SULO NG BAYAN, INC., PLAINTIFF-APPELLANT, VS. GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC. AND REGISTER OF DEED…

Sulo ng Bayan versus Gregorio Araneta

The Case

This is a lecture on Sulo ng Bayan versus Gregorio Araneta, a decision of the Supreme Court promulgated in August 1976. The plaintiff, Sulo ng Bayan, Incorporated, is a non-stock corporation whose members are residents of San Jose del Monte, Bulacan. It sued Gregorio Araneta, Incorporated, Paradise Farms, Incorporated, the National Waterworks and Sewerage Authority, Hacienda Caretas, Incorporated, and the Register of Deeds of Bulacan to recover a vast tract of land and to nullify the Torrens titles covering it. The case matters because it is the classic statement of two rules every Bar candidate must carry into the examination room: the corporation is a legal entity distinct from its members, and a corporation has no personality to sue for property that belongs to its stockholders or members in their personal capacities. It is also the clean teaching case on when a complaint may be treated as a class suit.

Procedural History

Sulo ng Bayan filed its action for recovery of ownership and possession, a reinvindicacion, with the Court of First Instance of Bulacan sitting at Valenzuela. It later amended its complaint. Gregorio Araneta, Incorporated, Paradise Farms, Incorporated, and Hacienda Caretas, Incorporated each moved to dismiss on the grounds that the complaint states no cause of action and that the cause of action is barred by prescription and laches. The National Waterworks and Sewerage Authority filed no motion to dismiss but pleaded the same defenses in its answer.

While the motions were pending, the plaintiff asked that the case be transferred to the Malolos branch of the same court. The trial court dismissed the amended complaint for lack of cause of action and prescription, and denied the motion to transfer as moot. The plaintiff moved for reconsideration, which was denied. The plaintiff then appealed to the Court of Appeals. That court found that no question of fact was involved, only questions of law and jurisdiction, and certified the case to the Supreme Court, which is how it reached this Court.

Facts

The members of Sulo ng Bayan, through themselves and their predecessors-in-interest, claimed to have pioneered in clearing a tract of land in San Jose del Monte, Bulacan, containing more or less 27,982,250 square meters. They claimed to have cultivated it since the Spanish regime and to have possessed it openly and publicly under a concept of ownership adverse against the whole world.

Sometime in 1958, Gregorio Araneta, Incorporated, through force and intimidation, allegedly ejected the members from their possession. Investigating in 1961, the members and officers of the corporation discovered that the land had been included, allegedly through fraud or error, in Original Certificate of Title Number 466, issued in May 1916. The plaintiff alleged that this original title was fictitious and void because no original survey or plan appeared to have been submitted, and because the registration court never acquired jurisdiction over the land registration case, no notice having been given to the members who were then in actual possession. From that original title, transfer certificates of title were issued in favor of Gregorio Araneta and Carmen Zaragoza, then Gregorio Araneta, Incorporated, the National Waterworks and Sewerage Authority, Hacienda Caretas, Incorporated, and Paradise Farms, Incorporated.

The plaintiff prayed that the original certificate and all titles derived from it be nullified, that its members be declared absolute owners in common with a corresponding title issued to the plaintiff, and that Gregorio Araneta, Incorporated, pay damages. The corporation did not allege that its members had assigned or transferred their rights to it.

Issues

• Whether or not the trial court acted without jurisdiction in dismissing the complaint after the Secretary of Justice had authorized the transfer of the case to the Malolos branch.
• Whether or not the plaintiff corporation may sue in its own name to recover land allegedly owned by its members in their personal capacities.
• Whether or not the amended complaint may be treated as a class suit.

Applicable Provisions

Section 2 of Rule 3 of the Revised Rules of Court, on the real party in interest, provides:

Every action must be prosecuted and defended in the name of the real party in interest.

This is the provision the trial court invoked, and it is decisive because the real parties in interest here are the members, not the corporation.

Section 12 of Rule 3 of the Revised Rules of Court, on class suits, provides:

When the subject matter of the controversy is one of common or general interest to many persons and the parties are so numerous that it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.

This is the provision the plaintiff relied on in arguing that its complaint should be treated as a class suit.

Ruling

On the first issue, the Court held that the trial court acted within its authority. Jurisdiction is the power of the court to decide a case; venue is the place of action. The approval by the Secretary of Justice of a request to transfer a case to another branch of the same court does not divest the court originally taking cognizance of it of jurisdiction, nor does it change venue. The indorsement merely authorized the transfer for the convenience of the parties, and the trial court remained free to grant or deny the motion.

On the second issue, the Court held that the trial court correctly dismissed the complaint. A corporation is a distinct legal entity, separate and apart from the members who compose it, and is not affected by their personal rights, obligations, and transactions. Property registered in the name of the corporation is 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 members unless that property is transferred to it. The Court acknowledged that this separate personality is a legal fiction that may be disregarded when used as a cloak for fraud or illegality, or to work an injustice, but no such ground was shown. Since the members had not assigned their rights to the corporation, the corporation had no material and direct interest in the subject matter. There can be no cause of action without an antecedent legal right, and the essential elements of a cause of action are the legal right of the plaintiff, the correlative obligation of the defendant, and an act or omission of the defendant violating that right.

On the third issue, the Court held that no class suit lies. The person who sues must have an interest in the controversy common with those for whom he sues, and there must be a unity of interest that would entitle them to maintain the action jointly. Here there was only one party plaintiff, and the corporation had no interest at all in the subject matter. Moreover, a class suit does not lie in actions for the recovery of property where several persons claim ownership of their respective portions, since each could allege and prove his right in a different way for each portion, and they cannot all be held to have identical title through acquisitive prescription. Having so ruled, the Court found it unnecessary to resolve whether the action for reconveyance based on constructive trust had prescribed.

Doctrine

A corporation is a legal entity distinct from its stockholders and members. It has no personality to bring an action for and in behalf of its members to recover property that belongs to them in their personal capacities, absent a showing that they assigned or transferred their rights to it. Under Section 2 of Rule 3, every action must be prosecuted in the name of the real party in interest, and the corporation is not that party. The separate personality may be pierced only where the corporate fiction is used as a cloak for fraud or illegality, to work an injustice, or where necessary to achieve equity. A class suit under Section 12 of Rule 3 requires a common or general interest in the subject matter and parties so numerous that it is impracticable to bring them all before the court; it does not lie where several persons claim ownership of their respective portions of the land.

Disposition

The Supreme Court dismissed the appeal, with costs against the plaintiff corporation, thereby affirming the dismissal of the amended complaint.

Remember This

Memorize this line: a corporation has no personality to sue for property belonging to its members in their personal capacities, because the corporation and its members are separate entities. Examiners use this case on the real party in interest, on the requisites of a class suit, and on the limits of piercing the veil of corporate fiction.