SALVATIERRA VS GARLITOS

(103 Phil. 757; 1958)

(Salvatierra leased his land to the corporation. He filed a suit for accounting, rescission and
damages against the corporation and its president for his share of the produce. Judgment
against both was obtained. President complains for being held personally liable. )

Facts
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of
land located at
Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered
into a contract
of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly
organized
and existing under the laws of the Philippines, domiciled at Burauen, Leyte,
Philippines, and
with business address therein, represented in this instance by Mr. Segundino Q.
Refuerzo, the
President". It was provided in said contract, among other things, that the lifetime of
the lease
would be for a period of 10 years; that the land would be planted to kenaf, ramie or
other crops
suitable to the soil; that the lessor would be entitled to 30 per cent of the net
income accruing
from the harvest of any, crop without being responsible for the cost of production
thereof; and
that after every harvest, the lessee was bound to declare at the earliest possible
time the income
derived therefrom and to deliver the corresponding share due the lessor.
Apparently, the aforementioned obligations imposed on the alleged
corporation were not
complied with because on April 5, 1955, Manuela T. Vda, de Salvatierra filed with
the Court of
First Instance of Leyte a complaint against the Philippine Fibers Producers Co., Inc.,
and
Segundino Q. Refuerzo, for accounting, rescission and damages. She won. An order was
issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against Refuerzos
property (there being no property under PFPC). Refuerzo moved for reconsideration on the ground that he
should not be held personally liable because he merely signed the lease contract in his official capacity as
president of PFPC. Garlitos granted Refuerzos motion.

Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading
Refuerzo because she initially believed that PFPC was a legitimate corporation. However, during trial, she
found out that PFPC was not actually registered with the Securities and Exchange Commission (SEC)
hence Refuerzo should be personally liable.

Issue: whether or not refuerzo should be personally liable

Ruling:

Yes. It is true that as a general rule, the corporation has a personality separate and distinct
from its incorporators and as such the incorporators cannot be held personally liable for the
obligations of the corporation. However, this doctrine is not applicable to unincorporated
associations. The reason behind this doctrine is obvious-since 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.
In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be
limited or restricted that imposed upon [would-be] corporate shareholders. In acting on
behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping
the consequential damages or resultant rights, if any, arising out of such transaction.

He is liable. An agent who acts for a non-existent principal is himself the principal. In acting
on behalf of a corporation which he knew to be unregistered, he assumed the risk arising
from the transaction.