Mercantile Law

CAGAYAN FISHING DEVELOPMENT CO., INC., vs.TEODORO SANDIKO G.R. No. 43350 December 23, 1937 Corporation, Incorporation, Promoters of Corporation

FACTS:

Manuel Tabora is the registered owner of four parcels of land  and he wanted to build a Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of land. Three subsequent mortgages were executed in favor of the same bank and to Severina Buzon, whom Tabora is indebted to.

Tabora sold the four parcels of land to the plaintiff company, said to be under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora’s indebtedness to PNB.

The articles of incorporation were filed and the company sold the parcels of land to Sandiko on the reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale executed before a notary public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in and to the four parcels of land.

He executed a promissory note that he shall be 25,300 after a year with interest and on the promissory notes, the parcels were mortgage as security.

A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Further, a deed of mortgage executed before a notary public in accordance with which the four parcels of land were given as security for the payment of the said promissory note. All these three instruments were dated February 15, 1932.

Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid.

The corporation filed a motion for reconsideration.

 

ISSUE:

1.Whether  Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.

2. Can promoters of a corporation act as agents of a corporation?

 

RULING:

1.

The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected on May 31, 1930 and the actual incorporation of said company was effected later on October 22, 1930. In other words, the transfer was made almost five months before the incorporation of the company.

A duly organized corporation has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. But before a corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of incorporation. Although there is a presumption that all the requirements of law have been complied with, in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into the contract of sale.

The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.

“Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been stated, general laws authorizing the formation of corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired.”

“That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence.”

2.

The contract here was entered into not only between Manuel Tabora and a non-existent corporation but between Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporation on the other hand. For reasons that are self-evident, these promoters could not have acted as agents for a projected corporation since that which had no legal existence could have no agent. A corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when subsequently organized. There are, of course, exceptions  , but under the peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.

The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was effected the corporation was non-existent, we deem it unnecessary to discuss this point.

 

 

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