PAULINO SORIANO, NENITA C. ESPERANZA AND ALEJANDRO G. MACADANGDANG, PETITIONERS, VS. HON. COURT OF APPEALS (FORMER SIXTH DIVISION) AND GERVACIO CU, RESPONDENTS.

The central issue in this case is whether or not the respondent
appellate court^[1]
erred in affirming in toto the decision dated July 12, 1971 of the trial court^[2]
in Civil Case No. 4463 which held the petitioners, defendants therein, solidarily liable in their personal capacity to the private
respondent under an agreement between them embodied in a receipt.  It is the petitioners’ contention that they
should not be made accountable for the controversial contract in their personal
capacity but, if ever, as officers of Bacarra (I.N.) FaCoMa, Inc., they having
entered into the “deal” with the private respondent as such.  The petitioners argue that even if their
liability proves to be personal in character, still the same should only be
joint and not solidary as erroneously ruled by the two lower courts.  Further, they claim that inasmuch as their
co-defendant in the court a quo, Bienvenido E. Acosta (who did not
join them in their appeal and in this petition), acted without their authority
and consent, he, alone, should be held responsible for whatever loss the
private respondent may have incurred. 
The petitioners, however, lament that the trial court refused to give
due course to their cross-claim against Acosta, and the appellate court chose
to ignore this point in their
appeal.

The receipt dated August
10, 1964, the bone of the present controversy, states as follows:

GREETINGS:

WE, the President, Manager, Treasurer and Director Representative
of Bacarra (I.N.) Facoma,
Inc., do hereby execute this document:

That we received from Mr. Gervacio Cu a
truck load of Virginia tobacco consisting of ONE HUNDRED SIXTY (160) bales of
fifty (50) kilos each bale (sic) the
said Virginia tobacco consists of different grades or class from E to A (sic)
the said tobaccos are to be shipped to the redrying
plants through the Bacarra Facoma
under Guia number 236.

Conditions of the deal between Mr. Cu and the
Association.  Upon payment of the
said tobacco by the Philippine Virginia Tobacco Administration then Mr. Cu will
collect the corresponding payments as graded by the redrying
plant as further stipulated that the
check representing the payment shall only be cashed in the presence of Mr. Cu
or his authorized representative.  (Sic)

This instrument is executed
for the protection, guidance and information of the parties concerned.

Done this 10th day of August 1964 at Bacarra, Ilocos Norte.

(Sgd.) Paulino Soriano

PAULINO SORIANO

President

(Sgd.) Nenita C. Esperanza

NENITA C. ESPERANZA

Sec. –Treasurer

by:

(Sgd.) Erlinda V. Acosta

­BIENVENIDO E.
ACOSTA

Director, Official

Representative

(Sgd.) A. Macadangdang

A.G. MACADANGDANG

Manager^[3]

Conflict later arose when the private respondent was not paid his
tobacco, prompting him to file on January
31, 1969, a complaint with the trial court for the collection of a
sum of money against all the signatories to the receipt.

During the course of the trial, it became apparent from the
testimony of the private respondent’s only witness that the said tobacco was
diverted by defendant Bienvenido E. Acosta to another redrying
plant.  The petitioners, professing lack
of knowledge of Acosta’s act of diverting the tobacco and not having authorized
or consented to its diversion, moved on January 8, 1971, for leave to file a cross-claim against
their co-defendants, the spouses Bienvenido E. Acosta
and Erlinda V. Acosta.^[4] In an order dated January 11, 1971,^[5] the trial court, ruling that the cross-claim
“partakes more of a defense
premised on plaintiff’s (private respondent’s) evidence and not a claim of
legal liability of the cross-defendants (the Acostas)
so-called and considering that it (the motion) is obviously intended for
delay,” denied the petitioners’ motion.

After trial, the trial court adjudged for the plaintiff (private
respondent herein).  The dispositive portion of the decision reads:

Consequently, judgment is hereby rendered ordering the defendants
to jointly and severally pay the plaintiff Cu: 
(1) the sum of P19,350.00 with interest thereon
at the legal rate from the filing of the complaint; (2) the sum of P2,000.00 as
attorney’s fees; (3) the amount of P320.00, value of the empty sacks, P80.00,
cost of baling, and transportation expenses of P350.00; and (4) costs of suit.

SO ORDERED.^[6]

The petitioners elevated the case to the Court of Appeals raising
the following errors allegedly committed by the trial court:

I

THE LOWER COURT
ERRED IN HOLDING THAT THE TRANSACTION SUBJECT MATTER OF THE PRESENT ACTION
BETWEEN THE PLAINTIFF AND DEFENDANTS WAS A SALE
ON CREDIT TO THE OFFICERS OF THE BACARRA (I.N.) FACOMA, INC. IN THEIR PRIVATE
CAPACITIES.

II

THE LOWER COURT
ERRED IN HOLDING THAT CONSIGNMENT OF PLAINTIFF’S TOBACCOS THROUGH THE BACARRA
(I.N.) FACOMA, INC. WAS NOT ESTABLISHED BY THE EVIDENCE.

III

THE LOWER COURT
ERRED IN DENYING THE ADMISSION OF THE CROSS–CLAIM AGAINST DEFENDANTS BIENVENIDO
E. ACOSTA AND ERLINDA V. ACOSTA.

IV

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO JOINTLY AND
SEVERALLY PAY THE PLAINTIFF (1) THE SUM OF P19,350.00 WITH INTEREST THEREON AT
THE LEGAL RATE FROM THE FILING OF THE COMPLAINT (2) THE SUM OF P2,000.00 AS
ATTORNEY’S FEES (3) THE AMOUNT OF P320.00,
VALUE OF THE EMPTY SACKS; P80.00.
COSTS OF BALING AND TRANSPORTATION EXPENSES OF P250.00 AND (4) COSTS OF
THE SUIT.^[7]

On April 4, 1978,
the respondent appellate court affirmed in toto the
decision of the trial court.

In support of its decision on the central issue earlier adverted
to, the appellate court ruled that the fact that the petitioners signed their
names over their respective positions in the Bacarra
(I.N.) FaCoMa, Inc. was of no legal moment as there
was no showing that the document was signed by them for and on behalf of the
corporation.^[8] The appellate court likewise emphasized the
failure of the petitioners to present any evidence to show that they were
authorized by the corporation to enter into the transaction.^[9] Further, the respondent court of Appeals, in
affirming the trial court’s decision, made capital of what it observed was a
departure from the corporation’s usual business practice in the execution of
the receipt in question.^[10] No discussions were made however on the
other errors assigned by the petitioners particularly on the matter of the counter-claim and the liability being joint or solidary.

The petitioners moved for a reconsideration of the respondent
appellate court’s decision but their motion proved futile as shown by the
resolution^[11]
of that court dated December 4, 1978,
which denied the same.

Hence, this petition.

As already stated, the petitioners reiterate before us the
submission that their liability under the contract lies in their official
capacity as officers
of the Bacarra (I.N.) FaCoMa,
Inc., and not in their personal
capacity as ruled by the lower
courts.  In addition, the petitioners bewail
the alleged failure of the respondent appellate court to pass upon the errors
of the trial court in refusing to give due course to their cross-claim against
their co-defendants, the Acosta spouses, and in holding them (the petitioners
and their co-defendants below) jointly and severally liable to the private
respondent.

The petition is impressed with merit.

Contrary to the view espoused by the respondent Court of Appeals,
the act of the petitioners — indicating in the controversial receipt their official
designations in the Bacarra (I.N.) FaCoMa,
Inc. — is vital in the proper resolution of this case.  We cannot accept the conclusion that the official designations
of the petitioners were written on the document merely as meaningless
and hollow decorations or as mere descriptio personae
without any relevance to the liability of the corporation these officers
obviously represented.  Indeed, taken in
conjunction with the other obtaining circumstances, the receipt discloses the capacity by which the petitioners entered into
the “deal” with the private respondent.

The subject receipt itself states that the conditions contained
therein were between the private respondent and the “Association.”
The lower courts ruled that the “Association” referred only to the signatories.  We disagree. 
It is quite plain and we
are convinced that the “Association” is none other than the Bacarra (I.N.) FaCoMa, Inc.,
which is a farmers’ cooperative marketing association.  Not only that, we cannot find any
cogent reason why the petitioners (and their co-defendants) used the word “Association” when they could have
more easily and conveniently placed “the undersigned” or words
to the same effect in its stead.  The error of the appealed decision on this regard is made evident when we
consider that even the private respondent’s lone witness, Rafael Ayson, the driver of the truck used in transporting the
tobacco, testified at the trial that the receipt and invoices used in
transporting the private respondent’s tobacco were in the name of the Bacarra (I.N.) FaCoMa, Inc. and
not in names of the signatories
to the controversial document.^[12]
This seals the case for the
petitioners because if it were as the two lower courts ruled, the other documents relative to the transport of the
tobacco would have been prepared in the petitioners’ names.

Anent the alleged failure of the petitioners to present any
authorization from the Bacarra (I.N.) FaCoMa, Inc. to enter into the transaction with the private
respondent, the same has been sufficiently explained.  As pointed out by the petitioners, the
signatories to the receipt in
question comprise the majority of the Board of Directors of Bacarra
(I.N.) FaCoMa, Inc. 
There was thus no further need for a separate authorization to bind the
corporation to the transaction.  To pass
such a separate resolution, the petitioners
would only be seeking authorization from themselves to enter into the
transaction which is clearly a redundancy.

The alleged departure from the established business practice of
the corporation with respect to the execution of the controversial receipt on
the other hand, could be traced to the uncontroverted
fact that the private respondent, aside from being a non-member of the Bacarra (I.N.) FaCoMa, Inc., is
also an alien, a Chinese national.  While
the petitioners admit that the FaCoMa accepted
consignments of produce even from non-members, that
privilege was not extended to aliens like the private respondent.  (The private respondent did not make an
effort to rebut the petitioners on this point). 
Hence, the private respondent’s citizenship presented a problem.  It is precisely for this reason that the
receipt was executed in the manner it was done. 
To further expedite the transaction, the guia
and the other documents covering the private respondent’s tobacco were also
listed not in his name but in the names of several farmers which he himself
furnished to the Association. 
Unfortunately, the lower courts failed to grasp the importance of these
circumstances peculiar to the case, choosing instead to fault the petitioners
for their failure to present in court the farmers in whose names the other
documents covering the private respondent’s tobacco were issued.  Surely, the petitioners could not be
expected to present the said farmers in court because their names were merely
supplied by the private
respondent.  There is even a possibility
that the said names are fictitious.

In the light of the foregoing, it is clear that the liability of
the petitioners under the document subject of the instant case, is not personal but corporate, and therefore
attached to the Bacarra (I.N.) FaCoMa,
Inc. which, being a corporation, has a personality distinct and separate from
that of the petitioners who are only its officers.  It is the general rule that the protective
mantle of a corporation’s separate and distinct personality could only be
pierced and liability attached directly to its officers and/or
members-stockholders, when the same is used for fraudulent, unfair, or illegal
purpose.^[13]
In the case at bar, there is no showing that the Association entered into the
transaction with the private respondent for the purpose of defrauding the
latter of his goods or the payment thereof. 
More importantly, there is no proof whatsoever that the majority of the
directors used the distinct and separate personality of Bacarra
(I.N.) FaCoMa, Inc. as a protective shield for any
wrongdoing.  Therefore, the general rule
on corporate liability, not the exception, should be applied in resolving this
case.  Consequently, the private respondent’s
cause of action lies against the Bacarra (I.N.) FaCoMa, Inc., and not against the petitioners.

In view of this ruling, there is no need to discuss the other
issues raised by the petitioners. 
Suffice it to state that under the law and well-established jurisprudence, an
obligation is presumed joint and not solidary.^[14]
There is nothing in the receipt, constituting the agreement of the parties,
which would sufficiently indicate that the petitioners bound themselves solidarily, if they bound themselves personally at all.

WHEREFORE, the petition is GRANTED; the Decision
dated April 4, 1978 of the court of Appeals, and its Resolution dated December
4, 1978 are REVERSED and SET
ASIDE, and another one entered dismissing the complaint against the herein petitioners.  Costs against the private
respondent.

SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Padilla, and Regalado, JJ., concur.

^[1] Pascual, C., J., ponente; Agrava, C., and Climaco, R.C.,
JJ., Concurring; CA-G.R. No. 50352-R, entitled “Gervacio
Cu, Plaintiff-Appellee vs. Paulino
Soriano, Nenita C.
Esperanza, and Alejandro G. Macadandang,
Defendants-Appellants”.

^[2] Judge Ricardo Y. Navarro, presiding, Court of First Instance of Ilocos Norte, Second Judicial District.

^[3] Rollo, 10-11, 64, and 82-83; see
also, Annex “A” of the Complaint; Joint Record on Appeal, 7.

^[4] Joint Record on Appeal, 7.

^[5] Id., 48.

^[6] Id., 63.

^[7] Rollo, id., 77-78.

^[8] Id., 21.

^[9] Ibid.

^[10] Id., 22.

^[11] Id., 33.

^[12] Id.,
85-86.

^[13] Yutivo Sons
Hardware Company vs. Court of Tax Appeals, No. L-13203, January 28, 1961, 1 SCRA 160; Cease vs.
Court of Appeals, No. L-33172, October 18, 1979, 93 SCRA 483; Guerrero vs. Court of Appeals, No. L-35250, November 29, 1983, 126 SCRA
109; National Federation of Labor Union (NAFLU) vs. Ople,
No. 68661, July
22, 1986, 143 SCRA 124.

^[14] Articles 1207 and 1208, Civil Code of the Philippines; Compania General de Tabacos
vs. Obed, 13 Phil. 391 (1909); Agoncillo, et al. vs. Javier, 38 Phil. 424 (1918).