima is a religious
and charitable
group whose primary mission is
to take care of the abandoned
and neglected
elderly persons. It became a
corporation August 31, 2001.
On the other hand,
Purificacion Alzona is a
benefactor of the Missionary
Sisters. In August 29, 2001, she
executed a deed of donation
inter vivos of her
house and lot in Laguna to the
Missionary Sisters. The
donation was accepted
by the Superior General of the
Missionary Sisters on the same
date.
The Missionary Sisters then
filed an application before the
BIR that they
would be exempted from
donor's tax as a religious
organization. The
application was granted by
the BIR. The Register of
Deeds, however, denied
the registration on account of
the Affidavit of Adverse Claim
dated September
26, 2001 filed by the brother of
Purificacion, respondent
Amando.
Purificacion died without
any issue in October 2001,
and was survived
only by her brother of full
blood, Amando, who
nonetheless died during the
pendency of this case and was
represented and substituted by
his legal heirs.
I n 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.
The Missionary Sisters of Our Lady of Fatima is a religious and charitable
group whose primary mission is to take care of the abandoned and neglected
elderly persons. It became a corporation August 31, 2001. In October
1999, through a letter, Purificacion, a spinster donated her parcels of land to
petitioner Missionary through Mother Concepcion, the petitioner’s Superior
General who took care of her during her illness. She is a benefactor of the
Missionary Sisters. In August 29, 2001, she executed a deed of donation inter
vivos of her house and lot in Laguna to the Missionary Sisters.
The donation was accepted by the Superior General of the Missionary Sisters
on the same date. The Missionary Sisters then filed an application before the
BIR that they would be exempted from donor's tax as a religious
organization. The application was granted by the BIR. The Register of
Deeds, however, denied the registration on account of the Affidavit of Adverse
Claim dated September 26, 2001 filed by the brother of Purificacion,
respondent Amando.

Purificacion died without any issue in October 2001, and was

survived only by her brother of full blood, Amando, who nonetheless
died during the pendency of this case and was represented and substituted
by his legal heirs. In 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.

Issue:
Was the donation valid given that the time the donation was made, the
Missionary was not yet registered with the SEC?
Ruling:
Yes, the donation was valid and has complied with all the requisites of a valid
donation.
Elements of Donation

In order that a donation of an immovable property be valid, the following

elements must be present:

(a) the essential reduction of the patrimony of the donor;

(b) the increase in the patrimony of the donee;

(c) the intent to do an act of liberality or animus donandi;

(d) the donation must be contained in a public document; and

(e) that the acceptance thereof be made in the same deed or in a separate
public instrument; if acceptance is made in a separate instrument, the donor
must be notified thereof in an authentic form, to be noted in both instruments.
In spite of the fact that the Missionary was not yet registered with the SEC
when the properties were donated, the donation would still be valid because
Purificacion, applying the doctrine of corporation by estoppel, was aware that
the Missionary was not yet incorporated and registered with the SEC.
Purificacion dealt with the petitioner as if it were a corporation. This is evident
from the fact that Purificacion executed two (2) documents conveying her
properties in favor of the petitioner – first, on October 11, 1999 via handwritten
letter, and second, on August 29, 2001 through a Deed; the latter having been
executed the day after the petitioner filed its application for registration with
the SEC. She is estopped to deny the Missionary’s legal existence in any action
involving the transfer of her property by way of donation. She has assumed an
obligation in favor of a non-existent corporation, having transacted with the
latter as if it was duly incorporated. 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. The doctrine of corporation by estoppel applies for
as long as there is no fraud
The doctrine of corporation by estoppel 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. Thus, in that instance, the
Court affords upon the unorganized entity corporate fiction and juridical
personality for the sole purpose of upholding the contract or transaction.
In this case, 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. To recall, the
subject properties were given by Purificacion, as a token of appreciation for the
services rendered to her during her illness.[46] 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.”
Notes:
Under Article 737 of the Civil Code, “[t]he donor’s capacity shall be determined
as of the time of the making of the donation.” By analogy, the legal capacity or
the personality of the donee, or the authority of the latter’s representative, in
certain cases, is determined at the time of acceptance of the donation.
Article 738, in relation to Article 745, of the Civil Code provides 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.
Jurisprudence settled that “[t]he filing of articles of incorporation and the
issuance of the certificate of incorporation are essential for the existence of a de
facto corporation.” In fine, 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.