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

, 72 SCRA 347 , August 17, 1976

Case Title : SULO NG BAYAN, INC., plaintiff-appellant, vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC.,
NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC. and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.

Corporation law; Actions; Absent any showing of interest a corporation has no personality to bring an action to
recover property belonging to its members or stockholders in their personal capacities.-

It has not been claimed that the members have assigned or transferred whatever rights they may have on the
land in question to the plaintiff-corporation. 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.

Corporation law; Actions; Class suit; A class suit does not lie in actions for recovery of property portions of
which are being claimed by several persons.-

A class suit does not lie in actions for the recovery of property where several persons claim ownership of their
respective portions of the property, 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.

Sulo ng Bayan vs. Araneta

Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of
Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc.,
National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of
Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in the name of GAI,
et. al.'s predecessors-in-interest (who are members of the corporation). On 2 September 1966, GAI filed a
motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and
(2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas,
Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss. However,
it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the
barring of such action by prescription and laches. On 24 January 1967, the trial court issued an Order dismissing
the (amended) complaint. On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the Order of
dismissal, arguing among others that the complaint states a sufficient cause of action because the subject matter
of the controversy in one of common interest to the members of the corporation who are so numerous that the
present complaint should be treated as a class suit. The motion was denied by the trial court in its Order dated
22 February 1967.

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon finding that
no question of fact was involved in the appeal but only questions of law and jurisdiction, certified the case to
the Supreme Court for resolution of the legal issues involved in the controversy.

Issue [1]: Whether the corporation (non-stock) may institute an action in behalf of its individual members for
the recovery of certain parcels of land allegedly owned by said members, among others.
Held [1]: 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. 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. Similarly,
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 the 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 or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. It has not
been claimed that the members have assigned or transferred whatever rights they may have on the land in
question to the corporation. Absent any showing of interest, therefore, a corporation, 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.

Issue [2]: Whether the complaint filed by the corporation in behalf of its members may be treated as a class suit

Held [2]: In order that a class suit may prosper, the following requisites must be present: (1) that the subject
matter of the controversy is one of common or general interest to many persons; and (2) that the parties are so
numerous that it is impracticable to bring them all before the court. Here, there is only one party plaintiff, and
the corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore,
represent its members or stockholders who claim to own in their individual capacities ownership of the said
property. Moreover, a class suit does not lie in actions for the recovery of property where several persons claim
partnership of their respective portions of the property, as each one could alleged 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
acquisition/prescription.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,

The issue posed in this appeal is whether or not plaintiff corporation (non- stock) may institute an action in
behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members;
for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the
aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the
issuance of the corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First
Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the
ownership and possession of a 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. 1 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 Monte, Bulacan; that its membership is composed of natural persons residing
at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their
predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated 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 defendant-appellee Gregorio Araneta, Inc., sometime in the
year 1958, through force and intimidation, ejected the members of the plaintiff corporation fro 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
fraudelently 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 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 such proceeding
was given to the members of the plaintiff corporation who were then in actual possession of said properties;
that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as Transfer
Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently
cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of
Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer
Certificate of Title 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. Plaintiff-appellant consequently prayed (1) that Original
Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be nullified;
(2) that "plaintiff's members" be declared as absolute owners in common of said property and that the
corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc.
be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended
complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is
barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based
on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss.
However, it pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-
appellant and the barring of such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying
that the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan,
According to defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966,
the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence,
on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the
said motion be denied for lack of notice and for failure of the plaintiff-appellant to comply with the Order of
October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a
manifestation information the court that it also did not receive a copy of the afore-mentioned of appellant. On
January 24, 1967, the trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the
court had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from
the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved
by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter
of the controversy in one of common interest to the members of the corporation who are so numerous that the
present complaint should be treated as a class suit; and 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 any time. This motion was denied by the trial court in its
Order dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion
for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal
but only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues
involved in the controversy.

Appellant contends, as a first assignment of error, 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 any one of the two branches of the Court of First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different
branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while
venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue
of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying
of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the
rules. 2 The mere fact that a request for the transfer of a case to another branch of the same court has been
approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its
jurisdiction, much less does it change the venue of the action. As correctly observed by the trial court, the
indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the
Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that the
transfer would be convenient for the parties. The trial court is not without power to either grant or deny the
motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the court a
quo acted within its authority in denying the motion for the transfer the case to Malolos notwithstanding the
authorization" of the same by the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to
file the instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the
plaintiff and (2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules
require that every action must 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 (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to have been violated
by being deprived and dispossessed of their land are the members of the corporation and not the corporation
itself. The corporation has a separate and distinct personality from its members, and this is not a mere
technicality but a matter of substantive law. There is no allegation that the members have assigned their rights
to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for which it could seek redress. Even if
the Court should find against the defendants, therefore, the plaintiff corporation would not be entitled to the
reliefs prayed for, which are recoveries of ownership and possession of the land, issuance of the corresponding
title in its name, and payment of damages. Neither can such reliefs be awarded to the members allegedly
deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been
filed in the names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause
of action.

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the
amended complaint.

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. 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. 5 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. 6 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. 7Similarly,
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 the corporation. 8

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. 9 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 or cover for fraud or illegality, or to work -an injustice, or where
necessary to achieve equity. 10

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. 11The
same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or
an alter ego or business conduit for the sole benefit of the stockholders. 12 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 13 or when the veil of corporate fiction is used to confuse legitimate issue of
employer-employee relationship, 14 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. 15 The aforecited principle is resorted to by the courts as a measure protection for third
parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the
land in question to the plaintiff corporation. 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.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred'
by law upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of duty
by one person without a corresponding right belonging to some other person. 18 Thus, the essential elements
of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of
the defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff
corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is
material and, direct so as to entitle it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section
12 of Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of
the controversy is one of common or general interest to many persons; and (2) that the parties are so numerous
that it is impracticable to bring them all before the court. 20

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 that 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. 21
As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott
v. Donald 22 thus:

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 ... [here] the only matter in common among the plaintiffs, or between them and the defendants, is
an interest in the Question involved which alone cannot lay a foundation for the joinder of parties. There is
scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state of facts, or in
which a general statute is interpreted, that does not involved a Question in which other parties are interested.
... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject
matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in
their individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class
suit does not lie in actions for the recovery of property where several persons claim Partnership of their
respective portions of the property, as each one could alleged 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 acquisition
prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot
be considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining
issue of whether or not the plaintiffs action for reconveyance of real property based upon constructive or
implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

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

Footnotes

1 Civil Case No. 233-V, entitled Sulo ng Bayan, Inc., Plaintiff, versus Gregorio Araneta, Inc., Paradise Farms, Inc.,
National Waterworks & Sewerage Authority (NWSA) Hacienda Caretas, Inc., and Register of Deeds of Bulacan,
Defendants.

2 Evangelista v. Santos, 86 Phil. 387.

3 Record on Appeal, pp. 101-103.

4 I Fletcher Cyclopedia Corporations, 1974 Ed., sec. 25, pp. 99-100; Borja v. Vasquez, 74 Phil. 560, 566-567' Villa-
Rey Transit, Inc. v. Ferrer, 25 SCRA 845, 857.

5 Stockholder of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373. A share of stock only
typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So., 235), but its
holder is not the owner of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones
v. Davis 35 Ohio St. 474). The stockholder is not a co-owner or tenant in common of the corporate property
(Harton v. Hohnston, 166 Ala., 317, 51 So., 992). (Ibid., pp. 375-376.)
6 I Fletcher, supra, pp. 132-133.

7 Recchio v. Manufacturers & Traders Trust Co., 55 Mis. 2d. 788, 286, NYS 2d. 390.

8 Bylerley v. Camey, 161 SW 2d. 1105.

9 Laguna Trans. Co., Inc. v. Social Security System, 107 Phil. 833, 837.

10 I Fletcher, supra, sec. 41, p. 166; 18 Am. Jur. 2d. 561.

11 Yutivo & Sons Hardware Co. v. Court of Tax Appeals, 1 SCRA 160, citing Koppel (Phil.) Inc. v. Yatco, 77 Phil.
497; I Fletcher, supra, pp. 135-136.

12 McConnel v. Court of Appeals, 1 SCRA 722; NAMARCO v. Associated Finance Co., Inc., 19 SCRA 962. The
doctrine of alter ego is based upon the misuse of a corporation by an individual for wrongful or inequitable
purposes, and in such case the court merely disregards the corporate entity and holds the individual responsible
for acts knowingly and intentionally done in the name of the corporation." (Ivy v. Plyler, 246 Cal. App. 2d. 678,
54 Cal. Reptr. 894.) The doctrine of alter ego imposes upon the individual who uses a corporation merely as an
instrumentality to conduct his own business liability as a consequence of fraud or injustice perpetuated not on
the corporation, but on third persons dealing with the corporation.

13 Commissioner of Internal Revenue v. Norton & Harison Co., 11 SCRA 714.

14 R.F. Sugay & Co., Inc. v. Reyes, 12 SCRA 700, 705.

15 Ramirez Telephone Corporation v. Bank of America, 29 SCRA 191.

16 Gregorio Araneta, Inc. v. De Paterno and Vidal, 91 Phil. 786; 18 Am. Jur. 2d. 561, 562.

17 Rowe v. Richards, 151 N.W. 1001.

18 Mckee v. Dodd, 152 Cal. 637, 93 P. 854; Hartigan v. Casualty Co., 167 NYS 645; Hyde v. Minnesota, 136 N.W.
92l 1 Am. Jur. 2d. 590.

19 Ma-ao Sugar Central Co. v. Barrios, 79 Phil. 666; Caseñas v. Rosales, 19 SCRA 462; Remitere v. Vda. De Yulo,
16 SCRA 251, 256.

20 Sec. 12, Rule 3, Revised Rules of Court.

21 I Martin, Rules of Court, 1972 Ed., p. 220, citing Certia v. Notre Dame Du Lac Univ., 82 Ind. A.A. 542; N.E. 318.

22 165 U.S. 107, 41 Law. Ed. 447, 52 S. Ct. 217.

23 Berses v. Villanueva, 25 Phil. 471; Rallonza v. Evangilista, 15 Phil. 531; State v. Lake Circuit Court, 145 N.E. 2d.
15.