Santos, Athena Charmaine

Athena Charmaine Santos

CORPORATION LAW

Doctrine of Separate Personality

G.R. No. 171805 May 30, 2011
PHILIPPINE NATIONAL BANK, Petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L.
AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T.
BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA
(deceased), represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners, vs. PHILIPPINE NATIONAL BANK,
Respondent.

FACTS:
In 1958, Rural Insurance and Surety Company, Inc. (RISCO) ceased operation due to
business reverses. In plaintiffs desire to rehabilitate RISCO, they contributed a total amount of
P212,720.00 which was used in the purchase of the three (3) parcels of land.
After the purchase of the lots, titles were issued in the name of RISCO. The amount contributed
by plaintiffs constituted as liens and encumbrances on the properties as annotated in the titles
of said lots. Such annotation was made pursuant to the Minutes of the Special Meeting of the
Board of Directors of RISCO pertinent portion of which states:
x x x x
3. The President then explained that in a special meeting of the stockholders previously called
for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the
Company, the following stockholders contributed the amounts indicated opposite their names:

Contributed Surplus
Merelo Aznar P50,000.00
Matias Aznar P50,000.00
Jose Aznar P27,720.00
Ramon Barcenilla P25,000.00
Rosario Barcenilla P25,000.00
Jose Enad P17,500.00
Ricardo Gabuya P17,500.00
P212,720.00

And that the respective contributions above-mentioned shall constitute as their lien or
interest on the property described above, if and when said property are titled in the name of
RURAL INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time
their respective contributions are refunded to them completely. Various subsequent
annotations were made on the same titles, including the Notice of Attachment and Writ of
Execution both dated August 3, 1962 in favor of herein defendant PNB.


Santos, Athena Charmaine


As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being
the lone and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380,
covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot No.
1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One
Thousand Four Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated May
27, 1991 in favor of the Philippine National Bank was also issued and Transfer Certificate of Title
No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT
119848 was issued in the name of PNB on August 26, 1991.

This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of
their supposed title to the subject properties, declaratory relief, cancellation of TCT and
reconveyance with temporary restraining order and preliminary injunction. Plaintiffs alleged
that the subsequent annotations on the titles are subject to the prior annotation of their liens
and encumbrances. Plaintiffs further contended that the subsequent writs and processes
annotated on the titles are all null and void for want of valid service upon RISCO and on them, as
stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as
these were issued only after 28 years and that any right which PNB may have over the
properties had long become stale.

Defendant PNB on the other hand countered that plaintiffs have no right of action for
quieting of title since the order of the court directing the issuance of titles to PNB had already
become final and executory and their validity cannot be attacked except in a direct proceeding
for their annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO
do not have any legal or equitable right over the properties of the corporation. PNB posited that
even if plaintiffs monetary lien had not expired, their only recourse was to require the
reimbursement or refund of their contribution.

Trial court rendered the November 18, 1998 Decision, which ruled against PNB on the
basis that there was an express trust created over the subject properties whereby RISCO was
the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust.
Although the Court of Appeals agreed with the trial court that a judgment on the pleadings was
proper, the appellate court opined that the monetary contributions made by Aznar, et al., to
RISCO can only be characterized as a loan secured by a lien on the subject lots, rather than an
express trust. Thus, it directed PNB to pay Aznar, et al., the amount of their contributions plus
legal interest from the time of acquisition of the property until finality of judgment Both parties
moved for reconsideration but these were denied by the Court of Appeals.

ISSUE: Whether or not Aznar et al., has the right to ask for the quieting of title of the properties
at issue.

HELD:
No. Aznar, et al., have no right to ask for the quieting of title of the properties at issue
because they have no legal and/or equitable rights over the properties that are derived from the
previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of the
Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial
being created by operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence."


Santos, Athena Charmaine


As a consequence thereof, a corporation has a personality separate and distinct from
those of its stockholders and other corporations to which it may be connected. Thus, SC had
previously ruled in Magsaysay-Labrador v. Court of Appeals that the interest of the stockholders
over the properties of the corporation is merely inchoate and therefore does not entitle them to
intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.

In the case at bar, there is no allegation, much less any proof, that the corporate
existence of RISCO has ceased and the corporate property has been liquidated and distributed
to the stockholders. The records only indicate that, as per SEC Certification dated June 18, 1997,
the SEC merely suspended RISCOs Certificate of Registration beginning on September 5, 1988
due to its non-submission of SEC required reports and its failure to operate for a continuous
period of at least five years.

Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely evidence
of a loan agreement between them and the company. There is no indication or even a
suggestion that the ownership of said properties were transferred to them which would require
no less that the said properties be registered under their names. For this reason, the complaint
should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject
properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions used
to purchase the subject properties are already barred by prescription.

Minutes which was approved on March 14, 1961 is considered as a written contract
between Aznar, et al., and RISCO for the reimbursement of the contributions of the former. As
such, the former had a period of ten (10) years from 1961 within which to enforce the said
written contract. However, it does not appear that Aznar, et al., filed any action for
reimbursement or refund of their contributions against RISCO or even against PNB. Instead the
suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to quiet
title over the properties purchased by RISCO with their contributions. It is unmistakable that
their right of action to claim for refund or payment of their contributions had long prescribed.
Thus, it was reversible error for the Court of Appeals to order PNB to pay Aznar, et al., the
amount of their liens based on the Minutes with legal interests from the time of PNBs
acquisition of the subject properties.


Santos, Athena Charmaine


WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The
petition of PNB in G.R. No. 171805 is GRANTED.