Case Digest: Missionary Sisters of Our Lady of Fatima v. Alzona, G.R. No. 224307, August 6, 2018

  Corporation Law | De Facto Corporation, Corporation by Estoppel

• The Missionary Sisters of Our Lady of Fatima, also known as the Peach Sisters of Laguna, were established under the Roman Catholic Bishop of San Pablo in 1989, aiming to care for abandoned elderly individuals.
• Purificacion Y. Alzona, a spinster desiring to devote her life to helping others, became a benefactor of the petitioner, providing support to the community.
• In 1997, Purificacion was diagnosed with lung cancer. She requested Mother Concepcion to care for her at her house due to movement restrictions.
• In 1999, Purificacion handed a handwritten letter to Mother Concepcion, donating her properties to the petitioner through her.
• In 2001, Purificacion executed a formal Deed of Donation Inter Vivas, conveying her properties to the petitioner, notarized by Atty. Nonato Arcillas and witnessed by Purificacion's relatives.
• After two months, Purificacion died without any issue, survived only by her brother of full blood, Amado Y. Alzona.
• Despite not being registered with the SEC at the time, the petitioner applied for registration and sought BIR tax exemption as a religious organization
• BIR granted the petitioner tax exemption. However, the registration was denied due to an Affidavit of Adverse Claim filed by Purificacion's brother, Amando.
• Amando filed a complaint seeking to annul the Deed on the grounds that the petitioner, not being registered, lacked juridical personality to accept the donation.
• RTC: Dismissed the complaint, affirming the validity of the donation, stating that the petitioner was a de facto corporation and had the capacity to accept the donation.
• CA: Ruled the Deed void, stating the petitioner was not a de facto corporation at the time of the donation due to the absence of a bona fide attempt to incorporate.

WoN the petitioner has the legal capacity, as donee, to accept the donation, and Mother Concepcion has the authority to act on behalf of the petitioner in accepting the donation. YES

WoN the Missionary Sisters of Our Lady of Fatima is a de facto corporation. NO

WoN the intestate estate of Purificacion is estopped from questioning its legal personality considering the record is replete of evidence to prove that Purificacion at the time of the donation is fully aware of its status and yet was still resolved into giving her property. YES

In order that a donation of an immovable property be valid, the following elements must be present: (a) the essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; (c) the intent to do an act of liberality or animus donandi; (d) the donation must be contained in a public document; and e) that the acceptance thereof be made in the same deed or in a separate public instrument; if acceptance is made in a separate instrument, the donor must be notified thereof in an authentic form, to be noted in both instruments.

There is no question that the true intent of Purificacion, the donor and the owner of the properties in question, was to give, out of liberality the subject house and lot, which she owned, to the petitioner. This act, was then contained in a public document, the deed having been acknowledged before Atty. Arcillas, a Notary Public. The acceptance of the donation is made on the same date that the donation was made and contained in the same instrument as manifested by Mother Concepcion's signature. In fine, the remaining issue to be resolved is the capacity of the petitioner as donee to accept the donation, and the authority of Mother Concepcion to act on its behalf for this purpose.

Under Article 737 of the Civil Code, "[t]he donor's capacity shall be determined as of the time of the making of the donation." By analogy, the legal capacity or the personality of the donee, or the authority of the latter's representative, in certain cases, is determined at the time of acceptance of the donation.

Article 738, in relation to Article 745, of the Civil Code provides that all those who are not specifically disqualified by law may accept donations either personally or through an authorized representative with a special power of attorney for the purpose or with a general and sufficient power.

The Court finds that for the purpose of accepting the donation, the petitioner is deemed vested with personality to accept, and Mother Concepcion is clothed with authority to act on the latter's behalf.

At the outset, it must be stated that as correctly pointed out by the CA, the RTC erred in holding that the petitioner is a de facto corporation.

Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation." In fine, it is the act of registration with SEC through the issuance of a certificate of incorporation that marks the beginning of an entity's corporate existence.

Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner cannot be considered a corporation de facto.

Rather, a review of the attendant circumstances reveals that it calls for the application of the doctrine of corporation by estoppel as provided for under Section 21 of the Corporation Code, viz.:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. (Emphasis Ours)

The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when a non-existent corporation enters into contracts or dealings with third persons. In which case, the person who has contracted or otherwise dealt with the non-existent corporation is estopped to deny the latter's legal existence in any action leading out of or involving such contract or dealing. While the doctrine is generally applied to protect the sanctity of dealings with the public, nothing prevents its application in the reverse, in fact the very wording of the law which sets forth the doctrine of corporation by estoppel permits such interpretation. Such that a person who has assumed an obligation in favor of a non-existent corporation, having transacted with the latter as if it was duly incorporated, is prevented from denying the existence of the latter to avoid the enforcement of the contract.

Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there is no fraud and when the existence of the association is attacked for causes attendant at the time the contract or dealing sought to be enforced was entered into, and not thereafter.

In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from the fact that Purificacion executed two (2) documents conveying her properties in favor of the petitioner - first, on October 11, 1999 via handwritten letter, and second, on August 29, 2001 through a Deed; the latter having been executed the day after the petitioner filed its application for registration with the SEC.

The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the existence of an entity which entered into a transaction with a third party, unjust enrichment would result as some form of benefit have already accrued on the part of one of the parties. Thus, in that instance, the Court affords upon the unorganized entity corporate fiction and juridical personality for the sole purpose of upholding the contract or transaction.

In this case, while the underlying contract which is sought to be enforced is that of a donation, and thus rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit therefrom so as to prevent the application of the doctrine of corporation by estoppel. To recall, the subject properties were given by Purificacion, as a token of appreciation for the services rendered to her during her illness. In fine, the subject deed partakes of the nature of a remuneratory or compensatory donation, having been made "for the purpose of rewarding the donee for past services, which services do not amount to a demandable debt."

As elucidated by the Court in Pirovano, et al. v. De La Rama Steamship Co.:

In donations made to a person for services rendered to the donor, the donor's will is moved by acts which directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to compensate. A donation made to one who saved the donor's life, or a lawyer who renounced his fees for services rendered to the donor, would fall under this class of donations.

Therefore, under the premises, past services constitutes consideration, which in turn can be regarded as "benefit" on the part of the donor, consequently, there exists no obstacle to the application of the doctrine of corporation by estoppel; although strictly speaking, the petitioner did not perform these services on the expectation of something in return.

Precisely, the existence of the petitioner as a corporate entity is upheld in this case for the purpose of validating the Deed to ensure that the primary objective for which the donation was intended is achieved, that is, to convey the property for the purpose of aiding the petitioner in the pursuit of its charitable objectives.

Further, apart from the foregoing, the subsequent act by Purificacion of re-conveying the property in favor of the petitioner is a ratification by conduct of the otherwise defective donation.

Express or implied ratification is recognized by law as a means to validate a defective contract. Ratification cleanses or purges the contract from its defects from constitution or establishment, retroactive to the day of its creation. By ratification, the infirmity of the act is obliterated thereby making it perfectly valid and enforceable.

The principle and essence of implied ratification require that the principal has full knowledge at the time of ratification of all the material facts and circumstances relating to the act sought to be ratified or validated. Also, it is important that the act constituting the ratification is unequivocal in that it is performed without the slightest hint of objection or protest from the donor or the donee, thus producing the inevitable conclusion that the donation and its acceptance were in fact confirmed and ratified by the donor and the donee.

In this controversy, while the initial conveyance is defective, the genuine intent of Purificacion to donate the subject properties in favor of the petitioner is indubitable. Also, while the petitioner is yet to be incorporated, it cannot be said that the initial conveyance was tainted with fraud or misrepresentation. Contrarily, Purificacion acted with full knowledge of circumstances of the Petitioner. This is evident from Purificacion's act of referring Mother Concepcion to Atty. Arcillas, who, in turn, advised the petitioner to apply for registration. Further, with the execution of two (2) documents of conveyance in favor of the petitioner, it is clear that what Purificacion intended was for the sisters comprising the petitioner to have ownership of her properties to aid them in the pursuit of their charitable activities, as a token of appreciation for the services they rendered to her during her illness. To put it differently, the reference to the petitioner was merely a descriptive term used to refer to the sisters comprising the congregation collectively. Accordingly, the acceptance of Mother Concepcion for the sisters comprising the congregation is sufficient to perfect the donation and transfer title to the property to the petitioner. Ultimately, the subsequent incorporation of the petitioner and its affirmation of Mother Concepcion's authority to accept on its behalf cured whatever defect that may have attended the acceptance of the donation.

The Deed sought to be enforced having been validly entered into by Purificacion, the respondents' predecessor-in-interest, binds the respondents who succeed the latter as heirs. Simply, as they claim interest in their capacity as Purificacion's heirs, the respondents are considered as "privies" to the subject Deed; or are "those between whom an action is binding although they are not literally parties to the said action." As discussed in Constantino, et al. v. Heirs of Pedro Constantino, Jr.:

[p]rivity in estate denotes the privity between assignor and assignee, donor and donee, grantor and grantee, joint tenant for life and remainderman or reversioner and their respective assignees, vendor by deed of warranty and a remote vendee or assignee. A privy in estate is one, it has been said, who derives his title to the property in question by purchase; one who takes by conveyance. In fine, respondents, as successors-in-interest, derive their right from and are in the same position as their predecessor in whose shoes they now stand. (Citation omitted)

Anent the authority of Mother Concepcion to act as representative for and in behalf of the petitioner, the Court similarly upholds the same. Foremost, the authority of Mother Concepcion was never questioned by the petitioner. In fact, the latter affirms and supports the authority of Mother Concepcion to accept the donation on their behalf; as she is, after all the congregation's Superior General. Furthermore, the petitioner's avowal of Mother Concepcion's authority after their SEC registration is a ratification of the latter's authority to accept the subject donation as the petitioner's representative.

In closing, it must be emphasized that the Court is both of law and of justice. Thus, the Court's mission and purpose is to apply the law with justice.

Donation is an expression of our social conscience, an act rooted purely on the goodness of one's heart and intent to contribute.

Purificacion, the donor is worthy of praise for her works of charity. Likewise, the petitioner is worthy of admiration for with or without the promise of reward or consideration, the Court is certain that it is impelled by sincere desire to help the petitioner in overcoming her illness.

It is unfortunate that the will of a person moved by the desire to reciprocate the goodness shown to her during the lowest and culminating points of her life is questioned and herein sought to be nullified on strict legality, when the intent of the donor to give is beyond question.

The promotion of charitable works is a laudable objective. While not mentioned in the Constitution, the Court recognizes benevolent giving as an important social fabric that eliminates inequality. As such, charitable giving must be encouraged through support from society and the Court.