Salvatierra vs. Garlitos

Individuals who act as agents or representatives of a non-existent or unregistered corporation, knowing it to lack juridical personality, are personally liable for contracts entered into and obligations incurred on its behalf, as they are deemed to be acting without authority and at their own risk; the doctrine of corporation by estoppel does not apply where fraud attends the transaction.

• Manuela T. Vda. de Salvatierra was the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Leyte.
• On March 7, 1954, Salvatierra entered into a contract of lease with the "Philippine Fibers Producers Co., Inc.," represented by Segundino Q. Refuerzo as its President.
• The contract represented the entity as a corporation "duly organized and existing under the laws of the Philippines," domiciled in Burauen, Leyte.
• The lease provided for a 10-year term, planting of kenaf or ramie, and entitled the lessor to 30% of the net income from harvests without responsibility for production costs.
• The lessee corporation failed to comply with its obligations to account for income and deliver the lessor's share from a kenaf harvest in April 1954.
• On April 5, 1955, Salvatierra filed a complaint for accounting, rescission of contract, and damages against the Philippine Fibers Producers Co., Inc. and Segundino Refuerzo in the Court of First Instance of Leyte (Civil Case No. 1912).
• The defendants failed to file an answer despite notification, were declared in default, and the court received plaintiff's evidence ex parte.
• On June 8, 1955, the lower court rendered judgment ordering defendants to render a complete accounting, deliver 30% of the net income (fixed at P960 in case of failure to account), with legal interest, and rescinding the lease contract.
• No appeal was perfected; plaintiff moved for execution, and the Provincial Sheriff attached three parcels of land registered in the name of Segundino Refuerzo, as no property of the corporation could be found.
• On January 31, 1956, Refuerzo filed a motion for relief from judgment under Rule 38, claiming the decision was null and void as to him because the complaint contained no allegation pointing to his personal liability, stating he signed only as president of the corporation.
• The lower court granted the motion and ordered the release of Refuerzo's attached properties, finding that the evidence made no mention of facts holding him personally liable.
• Plaintiff's petition for relief from this order was denied, leading to the instant certiorari petition.

• The trial judge committed grave abuse of discretion in issuing the order relieving Segundino Refuerzo of liability.
• The motion for relief under Rule 38 was filed out of time, beyond the 6-month period prescribed by the Rules of Court.
• Refuerzo should be held personally liable for the contract because the Philippine Fibers Producers Co., Inc. was not a duly registered corporation, a fact she discovered only after inquiry with the Securities and Exchange Commission subsequent to the filing of the complaint.
• She dealt with Refuerzo under the impression that the corporation was duly organized as represented in the contract, and thus Refuerzo, as the moving spirit behind the unregistered entity, should answer personally for the obligations.

• Segundino Refuerzo argued that the decision was null and void with respect to him because the complaint contained no allegation of his personal liability; he signed the contract only in his capacity as president of the corporation.
• The evidence on record made no mention of any fact that would hold him personally liable for the obligations of the corporation.

• Procedural Issues: Whether the motion for relief from judgment filed by Segundino Refuerzo on January 31, 1956, was filed within the reglementary period prescribed by Section 3 of Rule 38 of the Rules of Court, considering the judgment was rendered on June 8, 1955.
• Substantive Issues: Whether Segundino Refuerzo, as president of an unregistered corporation, is personally liable for contracts entered into by the said corporation in view of the doctrine of corporation by estoppel.

• Procedural: The Supreme Court ruled that the motion for relief was filed out of time. Section 3 of Rule 38 requires that a petition for relief must be filed "within sixty days after the petitioner learns of the judgment, order, or other proceeding to be set aside, and not more than six months after such judgment or order was entered." The decision was rendered on June 8, 1955, while the motion was filed on January 31, 1956, a lapse of 7 months and 23 days, clearly beyond the 6-month absolute limit. The Court held that the periods fixed by Rule 38 are non-extendible and never interrupted, being a mere "alert of grace or benevolence" intended to afford a litigant a penultimate opportunity to protect his interest.
• Substantive: The Supreme Court held that Segundino Refuerzo is personally liable for the lease contract. While the general rule of corporation by estoppel provides that a person who has contracted with an association as a corporate body is estopped from denying its existence, this doctrine does not apply where fraud takes part in the transaction. In this case, plaintiff was made to believe that the corporation was duly organized as stated in the contract, and Refuerzo did not deny this representation. An unregistered corporation has no juridical personality distinct from its members; it cannot create agents or confer authority. Therefore, those who act as its representatives do so without authority and at their own risk, becoming personally liable as principals. Refuerzo, as the moving spirit behind the unregistered corporation, assumed the risk of the transaction and cannot claim the limited liability protection afforded to shareholders of registered corporations.

• Corporation by Estoppel — A person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction. However, this doctrine is inapplicable where fraud attends the transaction, such as when a party is induced to believe that an unregistered corporation has legal existence.
• Personal Liability of Promoters/Representatives of Unregistered Corporations — An organization which before the law is non-existent has no personality and is incompetent to act; it cannot create agents or confer authority. Those who act or purport to act as its representatives do so without authority and at their own risk, and are personally liable for contracts entered into or acts performed as such agents, being regarded as the principals.
• Non-Extendibility of Period under Rule 38 — The 60-day and 6-month periods for filing a motion for relief from judgment are mandatory, non-extendible, and never interrupted, as the remedy is a mere "alert of grace" intended to afford a litigant a final opportunity to protect his interest.

• "As a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, yet this doctrine may not be held to be applicable where fraud takes a part in the said transaction."
• "There can be no question that a corporation with registered has a juridical personality separate and distinct from its component members or stockholders and officers... But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association."
• "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."
• "A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and comes personally liable for contracts entered into or for other acts performed as such agent."
• "The remedy allowed by Rule 38 to a party adversely affected by a decision or order is certainly an alert of grace or benevolence intended to afford said litigant a penultimate opportunity to protect his interest. Considering the nature of such relief and the purpose behind it, the periods fixed by said rule are non-extendible and never interrupted."

• Asia Banking Corporation v. Standard Products Co., 46 Phil. 114 — Cited for the general rule on corporation by estoppel.
• Compania Agricola de Ultramar v. Reyes, 4 Phil. 1 — Cited for the general rule on corporation by estoppel.
• Ohta Development Co. v. Steamship Pompey, 49 Phil. 117 — Cited for the general rule on corporation by estoppel.
• Palomares v. Jimenez, G.R. No. L-4513, January 31, 1952 — Cited for the principle that the periods under Rule 38 are non-extendible and cannot be subjected to any condition or contingency.
• Walter A. Smith Co. v. Ford, SC-G.R. No. 42420 — Cited for the rule that a registered corporation has a personality separate and distinct from its stockholders.
• Fay v. Noble, 7 Cushing (Mass.) 188 — Cited for the principle that a person acting on behalf of a non-existent corporation is personally liable as principal.

• Rule 38, Section 3 of the Rules of Court — Governs the period for filing a petition for relief from judgment (within 60 days after learning of the judgment and not more than 6 months after the judgment was entered).