Sulo ng Bayan, Inc. vs. Gregorio Araneta, Inc.

A corporation, as a distinct legal entity separate from its stockholders or members, has no personality to bring an action for and in behalf of its members for the recovery of property belonging to said members in their personal capacities, absent any showing that the members have assigned or transferred their rights to the corporation.

Sulo ng Bayan, Inc. is a non-stock corporation organized under Philippine law, with its principal office at San Jose del Monte, Bulacan, and composed of natural persons residing in the same municipality. Its members claimed, through themselves and their predecessors-in-interest, to have pioneered the clearing and cultivation of a vast tract of land in San Jose del Monte, Bulacan, containing approximately 27,982,250 square meters, since the Spanish regime. The land was registered under the Torrens System in the name of the defendants-appellees' predecessors-in-interest, pursuant to Original Certificate of Title No. 466 issued on May 11, 1916, from which various transfer certificates of title were derived in favor of Gregorio Araneta, Inc., the National Waterworks & Sewerage Authority, Hacienda Caretas, Inc., and Paradise Farms, Inc.

Sulo ng Bayan, Inc. is a non-stock corporation organized under Philippine law, with its principal office at San Jose del Monte, Bulacan, and whose membership is composed of natural persons residing in the same municipality. Its members claimed, through themselves and their predecessors-in-interest, to have pioneered in the clearing and cultivation of a vast tract of land in San Jose del Monte, Bulacan, containing approximately 27,982,250 square meters, since the Spanish regime, and to have continuously possessed the property openly and publicly under a concept of ownership adverse to the whole world. The members alleged that defendant-appellee Gregorio Araneta, Inc., sometime in 1958, through force and intimidation, ejected them from possession of the land.

Upon investigation conducted by the members and officers of the plaintiff corporation, they discovered for the first time in 1961 that the land in question had been either fraudulently or erroneously included in Original Certificate of Title No. 466 of the Land Records of Bulacan, issued on May 11, 1916. They alleged that the title was fictitious, non-existent, and devoid of legal efficacy because no original survey or plan appeared to have been submitted as a 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 notice of the proceeding was given to the members who were then in actual possession of the property. As a consequence of the alleged nullity of the original title, all subsequent titles derived therefrom — including Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, subsequently cancelled by TCT No. 7573 in the name of Gregorio Araneta, Inc.; TCT No. 4988 in the name of NWSA; TCT No. 4986 in the name of Hacienda Caretas, Inc.; and another TCT in the name of Paradise Farms, Inc. — were claimed to be void.

On April 26, 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, against the defendants-appellees, seeking the nullification of OCT No. 466 and all derivative transfer certificates of title, a declaration of its members as absolute owners in common of the property with issuance of corresponding title, and damages from Gregorio Araneta, Inc. The complaint was amended on June 13, 1966. On September 2, 1966, Gregorio Araneta, Inc. filed a motion to dismiss on the grounds that the complaint stated no cause of action and that any cause of action was barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss on the same grounds. NWSA raised the same defenses in its answer.

During the pendency of the motion to dismiss, plaintiff filed a motion on October 7, 1966, praying that the case be transferred to another branch of the CFI sitting at Malolos, Bulacan. Defendants-appellees claimed they were not furnished copies of the motion, prompting the trial court on October 14, 1966, to require plaintiff to furnish them. Plaintiff failed to comply, and defendants opposed the transfer. On January 24, 1967, the trial court dismissed the amended complaint, finding that the corporation had no cause of action because the rights allegedly violated belonged to the members, not to the corporation itself, and that the corporation had a separate and distinct personality from its members. Plaintiff's motion for reconsideration was denied on February 22, 1967. The Court of Appeals, finding only questions of law and jurisdiction, certified the case to the Supreme Court on September 3, 1969.

• Jurisdiction and Authority of Trial Court: Petitioner contended that the trial court acted without authority and jurisdiction in dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to another branch of the CFI of Malolos, Bulacan.
• Cause of Action as Class Suit: Petitioner maintained that the amended complaint states a sufficient cause of action because the subject matter of the controversy is one of common interest to the members of the corporation, who are so numerous that the complaint should be treated as a class suit pursuant to Section 12 of Rule 3 of the Revised Rules of Court.
• Prescription: Petitioner argued that the action is not barred by the statute of limitations because (a) an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought at any time.

• Lack of Cause of Action: Respondents countered that the complaint states no cause of action because the rights allegedly violated belonged to the individual members of the corporation, not to the corporation itself, which has a separate and distinct personality from its members.
• Prescription and Laches: Respondents argued that the cause of action, if any, is barred by prescription and laches.
• Impropriety of Class Suit: Respondents maintained that a class suit does not lie in actions for the recovery of property where several persons claim ownership of their respective portions, as each could allege and prove his respective right in a different way for each portion of the land.

• Jurisdiction and Venue: Whether the trial court acted without authority and jurisdiction in dismissing the amended complaint when the Secretary of Justice had approved the transfer of the case to another branch.
• Corporate Personality and Cause of Action: Whether the plaintiff corporation has a cause of action to sue for the recovery of property allegedly owned by its individual members.
• Class Suit: Whether the amended complaint may be treated as a class suit under Section 12 of Rule 3 of the Revised Rules of Court.
• Prescription: Whether the action for reconveyance had already prescribed.

• Jurisdiction and Venue: No. The trial court acted within its authority; the Secretary of Justice's authorization of transfer did not divest the court of jurisdiction or change venue, and the trial court had the power to grant or deny the transfer motion, especially in light of strong opposition from defendants.
• Corporate Personality and Cause of Action: No. The corporation has no cause of action because, as a distinct legal entity separate from its members, it has no interest in the individual property of its members absent any assignment or transfer of rights, and thus lacks personality to sue on their behalf.
• Class Suit: No. The action cannot be treated as a class suit because the corporation itself has no interest in the subject matter of the controversy, which is a requisite for representing others in a class suit, and a class suit does not lie where several persons claim ownership of respective portions of property.
• Prescription: N/A. Having determined that no cause of action exists and that the action cannot be considered a class suit, the Court found it unnecessary to resolve the issue of prescription.

• Jurisdiction and Venue: Petitioner confused the jurisdiction of a court with the venue of cases and the assignment of cases among branches of the same court. Jurisdiction is the power of the court to decide a case, while venue refers to the place of action, which is prescribed by Section 2, Rule 4 of the Revised Rules of Court. The mere fact that a request for transfer of a case to another branch of the same court was approved by the Secretary of Justice does not divest the court originally taking cognizance of its jurisdiction, nor does it change venue. The Undersecretary of Justice's indorsement merely "authorized" the transfer for the convenience of the parties; it did not order it. The trial court retained the power to grant or deny the motion, particularly given the strong opposition filed by the defendants. The trial court acted within its authority in denying the motion for transfer.

• Corporate Personality and Cause of Action: A corporation is a distinct legal entity separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations, and transactions of its members. The property of the corporation is its property and not that of the stockholders. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to it, even in the case of a one-man corporation. The mere fact that one is president of a corporation does not render property he owns the property of the corporation. While the separate juridical personality of a corporation is a legal fiction that may be disregarded or pierced where the corporate entity is used as a cloak for fraud or illegality, or to work an injustice, no such circumstance was alleged here. Critically, it was never claimed that the members assigned or transferred whatever rights they may have had in the land to the plaintiff corporation. Absent any showing of interest, the corporation had no personality to bring an action for and in behalf of its members for the recovery of property belonging to them in their personal capacities. The essential elements of a cause of action — a legal right of the plaintiff, a correlative obligation of the defendant, and an act or omission by the defendant in violation of that right — were absent because the corporation had no material and direct interest in the subject matter entitling it to file suit as a real party in interest.

• Class Suit: For a class suit to prosper, two requisites must concur: (1) the subject matter of the controversy is one of common or general interest to many persons, and (2) the parties are so numerous that it is impracticable to bring them all before the court. Under the first requisite, the person who sues must have an interest in the controversy common with those for whom he sues, and there must be a unity of interest that would entitle them to maintain the action if brought jointly. Here, the plaintiff corporation does not even have an interest in the subject matter of the controversy, and therefore cannot represent its members who claim ownership in their individual capacities. Moreover, a class suit does not lie in actions for recovery of property where several persons claim ownership of their respective portions, as each one could allege and prove his respective right in a different way for each portion of the land, so that they cannot all be held to have identical title through acquisitive prescription.

• Prescription: Having shown that no cause of action exists in favor of the plaintiff and that the action cannot be considered a class suit, the Court found it unnecessary and an idle exercise to resolve whether the action for reconveyance based on constructive or implied trust had already prescribed.

• Separate Juridical Personality of a Corporation — A corporation is a distinct legal entity separate and apart from the individual stockholders or 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. 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 Court applied this doctrine to hold that the plaintiff corporation, absent any assignment of rights from its members, had no personality to sue for recovery of property owned by its members in their personal capacities.

• Piercing the Veil of Corporate Fiction — The separate personality of a corporation may be disregarded, or the veil of corporate fiction pierced, where the corporate entity is used as a cloak or cover for fraud or illegality, to work an injustice, to defeat public convenience, justify wrong, protect fraud, or defend crime, or where the corporation is a dummy serving no business purpose and intended only as a blind, alter ego, or business conduit for the sole benefit of stockholders. The Court noted this doctrine but found no basis to apply it, as no fraud or injustice in the use of the corporate form was alleged.

• Requisites of a Class Suit — For a class suit to prosper under Section 12, Rule 3 of the Revised Rules of Court, the following requisites must be present: (1) the subject matter of the controversy is one of common or general interest to many persons; and (2) the parties are so numerous that it is impracticable to bring them all before the court. Under the first requisite, the person who sues must have an interest in the controversy common with those for whom he sues, and there must be a unity of interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them jointly. The Court found that the corporation lacked any interest in the subject matter, failing the first requisite.

• Elements of a Cause of Action — The essential elements of a cause of action are: (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the plaintiff's legal right. There cannot be a cause of action without an antecedent primary legal right conferred by law upon a person. The Court applied this framework to conclude that the corporation had no right violated by the defendants, hence no cause of action.

• "Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities." — This passage states the ratio decidendi of the case: the core rule that a corporation without interest in the subject property cannot sue on behalf of its members.

• "The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of the right in dispute; for, although there may not be any privity between the numerous parties, there is a common title out of which the question arises, and which lies at the foundation of the proceedings" — This quotation from Scott vs. Donald, adopted by the Court, defines the "common interest" requisite for class suits, explaining that mere interest in the question is insufficient; there must be a community of interest in the subject matter of the suit.

• "It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members." — This passage articulates the foundational doctrine of separate corporate personality as applied in this case.

• Borja vs. Vasquez, 74 Phil. 560 — Cited for the doctrine that a corporation is a distinct legal entity separate from its stockholders or members.
• Villa-Rey Transit, Inc. vs. Ferrer, 25 SCRA 845 — Cited for the same doctrine of separate corporate personality.
• Stockholder of F. Guanzon and Sons, Inc. vs. Register of Deeds of Manila, 6 SCRA 373 — Cited for the principle that properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members, and that a stockholder is not a co-owner or tenant in common of corporate property.
• Yutivo & Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 — Cited for the doctrine of piercing the veil of corporate fiction when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
• R.F. Sugay & Co., Inc. vs. Reyes, 12 SCRA 700 — Cited for the application of piercing the corporate veil to resolve employer-employee relationship issues.
• Ramirez Telephone Corporation vs. Bank of America, 29 SCRA 191 — Cited for the principle that the veil of corporate fiction may be pierced for the protection of creditors, allowing garnishment of corporate funds to satisfy debts of a principal stockholder.
• Scott vs. Donald, 165 U.S. 107 — Cited for the definition of "common interest" in the context of class suits, requiring not merely an interest in the question but a community of interest in the subject matter of the suit.
• Berses vs. Villanueva, 25 Phil. 471 — Cited for the rule that a class suit does not lie in actions for recovery of property where several persons claim ownership of their respective portions.
• Ma-ao Sugar Central Co. vs. Barrios, 79 Phil. 666 — Cited for the essential elements of a cause of action: legal right of the plaintiff, correlative obligation of the defendant, and act or omission in violation of such right.
• Evangelista vs. Santos, 86 Phil. 387 — Cited for the distinction between jurisdiction and venue, and that the laying of venue must be in accordance with the Rules of Court.

• Section 2, Rule 4, Revised Rules of Court — Prescribes the venue of actions in the Court of First Instance. Applied to clarify that the laying of venue is not left to the caprice of the plaintiff but must comply with the rule, and that the Secretary of Justice's authorization of transfer did not change venue.
• Section 2, Rule 3, Revised Rules of Court — Requires that every action be prosecuted and defended in the name of the real party in interest and that all persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. Applied to hold that the corporation was not the real party in interest.
• Section 12, Rule 3, Revised Rules of Court — Governs class suits, requiring that the subject matter of the controversy be of common or general interest to many persons and that the parties be so numerous that it is impracticable to bring them all before the court. Applied to reject the contention that the complaint could be treated as a class suit, the corporation lacking any interest in the subject matter.

Fernando, C.J., Barredo, Aquino, and Concepcion, Jr., JJ., concurred.