G.R. No. L-63558 May 19, 1987 SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC.

TRONIC SYSTEMS, INC., petitioners, vs. HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO BRAGA AND NORBERTO BRAGA, respondents. No. L-68450-51 May 19, 1987 POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T. BRAGA, NORBERTO BRAGA, and VIRGINIA BRAGA, petitioners, vs. THE HONORABLE SECURITIES AND EXCHANGE COMMISSION, TELECTRONIC SYSTEMS, INC., JOSE ABEJO, JOSE LUIS SANTIAGO, SIMEON A. MIRAVITE, SR., ANDRES T. VELARDE AND L. QUIDATO BANDOLINO, respondents. TEEHANKEE, C.J.: These two cases, jointly heard, are jointly herein decided. They involve the question of who, between the Regional Trial Court and the Securities and Exchange Commission (SEC), has original and exclusive jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell Philippines, Inc. (Pocket Bell), a "tone and voice paging corporation," namely, the spouses Jose Abejo and Aurora Abejo (hereinafter referred to as the Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter referred to as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares registered in the name of Virginia Braga and covered by five stock certificates endorsed in blank by her (for P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as the Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the majority stockholder, holding 56% of the outstanding stock and voting power of the corporation Pocket Bell. With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation, Norberto Braga, to register and transfer to its name, and those of its nominees the total 196,000 Pocket Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock and issue the corresponding new certificates of stock in its name and those of its nominees. Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid transfer of shares in t e corporate oo s, asserting that the Bragas claim preemptive rights over the 133,000 Abejo shares and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost the five stock certificates representing those shares. This triggered off the series of intertwined actions between the protagonists, all centered on the question of jurisdiction over the dispute, which were to culminate in the filing of the two cases at bar. The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities and Exchange Commission, while the Abejos claim the contrary. A summary of the actions resorted to by the parties follows: A. ABEJOS ACTIONS IN SEC 1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases Nos. 02379 and 02395 against the Bragas on December 17, 1982 and February 14, 1983, respectively. 2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as corporate secretary of Pocket Bell to 2 register in their names the transfer and sale of the aforesaid 196,000 Pocket Bell shares (of the Abejos 1 and Virginia Braga , cancel the surrendered certificates as duly endorsed and to issue new certificates in their names. 3. In SEC Case No.02395, they prayed for injunction and a temporary restraining order that the SEC enjoin the Bragas from disbursing or disposing funds and assets of Pocket Bell and from performing such other acts pertaining to the functions of corporate officers. 4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus case (SEC Case No. 02379) contending that the SEC has no jurisdiction over the nature of the action since it does not involve an intracorporate controversy between stockholders, the principal petitioners therein, Telectronics, not being a stockholder of record of Pocket Bell. 5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14, 1983, the corporate secretary filed a Motion for Reconsideration. On March 21, 1983, SEC Hearing Officer Joaquin Garaygay issued an order granting Braga's motion for reconsideration and dismissed SEC Case No. 02379. 6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case No. 02395. On April 8, 1985, the SEC Director, Eugenio Reyes, acting upon the Abejos'ex-parte motion, created a three-man committee composed of Atty. Emmanuel Sison as Chairman and Attys. Alfredo Oca and Joaquin Garaygay as members, to hear and decide the two SEC cases (Nos. 02379 and 02395). 7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid order of March 21, 1983 of the SEC Hearing Officer Garaygay (dismissing the mandamus petition SEC Case No. 02379) and directing corporate secretary Norberto Braga to file his answer to the petitioner therein. B. BRAGAS' ACTION IN SEC 8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus with the SEC en banc, SEC Case No. EB #049, seeking the dismissal of SEC Cases Nos.' 02379 and 02395 for lack of jurisdiction of the Comn-iission and the setting aside of the various orders issued by the SEC three-man committee in the course of the proceedings in the two SEC cases. 9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas' petition in SEC Case No. EB#049 for lack of merit and at the same time ordering the SEC Hearing Committee to continue with the hearings of the Abejos and Telectronics SEC Cases Nos. 02379 and 02395, ruhng that the "issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the corporation of which he is secretary." 10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied the same on August 9, 1984. C. BRAGAS' ACTION IN CFI (NOWRTC) 11. On November 25, 1982, following the corporate secretary's refusal to register the transfer of the shares in question, the Bragas filed a complaint against the Abejos and Telectronics in the Court of First Instance of Pasig, Branch 21 (now the Regional Trial Court, Branch 160) docketed as Civil Case No. 48746 for: (a) rescission and annulment of the sale of the shares of stock in Pocket Bell made by the Abejos in favor of Telectronics on the ground that it violated the Bragas' alleged pre-emptive right over the Abej os' shareholdings and an alleged perfected contract with the Abejos to sell the same shares in their (Bragas) favor, (Ist cause of action); plus damages for bad faith; and (b) declaration ofnullity of any transfer, assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket Ben to Telectronics for want of consent and consideration, alleging that said stock

certificates, which were intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd cause of action). 12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it is the SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and decide cases involving, among others, controversies "between and among stockholders" and that the Bragas' suit is such a controversy as the issues involved therein are the stockholders' alleged pre-emptive rights, the validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the management and control of the corporation's operations. The dismissal motion was granted by Presiding Judge G. Pineda on January 14, 1983. 13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed. Meanwhile, respondent Judge Rafael de la Cruz was appointed presiding judge of the court (renamed Regional Trial Court) in place of Judge G. Pineda. 14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January 14, 1983 order and reviving the temporary restraining order previously issued on December 23, 1982 restraining Telectronics' agents or representatives from enforcing their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions. 15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly opposed by the Bragas. On March 11, 1983, respondent Judge denied the motion for reconsideration. D. ABEJOS' PETITION AT BAR 16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to dismiss the complaint despite clear lack of jurisdiction over the action and in refusing to reconsider his erroneous position were performed without jurisdiction and with grave abuse of discretion, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction. They prayed that the challenged orders of respondent Judge dated February 14, 1983 and March 11, 1983 be set aside for lack of jurisdiction and that he be ordered to permanently desist from further proceedings in Civil Case No. 48746. Respondent judge desisted from further proceedings in the case, dispensing with the need of issuing any restraining order. E. BRAGAS' PETITION AT BAR 17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC Cases Nos. 02379 and 02395 and that it acted arbitrarily, whimsically and capriciously in dismissing their petition (in SEC Case No. EB #049) for dismissal of the said cases, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction or TRO. The petitioner seeks the reversal and/or setting aside of the SEC Order dated May 15, 1984 dismissing their petition in said SEC Case No. EB #049 and sustaining its jurisdiction over SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, 1984, this Court issued a temporary restraining order to maintain the status quo and restrained the SEC and/or any of its officers or hearing committees from further proceeding with the hearings in SEC Cases Nos. 02379 and 02395 and from enforcing any and all orders and/or resolutions issued in connection with the said cases. The cases, having been given due course, were jointly heard by the Court on March 27, 1985 and the parties thereafter filed on April 16, 1985 their respective memoranda in amplification of oral argument on the points of law that were crystalled during the hearing, The Court rules that the SEC has original and exclusive jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell, namely, the Abejos and Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas, erstwhile majority stockholders, on the other, and that the SEC, through its en banc Resolution of May 15, 1984 co"ectly ruled in dismissing the Bragas' Petition questioning its jurisdiction, that "the issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the Corporation of which he is secretary." 1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly premised on, and fully supported by, the applicable provisions of P.D. No. 902-A which reorganized the SEC with additional powers "in line with the government's policy of encouraging investments, both domestic and foreign, and more active publicParticipation in the affairs of private corporations and enterprises through which desirable activities may be pursued for the promotion of economic development; and, to promote a wider and more meaningful equitable distribution of wealth," and accordingly provided that: SEC. 3. The Commission shall have absolute jurisdiction, supervision and control ouer all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; ... SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts, of the board of directors, business associations, its officers or partners, amounting to fruud and misrepresentation which may be detrimental to the interest of the public andlor of the stockholder, partners, members of associations or organizations registered with the Commission. b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members, or associates; between any andlor all of them and the corporation, partnership or association of which they are stockholders, members or assmiates, respectively; and between such corporation, partnership or assmiation and the state insofar as it concems their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of 3 such corporations, partnerships or associations. Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power, inter alia, "to issuepreliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply." 2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute that has arisen between and among the principal stockholders of the corporation Pocket Bell due to the refusal of the corporate secretary, backed up by his parents as erstwhile majority shareholders, to perform his "ministerial duty" to record the transfers of the corporation's controlling (56%) shares of stock, covered by duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. mandamus in the SEC to compel the corporate secretary to register the transfers and issue new certificates in favor of Telectronics and its nominees 4 was properly resorted to under Rule XXI, Section 1 of the SEC's New Rules of Procedure, which provides for the filing of such

petitions with the SEC. Section 3 of said Rules further authorizes the SEC to "issue orders expediting the proceedings ... and also [to] grant a preliminary injunction for the preservation of the rights of the parties pending such proceedings, " The claims of the Bragas, which they assert in their complaint in the Regional Trial Court, praying for rescission and annulment of the sale made by the Abejos in favor of Telectronics on the ground that they had an alleged perfected preemptive right over the Abejos' shares as well as for annulment of sale to Telectronics of Virginia Braga's shares covered by street certificates duly endorsed by her in blank, may in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus ordering the registration of the shares so transferred. The Bragas' contention that the question of ordering the recording of the transfers ultimately hinges on the question of ownership or right thereto over the shares notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC. 3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in the regular court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos' shares and alleged loss of thio certificates and lack of consent and consideration in the case of Virginia Braga's shares. Such dispute c learly involve's controversies "between and among stockholders, " as to the Abej os' right to sell and dispose of their shares to Telectronics, the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and the Abejos' transferee should be recognized as the controlling shareholders of the corporation, with the right to elect the corporate officers and the management and control of its operations. Such a dispute and case clearly fag within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D. 902-A, above-quoted. The restraining order issued by the Regional Trial Court restraining Telectronics agents and representatives from enforcing their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions patently encroached upon the SEC's exclusive jurisdiction over such specialized corporate controversies calling for its special competence. As stressed by the Solicitor General on behalf of the SEC, the Court has held that "Nowhere does the law [PD 902-A] empower any Court of First Instance [now Regional 5 Trial Court] to interfere with the orders of the Commission," and consequently "any ruling by the trial court on the issue of 6 ownership of the shares of stock is not binding on the Commission for want of jurisdiction. 4. The dispute therefore clearly falls within the general classification of cases within the SEC's original and exclusive jurisdiction to hear and decide, under the aforequoted governing section 5 of the law. Insofar as the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to record the transfer of the 56% majority shares to Telectronics may be deemed a device or scheme amounting to fraud and misrepresentation emplolyed by them to keep themselves in control of the corporation to the detriment of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial stockholderssellers), the case falls under paragraph (a). The dispute is likewise an intra-corporate controversy between and among the majority and minority stockholders as to the transfer and disposition of the controlling shares of the corporation, failing under paragraph (b). 7 As stressed by the Court in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc, Considering the announced policy of PD 902-A, the expanded jurisdiction of the respondent Securities and Exchange Commission under said decree extends exclusively to matters arising from contracts involving investments in private corporations, partnerships and associations." The dispute also concerns the fundamental issue ofwhether the Bragas or Telectronics have the right to elect the corporate directors and officers and manage its business and operations, which falls under paragraph (c). 5. Most of the cases that have come to this Court involve those under paragraph (b), i.e. whether the controversy is an intracorporate one, arising "between and among stockholders" or "between any or allof them and the corporation." The parties have 8 focused their arguments on this question. The Bragas' contention in his field must likewise fail. In Philex Mining Corp. v. Reyes, the Court spelled out that"'an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations. The issue of whether or not a corporation is bound to replace a stockholder's lost certificate of stock is a matter purely between a stockholder and the corporation. It is a typical intra-corporate dispute. The quqsjion of damage's raised is merely incidental to that main issue. The Court rejected the stockholders' theory of excluding his complaint (for replacement of a lost stock [dividend] certificate which he claimed to have never received) from the classification of intra-corporate controversies as one that "does not square with the intent of the law, which is to segregate from the general jurisdiction of regular Courts controversies involving corporations and their stockholders and to bring them to the SEC for exclusive resolution, in much the same way that labor disputes are now brought to the Ministry-of Labor and Employment (MOLE) and the National Labor Relations Commission (NLRC), and not to the Courts." (a) The Bragas contend that Telectronics, as buyertransferee of the 56% majority shares is not a registered stockholder, because they, through their son the corporate secretary, appear to have refused to perform "the ministerial duty of recording transfers of shares of stock of the corporation of which he is the secretary," and that the dispute is therefore, not an intracorporate one. This contention begs the question which must properly be resolved by the SEC, but which they would prevent by their own act, through their son, of blocking the due recording of the transfer and cannot be sanctioned. It can be seen from their very complaint in the regular courts that they with their two sons constituting the plaintiffs are all stockholders while the defendants are the Abejos who are also stockholders whose sale of the shares to Telectronics they would annul. (b) There can be no question that the dispute between the Abejos and the Bragas as to the sale and transfer of the former's shares to Telectronics for P5 million is an intracorporate one under section 5 (b), prescinding from the applicability of section 5 (a) and (c), (supra, par. 4) lt is the SEC which must resolve the Bragas' claim in their own complaint in the court case filed by them of an alleged pre-emptive right to buy the Abejos' shares by virtue of "ongoing negotiations," which they may submit as their defense to the mandamus petition to register the sale of the shares to Telectronics. But asserting such preemptive rights and asking that the same be enforced is a far cry from 9 the Bragas' claim that "the case relates to questions of ownership" over the shares in question. (Not to mention, as pointed out by the Abejos, that the corporation is not a close corporation, and no restriction over the free transferability of the shares appears in the Articles of Incorporation, as well as in the by-laws10 and the certificates of stock themselves, as required by law for the enforcement of such restriction. See Go Soc & Sons, etc. v. IAC, G.R. No. 72342, Resolution of February 19, 1987.) (c) The dispute between the Bragas and Telectronics as to the sale and transfer for P1,674,450.00 of Virginia Braga's 63.000 shares covered by Street certificates duly endorsed in blank by her is within the special competence and jurisdiction of the SEC, dealing as it does with the free transferability of corporate shares, particularly street

certificates," as guaranteed by the Corporation Code and its proclaimed policy of encouraging foreign and domestic investments in Philippine private corpora. tions and more active public participation therein for the Promotion of economic development. Here again, Virginia Braga's claim of loss of her street certificates 11 or theft thereof (denounced by Telectronics as 11 perjurious" 12 ) must be pleaded by her as a defense against Telectronics'petition for mandamus and recognition now as the controlling stockholder of the corporation in the light of the joint affidavit of Geneml Cerefino S. Carreon of the National Telecommunications Commission and private respondent Jose Luis Santiago of Telectronics narrating the facts and circumstances of how the former sold and delivered to Telectronics on behalf of his compadres, the Bragas, Virginia Braga's street certificates for 63,000 shares equivalent to 18% of the corporation's outstanding stock and received the cash price thereof. 13 But as to the sale and transfer of the Abejos' shares, the Bragas cannot oust the SEC of its original and exclusive jurisdiction to hear and decide the case, by blocking through the corporate secretary, their son, the due recording of the transfer and sale of the shares in question and claiming that Telectronics is not a stockholder of the corporation which is the very issue that the SEC is called upon to resolve. As the SEC maintains, "There is no requirement that a stockholder of a corporation must be a registered one in order that,the Securities and Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder." 14 This is because the SEC by express mandate has "absolute jurisdiction, supervision and control over all corporations" and is called upon to enforce the provisions of the Corporation Code, among which is the stock purchaser's right to secure the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any problem encountered in securing the certificates of stock representing the investment made by the buyer must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather than through the usual tedious regular court procedure. Furthermore, as stated in the SEC order of April 13, 1983, notice given to the corporation of the sale of the shares and presentation of the certificates for transfer is ,equivalent to registration: "Whether the refusal of the (corporation) to effect the same is ivalid or not is still subject to the outcome of the hearing on the merits of the case. 15 6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sensemaking and expeditious doctrine of primary jurisdiction ... the courts cannot or will n6t determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and seruices of the administratiue tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply uith the purposes of the regulatory statute administered " 16 In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]' " 17 The Court in the earlier case of Ebon vs. De Guzman 18 noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently ... had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim." 7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC with the Rule-making power in the discharge of its task of implementing the provisions of the Code and particularly charges it with the duty of preventing fraud and abuses on the part of controlling stockholders, directors and officers, as follows: SEC. 143. Rule-making power of the Securities and Exchange Commission. The Securities and Exchange Commission shall have the power and authority to implement the provisions of this Code, and to promulgate rules and regulations reasonably necessary to enable it to perform its duties hereunder, particularly in the prevention of fraud and abuses on the part of the controlling stockholders, members, directors, trustees or officers. (Emphasis supplied) The dispute between the contending parties for control of thecorporation manifestly fans within the primary and exclusive jurisdiction of the SEC in whom the law has reserved such jurisdiction as an administrative agency of special competence to deal promptly and expeditiously therewith. As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in Section 51 must be viewed in the light of the nature and functions of the SEC under the law. Section 3 of PD No. 902-A confers upon the latter 'absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines ... The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. "It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delin-dted its jurisdiction to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such corporations, partnerships or associations. "Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: [al between the corporation, partnership or association and the public; [b] between the corporation, partnership or association and its stockholders, partners, members, or officers; [c] between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and Id] among the stockholders, partners or associates 20 themselves." Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do not fall within the special jurisdiction of the SEC. In this case, the SEC had properly assumed jurisdiction over the dissenting stockholders' com. Plaint against the corporation

Pioneer Glass questioning its dacion en pago of its glass plant and all its assets in favor of the DBP which was clearly an intracorporate controversy dealing with its internal affairs. But the Court held that the SEC had no jurisdiction over petitioner Union Glass Corp., imPle,aded as third party purchaser of the plant from DBP in the action to annul the dacion en pago. The Court held that such action for recovery of the glass plant could be brought by the dissenting stockholder to the regular courts only if and when the SE C rendered final judgment annulling the dacion en pago and furthermore subject to Union Glass' defenses as a third party buyer in good faith. Similarly, in the DMRC case, therein petitioner's,tomplaint for collection of the amounts due to it as payment of rentals for the lease of its heavy equipment in the form mainly of cash and part in shares of stock of the debtor-defendant corporation was held to be not covered by the SEC's exclusive jurisdiction over intracorporate disputes, since "to pass upon a money claim under a lease contract would be beyond the competence Of the Securities and Exchange Commission and to separate the claim for money 21 from the claim for shares of stock would be splitting a single cause of action resulting in a multiplicity of suitS." Such an action for collection of a debt does not involve enforcement Of rights and obligations under the Corporation Code nor the in. temal or intracorporate affairs of the debtor corporation. But in aR disputes affecting and dealing With the interests of the corporation and its stockholders, following the trend and clear legislative intent of entmsting all disputes of a specialized nature to administrative agencies possessing. the requisite competence, special knowledge, experience and services and facilities to expeditiously resolve them and determine the essential facts including technical and intricate matters, as in labor and public utilities rates disputes, the SEC has been given "the original and exclusive jurisdiction to hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its] regulatory and adjudicative functions" (under Section 3, vesting in it "absolute jurisdiction, supervision and control over all corporations" and the Rule-making power granted it in Section 143 of the Corporation Code, supra). As stressed by the Court in the Philex case, supra, "(T)here is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations." 22 It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) of the SEC's three-member Hearing Conunittee granting Telectronics' motion for creation of a receivership or management committee with the ample powers therein enumerated for the preservation pendente lite of the corporation's assets and in discharge of its "power and duty to preserve the rights of the parties, the stockholders, the public availing of the corporation's services and the rights of creditors," as well as "for reasons of equity and justice ... (and) to prevent possible paralization of corporate business." The said Order has not been implemented notwithstanding its having been upheld per the SEC en banc's Order of May 15, 1984 (Annex "V", Petition) dismissing for lack of merit the petition for certiorari, prohibition and mandamus with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of the Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984, denying reconsideration (Annex "X", Petition), due to the Bragas' filing of the petition at bar. Prescinding from the great concern of damage and prejudice expressed by Telectronics due to the Bragas having remained in control of the corporation and having allegedly committed acts of gross mismanagement and misapplication of funds, the Court finds that under the facts and circumstances of record, it is but fair and just that the SEC's order creating a receivership committee be implemented forthwith, in accordance with its terms, as follows: The three-man receivership committee shall be composed of a representative from the commission, in the person of the Director, Examiners and Appraisers Department or his designated representative, and a representative from the petitioners and a representative of the respondent. The petitioners and respondent are therefore directed to sub. mit to the Commission the name of their designated representative within three (3) days from receipt of this order. The Conunission shall appoint the other representatives if either or both parties fafl to comply with the requirement within the stated time. ACCORDINGLY, judgment is hereby rendered: (a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent Judge clated February 14, 1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos' petition) and prohibiting respondent Judge from further proceeding in Civil Case No. 48746 filed in his Court other than to dismiss the same for lack or jurisdiction over the subject-matter; (b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order issued on September 24, 1984, effective immediately upon promulgation hereof, (c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and resolving the pending mandamus petition for recording in the corporate books the transfer to Telectronics and its nominees of the majority (56%) shares of stock of the corporation Pocket Bell pertaining to the Abejos and Virginia Braga and all related issues, taking into consideration, without need of resubmittal to it, the pleadings, annexes and exhibits filed by the contending parties in the cases at bar; and (d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the implementation of its receivership or management committee Order of April 15, 1983 in SEC Case No. 2379 and for the purpose, the contending parties are ordered to submit to said Hearing Committee the name of their designated representatives in the receivership/management committee within three (3) days from receipt of this decision, on pain of forfeiture of such right in case of failure to comply herewith, as provided in the said Order; and ordering theBragas to perform only caretaker acts in the corporation pending the organization of such receivership/management committee and assumption of its functions. This decision shall be immediately executory upon its promulgation. SO ORDERED.

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents. DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside 1 2 the decision of 31 October 1996 and the resolution of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former 3 affirmed with modification the decision of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that . 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABSCBN from the actual offer in writing. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted: 6 January 1992 Dear Vic, This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN. From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures. In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our nonprimetime slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract. 1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas 4. Tiger Command 5. Boy de Sabog 6. Lady Commando 7. Batang Matadero 8. Rebelyon I hope you will consider this request of mine. The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes. As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I have quite an attractive offer to make. Thanking you and with my warmest regards. (Signed) Charo Santos-Concio On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" Viva). On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN). On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" 4 - RBS) including the fourteen (14) films subject of the present case. On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary 5 injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309. 6 On 27 May 1992, RTC issued a temporary restraining order enjoining private respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the filmMaging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date. On 17 June 1992, after appropriate proceedings, the RTC issued an 7 order directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for 8 the reduction of the bond, while private respondents moved for reconsideration of the order and offered to put up a 9 counterbound. 10 In the meantime, private respondents filed separate answers with counterclaim. RBS also set up a cross-claim against VIVA.. 11 On 3 August 1992, the RTC issued an order dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond. 12 At the pre-trial on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached. As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in 13 its Order of 15 October 1992. 14 On 19 October 1992, ABS-CBN filed a motion for reconsideration of the 3 August and 15 October 1992 Orders, which RBS 15 opposed. 16 On 29 October 1992, the RTC conducted a pre-trial. 17 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300. 18 On 3 November 1992, the Court of Appeals issued a temporary restraining order to enjoin the airing, broadcasting, and televising of any or all of the films involved in the controversy. 19 On 18 December 1992, the Court of Appeals promulgated a decision dismissing the petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363. In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it 20 rendered a decision in favor of RBS and VIVA and against ABS-CBN disposing as follows: WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the plaintiff. (1) The complaint is hereby dismissed; (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following: a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's fees in the amount of P1 million; d) P5 million as and by way of moral damages; e) P5 million as and by way of exemplary damages; (3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees. (4) The cross-claim of defendant RBS against defendant VIVA is dismissed. (5) Plaintiff to pay the costs. According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. 21 On 21 June 1993, this Court denied ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows: As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides: 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14). [H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing. Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties. In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films. The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already 22 expired. Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-921209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN." Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in I . . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY. II . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. III . . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. IV . . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS. ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons 23 24 Milling, Inc. v. Court of Appeals, which cited Toyota Shaw, Inc. v. Court of Appeals, Ang Yu Asuncion v. Court of 25 26 Appeals, andVillonco Realty Company v. Bormaheco. Inc. Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not 27 warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, 28 or a different interpretation of the laws on the matter, the case would lose ground. One who makes use of his own legal right does 29 30 no injury. If damage results front the filing of the complaint, it is damnum absque injuria. Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in 31 social humiliation. As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan 32 v. Camaganacan that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an 33 erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks. RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste. As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such 34 damages. Citing Tolentino, damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBScited People 35 v. Manero, where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus: There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to happen. The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award. The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this 36 case) away from the competition. For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS. The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error. I. The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds 37 himself to give something or to render some service to another for a consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the 38 obligation, which is established. A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and 39 (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or 40 variation from the terms of the offer annuls the offer. When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of 41 42 Appeals and Villonco Realty Company v. Bormaheco, Inc., is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling 43 was, however, reversed in the resolution of 29 March 1996, which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds." On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely 44 clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.Franklin Life Insurance Co. that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a 45 rejection of the offer and the tender of a counter-offer." However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer. In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. 46 Under Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials 47 or contracted managers. The delegation, except for the executive committee, must be for specific purposes, Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would 48 apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive: A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill. FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon? SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states: We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00. which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00). On cross-examination Mr. Lopez testified: Q. What was written in this napkin? A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos. Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim. FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . . As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto. FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified: Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened? A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors. Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper? A. Yes, sir. Q. So, he was going to forward that to the board of Directors for approval? A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval? A. Yes, sir. (Tsn, p. 69, June 8, 1992). The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556). The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs.Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the 49 film package for 140 films be maintained (Exh. "7-1" - Viva ). The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus: [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost 50 its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) II However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to 51 compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. The indemnification shall 52 comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably 53 attributed to the non-performance of the obligation. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been 54 foreseen or could have reasonably been foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal 55 injury, or for injury to the plaintiff's business standing or commercial credit. The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges: 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS 56 suffered actual damages in the amount of P6,621,195.32. Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may 57 suffer by reason of the writ are recoverable from the injunctive bond. In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or 58 compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be 59 placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award 60 attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of 61 bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a 62 penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the 63 suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained 64 and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental 65 66 anguish, which call be experienced only by one having a nervous system. The statement in People v. Manero and Mambulao 67 Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation. The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of 68 example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating 69 70 circumstances; in quasi-contracts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the 71 defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public 72 policy, and (3) and it is done with intent to injure. Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design 73 74 to do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by evidence. There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque 75 injuria. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt No pronouncement as to costs. SO ORDERED.

ACEBEDO OPTICAL COMPANY, INC., petitioner, v. THE HONORABLE COURT OF APPEALS, Hon. MAMINDIARA MANGOTARA, in his capacity as Presiding Judge of the RTC, 12th Judicial Region, Br. 1, Iligan City; SAMAHANG OPTOMETRIST Sa PILIPINAS - Iligan City Chapter, LEO T. CAHANAP, City Legal Officer, and Hon. CAMILO P. CABILI, City Mayor of Iligan, Respondents. DECISION PURISIMA, J.: At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify the dismissal by the Court of Appeals of the original petition for certiorari, prohibition and mandamus filed by the herein petitioner against the City Mayor and City Legal Officer of Iligan and the Samahang Optometrist sa Pilipinas - Iligan Chapter (SOPI, for brevity). The antecedent facts leading to the filing of the instant petition are as follows: Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After consideration of petitioners application and the opposition interposed thereto by local optometrists, respondent City Mayor issued Business Permit No. 5342 subject to the following conditions: 1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a commercial store; 2. Acebedo cannot examine and/or prescribe reading and similar optical glasses for patients, because these are functions of optical clinics; 3. Acebedo cannot sell reading and similar eyeglasses without a prescription having first been made by an independent optometrist (not its employee) or independent optical clinic. Acebedo can only sell directly to the public, without need of a prescription, Ray-Ban and similar eyeglasses; 4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise Ray-Ban and similar glasses and frames; 1 5. Acebedo is allowed to grind lenses but only upon the prescription of an independent optometrist. On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI), Iligan Chapter, through its Acting President, Dr. Frances B. Apostol, lodged a complaint against the petitioner before the Office of the City Mayor, alleging that Acebedo had violated the conditions set forth in its business permit and requesting the cancellation and/or revocation of such permit. Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal Officer Leo T. Cahanap to conduct an investigation on the matter. On July 12, 1989, respondent City Legal Officer submitted a report to the City Mayor finding the herein petitioner guilty of violating all the conditions of its business permit and recommending the disqualification of petitioner from operating its business in Iligan City. The report further advised that no new permit shall be granted to petitioner for the year 1989 and should only be given time to wind up its affairs. On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation of Business Permit effective as of said date and giving petitioner three (3) months to wind up its affairs. On October 17, 1989, petitioner brought a petition for certiorari, prohibition and mandamus with prayer for restraining order/preliminary injunction against the respondents, City Mayor, City Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was denied due process because it was not given an opportunity to present its evidence during the investigation conducted by the City Legal Officer; (2) it was denied equal protection of the laws as the limitations imposed on its business permit were not imposed on similar businesses in Iligan City; (3) the City Mayor had no authority to impose the special conditions on its business permit; and (4) the City Legal Officer had no authority to conduct the investigation as the matter falls within the exclusive jurisdiction of the Professional Regulation Commission and the Board of Optometry. Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-exhaustion of administrative remedies but on November 24, 1989, Presiding Judge Mamindiara P. Mangotara deferred resolution of such Motion to Dismiss until after trial of the case on the merits. However, the prayer for a writ of preliminary injunction was granted. Thereafter, respondent SOPI filed its answer. On May 30, 1990, the trial court dismissed the petition for failure to exhaust administrative remedies, and dissolved the writ of preliminary injunction it earlier issued. Petitioners motion for reconsideration met the same fate. It was denied by an Order dated June 28, 1990. On October 3, 1990, instead of taking an appeal, petitioner filed a petition for certiorari, prohibition and mandamus with the Court of Appeals seeking to set aside the questioned Order of Dismissal, branding the same as tainted with grave abuse of discretion on the part of the trial court. 2 On January 24, 1991, the Ninth Division of the Court of Appeals dismissed the petition for lack of merit. Petitioners motion reconsideration was also denied in the Resolution dated May 15, 1991. Undaunted, petitioner has come before this court via the present petition, theorizing that: A. THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT THE RESPONDENT CITY MAYOR ACTED BEYOND HIS AUTHORITY IN IMPOSING THE SPECIAL CONDITIONS IN THE PERMIT AS THEY HAD NO BASIS IN ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT THE SAID SPECIAL CONDITIONS NEVERTHELESS BECAME BINDING ON PETITIONER UPON ITS ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR CONTRACT. B. THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT BETWEEN PETITIONER AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE LATTER IN THE PERFORMANCE OF ITS PROPRIETARY FUNCTIONS. The petition is impressed with merit. Although petitioner agrees with the finding of the Court of Appeals that respondent City Mayor acted beyond the scope of his authority in imposing the assailed conditions in subject business permit, it has excepted to the ruling of the Court of Appeals that the said conditions nonetheless became binding on petitioner, once accepted, as a private agreement or contract. Petitioner maintains that the said special conditions are null and void for being ultra vires and cannot be given effect; and therefore, the principle of estoppel cannot apply against it. On the other hand, the public respondents, City Mayor and City Legal Officer, private respondent SOPI and the Office of the Solicitor General contend that as a valid exercise of police power, respondent City Mayor has the authority to impose, as he did, special conditions in the grant of business permits. Police power as an inherent attribute of sovereignty is the power to prescribe regulations to promote the health, morals, peace, 3 education, good order or safety and general welfare of the people. The State, through the legislature, has delegated the exercise of

police power to local government units, as agencies of the State, in order to effectively accomplish and carry out the declared 4 objects of their creation. This delegation of police power is embodied in the general welfare clause of the Local Government Code which provides: Sec. 16. General Welfare. - Every local government unit shall exercise the powers expressly granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient and effective governance, and those which are essential to the promotion of the general welfare. Within their respective territorial jurisdictions, local government units shall ensure and support, among other things, the preservation and enrichment of culture, promote health and safety, enhance the right of the people to a balanced ecology, encourage and support the development of appropriate and self-reliant scientific and technological capabilities, improve public morals, enhance economic prosperity and social justice, promote full employment among their residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants. The scope of police power has been held to be so comprehensive as to encompass almost all matters affecting the health, safety, peace, order, morals, comfort and convenience of the community. Police power is essentially regulatory in nature and the power to issue licenses or grant business permits, if exercised for a regulatory and not revenue-raising purpose, is within the ambit of this 5 power. The authority of city mayors to issue or grant licenses and business permits is beyond cavil. It is provided for by law. Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as the Local Government Code of 1983, reads: Sec. 171. The City Mayor shall: xxx n) Grant or refuse to grant, pursuant to law, city licenses or permits, and revoke the same for violation of law or ordinance or the conditions upon which they are granted. However, the power to grant or issue licenses or business permits must always be exercised in accordance with law, with utmost observance of the rights of all concerned to due process and equal protection of the law. Succinct and in point is the ruling of this Court, that: "x x x While a business may be regulated, such regulation must, however, be within the bounds of reason, i. e., the regulatory ordinance must be reasonable, and its provision cannot be oppressive amounting to an arbitrary interference with the business or calling subject of regulation. A lawful business or calling may not, under the guise of regulation, be unreasonably interfered with even by the exercise of police power. xxx xxx xxx xxx xxx The exercise of police power by the local government is valid unless it contravenes the fundamental law of the land or an act of the legislature, or unless it is against public policy or is unreasonable, oppressive, partial, discriminating or in derogation of a common right."[6] In the case under consideration, the business permit granted by respondent City Mayor to petitioner was burdened with several conditions. Petitioner agrees with the holding by the Court of Appeals that respondent City Mayor acted beyond his authority in imposing such special conditions in its permit as the same have no basis in the law or ordinance. Public respondents and private respondent SOPI, on the other hand, are one in saying that the imposition of said special conditions on petitioners business permit is well within the authority of the City Mayor as a valid exercise of police power. As aptly discussed by the Solicitor General in his Comment, the power to issue licenses and permits necessarily includes the corollary power to revoke, withdraw or cancel the same. And the power to revoke or cancel, likewise includes the power to restrict through 7 the imposition of certain conditions. In the case of Austin-Hardware, Inc. vs. Court of Appeals, it was held that the power to license carries with it the authority to provide reasonable terms and conditions under which the licensed business shall be conducted. As the Solicitor General puts it: "If the City Mayor is empowered to grant or refuse to grant a license, which is a broader power, it stands to reason that he can also exercise a lesser power that is reasonably incidental to his express power, i. e. to restrict a license through the imposition of certain conditions, especially so that there is no positive prohibition to the exercise of such prerogative by the City Mayor, nor is there any particular official or body vested with such authority"[8] However, the present inquiry does not stop there, as the Solicitor General believes. The power or authority of the City Mayor to impose conditions or restrictions in the business permit is indisputable. What petitioner assails are the conditions imposed in its particular case which, it complains, amount to a confiscation of the business in which petitioner is engaged. Distinction must be made between the grant of a license or permit to do business and the issuance of a license to engage in the practice of a particular profession. The first is usually granted by the local authorities and the second is issued by the Board or Commission tasked to regulate the particular profession. A business permit authorizes the person, natural or otherwise, to engage in business or some form of commercial activity. A professional license, on the other hand, is the grant of authority to a natural person to engage in the practice or exercise of his or her profession. In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to engage in the business of running an optical shop. It does not purport to seek a license to engage in the practice of optometry as a corporate body or entity, although it does have in its employ, persons who are duly licensed to practice optometry by the Board of Examiners in Optometry. 9 The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International Corporation, G.R. No. 117097, promulgated by this Court on March 21, 1997, is in point. The factual antecedents of that case are similar to those of the case under consideration and the issue ultimately resolved therein is exactly the same issue posed for resolution by this Court en banc. In the said case, the Acebedo International Corporation filed with the Office of the Municipal Mayor an application for a business permit for the operation of a branch of Acebedo Optical in Candon, Ilocos Sur. The application was opposed by the Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical entity not qualified to practice optometry. A committee was created by the Office of the Mayor to study private respondents application. Upon recommendation of the said committee, Acebedos application for a business permit was denied. Acebedo filed a petition with the Regional Trial Court but the same was dismissed. On appeal, however, the Court of Appeals reversed the trial courts disposition, prompting the Samahan ng Optometrists to elevate the matter to this Court. The First Division of this Court, then composed of Honorable Justice Teodoro Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan, with Honorable Justice Regino Hermosisima, Jr. as ponente, denied the petition and ruled in favor of respondent Acebedo International Corporation, holding that "the fact that private respondent hires optometrists who practice their profession in the course of their employment in private respondents optical shops, does not translate into a practice of optometry by private

respondent itself." The Court further elucidated that in both the old and new Optometry Law, R.A. No. 1998, superseded by R.A. No. 8050, it is significant to note that there is no prohibition against the hiring by corporations of optometrists. The Court concluded thus: "All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the corporation itself of the profession of optometry." In the present case, the objective of the imposition of subject conditions on petitioners business permit could be attained by requiring the optometrists in petitioners employ to produce a valid certificate of registration as optometrist, from the Board of Examiners in Optometry. A business permit is issued primarily to regulate the conduct of business and the City Mayor cannot, through the issuance of such permit, regulate the practice of a profession, like that of optometry. Such a function is within the exclusive domain of the administrative agency specifically empowered by law to supervise the profession, in this case the Professional Regulations Commission and the Board of Examiners in Optometry. It is significant to note that during the deliberations of the bicameral conference committee of the Senate and the House of Representatives on R.A. 8050 (Senate Bill No. 1998 and House Bill No. 14100), the committee failed to reach a consensus as to the prohibition on indirect practice of optometry by corporations. The proponent of the bill, former Senator Freddie Webb, admitted thus: "Senator Webb: xxx xxx xxx The focus of contention remains to be the proposal of prohibiting the indirect practice of optometry by corporations. We took a 11 second look and even a third look at the issue in the bicameral conference, but a compromise remained elusive." Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her vote: "Senator Shahani: Mr. President The optometry bills have evoked controversial views from the members of the panel. While we realize the need to uplift the standards of optometry as a profession, the consensus of both Houses was to avoid touching sensitive issues which properly belong to judicial determination. Thus, the bicameral conference committee decided to leave the issue of indirect practice of optometry 12 and the use of trade names open to the wisdom of the Courts which are vested with the prerogative of interpreting the laws." From the foregoing, it is thus evident that Congress has not adopted a unanimous position on the matter of prohibition of indirect practice of optometry by corporations, specifically on the hiring and employment of licensed optometrists by optical corporations. It is clear that Congress left the resolution of such issue for judicial determination, and it is therefore proper for this Court to resolve the issue. Even in the United States, jurisprudence varies and there is a conflict of opinions among the federal courts as to the right of a 13 corporation or individual not himself licensed, to hire and employ licensed optometrists. Courts have distinguished between optometry as a learned profession in the category of law and medicine, and optometry as a mechanical art. And, insofar as the courts regard optometry as merely a mechanical art, they have tended to find nothing objectionable in the making and selling of eyeglasses, spectacles and lenses by corporations so long as the patient is actually 14 examined and prescribed for by a qualified practitioner. The primary purpose of the statute regulating the practice of optometry is to insure that optometrical services are to be rendered by competent and licensed persons in order to protect the health and physical welfare of the people from the dangers engendered by unlicensed practice. Such purpose may be fully accomplished although the person rendering the service is employed by a 15 corporation. 16 Furthermore, it was ruled that the employment of a qualified optometrist by a corporation is not against public policy. Unless 17 prohibited by statutes, a corporation has all the contractual rights that an individual has and it does not become the practice of 18 medicine or optometry because of the presence of a physician or optometrist. The manufacturing, selling, trading and bartering of 19 eyeglasses and spectacles as articles of merchandise do not constitute the practice of optometry. 20 In the case of Dvorine vs. Castelberg Jewelry Corporation, defendant corporation conducted as part of its business, a department for the sale of eyeglasses and the furnishing of optometrical services to its clients. It employed a registered optometrist who was compensated at a regular salary and commission and who was furnished instruments and appliances needed for the work, as well as an office. In holding that the corporation was not engaged in the practice of optometry, the court ruled that there is no public policy forbidding the commercialization of optometry, as in law and medicine, and recognized the general practice of making it a commercial business by advertising and selling eyeglasses. To accomplish the objective of the regulation, a state may provide by statute that corporations cannot sell eyeglasses, spectacles, and lenses unless a duly licensed physician or a duly qualified optometrist is in charge of, and in personal attendance at the place 21 where such articles are sold. In such a case, the patients primary and essential safeguard lies in the optometrists control of the 22 "treatment" by means of prescription and preliminary and final examination. In analogy, it is noteworthy that private hospitals are maintained by corporations incorporated for the purpose of furnishing medical and surgical treatment. In the course of providing such treatments, these corporations employ physicians, surgeons and medical practitioners, in the same way that in the course of manufacturing and selling eyeglasses, eye frames and optical lenses, optical shops hire licensed optometrists to examine, prescribe and dispense ophthalmic lenses. No one has ever charged that these corporations are engaged in the practice of medicine. There is indeed no valid basis for treating corporations engaged in the business of running optical shops differently. It also bears stressing, as petitioner has pointed out, that the public and private respondents did not appeal from the ruling of the Court of Appeals. Consequently, the holding by the Court of Appeals that the act of respondent City Mayor in imposing the questioned special conditions on petitioners business permit is ultra vires cannot be put into issue here by the respondents. It is well-settled that: "A party who has not appealed from the decision may not obtain any affirmative relief from the appellate court other than what he had obtain from the lower court, if any, whose decision is brought up on appeal.[23] xxx an appellee who is not an appellant may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless he has also appealed."[24] Thus, respondents submission that the imposition of subject special conditions on petitioners business permit is notultra vires cannot prevail over the finding and ruling by the Court of Appeals from which they (respondents) did not appeal.

10

Anent the second assigned error, petitioner maintains that its business permit issued by the City Mayor is not a contract entered into by Iligan City in the exercise of its proprietary functions, such that although petitioner agreed to such conditions, it cannot be held in estoppel since ultra vires acts cannot be given effect. Respondents, on the other hand, agree with the ruling of the Court of Appeals that the business permit in question is in the nature of a contract between Iligan City and the herein petitioner, the terms and conditions of which are binding upon agreement, and that petitioner is estopped from questioning the same. Moreover, in the Resolution denying petitioners motion for reconsideration, the Court of Appeals held that the contract between the petitioner and the City of Iligan was entered into by the latter in the performance of its proprietary functions. This Court holds otherwise. It had occasion to rule that a license or permit is not in the nature of a contract but a special privilege. "xxx a license or a permit is not a contract between the sovereignty and the licensee or permitee, and is not a property in the constitutional sense, as to which the constitutional proscription against impairment of the obligation of contracts may extend. A license is rather in the nature of a special privilege, of a permission or authority to do what is within its terms. It is not in any way vested, permanent or absolute."[25] It is therefore decisively clear that estoppel cannot apply in this case. The fact that petitioner acquiesced in the special conditions imposed by the City Mayor in subject business permit does not preclude it from challenging the said imposition, which is ultra vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts which are clearly beyond the scope of ones authority are null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect to an act which is otherwise null and void or ultra vires. The Court of Appeals erred in adjudging subject business permit as having been issued by respondent City Mayor in the performance of proprietary functions of Iligan City. As hereinabove elaborated upon, the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature. The authority, which devolved upon local government units to issue or grant such licenses or permits, is essentially in the exercise of the police power of the State within the contemplation of the general welfare clause of the Local Government Code. WHEREFORE , the petition is GRANTED; the Decision of the Court of Appeals in CA-GR SP No. 22995 REVERSED; and the respondent City Mayor is hereby ordered to reissue petitioners business permit in accordance with law and with this disposition. No pronouncement as to costs. SO ORDERED.

EMILIANO ACUA, plaintiff-appellant, vs. BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., JUSTINO GALANO, TEODORO NARCISO, PABLO BACTIN, (DR.) EMMANUEL BUMANGLAG, VENANCIO DIRIC, MARCOS ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN ROSSINI, RAYMUNDO BATALLONES, PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees. Marquez and Marquez for plaintiff-appellant. Estanislao A. Fernandez for defendants-appellees. MAKALINTAL, J.: Appeal taken from the order dated September 10, 1962 of the Court of First Instance of Rizal, Branch V (Quezon City) dismissing plaintiff's complaint on the ground that it states no cause of action, and discharging the writ of preliminary attachment issued therein. On August 9, 1962, plaintiff Emiliano Acua filed a complaint, which was later amended on August 13, against the defendant Batac Producers Cooperative Marketing Association, Inc., hereinafter called the Batac Procoma, Inc., or alternatively, against all the other defendants named in the caption. The complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and defendant Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would seek and obtain the sum of not less, than P20,000.00 to be advanced to the defendant Batac Procoma, Inc., to be utilized by it as additional funds for its Virginia tobacco buying operations during the current redrying season; that plaintiff would be constituted as the corporation's representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such shipments; that for his services plaintiff would be paid a remuneration at the rate of P0.50 per kilo of tobacco; that said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma Inc., and on May 6, 1962 all the defendants named above, who constituted the entire Board of Directors of said corporation (except Leon Q. Verano, who was its Manager), together with defendants Justino Galano and Teodoro Narciso, as President and Vice-President, respectively, unanimously authorized defendant Leon Q. Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of the corporation, for the purpose of securing additional funds for the corporation, as well as to secure the services of such person or entity, in the collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration; giving and conferring upon the Manager, full and complete authority to bind the corporation with such person or entity in any agreement, and under such considerations, which the said Manager may deem expedient and necessary for that purpose; that plaintiff was made to understand by all of said defendants that the original understanding between him and defendant Leon Q. Verano was acceptable to the corporation, except that the remuneration for the plaintiff's services would be P0.30 per kilo of tobacco; that on May 10, 1962, the formal "Agreement" was executed between plaintiff and defendant Leon Q. Verano, as Manager of the defendant corporation, duly authorized by its Board of Directors for such purpose, and signed by defendants Justino Galano and Dr. Emmanuel Bumanglag as instrumental witnesses and acknowledged by Atty. Fernando Alcantara, the Secretary and Legal Counsel of the defendant corporation; that upon plaintiff's inquiry, he was assured by these defendants that a formal approval of said "Agreement" by the Board was no longer necessary, as it was a mere "formality" appended to its authorizing resolution and as all the members of the Board had already agreed to the same; that on the same date, May 10, 1962, plaintiff gave and turned over to the defendant corporation, thru its treasurer, Dominador T. Cocson the sum of P20,000.00, in the presence of defendants Leon Q. Verano, Justino Galano, Dr. Emmanuel Bumanglag and Atty. Fernando Alcantara, for which said treasurer issued to plaintiff its corresponding Official Receipt No. 130852; that from then on, plaintiff diligently and religiously kept his part of the "Agreement;" that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three thousand (3,000) sacks which it utilized in the shipment of its tobacco costing P6,000.00 and that plaintiff had personally advanced out of his own personal funds the total sum of P5,000.00 with the full knowledge, acquiescence and consent of all the individual defendants; that after the defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help, assistance and intervention of plaintiff, for which the said corporation collected from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board of Directors on June 6, 1962. Upon the foregoing allegations plaintiff prays: (a) that an order of attachment be issued against the properties of defendant corporation; (b) that after due trial, judgment be rendered condemning defendant corporation, or alternatively, all the other individual defendants, jointly and severally, to comply with their contractual obligations and to pay plaintiff the sum of P300,000.00 for his services, plus P31,000.00 for cash advances made by him and P25,000.00 for attorney's fees. On August 14, 1962, the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court.1wph1.t On August 22, 1962, the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the preliminary attachment on the ground that it was improperly or irregularly issued. In support of the motion defendants alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of defendant Batac Procoma, Inc., and that on the basis of plaintiff's pleadings the contract is void and unenforceable. Defendants further denied the fact that plaintiff had performed his part of the contract, alleging that he had not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation. On August 25, 1962, plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment. On September 10, 1962, the trial court sustained defendants' motion and issued the following order: In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio. IN VIEW OF THE FOREGOING, the amended complaint filed in this case is hereby ordered DISMISSED, without special pronouncement as to costs. Consequently, the writ of preliminary attachment issued herein is ordered discharged. However, it is of record that the defendants has (sic) deposited the Court the amount of P20,400.00 representing the amount of money invested by the plaintiff plus the corresponding interest thereon. Plaintiff, by virtue of this order, may withdraw the same in due time, if he so desires, upon proper receipt therefor. From the foregoing order plaintiff interposed the present appeal. Appellant has assigned four errors, which we shall consider seriatim: The first assignment reads: "As the defendants' motion to dismiss the complaint and to discharge the preliminary attachment was based on the specific ground that the complaint states no cause of action (Sec. 1 [f], Rule 8, Rules of Court), the lower court should

not have gone beyond, and it should have limited itself, to the facts alleged in the complaint in considering and resolving said motion to dismiss. It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause of action (Rule 8, Section 1, par. 7 of the old Rules; Rule 16, Section 1., par. [g] of the Revised Rules) the averments in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. If said motion assails directly or indirectly the veracity of the allegations, it is improper to grant the motion upon the assumption that the averments therein are true and those of the complaint are not (Carreon vs. Prov. Board of Pampanga, 52 O.G. 6557.) The sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint, and no other. If these allegations show a cause of action, or furnish sufficient basis by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses that may be averred by the defendants. (Josefa de Jesus, et al. vs. Santos Belarmino, 50 O.G. 3004-3068; Verzosa vs. Rigonan, G.R. No. L-6459, April 23, 1954; Dimayuga vs. Dimayuga, 51 O.G. 2397-2400.) The first ground upon which the order of dismissal issued by the lower court is predicated is that the Board of Directors of defendant corporation did not approve, the agreement in question in fact disapproved it by a resolution passed on June 6, 1962 and that as a consequence the "suspensive condition" attached to the agreement was never fulfilled. The specific stipulation referred to by the Court as a suspensive condition states: "provided, however that the contract entered into by said manager to carry out the purposes above-mentioned shall be subject to the approve by the Board." A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. On the first point we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted the entire Board of Directors) and discussed with them extensively the tentative agreement and he was made to understand that it was acceptable to them, except as to plaintiff's remuneration; that it was finally agreed between plaintiff and all said Directors that his remuneration would be P0.30 per kilo (of tobacco); and that after the agreement was formally executed he was assured by said Directors that there would be no need of formal approval by the Board. It should be noted in this connection that although the contract required such approval it did not specify just in what manner the same should be given. On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of P20,000.00 as called for in the contract; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a cost of P6,000.00 and advanced to it the further sum of P5,000.00; and that he did all of these things with the full knowledge, acquiescence and consent of each and all of the individual defendants who constitute the Board of Directors of the defendant corporation. There is abundant authority in support of the proposition that ratification may be express or implied, and that implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It refers to plaintiff's failure to comply with certain promises he had made, as well as to his interpretation of the contract with respect to his remuneration which, according to the Board, was contrary to the intention of the parties. The resolution then proceeds to "disapprove and/or rescind" the said contract. The idea of conflicting interpretation, or rescission on the ground that one of the parties has failed to fulfill his obligation under the contract, is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board of Directors. Appellants' second assignment of error reads: "Assuming that in resolving the defendants' motion to dismiss the lower court could consider the new facts alleged therein and the documents annexed thereto it committed an error in extending such consideration beyond ascertaining only if an issue of fact has been presented and in actually deciding instead such fact in issue." The assignment is well taken, and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a cause of action addresses itself to the averments in the complaint and, admitting their veracity, merely questions their sufficiency to make out a case on which the court can grant relief. Affidavits, such as those presented by defendants in support of the motion, can only be considered for the purpose of ascertaining whether an issue of fact is presented, but not as a basis for deciding the factual issue itself. This should await the trial on the merits. The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be maintained thereon because its object was illegal and therefore void. Specific reference was made by said court to an affidavit executed by appellant on May 10, 1962 which reads: That I, EMILIANO ACUA, the party of the Second Part in the contract entered into with the Batac Procoma, Inc., the party of the First Part in same contract declares that the amount of P0.30 per kilo is referred to upgraded tobacco only as delivered. This supplements paragraph three of the contract referred to. Deliveries downgraded or maintained at the redrying plant are deemed not included. The lower court, in its order of dismissal, held that "the upgrading of tobaccos is clearly prohibited under our laws," and hence the contract cannot be validly ratified. Evidently the court had in mind a fraudulent upgrading of tobacco by appellant as part of the services called for under the contract. This conclusion, however, is squarely traversed by appellant in another affidavit attached to his reply and opposition to the motion to dismiss, in which he explained the circumstances which led to the execution of the one relied upon by the court, and the real meaning of the word "upgraded" therein. It is therein stated: That after the execution of the agreement (Annex "B" to the amended complaint in said Civil Case No. Q-6547), Messrs. Verano, Galano and Dr. Bumanglag of the defendant Corporation indicated to me that if the price of P0.30 per kilo stipulated there to be paid to me were to be indiscriminately applied to all deliveries of tobaccos, the Corporation would be placed in a disadvantageous and losing position, and they proceeded to explain to me the following, (a) that when the farmers sell their tobaccos to the Facoma, they do so in bunches of assorted qualities which may belong either to Class A, B, C, D and E, and upon such purchase they are initially given an arbitrary classification of any of such classes as the case may be, the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as possible, and this is what is termed "downgrading;" (b) that after the tobaccos have been purchased by the Facoma from the farmers, they are then reassorted and re-classified in accordance with their actual quality or grade as found by the officials of the Facoma, thus in a bunch which are purchased as Class C, D or E, upon reclassification those found to belong to Class A are separated from Class B, those belonging to Class B are separated from Class C, and so on, and these bunches so reclassified necessarily have a higher grade than the farmers, and this is what is termed "upgrading" upon delivery original arbitrary classification given when purchased from the which was used in the addendum;

(c) the Facoma, in turn, delivers these properly re-classified tobaccos to the redrying plant, and there, a group of officials composed of a representative of the redrying plant, the Bureau of Internal Revenue, the General Auditing Office, the PVTA and the Facoma representative, then examines and grades the tobaccos, and if the classification given by the Facoma is found correct and not changed, then and only then would or should be entitled to collect the P0.30 per kilo, and this they said is what is termed "grade maintained" on the other hand, if these officials found the classification incorrect and lowers the classification given by the Facoma, thus class A to B, or from B to C, then the tobaccos are considered or said to be "downgraded" and in that event I should not receive any centavo for such deliveries, and it is in this sense that I was made to understand the term; Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal, I agreed readily and Atty. Fernando Alcantara, Legal Counsel and Secretary of the defendant Corporation forthwith prepared, drafted and typed the "addendum" in question in their own typewriter of the Corporation; and as I am not a lawyer and was not well versed with the usage, customs and phraseology usually used in tobacco trading, I relied in absolute good faith that, as explained by the defendants, there was nothing wrong nor illegal in the use of the words "upgrading" and "downgrading" used in said addendum, which Atty. Alcantara unfortunately used in the same; Apart from the above, defendants knew the physical impossibility of "upgrading" the tobaccos at the redrying plant, because at the time of the transaction, only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery area for tobaccos at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually make the grading of tobaccos delivered, are the (1) American representative of the redrying plant (PTFC & RC), (2) the PVTA, (3) the BIR, and (4) the General Auditing Office in the presence of the representative of the FACOMA, and since the redrying plant is compelled to purchase 41% of all tobaccos delivered and redried under their negotiated management contract, it is highly improbable that the representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or tally sheet, would allow the "upgrading" of tobaccos, aside from the fact that stringent measures had been devised under the present administration to prevent the "upgrading" of tobaccos by any party. Certainly, an impossible condition could not have been contemplated by me and the defendants; (Record on Appeal, pp. 171-175). The foregoing explanation, on its face, is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it by the lower court. To be sure, whether the allegations in this subsequent affidavit are true or not is a question of fact; but it is precisely for this reason that they can neither be summarily admitted nor rejected for purposes of a motion to dismiss. Due process demands that they be the subject of proof and considered only after trial on the merits. The other errors assigned by appellant are merely incidental to those already discussed, and require no separate treatment. Wherefore, the order appealed from is set aside and the case is remanded to the court a quo for further proceedings, without prejudice to, the right of plaintiff-appellant to ask for another writ of attachment in said court, as the circumstances may warrant. Costs against defendants-appellees.

AETNA CASUALTY & SURETY COMPANY, plaintiff-appellant, vs. PACIFIC STAR LINE, THE BRADMAN CO. INC., MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, INC., defendantsappellees. Domingo E. de Lara & Associates for appellant. Salcedo, Del Rosario, Bito & Mesa for appellee Pacific Star Line. D. F. Macaranas for appellee Manila Port Service, etc. FERNANDEZ, J.: This is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 53074 entitled Aetna Casualty & Surety Company vs. Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc." dismissing the complaint on the ground that the plaintiff has no legal capacity to bring this suit and making no finding as to the 1 liability of the defendants. On February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee, instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US $2,300.00 representing the value of the stolen and damaged cargo plus litigation expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest thereon from the filing of the suit and costs. The complaint stated that during the time material to the action, the defendant Pacific Star Line, as a common carrier, was operating the vessel SS Ampal on a commercial run between United States and Philippine Ports including Manila; that the defendant, The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific Star Line; that the Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the port of Manila and were authorized to delivery cargoes discharged into their custody on presentation of release papers from the Bureau of Customs and the steamship carrier and/or its agents; that on December 2, 1961, the SS Ampal took on board at New York, N.Y., U.S.A., a consignment or cargo including 33 packages of Linen & Cotton Piece Goods for shipment to Manila for which defendant Pacific Star Line issued Bill of Lading No. 18 in the name of I. Shalom & Co., Inc., as shipper, consigned to the order of Judy Philippines, Inc., Manila; that the SS Ampal arrived in Manila on February 10, 1962 and in due course, discharged her cargo into the custody of Manila Port Service; that due to the negligence of the defendants, the shipment sustained damages valued at US $2,300.00 representing pilferage and seawater damage; that I. Shalom & Co., Inc. immediately filed claim for the undelivered land damaged cargo with defendant Pacific Star Line in New York, N.Y., but said defendant refused and still refuses to pay the said claim; that the cargo was insured by I. Shalom & Co., Inc. with plaintiff Aetna Casualty & Surety Company for loss and/or damage; that upon demand, plaintiff Aetna Casualty & Surety Company indemnified I. Shalom & Co., Inc. the amount of US $2,300.00; that in addition to this, the plaintiffs had obligated themselves to pay attorney's fees and they further anticipated incurring litigation expenses which may be assessed at P1,000.00; that plaintiffs and/or their predecessor-in-interest sustained losses due to the negligence of Pacific Star Line prior to delivery of the cargo to Manila or, in the alternative, due to the negligence of Manila Port Service after delivery of the cargo to it by the SS Ampal; that despite repeated demands, none of the defendants has been willing to accept liability for the claim of the plaintiffs and/or I. Shalom & Co., Inc.; and that by reason of defendants' evident bad faith, they should consequently be liable to pay exemplary damages in the amount of 2 P2,000.00. On motion of the defendants Pacific Star Line and The Bradman Co. Inc. and with the conformity of the plaintiff Aetna Casualty & 3 Surety Company, the plaintiff Smith Bell & Co. (Philippines), Inc. was dropped and the complaint was dismiss as to said plaintiff. In their answer filed on February 28, 1963, the defendants Manila Port Service and Manila Railroad Company, Inc. alleged that they have exercised due care and diligence in handling and delivering the cargoes consigned to Judy Philippines, Inc.; that, in fact, they had delivered the merchandise to the consignee thereof in the same quantity, order and condition as when the same was actually received from the carrying vessel; that a portion of the shipment in question was discharged from the carrying vessel in bad order and condition and consequently, any loss or shortage incurred thereto, is the sole responsibility of the said carrying vessel and not that of the arrastre operator; that they have delivered to the consignee thereof the same quantity of merchandise and in the same order or condition as when received from the carrying vessel; that since no claim of the value of the goods in question was filed by the plaintiff or any of its representative within 15 days from the discharge of the last package from the carrying vessel, the claim has become time-barred and/or prescribed pursuant to the management contract under which said defendants were appointed as arrastre operator at the Port of Manila; that consequently, they are completely relieved or released from any or all liability therefor 4 and that they do not in any manner act as agent of the carrying vessel in the discharge of the goods at the piers. The Pacific Star Line and The Bradman Co. Inc. alleged in their answer as special defenses that the plaintiff's cause of action, if any, against the answering defendants had prescribed under the provisions of the Carriage of Goods by Sea Act and/or the terms of the covering bill of lading that the entire shipment covered by the bill of lading issued by answering defendant Pacific Star Line was discharged complete and in good order condition into the custody of the other defendant, Manila Port Service, which was the operator of the arrastre service at the Port of Manila; that any damage which may have occurred to the cargo while it was in the custody of the other defendant, Manila Port Service was caused solely by the negligence of said arrastre operator and is, therefore, its sole responsibility, the defendant Manila Port Service is not the vessel agent in the receiving, handling, custody and/or delivery of the cargo purchased: that the vessel responsibility ceased upon removal of the cargo from the ship's tackle; that defendant Manila Port Service is not the vessel's or answering defendant's agent in the receiving, handling, custody and/or delivery of the cargo consignee; that the vessel's responsibility ceased upon removal of the cargo from the ship's tackles; that the vessel's liability, if any, 5 for one case cannot exceed the sum of P 500.00 under the Carriage of Goods by Sea Act. The defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege that the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore. without 6 capacity to sue and be sued. The parties submitted on November 23, 1965 the following partial stipulation of facts-. PARTIAL STIPULATION OF FACTS COME NOW the parties, through their undersigned counsel, and to this Honorable Court respectfully submit the following Partial Stipulation of Facts: A. - On their part, defendants admit: 1. - Paragraphs 2, 3, and 4 of the complaint;

2. - That the S/S Ampal arrived in Manila, on February 10, 1962 and in due course discharged her cargoes into the custody of the defendant Manila Port Service, including the subject shipment complete and in good order, except two (2) cases Nos. 5804 and 16705 which were discharged under B.O. Tally Sheets Nos. 2721 and 2722 and turned over to the custody of the defendant Manila Port Service by the vessel S/S Ampal. The shipping Documents covering the cargo were indorsed and sent to Judy's Philippines, Inc. for processing and eventual return thereof to the owner, and which cleared the documents with the defendants and the Bureau of Customs; 3 - That the I. Shalom & Co., Inc. filed claim for undelivered and damaged portion of subject cargo with defendant Pacific Star Line in New York, New York, but said defendant refused and still refuses to pay the said claim, for the reason stated in said defendant's letter to Smith, Bell & Co. (Philippines, Inc. dated June 1, 1962, copy of which letter is hereto attached and marked Annex A; 4 - That Judy's Philippines, Inc. through its customs broker filed provisional claims with defendant The Bradman Co., Inc. and defendant Manila Port Service on February 13, 1962. B. - Defendants admit the genuineness and due execution of the following documents: 1 - Bill of Lading No. 18 dated December 22, 1961, ex S/S Ampal, attached hereto and marked as Annex B; 2 - Invoice dated December 26, 1961 of I. Shalom & Co., Inc. attached hereto and marked as Annex B; 3 - Provisional Claim filed with The Bradman Co., Inc. on February 13, 1962, attached hereto and marked as Annex E; 4 - Provisional Claim filed with the Manila Port Service on February 13, 1962, attached hereto and marked as Annex E; 5 - Request for Bad Order Examination No. 1073 dated march 6, 1962 covering Cases Nos. 16705 and 5804, attached hereto and marked as Annex F; 6 - Request for Bad Order Examination No. 1177 dated March 5, 1962 covering Cases Nos. 14913 and 15043, attached 'hereto and marked as Annex G; 7 - Formal Claim dated April 10,1962 addressed to defendant Pacific Star Line filed by I. Shalom & co. Inc. attached hereto and marked as Annex H; 8 - Letter dated May 3, 1962 addressed to defendant Manila Port Service by Smith, Bell & co. (Philippines) Inc., attached hereto and marked as Annex I; 9 - Letter dated August 8, 1962 addressed to the defendant Manila Port Service by Smith Bell & Co. (Philippines) Inc., attached hereto and marked as Annex J; 10 - Certification of Insurance, authenticated by the Philippine Consul, New York, U.S.A. attached hereto and marked as Annex K; 11. Subrogation Receipt dated June 1, 1962, attached hereto and marked as Annex L; C. - On their part, plaintiff and defendant Pacific Star Line and The Bradman Company, Inc. admit: 1. - Having knowledge and being bound by the provisions of the Management Contract entered into by and between the Manila Port Service and the Bureau of customs on February 29, 1956, covering the operation of the arrastre service in the Port of Manila, a copy of which is attached hereto and marked as Annex M; 2. - The genuineness and due execution of Gate Pass No. 34582 which, aiming others, covers Case NO. 14915, attached hereto and marked as Annex N; 3. - The genuineness and due execution of Gate Pass No. 34837, which, among others, cover Cases No. 16706 and 16707, attached hereto and marked as Annex O; 4. - The genuineness and due execution of a Certification issued by the Office of the Insurance Commissioner dated December 19, 1964, a photostat copy of which is attached hereto and marked as Annex P; 5. - The genuineness and due execution of a Certification issued by the Securities and Exchange Commission dated November 10, 1964, a photostat copy of which is attached hereto and marked as Annex Q; 6. - That the value of the shipment in question was not specified or manifested in the bill of lading and that the arrastre charges thereon were paid on the basis of weight and/or measurement and not on the value thereof. D. On other part, plaintiff and defendant Manila Port Service admit: 1. - That the shipment in question was discharged complete and in good order condition into the custody of the Manila Port Service except Cases Nos. 5804 and 16705 covered by Tally Sheets Nos. 2721 and 2722; 2. - That as per signed copies of Survey Report and Turnover Receipt both dated February 26, 1962, all goods contained in Case No. 5804 were received in good order condition by the consignee who waived all claims thereon and that the contents of Case No. 16705 were turned over to the defendant Manila Port Service in the condition shown in said Turnover Receipt; 3. - The genuineness and due execution of the following documents: (a) Tally Sheet No. 2721 dated November 2, 1962 attached hereto and marked as Annex R; (b) Tally Sheet No. 2722, dated November 2, 1962, attached thereto and marked as Annex S; mark as Annex T; (d) Turnover Receipt dated February 26, 1962, attached hereto and marked as Annex U. WHEREFORE, it is respectfully prayed that the following Partial Stipulation of Facts be approved, and the parties be allowed to present evidence on the remaining controverted issues. Manila, Philippines, September, 1965.

VICTOR AFRICA, petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, JOSE LAURETA, MELQUIADES GUTIERREZ, EDUARDO M. VILLANUEVA, EDUARDO DE LOS ANGELES and ROMAN MABANTA, JR., respondents. G.R. No. 85594 January 9, 1992 PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT and PCGG-Nominees/Designees: MELQUIADES GUTIERREZ, EDUARDO M. VILLANUEVA, RAMON DESUASIDO, ALMARIO P. VELASCO, RANULFO P. PAYOS and JOSE P. ROXAS, petitioners. vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL H. NIETO, JR., RAFAEL VALDEZ and VICTOR AFRICA, respondents. G.R. No. 85597 January 9, 1992 REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT), petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL H. NIETO and RAFAEL VALDEZ, respondents. G.R. No. 85621 January 9, 1992 EDUARDO M. VILLANUEVA, petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL NIETO, RAFAEL C. VALDEZ and PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,* respondents. Victor Africa for petitioner in G.R. No. 83831 Jose L. Africa and Manuel H. Nieto for respondents in G.R. No. 85594 and 85597. Arthur D. Lim Law Office for petitioner in G.R. No. 85621. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for respondents Mabanta & de los Angeles in 83831 & 85594. REGALADO, J.: 1 These four cases separately filed before this Court were consolidated pursuant to our resolution of November 22, 1988 since they involve issues arising from, incidental or related to the sequestration of Eastern Telecommunications Philippines, Inc. (ETPI) by the Presidential Commission on Good Government (PCGG) on March 14, 1986 and the consequent filing by the PCGG on July 22, 1987 of an action for reconveyance, reversion, accounting and restitution of the alleged ill-gotten ETPI shares and damages, docketed as Civil Case No. 0009 in the Sandiganbayan. Shortly after the PCGG sequestered ETPI on March 14, 1986, the sequestration order was partially lifted in May, 1986 when 40% of the shares of stock (Class "B") owned by Cable and Wireless, Ltd. were freed from the effects of sequestration. The remaining 60% of the shares (Class "A"), however, remained under sequestration. Thereafter, on July 22, 1987, the PCGG filed with the Sandiganbayan the aforesaid Civil Case No. 0009. Subsequently, during the annual stockholders meeting convened on January 29, 1988 pursuant to a PCGG Resolution dated January 28, 1988 which called for the resumption of the stockholders meeting originally scheduled on January 4, 1988, Eduardo M. Villanueva, as PCGG nominee, Roman Mabanta, Jr. and Eduardo de los Angeles as nominees of the foreign investors, Cable and Wireless Ltd., and Jose L. Africa (who was absent) were elected as members of the board of directors. An organizational meeting was later held where Eduardo Villanueva was elected as president and general manager, while Ramon Desuasido, Almario Velasco and Ranulfo Payos were elected as acting corporate secretary, acting treasurer, and acting assistant corporate secretary, respectively. The nomination and election of PCGG nominees/designees to the ETPI Board of Directors, as well as the election of its new officers, triggered a chain of contentious proceedings before the Sandiganbayan and this Court between the members of the ETPI Board and its stockholders, on the one hand, and the PCGG's nominees/designees elected ETPI Board, on the other hand, in the cases hereinunder discussed. G.R. No. 83831 Victor Africa, who claims to be an employee of ETPI holding the positions of vice-president, general counsel (on official leave without pay), corporate secretary and special assistant to the chairman (and president), filed directly with this Court on June 30, 1988 a petition for injunction docketed as G.R. No. 83831, seeking to enjoin the PCGG and its nominees/designees to the board of directors and the newly-installed officers of ETPI from implementing their alleged illegal, invalid and immoral act of ousting him from his offices and positions at the ETPI pending the determination of whether they have validly, legally and morally assumed their supposed positions and offices as "directors" and/or "officers" of ETPI. He contends that the reasons advanced by the PCGG-sponsored board of directors for ousting him from his offices (redundancy, need to conserve company funds and loss of confidence) are flimsy, whimsical and arbitrary, evidencing not only the PCGGsponsored board's discriminatory and oppressive attitude towards him but, more importantly, its clear intent to harass him into refraining from questioning before several tribunals all the invalid, illegal and immoral acts of said PCGG-sponsored board which have caused and are still causing ETPI damages because they constitute dissipation of assets. Further claiming that the acts of respondents will work injustice, unfairness and inequity to him as they will invalidly, illegally and immorally deprive him of his principal means of livelihood to the detriment of his spouse and three children, petitioner sought the issuance of a writ of preliminary injunction or a temporary restraining order to enjoin the PCGG from ousting him from his positions and offices effective June 30, 1988. On July 8, 1988, petitioner informed the Court that while a verbal agreement to maintain the status quo was reached between petitioner's lawyers, Attys. Juan de Ocampo and Antonio Africa, and Messrs. Orlando Romero and Serafin Rivera of the PCGG, respondent Eduardo M. Villanueva circulated on July 5, 1988 an inter-office memorandum easing out the legitimate members of the board from their rooms in the executive offices for the benefit of the newly-installed members of the questioned PCGG board; and that Ildefonso Reynoso, vice-president for administration, issued a memorandum to the Nival Security and Protective Agency informing them that they were being relieved of their duty to provide security services at the 7th Floor of Telecoms Plaza where the 2 executive offices are located, which services would then be handled by the FCA Security Agency. On July 15, 1988, petitioner was allegedly forcibly taken out of his office on the basis of a PCGG order which petitioner claimed was addressed not to then PCGG Commissioner Laureta but to three other PCGG officials, namely, Esteban B. Conejos, Jr., Serafin P.

Rivera and Orlando Z. Romero. As a consequence, petitioner Africa sought to have then Commissioner Laureta declared in contempt of court for having committed "improper conduct tending directly or indirectly, to impede, obstruct or degrade the administration of 3 justice." He likewise sought the issuance of a writ of preliminary mandatory injunction ordering respondents to open his office and allow him access to and use of the same. G.R. Nos. 85597 and 85621 Jose L. Africa, Manuel Nieto and Rafael Valdez, allegedly the registered stockholders of ETPI, instituted on September 6, 1988 before 4 the Sandiganbayan Civil Case No. 0048, a complaint for injunction and damages with prayer for a temporary restraining order seeking to enjoin Eduardo M. Villanueva from acting as "Director, President and/or General Manager" of ETPI and from exercising the powers and functions of said positions, as well as to stop the PCGG from directly or indirectly interfering with the management of ETPI. They contend that the assumption of Villanueva to said positions was effected without due process of law through the PCGG using and voting the sequestered shares without legal justification. Eduardo M. Villanueva filed a motion to dismiss/opposition to the issuance of a restraining order on the grounds of lack of jurisdiction, because the complaint partakes of the nature of a suit against the State without its consent; that plaintiffs are not the real parties in interest in the action, which is actually a quo warranto proceeding; that the complaint is premature for failure to exhaust administrative remedies; and that the issues raised have already been passed upon by the Supreme Court in G.R. No. 82188, 5 a recourse against the Securities and Exchange Commission (SEC), entitled "PCGG, et al. vs. SEC, et al." The PCGG, on the other hand, opposed the issuance of a writ of preliminary injunction, contending that the issues raised in Civil Case No. 0048 have already been passed upon by the Supreme Court in its aforesaid decision in G.R. No. 82188 promulgated on June 30, 6 1988. In the proceedings on September 13, 1988, the PCGG, through Solicitor Ramolete, moved to defer the hearing until after the motion to dismiss of Villanueva and the objection raised by PCGG shall have been resolved. However, the Sandiganbayan resolved to hear the evidence on the application for preliminary injunction with the understanding that the incident shall not be resolved earlier than 7 the resolution of the motion to dismiss and the issue raised by Solicitor Ramolete. At the scheduled hearing on October 12, 1988, Villanueva objected to further proceedings without his motion to dismiss being first resolved, contending that since the action is for injunction and damages, the reception of evidence on the application for preliminary injunction was tantamount to a hearing on the merits. In open court, he was overruled and his motion to have the proceedings suspended pending resolution of his motion to dismiss was denied. From the denial of PCGG's motion to defer hearing and Villanueva's motion to suspend proceedings in Civil Case No. 0048, the PCGG filed on November 12, 1988 a petition for prohibition with prayer for a writ of preliminary injunction and/or restraining order with this Court, docketed as G.R. No. 85597, while Villanueva filed on November 16, 1988 a separate petition for prohibition with preliminary injunction and/or restraining order docketed as G.R. No. 85621. Both petitions assail the orders issued by the Sandiganbayan, dated September 13, 1988 and October 12, 1988, as having been issued with grave abuse of discretion amounting to lack of jurisdiction. On November 15, 1988, the Court issued a temporary restraining order 8 in G.R. No. 85597 directing the Sandiganbayan to cease and desist from proceeding with its hearing in Civil Case No. 0048 scheduled on November 18, 1988 at 2:00 p.m. In the resolution of November 22, 1988, the case was ordered consolidated with the other ETPI cases (G.R. Nos. 83831, 85594 and 85621). G.R. No. 85594 The same plaintiffs in Civil Case No. 0048, now in their capacity as erstwhile members of the Board of Directors of ETPI, instituted before the Sandiganbayan on September 23, 1988 Civil Case No. 0050, another action for injunction and damages with prayer for a writ of preliminary injunction and/or temporary restraining order. In their complaint, plaintiffs questioned the acts and orders of the PCGG leading to the election of therein defendants Melquiades Gutierrez, Mark Javier, Ranulfo P. Payos, Jose P. Roxas and Almario Velasco, and Cable and Wireless representatives Roman Mabanta, Jr. and Eduardo de los Angeles to the ETPI Board of Directors. Claiming to be the duly elected members of the ETPI Board of Directors during the January 4, 1988 special stockholders meeting, plaintiffs prayed that defendants be removed from their ETPI positions, and that an injunction be issued perpetually restraining the PCGG from electing, designating and supporting the 9 defendants in their ETPI roles. 10 11 12 The PCGG and its nominees/designees to the ETPI Board, Roman Mabanta, Jr. and Eduardo de los Angeles, separately filed their respective motions to dismiss and opposed the issuance of writ of preliminary injunction/restraining order invoking substantially the same grounds proffered in Civil Case No. 0048, as follows: (1) the court lacks jurisdiction because plaintiffs may not sue the State without its consent; (2) the filing of the complaint is improper because the cause(s) of action alleged and the reliefs sought therein constitute an action forquo warranto, hence plaintiffs are not the proper and real parties in interest to oust or unseat defendants; and (3) the filing of the complaint is barred by lis pendens, as plaintiffs should have contested PCGG's acts in Civil Case No. 0009 (Republic vs. Jose L. Africa, et al.). Roman Mabanta, Jr. and Eduardo de los Angeles further maintained that respondent court has no jurisdiction over the nature and subject matter of the complaint insofar as they are concerned, they being Class B Directors; and that the complaint is barred by the decision of the Supreme Court in G.R. No. 82188. On October 21, 1988, or while the motions to dismiss remained pending and prior to the hearing set on November 3, 1988 for the issuance of a writ of preliminary injunction/temporary restraining order, the Clerk of Court of the Sandiganbayan issued, upon request of the counsel for Jose L. Africa, et al. dated October 18, 1988, a subpoenaduces tecum and ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan during the hearing on November 3, 1988 at 2:00 p.m. and to produce the stock and transfer book and all stubs of the outstanding stock certificates of ETPI. Three days thereafter, or on October 24, 1988, another subpoena duces tecum was issued upon an amended request for subpoena by the same counsel, ordering Assistant Solicitor General Ramon Desuasido or his representative to appear before the Sandiganbayan at the 2:00 p.m. hearing on November 3, 1988 and to produce the "minutes of all meetings of the Board of Directors and Stockholders of ETPI held from January 29, 1988 to date." The PCGG and its nominee/designee, Ramon Desuasido, moved to quash both subpoenae, but the motion was denied by the 13 Sandiganbayan in an order dated November 3, 1988. The hearing was reset to November 15, 1988 at 2:00 o'clock in the afternoon. On November 15, 1988, an urgent petition for certiorari, docketed as G.R. No. 85594, was filed by the PCGG and its nominees/designees before this Court, assailing as having been issued with grave abuse of discretion the incidental orders dated October 24, 1988 and November 3, 1988 on the principal contention that the Sandiganbayan has no jurisdiction over the main

action for damages since Civil Case No. 0050 is in truth a suit against the State without its consent. The PCGG also prayed for the issuance of a temporary restraining order to enjoin the respondents from enforcing and/or executing the subpoenas dated October 14 21, 1988 and October 24, 1988. On the same date, or on November 15, 1988, the Court issued a temporary restraining order. The Sandiganbayan, in the meantime, proceeded with the main case and, thereafter, on December 13, 1988 promulgated a 15 resolution denying the motions to dismiss separately filed by the PCGG and the individual defendants. On February 23, 1989, the Sandiganbayan denied the motion for reconsideration filed by the representatives of Cable and Wireless, 16 Ltd. The PCGG and its nominees opted not to file a motion for reconsideration apparently in the belief that the same would be merely repetitive, if not futile. From the denial of the motion to dismiss, the PCGG and its nominees/designees filed on March 27, 1989 an Urgent Supplemental 17 Petition in G.R. No. 85594 assailing the denial by the Sandiganbayan of their motions to dismiss on the grounds that the core subject matter and issue are res judicata by virtue of the decision in G.R. No. 82188; that the respondent court lacks jurisdiction over the case; that private respondents have no legal capacity to sue and institute a separate action; and that they are not the real parties in interest. Recapping, therefore, from the foregoing narration it appears that the injunction suits filed and docketed as Civil Cases Nos. 0048 and 0050 in the Sandiganbayan and the petition for injunction filed directly with this Court as G.R. No. 83831 are substantially identical in the reliefs sought therein, that is, to nullify the acts and orders of the PCGG which led to the nomination and election of the new members of the board of directors and officers of the ETPI and to enjoin said directors and officers from exercising the powers and functions of said positions. Civil Cases Nos. 0048 and 0050 were elevated to this Court on some incidental matters relating to the propriety of hearing the cases on the merits without the motions to dismiss filed therein having been first resolved; and in Civil Case No. 0050, on the additional issue of the legality of the subpoena duces tecum and ad testificandum issued by the Sandiganbayan ordering the PCGG or its representatives to testify and produce the stock and transfer book, all stubs of the outstanding stock certificates of ETPI and the minutes of all meetings of the board of directors and stockholders held from January 29, 1988. The issue in Civil Case No. 0050 as to the propriety of hearing the main action for injunction before resolving the motions to dismiss has been mooted when the Sandiganbayan denied said motions to dismiss on December 13, 1988. We are, however, constrained to go deeper into the issue since the denial of said motions was the subject matter of a supplemental petition in G.R. No. 85594. With respect to G.R. Nos. 85597 and 85621, we find that the deferment of the resolution of the motions to dismiss Civil Case No. 0048 was tainted with grave abuse of discretion. It is well-settled that while the court has the discretion to defer the hearing and 18 determination of a motion to dismiss if the ground therefor is not indubitable, such deferment is in excess of jurisdiction if the ground for the motion to dismiss is lack of jurisdiction or lack of cause of action, since the allegations of the complaint are deemed 19 admitted and the motion to dismiss can be resolved without waiting for trial on the merits. Clearly, on the face of the complaint, the issue of lack of jurisdiction invoked in the motion to dismiss can be resolved without waiting for trial on the merits as will be shown hereunder. Thus, petitioner Villanueva is correct in his assertion that his motion to dismiss must first be resolved before trial on the merits may be had. Be that as it may, this finding merely constitutes a technical victory for said petitioner as it will be rendered moot and academic by the following ruling on the merits of the grounds raised in his motion to dismiss. In G.R. No. 85621, petitioner Villanueva imputes grave abuse of discretion to the Sandiganbayan in proceeding with the hearing of Civil Case No. 0048. To his mind, the injunction suit filed by Africa, Nieto and Valdez is in effect a suit against the State and, since there is no waiver of immunity by the State, respondent court cannot acquire jurisdiction over the same. Along the same vein, the PCGG elevated to this Court in G.R. No. 85594 the denial of its motion to dismiss Civil Case No. 0050 contending that the Sandiganbayan has no jurisdiction to entertain an independent suit against the Republic of the Philippines (PCGG) not only because it is only the Republic, without consenting to be sued or countersued, that is allowed to file civil or criminal cases with said court pursuant to Executive Order No. 14, but also because the cause of action, if any, or the subject matter or nature of the complaint for injunction are not within the limited or special jurisdiction of the Sandiganbayan as defined by Section 4, Presidential Decree No. 1606, as amended by Presidential Decree No. 1891, even as such jurisdiction has been enlarged by Executive Order No. 14. The law and jurisprudence on the jurisdiction of the Sandiganbayan over cases for the recovery of "ill-gotten wealth" are now 20 settled. In PCGG vs. Hon. Emmanuel G. Pea, etc., et al., this Court held: . . . Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees" whether civil or criminal, are lodged within the "exclusive and original jurisdiction of the Sandiganbayan" and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari exclusively by the Supreme Court. 21 The aforequoted ruling was reiterated in PCGG vs. Hon. Aquino, Jr., etc., et al. and Marcelo Fiberglass Corporation vs. PCGG, which were jointly decided by the Court on June 30, 1988. 22 In six (6) subsequent cases likewise jointly decided on August 10, 1988, the Court pointed out that: . . . (the) exclusive jurisdiction conferred on the Sandiganbayan would evidently extend not only to the principal causes of action, i.e., the recovery of alleged ill-gotten wealth, but also to "all incidents arising from, incidental to, or related to, such cases," such as the dispute over the sale of shares, the propriety of the issuance of ancillary writs or provisional remedies relative thereto, the sequestration thereof, which may not be made the subject of separate actions or proceedings in another forum. A careful examination of the records of these cases reveals that the complaints instituted by Jose L. Africa, et al. in Civil Cases Nos. 23 0048 and 0050 before the Sandiganbayan are in the nature of special and original civil actions for injunction directed against the defendants therein and specially seeking to restrain them from representing and acting as officers and members of the Board of Directors of ETPI and to prevent the PCGG from exercising acts of ownership and/or management over ETPI. Moreover, in claiming as illegal the acts or orders of the PCGG issued in pursuance of the exercise of its powers and functions under Executive Orders Nos. 1, 2 and 14, which resulted in the installation of defendants to the Board of Directors of ETPI and to their corporate offices, plaintiffs Jose L. Africa, et al. merely sought to preserve the status quo, that is, the last actual, peaceable,

uncontested status which preceded the pending controversy. The status quo to the plaintiffs was the fact of their election to the Board of Directors of ETPI during the special stockholders meeting on January 4, 1988 allegedly pursuant to a valid call, notice and assembly in accordance with law. The issue of jurisdiction of the Sandiganbayan over original special civil actions involving the powers and functions of the PCGG has been raised in and resolved by this Court. In the consolidated cases of PCGG vs. Hon. Aquino, Jr., etc., et al. and Marcelo Fiberglass Corporation vs. PCGG, supra, therein private respondent Marcelo Fiberglass Corporation contested the jurisdiction of the Sandiganbayan over special civil actions claiming that Section 2 of Executive Order No. 14 vested the Sandiganbayan with Jurisdiction over civil and criminal cases filed by the PCGG but not over special civil actions filed by private parties; that Section 2 did not limit the filing of special civil actions by private persons exclusively with the Sandiganbayan; and that Presidential Decree No. 1606 which created the Sandiganbayan did not vest such court with jurisdiction over special civil actions such as those involved therein and as enumerated in Section 4 of Presidential Decree No. 1606. The Court rejected such contention, declaring that the attempt to remove special civil actions from the Sandiganbayan's exclusive jurisdiction is of no avail if they similarly involve the powers and functions of the PCGG. The Court reiterated the pronouncement in PCGG vs. Pea, etc., et al., supra, that the Sandiganbayan has exclusive and original jurisdiction in civil or criminal cases involving ill-gotten wealth under Executive Order No. 14, as well as incidents arising from, incidental or related to such cases, subject to review on certiorari exclusively by the Supreme Court. Since the injunctive suits filed by Jose L. Africa, et al. before the Sandiganbayan stemmed from incidents arising from, incidental and related to the partial sequestration of ETPI, the directive enunciated in the Pea case that "those who wish to question or challenge the Commission's acts or orders in such cases must seek recourse in the same court, the Sandiganbayan, which is vested with exclusive and original jurisdiction," applies to the instant case. Neither would the principle of immunity of the State from suit invoked by the PCGG divest the Sandiganbayan of its jurisdiction over the complaints for injunction in both Civil Cases Nos. 0048 and 0050. While there were claims for damages alleged in the complaints in both cases, the same are, however, directed against the individual defendants in their personal capacities for having allegedly 24 acted without legal authority and in a manner adverse to the interests of ETPI. Incorporating a monetary claim in the complaint will not convert the special civil action for injunction into a mere claim for damages 25 which would otherwise call for the application of the rule on non-suability of the State. The complaints for injunction do not seek money judgments from nor do they demand any affirmative performance by the State in its political capacity which would call for immunity from suit. The doctrine of state immunity from suit applies only in actions resulting in adverse consequences on the public 26 treasury, whether in the disbursement of funds or loss of property. Plaintiffs in both cases sought the intervention of the Sandiganbayan to obtain redress for what they perceived to be an arbitrary and illegal deprivation of their proprietary rights in the ETPI by the individual defendants resulting from the latter being installed as directors or officers of ETPI by virtue of the questioned acts or orders of the PCGG. Plaintiffs do not seek to impose pecuniary liabilities against the PCGG as a government entity. Verily, the PCGG cannot hide behind the aforestated doctrine of immunity of the State from suit to bar plaintiffs from going to the courts to seek affirmative reliefs in these actions. Seeking further to divest the Sandiganbayan of its jurisdiction over the actions for injunction in Civil Cases Nos. 0048 and 0050, the PCGG argues that the said actions are barred by res judicata because of the prior judgment in PCGG, et al. vs. SEC, et al. and its companion case, PCGG vs. Sandiganbayan, et pl., supra. It is the contention of the PCGG that the subject matter and issues in both Civil Cases Nos. 0048 and 0050 are the very same subject matter and issues raised by Africa, et al. in SEC Case No. 3297 and in their motion for injunction in Civil Case No. 0009, both of which were elevated by the PCGG to this Court in G.R. No. 82186. The doctrine of res judicata or bar by prior judgment does not apply in the instant cases. The two issues raised in G.R. No. 82188 related principally to the issue of jurisdiction, namely: (1) whether or not the Securities and Exchange Commission gravely abused its discretion and acted in excess of jurisdiction in SEC Case No. 3297 when it restrained the PCGG from holding the special stockholders meeting of the ETPI on March 4, 1988; and (2) whether or not the Sandiganbayan gravely abused its discretion and acted in excess of jurisdiction when it restrained the PCGG, its nominated directors and/or corporate officers, employees, nominees, agents and/or representatives at ETPI from calling and/or holding a stockholders meeting and voting the sequestered shares thereat for the purpose of amending the articles of incorporation or by-laws of ETPI, or otherwise effecting substantial changes in policy, programs or practices of said corporation. In brief, what was obviously raised and resolved by the Court was the scope and extent of the authority of the Sandiganbayan to issue injunctive writs on matters involving the exercise and performance of the powers and functions of the PCGG as conservator in 27 accordance with the ruling in BASECO vs. PCGG, et al. to prevent the disposal and dissipation of the assets of sequestered companies or businesses. Although the challenge against the temporary restraining order issued by the Securities and Exchange Commission in SEC Case No. 3297 became moot and academic by virtue of the expiration of its 20-day effectivity period, the Court nevertheless ruled that the issuance of the same was tainted with grave abuse of discretion considering that the SEC Hearing Panel should have then realized that there existed an element in the case which effectively removed it from the jurisdiction of the SEC, to wit, the presence of the PCGG which, as another quasi-judicial body, is a co-equal entity over whose actions the SEC has no power of control. The Court, on the other hand, upheld the temporary restraining order issued by the Sandiganbayan insofar as it restrained the stockholders meeting specifically called for the purpose of ratifying the proposed amendment to delete from ETPI's articles of incorporation and by-laws the "right of first refusal" clause. Recognizing that the exercise of the "right of first refusal" is an act of strict ownership, the Court ruled that while there may be instances when only through an act of strict ownership can the PCGG be able to prevent the dissipation of assets of a sequestered corporation or business, the situation then presented was nevertheless not one of such instances. Significantly, however, the Court found the general injunction imposed by the Sandiganbayan on the PCGG to desist and refrain from calling a stockholders meeting for the purpose of electing a new board of directors or effecting substantial changes in the policy, program or practice of the corporation to be too broad as to thereby taint said order with grave abuse of discretion. On PCGG's insistence on the rule of bar by prior judgment, it is readily apparent that one fundamental requisite for the application of that doctrine of res judicata is absent in the instant case, that is, the prior judgment or order must be a judgment on the merits of the case. For a prior judgment to constitute a bar to a subsequent case, (1) it must be a final judgment or order, (2) the court rendering the same must have jurisdiction over the subject matter and over the parties, (3) it must be a judgment or order on the

merits, and (4) there must be between the two cases identity of parties, subject matter, and causes of 28 action. There is no dispute that, substantially, the acts or orders of the PCGG which led to the election of the members of the board of directors and officers of ETPI, as well as all acts done thereafter by the said board, are the incidents which gave rise to the causes of action involved in the injunction suit in SEC Case No. 3297 and the motion for injunction in Civil Case No. 0009, both of which gave rise to G.R. No. 82188. There is, accordingly, identity of the incidents upon which the causes of action in Civil Cases Nos. 0048 and 0050 are based and those of the two cases which gave rise to G.R. No. 82188. However, there is nothing, in the pronouncements of the Court in G.R. No. 82188 which finally resolved the merits of the factual issues raised therein by the opposing parties which included, among others, the alleged illegal manner by which the meeting to elect the new board of directors was called and held on January 29, 1988; the qualification, experience and probity of those elected to the board contrary to the caveat in BASECO vs. PCGG, et al., supra, on the substitution of directors of the board of sequestered corporations; and the alleged mismanagement of the operations of ETPI by those elected to the board and the corporate offices by the PCGG. A cursory reading of the decision would show that the Court merely ruled on the parameters of the jurisdiction of the Sandiganbayan to issue injunctive writs in cases involving the PCGG and PCGG-related matters. In fact, the Court stressed in G.R. No. 82188 that "the various motions filed by private respondents in this case involving matters which would require us to look into the facts of the case are better ventilated before the Sandiganbayan." Nothing final or definite was laid down by this Court in that case with respect to the legality or illegality of the questioned acts or orders of the PCGG leading to the election of its nominees/designees to the ETPI board of directors and corporate offices. The denial, therefore, of the motion to dismiss in Civil Case No. 0050 was not sullied by grave abuse of discretion. With this pronouncement, the denial of the motion to dismiss Civil Case No. 0048 would likewise be proper and necessarily called for. The issue raised in the original petition in G.R. No. 85594 relating to the validity of the issuance by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its representative to testify and produce the stock and transfer book, all stubs of the outstanding stock certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of ETPI held from January 29, 1988 to date was laid to rest by our joint resolution in two cases, both entitled Republic 29 vs. Sandiganbayan and Eduardo Cojuangco, Jr., which applies squarely in the instant petitions. In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an implied amendment of the Corporation Code, much less an implied modification of a stockholder's right of inspection as guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to the Court, is that (1) the right of inspection should be exercised at reasonable hours on business days; (2) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of the records of such corporation; and (3) the demand is made in good faith or for a legitimate purpose. The issues raised in G.R. No. 83831, an original petition filed by Victor Africa with this Court, including the motion for contempt filed by Eduardo M. Villanueva against Jose L. Africa, Manuel Nieto and Victor Africa for having made unwarranted comments to the news media on matters involved in the pending petitions, are factual in nature and are best ventilated before the Sandiganbayan the proper forum where both parties can substantiate their respective claims. This Court is not a trier of facts. Considering that Civil Cases Nos. 0048 and 0050 arose from the partial sequestration of ETPI and the incidents raised before this Court in G.R. Nos. 85594, 85597 and 85621 are related to said partial sequestration of ETPI, all the factual matters alleged in these cases are best threshed out in the main case, Civil Case No. 0009, as incidents therein, to save time and efforts in the presentation of evidence and in order to avoid multiplicity of suits. IN VIEW OF THE FOREGOING, the petitions in G.R. Nos. 85594, 85597 and 85621 are hereby DISMISSED for lack of merit, and G.R. No. 83831 is REFERRED to the Sandiganbayan for appropriate proceedings. The Sandiganbayan is hereby ordered to consolidate G.R. No. 83831 and Civil Cases Nos. 0048 and 0050 with Civil Case No. 0009. The temporary restraining orders separately issued in G.R. No. 85594 and G.R. No. 85597 on November 15, 1988 are hereby LIFTED and SET ASIDE. SO ORDERED.

Agan v. PIATCO RESOLUTION Puno, J.: Before this Court are the separate Motions for Reconsideration filed by respondent Philippine International Air Terminals Co., Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of Representatives [1] (Respondent Congressmen), respondents-intervenors who are employees of PIATCO and other workers of the Ninoy Aquino [2] International Airport International Passenger Terminal III (NAIA IPT III) (PIATCO Employees) and respondents-intervenors [3] Nagkaisang Maralita ng Taong Association, Inc., (NMTAI) of the Decision of this Court dated May 5, 2003 declaring the contracts for the NAIA IPT III project null and void. Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the Philippine Government through the Department of Transportation and Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant [4] to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In accordance with the BOT Law and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids and Awards Committee (PBAC). After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession Agreement (ARCA) containing certain revisions and modifications from the original contract. A series of supplemental agreements was also entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements collectively referred to as the PIATCO Contracts). On September 17, 2002, various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA and the Supplements and to prohibit the public respondents DOTC and MIAA from implementing them. In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement, the ARCA and the Supplements null and void. Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative, PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the ARCA and its supplements in light of their separability clause. Respondent-Congressmen and NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of the ARCA. PIATCOEmployees pray that the petitions be dismissed and remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding. I Procedural Matters a. Lack of Jurisdiction Private respondents and respondents-intervenors reiterate a number of procedural issues which they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits. They continue to claim that the cases at bar raise factual questions which this Court is ill-equipped to resolve, hence, they must be remanded to the trial court for reception of evidence. Further, they allege that although designated as petitions for certiorari and prohibition, the cases at bar are actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction. Even assuming that the cases at bar are special civil actions for certiorari and prohibition, they contend that the principle of hierarchy of courts precludes this Court from taking primary jurisdiction over them. We are not persuaded. [5] There is a question of fact when doubt or difference arises as to the truth or falsity of the facts alleged. Even a cursory reading of the cases at bar will show that the Court decided them by interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other relevant legal principles on the basis of clearly undisputed facts. All the operative facts were settled, hence, there is no need for a trial type determination of their truth or falsity by a trial court. We reject the unyielding insistence of PIATCO Employees that the following factual issues are critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic Development Authority- Investment Coordinating Committee (NEDAICC) approved the Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the part of the government; and (c) whether the 1997 Concession Agreement departed from the draft Concession Agreement contained in the Bid [6] Documents. The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is clear in our Decision that the PIATCO contracts were invalidated on other and more substantial grounds. It did not rely on the presence or absence of NEDA-ICC approval of the Supplements. On the other hand, the last two issues do not involve disputed facts. Rather, they involve contractual provisions which are clear and categorical and need only to be interpreted. The interpretation of contracts and the determination of whether their provisions violate our laws or contravene any public policy is a legal issue which this Court may properly pass upon. Respondents corollary contention that this Court violated the hierarchy of courts when it entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within the concurrent jurisdiction of the trial courts and appellate courts generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers of facts. It goes without saying that when cases brought before the appellate courts do not involve factual but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As the cases at bar merely concern the construction of the

Constitution, the interpretation of the BOT Law and its Implementing Rules and Regulations on undisputed contractual provisions and government actions, and as the casesconcern public interest, this Court resolved to take primary jurisdiction over them. This choice of action follows the consistent stance of this Court to settle any controversy with a high public interest component in a single proceeding and to leave no root or branch that could bear the seeds of future litigation. The suggested [7] remand of the cases at bar to the trial court will stray away from this policy. b. Legal Standing Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any legally demandable or enforceable right to justify their standing to file the cases at bar. These arguments are not difficult to deflect. The determination of whether a person may institute an action or become a party to a suit brings to fore the concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these [8] three concepts are different although commonly directed towards ensuring that only certain parties can maintain an action. As defined in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in the suit or [9] the party entitled to the avails of the suit. Capacity to sue deals with a situation where a person who may have a cause of action is disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability that would prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing is relevant in the realm of public law. In certain instances, courts have allowed private parties to institute actions challenging the validity of governmental action for [10] violation of private rights or constitutional principles. In these cases, courts apply the doctrine of legal standing by determining whether the party has a direct and personal interest in the controversy and whether such party has sustained or is in imminent danger of sustaining an injury as a result of the act complained of, a standard which is distinct from the concept of real party in [11] interest. Measured by this yardstick, the application of the doctrine on legal standing necessarily involves a preliminary [12] consideration of the merits of the case and is not purely a procedural issue. Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are employees of service providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the NAIA IPT III, NAIA Passenger [13] Terminals I and II will cease to be used as international passenger terminals. Further, the ARCA provides: (d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession agreement which may expire subsequent hereto, except to the extent that the continuation of the existing services and operations [14] shall lapse on or before the In-Service Date. Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their sources of livelihood. Under settled jurisprudence, one's [15] employment, profession, trade, or calling is a property right and is protected from wrongful interference. It is also self evident that the petitioning service providers stand in imminent danger of losing legitimate business investments in the event the PIATCO Contracts are upheld. Over and above all these, constitutional and other legal issues with far-reaching economic and social implications are embedded in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of Representatives. First, at stake is the build-operate-andtransfer contract of the countrys premier international airport with a projected capacity of 10 million passengers a year. Second, the huge amount of investment to complete the project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in previous cases. They can chart the future inflow of investment under the BOT Law. Before writing finis to the issue of legal standing, the Court notes the bid of new parties to participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Courts Decision, the New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury. PIATCO employees claim that they have a direct and personal interest *in the controversy+... since they [16] stand to lose their jobs should the governments contract with PIATCO be declared null and void. NMTAI, on the other hand, represents itself as a corporation composed of responsible tax-paying Filipino citizens with the objective of protecting and sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good, [17] conscientious and honest government. The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to Intervene should be filed before rendition of judgment.... The New Respondents-Intervenors filed their separate motions after a decision has been promulgated in the present cases. They have not offered any worthy explanation to justify their late intervention. Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel arguments. c. Failure to Implead an Indispensable Party PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as an indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their own capacities or as implementors of the PIATCO Contracts and not as a contract party or as representatives of the Government of the Republic of the Philippines. It then leapfrogs to the conclusion that the absence of an indispensable party renders ineffectual all the proceedings subsequent to the filing of the [18] complaint including the judgment. PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC and MIAA were impleaded as parties to the PIATCO Contracts and not merely as their implementors. The separate petitions filed by the MIAA [19] [20] employees and members of the House of Representatives alleged that public respondents are impleaded herein because they either executed the PIATCO Contracts or are undertaking acts which are related to the PIATCO Contracts. They are interested and [21] indispensable parties to this Petition. Thus, public respondents DOTC and MIAA were impleaded as parties to the case for having executed the contracts.

More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic, appeared in the cases at bar in representation of the interest of the government. II Pre-qualification of PIATCO The Implementing Rules provide for the unyielding standards the PBAC should apply to determine the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the project and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate [22] resources. The evident intent of these standards is to protect the integrity and insure the viability of the project by seeing to it that the proponent has the financial capability to carry it out. As a further measure to achieve this intent, it maintains a certain debt-to-equity ratio for the project. At the pre-qualification stage, it is most important for a bidder to show that it has the financial capacity to undertake the project by proving that it can fulfill the requirement on minimum amount of equity. For this purpose, the Bid Documents require in no uncertain terms: The minimum amount of equity to which the proponents financial capability will be based shall be thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing [23] should not exceed 70% of the actual project cost. In relation thereto, section 2.01 (a) of the ARCA provides: Section 2.01 Project Scope. The scope of the project shall include: (a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30, provided that if the actual Project costs should [24] exceed the aforesaid amount, Concessionaire shall ensure that the debt-to-equity ratio is maintained; Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity or investment by the bidder itself. It cannot be overly emphasized that the rules require a minimum amount of equity to ensure that a bidder is not merely an operator or implementor of the project but an investor with a substantial interest in its success. The minimum equity requirement also guarantees the Philippine government and the general public, who are the ultimate beneficiaries of the project, that a bidder will not be indifferent to the completion of the project. The discontinuance of the project will irreparably damage public interest more than private interest. In the cases at bar, after applying the investment ceilings provided under the General Banking Act and considering the maximum amounts that each member of the consortium may validly invest in the project, it is daylight clear that the Paircargo [25] Consortium, at the time of pre-qualification, had a net worth equivalent to only 6.08% of the total estimated project cost. By any reckoning, a showing by a bidder that at the time of pre-qualification its maximum funds available for investment amount to only 6.08% of the project cost is insufficient to satisfy the requirement prescribed by the Implementing Rules that the project proponent must have the ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at the time of prequalification, the Paircargo Consortium had maximum funds available for investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to show that it had the ability to provide at leastP2,755,095,000.00. The huge disparity cannot be dismissed as of de minimis importance considering the high public interest at stake in the project. PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial statements but also testimonial letters from reputable banks attesting to the good financial standing of the Paircargo Consortium. It contends that in adjudging whether the Paircargo Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial statements but other factors showing its financial capability. Anent this argument, the guidelines provided in the Bid Documents are instructive: 3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS Minimum Amount of Equity Each member of the proponent entity is to provide evidence of networth in cash and assets representing the proportionate share in the proponent entity. Audited financial statements for the past five (5) years as a company for each member are to be provided. Project Loan Financing Testimonial letters from reputable banks attesting that each of the members of the ownership entity are banking with them, in [26] good financial standing and having adequate resources are to be provided. It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its submission of testimonial letters attesting to its good financial standing will not cure this failure. At best, the said letters merely establish its credit worthiness or its ability to obtain loans to finance the project. They do not, however, prove compliance with the aforesaid requirement of minimum amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied through possible loans. In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS combined with the amount of maximum funds that Security Bank may invest by equity in a non-allied undertaking, Paircargo Consortium, at the time of prequalification, failed to show that it had the ability to provide 30% of the project cost and necessarily, its financial capability for the project cannot pass muster. III 1997 Concession Agreement Again, we brightline the principle that in public bidding, bids are submitted in accord with the prescribed terms, conditions and parameters laid down by government and pursuant to the requirements of the project bidded upon. In light of these parameters, bidders formulate competing proposals which are evaluated to determine the bid most favorable to the government. Once the contract based on the bid most favorable to the government is awarded, all that is left to be done by the parties is to execute the necessary agreements and implement them. There can be no substantial or material change to the parameters of the project,

including the essential terms and conditions of the contract bidded upon, after the contract award. If there were changes and the contracts end up unfavorable to government, the public bidding becomes a mockery and the modified contracts must be struck down. Respondents insist that there were no substantial or material amendments in the 1997 Concession Agreement as to the technical aspects of the project, i.e., engineering design, technical soundness, operational and maintenance methods and procedures of the project or the technical proposal of PIATCO. Further, they maintain that there was no modification of the financial features of the project, i.e., minimum project cost, debt-to-equity ratio, the operations and maintenance budget, the schedule and amount of annual guaranteed payments, or the financial proposal of PIATCO. A discussion of some of these changes to determine whether they altered the terms and conditions upon which the bids were made is again in order. a. Modification on Fees and Charges to be collected by PIATCO PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession Agreement does not constitute a substantial amendment as these fees are not really public utility fees. In other words, PIATCO justifies the re-classification under the 1997 Concession Agreement on the ground that these fees are non-public utility revenues. We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from the category of Public Utility Revenues under the draft Concession Agreement and its re-classification to Non-Public Utility Revenues under the 1997 Concession Agreement is significant and has far reaching consequence. The 1997 Concession Agreement provides that with respect [27] to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and porterage fees, *PIATCO+ may make [28] any adjustments it deems appropriatewithout need for the consent of GRP or any government agency. In contrast, the draft Concession Agreement specifies these fees as part of Public Utility Revenues and can be adjusted only once every two years and in accordance with the Parametric Formula and the adjustments shall be made effective only after the written express approval of [29] the MIAA. The Bid Documents themselves clearly provide: 4.2.3 Mechanism for Adjustment of Fees and Charges 4.2.3.1 Periodic Adjustment in Fees and Charges Adjustments in the fees and charges enumerated hereunder, whether or not falling within the purview of public utility revenues, shall be allowed only once every two years in accordance with the parametric formula attached hereto as Annex 4.2f. Provided that the adjustments shall be made effective only after the written express approval of MIAA. Provided, further, that MIAAs approval, shall be contingent only on conformity of the adjustments to the said parametric formula. The fees and charges to be regulated in the above manner shall consist of the following: .... c) groundhandling fees; d) rentals on airline offices; .... (f) porterage fees; [30] .... The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees as non-public utility fees is to remove them from regulation by the MIAA. In excluding these fees from government regulation, the danger to public interest cannot be downplayed. We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is provided that *PIATCO+ shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of [31] services. PIATCO then peddles the proposition that the said provision confers upon MIAA full regulatory powers to ensure that [32] PIATCO is charging non-public utility revenues at judicious rates. To the trained eye, the argument will not fly for it is obviously non sequitur. Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said fees and charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and any adjustment can only be done once every two years. The changes are not insignificant specks as interpreted by PIATCO. PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with respect to fees and charges [33] PIATCO is allowed to impose which are not covered by Administrative Order No. 1, Series of 1993 as the relevant provision of the [34] 1997 Concession Agreement is practically identical with the draft Concession Agreement. We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and charges other than those fees and charges previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, subject to the written [35] approval of MIAA. Further, the draft Concession Agreement provides that MIAA reserves the right to regulate these new fees and [36] charges if in its judgment the users of the airport shall be deprived of a free option for the services they cover. In contrast, under the 1997 Concession Agreement, the MIAA merely retained the right to approve any imposition of new fees and charges which were not previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The agreement did not contain an [37] equivalent provision allowing MIAA to reserve the right to regulate the adjustments of these new fees and charges. PIATCO justifies the amendment by arguing that MIAA can establish terms before approval of new fees and charges, inclusive of the mode for their adjustment. PIATCOs stance is again a strained one. There would have been no need for an amendment if there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs reservation of its right to regulate the price adjustments of new fees and charges can have no other purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again, the amendment diminished the authority of MIAA to protect the public interest in case of abuse by PIATCO. b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs creditors with regard to the NAIA Terminal III. PIATCO alleges that

Section 4.04 of the 1997 Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the NAIA Terminal III. We cannot concur. The pertinent provisions of the 1997 Concession Agreement state: Section 4.04 Assignment. .... (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to take over the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. A plain reading of the above provision shows that it spells out in limpid language the obligation of government in case of default by PIATCO on its loans. There can be no blinking from the fact that in case of PIATCOs default, the government will assume [38] PIATCOs Attendant Liabilities as defined in the 1997 Concession Agreement. This obligation is not found in the draft Concession Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was crafted precisely to prevent government from incurring financial risk. In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997 Concession Agreement contains a separability clause. The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process cannot be upheld and must be annulled in their entirety for violating law and public policy. As demonstrated, the contracts were substantially amended after their award to the successful bidder on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would be allowed, public bidding will cease to be competitive and worse, government would not be favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the bid documents but will formulate their bid in anticipation of the execution of a future contract containing new and better terms and conditions that were not previously available at the time of the bidding. Such a public bidding will not inure to the public good. The resulting contracts cannot be given half a life but must be struck down as totally lawless. IV. Direct Government Guarantee The respondents further contend that the PIATCO Contracts do not contain direct government guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but [39] a clarification and explanation of the securities allowed in the bid documents. They allege that these provisions merely provide [40] for compensation to PIATCO in case of a government buy-out or takeover of NAIA IPT III. The respondents, particularly respondent PIATCO, also maintain that the guarantee contained in the contracts, if any, is an indirect guarantee allowed under the [41] BOT Law, as amended. [42] [43] We do not agree. Section 4.04(c), Article IV of the ARCA should be read in conjunction with section 1.06, Article I, in the same manner that sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no uncertain terms the meaning of attendant liabilities. They tell us of the amounts that the Government has to pay in the event respondent PIATCO defaults in its loan payments to its Senior Lenders and no qualified transferee or nominee is chosen by the Senior Lenders or is willing to take over from respondent PIATCO. A reasonable reading of all these relevant provisions would reveal that the ARCA made the Government liable to pay all amounts ... from time to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for [44] the Project *NAIA Terminal 3+. These amounts include without limitation, all principal, interest, associated fees, charges, [45] reimbursements, and other related expenses... whether payable at maturity, by acceleration or otherwise. They further include amounts owed by respondent PIATCO to its professional consultants and advisers, suppliers, contractors and sub-contractors as well as fees, charges and expenses of any agents or trustees of the Senior Lenders or any other persons or entities who have [46] provided loans or financial facilities to respondent PIATCO in relation to NAIA IPT III. The counterpart provision in the 1997 Concession Agreement specifying the attendant liabilities that the Government would be obligated to pay should PIATCO default in its loan obligations is equally onerous to the Government as those contained in the ARCA. According to the 1997 Concession Agreement, in the event the Government is forced to prematurely take over NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to its Senior Lenders, it would be liable to pay the following amounts as attendant liabilities: Section 1.06. Attendant Liabilities Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditorswho have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts [47] owed by Concessionaire to its suppliers, contractors and sub-contractors. These provisions reject respondents contention that what the Government is obligated to pay, in the event that respondent PIATCO defaults in the payment of its loans, is merely termination payment or just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06 that what the Government would pay is the sum total of all the debts, including all interest, fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III Project. This reading is consistent with section 4.04 of the

ARCA itself which states that the Governmentshall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the sum of the Attendant Liabilities, if greater. For sure, respondent PIATCO will not receive any amount less than sufficient to cover its debts, regardless of whether or not the value of NAIA IPT III, at the time of its turn over to the Government, may actually be less than the amount of PIATCOs debts. The scheme is a form of direct government guarantee for it is undeniable that it leaves the government no option but to pay the attendant liabilities in the event that the Senior Lenders are unable or unwilling to appoint a qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior Loans. As we stressed in our Decision, this Court cannot depart from the legal maxim that those that cannot be done directly cannot be done indirectly. This is not to hold, however, that indirect government guarantee is not allowed under the BOT Law, as amended. The intention to permit indirect government guarantee is evident from the Senate deliberations on the amendments to the BOT Law. The idea is to allow for reasonable government undertakings, such as to authorize the project proponent to undertake related ventures within [48] the project area, in order to encourage private sector participation in development projects. An example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is the Mandaluyong public market which was built under the Buildand-Transfer (BT) scheme wherein instead of the government paying for the transfer, the project proponent was allowed to [49] operate the upper floors of the structure as a commercial mall in order to recoup their investments. It was repeatedly stressed in the deliberations that in allowing indirect government guarantee, the law seeks to encourage both the government and the private sector to formulate reasonable and innovative government undertakings in pursuance of BOT projects. In no way, however, can the government be made liable for the debts of the project proponent as this would be tantamount to a direct government guarantee which is prohibited by the law. Such liability would defeat the very purpose of the BOT Law which is to encourage the use of private sector resources in the construction, maintenance and/or operation of development projects with no, or at least minimal, capital outlay on the part of the government. The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts contain direct government guarantee provisions, the whole contract should not be nullified. They rely on the separability clause in the PIATCO Contracts. We are not persuaded. The BOT Law and its implementing rules provide that there are three (3) essential requisites for an unsolicited proposal to be accepted: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by [50] publication other interested parties to a public bidding and conducted the same. The failure to fulfill any of the requisites will result in the denial of the proposal. Indeed, it is further provided that a direct government guarantee, subsidy or equity provision [51] will necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal. In fine, the mere inclusion of a direct government guarantee in an unsolicited proposal is fatal to the proposal. There is more reason to invalidate a contract if a direct government guarantee provision is inserted later in the contract via a backdoor amendment. Such an amendment constitutes a crass circumvention of the BOT Law and renders the entire contract void. Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the JANCOM contract, the Manila [52] Water contract and the MRT contract had been considered valid, the PIATCO contracts should be held valid as well. There is no parity in the cited cases. For instance, a reading of Metropolitan Manila Development Authority v. JANCOM Environmental [53] Corporation will show that its issue is different from the issues in the cases at bar. In the JANCOM case, the main issue is whether there is a perfected contract between JANCOM and the Government. The resolution of the issue hinged on the following: (1) whether the conditions precedent to the perfection of the contract were complied with; (2) whether there is a valid notice of award; and (3) whether the signature of the Secretary of the Department of Environment and Natural Resources is sufficient to bind the Government. These issue and sub-issues are clearly distinguishable and different. For one, the issue of direct government guarantee was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason for invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts cannot have similar disposition. This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost complete and that funds have been spent by PIATCO in their construction. For the government to take over the said facility, it has to compensate respondent PIATCO as builder of the said structures. The compensation must be just and in accordance with law and equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors. II. Temporary takeover of business affected with public interest in times of national emergency Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency the right to temporarily take over the operation of any business affected with public interest. This right is an exercise of police power which is one of the inherent powers of the State. Police power has been defined as the "state authority to enact legislation that may interfere with personal liberty or property [54] in order to promote the general welfare." It consists of two essential elements. First, it is an imposition of restraint upon liberty or property. Second, the power is exercised for the benefit of the common good. Its definition in elastic terms underscores its all[55] [56] encompassing and comprehensive embrace. It is and still is the most essential, insistent, and illimitable of the States powers. It is familiar knowledge that unlike the power of eminent domain, police power is exercised without provision for just [57] compensation for its paramount consideration is public welfare. It is also settled that public interest on the occasion of a national emergency is the primary consideration when the government decides to temporarily take over or direct the operation of a public utility or a business affected with public interest. The nature and extent of the emergency is the measure of the duration of the takeover as well as the terms thereof. It is the State that prescribes such reasonable terms which will guide the implementation of the temporary takeover as dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can not be negated by any party nor should its exercise be a source of obligation for the State. Section 5.10(c), Article V of the ARCA provides that respondent PIATCO shall be entitled to reasonable compensation for the duration of the temporary takeover by GRP, which compensation shall take into account the reasonable cost for the use of the [58] Terminal and/or Terminal Complex. It clearly obligates the government in the exercise of its police power to compensate respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be diminished, let alone defeated by [59] any contract for its paramount consideration is public welfare and interest.

Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of Mandaluyong to justify its claim for reasonable compensation for the Governments temporary takeover of NAIA IPT III in times of national emergency is erroneous. What was involved in Heirs of Suguitan is the exercise of the states power of eminent domain and not of police power, hence, just compensation was awarded. The cases at bar will not involve the exercise of the power of eminent domain. III. Monopoly Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate monopolies when public interest so requires. Monopolies are not per se prohibited. Given its susceptibility to abuse, however, the State has the bounden duty to regulate monopolies to protect public interest. Such regulation may be called for, especially in sensitive areas such as the operation of the countrys premier international airport, considering the public interest at stake. By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport operating in the Island of Luzon, with the exception of those already operating in Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in Laoag City. Undeniably, the contracts would create a monopoly in the operation of an international commercial passenger airport at the NAIA in favor of PIATCO. The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt it from regulation by the government. The government has the right, indeed the duty, to protect the interest of the public. Part of this duty is to assure that respondent PIATCOs exercise of its right does not violate the legal rights of third parties. We reiterate our ruling that while the service providers presently operating at NAIA Terminals I and II do not have the right to demand for the renewal or extension of their contracts to continue their services in NAIA IPT III, those who have subsisting contracts beyond the In-Service Date of NAIA IPT III can not be arbitrarily or unreasonably treated. Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House of Representatives found the PIATCO contracts valid and contend that this Court, by taking cognizance of the cases at bar, reviewed an action of a co-equal [61] [62] body. They insist that the Court must respect the findings of the said committees of the House of Representatives. With due respect, we cannot subscribe to their submission. There is a fundamental difference between a case in court and an investigation of a congressional committee. The purpose of a judicial proceeding is to settle the dispute in controversy by adjudicating the legal rights and obligations of the parties to the case. On the other hand, a congressional investigation is conducted in aid of [63] legislation. Its aim is to assist and recommend to the legislature a possible action that the body may take with regard to a particular issue, specifically as to whether or not to enact a new law or amend an existing one. Consequently, this Court cannot treat the findings in a congressional committee report as binding because the facts elicited in congressional hearings are not subject to the rigors of the Rules of Court on admissibility of evidence. The Court in assuming jurisdiction over the petitions at bar simply performed its constitutional duty as the arbiter of legal disputes properly brought before it, especially in this instance when public interest requires nothing less. WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent Congressmen and the respondentsin-intervention are DENIED with finality. SO ORDERED.

[60]

G.R. No. 111807 June 14, 1996 AHS/PHILIPPINES, INC., GERVACIO R. AMISTOSO and CONSTANCIO V. HALILI, petitioners, vs. COURT OF APPEALS and ALFONSO R. BAYANI, respondents. BELLOSILLO, J.:p American Hospital Supplies/Philippines, Inc. (AHS), its president Gervacio R. Amistoso, and its vice-president Constancio V. Halili seek 1 to set aside the 31 August 1993 Decision of respondent Court of Appeals in CA-G.R. CV No. 32416 affirming the 25 January 1989 2 Decision of the Regional Trial Court of Cebu City awarding actual and compensatory damages to private respondent Alfonso R. Bayani, a dentist, who was dismissed from the service without the clearance then required from the Secretary of Labor. Petitioner corporation was engaged in the sale and manufacture of medicines and pharmaceuticals in the country and did substantial business with government hospitals. On 1 June 1970 it hired private respondent as an Area Manager for Visayas and Mindanao, and later appointed him Manager of its Cebu branch. On 30 January 1978 private respondent was dismissed from the service. At that time he was receiving a monthly compensation of P3,180.00. On 5 May 1978 private respondent filed a complaint for damages before the trial court alleging that in the course of their business petitioners were directly encouraging, abetting and promoting bribery in the guise of "commissions," "entertainment expenses" and "representation expenses" which were given to various government hospital officials in exchange for favorable recommendations, approvals and actual purchases of medicines and pharmaceuticals. For his refusal to take direct and personal hand in giving "bribe money" he was dismissed. In his complaint he asked for an amount of not less than P520,000.00 as moral and consequential damages, P25,000.00 as exemplary damages and P50,000.00 for attorney's fees. On the other hand petitioner in its answer claims that private respondent was not dismissed but that he himself resigned on his own volition. On 25 January 1989 the trial court ruled that private respondent was illegally dismissed and awarded him P297,600.00 as actual and compensatory damages representing the minimum salary that he could have earned for the next 8 years until his retirement at 60 if he was not dismissed illegally, and P25,000.00 as attorney's fees. The trial court held that there was illegal dismissal because petitioner failed to secure a prior clearance from the Secretary of Labor before actually terminating the services of private respondent, but not for insubordination or disloyalty nor for his obstinate refusal to participate in the bribery. The trial court further ruled that private respondent was not entitled to moral and exemplary damages since "(his) hands are also tainted with the same 3 corruption that he complained about" -It appears that it was only when the repressive regime of then President Marcos started cracking down on "bribe takers" and "bribe givers" that Dr. Bayani must have started to have certain feelings of guilt and claimed that he wanted the "status quo" to be maintained, and that he will just allow his salesmen and agents to deliver the bribe money instead of him or Rene Simpao. Consequently, it is inescapable that as admitted by Dr. Bayani, he has been a party or privy to the giving out of sales REPS or (money) by signing checks which he bluntly called bribe money disguised as sales REP of 5%. Under the principle that he who comes to court must come with clean hands, Dr. Bayani cannot now pretend that he was innocent of the corrupt practices of his company and had clean hands as regards the same . . . . His hands are therefore equally tainted, are mired in the fifth of this corruption, in the matter of the giving of these "kickbacks" . . . . As a matter of conscience, he should have resigned, as that was the most honorable thing for him to do and accept the offer of Mr. Halili to pay his separation pay if he only tendered immediately his resignation. The court, therefore, is hard put, to award damages to the plaintiff in this case after betraying the confidences of his company because it would only serve his own selfish and disloyal ends. Although this is in no way saying, that this court condones corruption, yet it is evident from the proofs submitted to this court that the plaintiff was part of the corruption spun and woven, by the giving of 5% REPS to the doctors listed in 4 his voluminous exhibits and was dismissed for insubordination and disloyalty. On appeal, respondent Court of Appeals affirmed in toto the decision of the trial court; hence this petition for review. Petitioners contend that respondent court erred (1) in affirming the decision of the trial court holding that private respondent was illegally dismissed from the service for failure of petitioner to secure a prior clearance from the Department of Labor when the absence of a clearance was never put in issue during the trial; (2) in ruling that the prior-clearance rule applies to private respondent who is a managerial employee, assuming that the prior-clearance rule is a legitimate issue; (3) in affirming petitioner's liability for damages in an amount equal to private respondent's monthly salary multiplied by the number of years prior to his retirement age, assuming that lack of clearance is a proper issue; (4) when it disregarded decisions of this Court allowing backwages up to three (3) years only; (5) when it held petitioner Gervacio Amistoso personally liable when there is nothing on record to show that he had anything to do with the dismissal of private respondent; (6) when it likewise held petitioner Constancio Halili personally liable for dismissing private respondent when said act was done in his official capacity as vice-president of the corporation; and (7) when it affirmed petitioner's liability for attorney's fees. At the outset it must be noted that when the complaint for damages was filed on 5 May 1978 the applicable law was P.D. 5 1367 which amended Sec. 217, par. (a), of the Labor Code by providing that "the Regional Directors (of the Ministry of Labor) shall not indorse and Labor Arbiters shall not entertain claims for moral or other forms of damages." The claim of respondent Bayani for moral, exemplary and consequential damages was thus correctly filed before the then Court of First Instance. We go back to the findings and conclusions of the trial court. A reading of the complaint for damages filed by respondent Bayani readily shows that his cause of action stems from his allegation that "(he) has been unlawfully dismissed . . . because of (his) refusal to take direct and personal hand in giving out these bribe money to various hospitals or government officials with which 6 (petitioners) have been doing business." Petitioners for their part deny the allegation of respondent Bayani that he was dismissed. They claim he resigned. Thus, as succinctly put by the trial court, "[t]he issue . . . is whether the plaintiff (herein respondent) Dr. 7 Alfonso R. Bayani really resigned and whether Bayani was dismissed for his alleged refusal to cooperate in giving bribe money." In resolving the instant issue, the trial court held -From the testimonies of the plaintiff himself and that of defendants' witnesses Ranulfo Payos and Constancio Halili, the inescapable conclusion that the court can arrive at, is that Bayani did not really resign. In fact he only intended to do so. This apparent from Exh. "FFFFF" and that Halili was forcing Bayani to tender his resignation, and so he sent Payos to Cebu City in order to receive his letter of resignation. To prove that Halili wanted really Bayani to resign, he even offered him a severance pay from their retirement fund of the company if he would tender his

immediate resignation, even though according to him, the retirement fund is not supposed to be paid to any employee who resigns. It also appears very clear that Bayani was allowed to decide for himself when to resign, after he was allowed to go back to Cebu to confer and consult his family, regarding his intended resignation. It is also evident that Bayani asked if there was an opening in Manila or in Luzon. But already, the mind of Halili was closed, not to give him any other position as he said he does not believe in transferring a problem, from one area to another. In fact, it was already decided that they would close the Cebu Branch and convert it into a depot. From the telegram sent by Dr. Bayani which is Exh."FFFFFF", Bayani said that he was not going to report to Manila anymore, and he considered this as the very act of resignation because he (Halili) expected Bayani to tender his resignation. And so, when Bayani did not tender his resignation, Halili sent Payos to terminate him, when it became clear from the resignation, Halili sent Payos to terminate him, when it became clear from the communications made by Payos to Halili that Bayani could not be disuaded from filing corruption charges against the defendant corporation AHS and exposing it in the newspaper. This was evidently considered by Payos as untenable, and so they have decided to terminate the services of Bayani by compelling him to turn over the office to Mr. Roberto Veloro, who was already scheduled anyway, to replace Bayani according to the admission of Payos, nothwithstanding, that the expected letter of resignation of Bayani, for he was already relieved effectively on January 26. But he did not wait until January 31, 1978. The court, therefore arrives at the conclusion that Bayani was dismissed because of his obstinate threats to file a corruption charge against the company and its officers 8 before the Military Tribunal in Cebu which the defendant company considered as insubordination and disloyalty. However the trial court ruled that while respondent Bayani was dismissed, he was not illegally dismissed for his "obstinate threats to file a corruption charge against the company" as he was a "part of the corruption spun and woven, by the giving. of 5% REPS to the doctors listed in his voluminous exhibits." Rather, he was found to have been unlawfully dismissed from the service since his employer did not secure the required prior clearance from the Ministry of Labor before his services were actually terminated -Obviously, therefore, the state of the law at the time that the plaintiff in this case was dismissed required the employer AHS and defendants herein, to secure a clearance to terminate the plaintiff from has been for at least one year with the employer. Plaintiff has worked for 7 1/2 years before he was terminated. Whether there was cause or not therefore the defendants should have obtained a prior clearance from the Ministry of Labor to dismiss the plaintiff. This is the cause of the illegality of the dismissal and not because the plaintiff was uncooperative in the giving of, alleged bribe money for, as the court has already declared, it does not believe that the plaintiff is innocent of this very corrupt practice alleged by him, and that according to his own testimony, and that of defendants' witnesses, the "payola" or the giving of cash incentives directly to the doctors had already been 9 stopped in view of Blair Memorandum. In resolving the case at bench we defer to the well entrenched doctrine that factual findings of the trial court shall not be disturbed on appeal unless the trial court has overlooked or ignored some fact or circumstance of sufficient weight or significance which, if considered, would alter the situation. We have carefully assessed the record of this case and find no fact or circumstance which the trial court may have disregarded. Accordingly we affirm its factual findings that Dr. Alfonso R. Bayani did not resign, as what petitioners would want to impress upon this Court, but was actually dismissed from the service for insubordination and disloyalty because of his refusal to continue to give out "commissions," "entertainment expenses," and "representation expenses" to government doctors in exchange for sales contracts, and because of his obstinate threats to file a corruption charge against petitioners. However we cannot sustain the conclusions of the trial court that respondent Bayani was illegally dismissed on account of petitioner's failure to secure a prior clearance. For, simply; the lack of prior clearance is not a legitimate issue as it was not alleged by respondent Bayani in his complaint; neither was it litigated by the parties. In fact whether respondent Bayani is a managerial employee to which the prior-clearance rule does not apply has yet to be resolved, since from the evidence submitted it was not sufficiently established if respondent Bayani was indeed a managerial employee. Consequently, we now resolve whether respondent Bayani was validly terminated for insubordination and disloyalty. We have repeatedly said that two (2) requisites must concur so as to constitute a valid dismissal from employment: (1) the dismissal must be for any of the causes expressed in Art. 282 of the Labor Code, and, (2) the employee must be given an opportunity to be 10 heard and to defend himself. Under Art 282, as amended, an employer may terminate an employment for any of the following causes: (a) serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; (b) gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; (d) commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and, (e) other causes analogous to the foregoing. It has been established that respondent Bayani was dismissed for insubordination and disloyalty which correspond to serious 11 misconduct or willful disobedience under par. (a) of Art. 282. But in Gold City Integrated Port Services, Inc. v. NLRC we explained that willful disobedience of the employer's lawful orders, as a just cause for dismissal of an employee, envisages the concurrence of at least two (2) requisites: the employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a wrongful and perverse attitude; and the order violated must have been reasonable, lawful, made known to the employee and 12 must pertain to the duties which he had been engaged to discharge. Thus in Maebo v. NLRC we held that in order that an employer may terminate an employee on the ground of willful disobedience to the former's orders, regulations or instructions, it must be established that the said orders, regulations or instructions are (a) reasonable and lawful, (b) sufficiently known to the employee, and (c) in connection with the duties which the employee has been engaged to discharge. In the instant case, it is quite apparent that the subject order, i.e., to personally give "commissions," "entertainment expenses," and "representation expenses" to government doctors in exchange for sales contracts, was unreasonable and unlawful as it subjected respondent Bayani to criminal prosecution for graft and corruption. Definitely, the giving of commissions and entertainment and representation expenses to government officials in exchange for the approval of sales contracts is from all indications prohibited and punishable by existing laws on corruption of public officials. Accordingly respondent Bayani cannot be validly dismissed for refusing to heed the order to hand out "commissions" to government doctors. While it may be true, as the trial court said, that the hands of respondent Bayani are "equally tainted, and mired in the filth of this corruption, in the matter of the giving of these 'kickbacks,"' as "it is evident from the proofs submitted to this court that (he) was

part of the corruption spun and woven, by the giving of 5% REPS to the doctors listed in his voluminous exhibits," the Court believes that should he decide not to be part of the corrupt system anymore, whatever his reasons are, he should not be dismissed. A reforming employee should not be penalized, much less with dismissal from employment at that. When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers the matter a case of 14 illegal dismissal and the burden is on the employer to prove that the termination was for a valid or authorized cause. In this case the employer has miserably failed to discharge that burden. All told, we hold that respondent Bayani was dismissed without a just and valid cause. We turn to the award of back wages. Respondent Bayani was illegally dismissed on 30 January 1978. At that time the prevailing doctrine was the so-called Mercury Drug Rule which was first explained by Mr. Justice Teehankee (later Chief Justice) in his Separate 15 Opinion in Mercury Drug Co. v. Court of Industrial Relations and later applied in full in FEATI University Faculty Club v. FEATI 16 University. The so called Mercury Drug Rule awards back wages equivalent to three (3) years (where the case is not terminated sooner), without qualification and deduction. The three-year period was used as the base figure of Mr. Justice Teehankee opined that "[n]ormally, the trial of the case and resolution of the appeal should be given preference and terminated within a period of 1 three years (one year for trial and decision in the industrial court and two years for briefs, etc., and decision in this Court)." 7 Appying the Mercury Drug Rule to the case at bar, respondent Bayani is entitled to be paid the sum of ONE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED EIGHTY PESOS (P114,480.00) as back wages for three (3) years without deduction or qualification -P3,180.00 (Bayani's last monthly salary) x 12 months P38,160.00 (Bayani's salary for one year) P38,160.00 x 3 years P114,480.00 (Bayani's back wages for three years) We move to the question of reinstatement. Illegally dismissed employees are entitled to reinstatement is not possible, the illegally dismissed employees are entitled to separation pay and back wages. In the instant case it is more prudent and practical not to order reinstatement since this case has already dragged on for about 18 years. After 18 years it can now be fairly expected that respondent Bayani would find difficulty to fit into the employment structure of petitioner corporation, not to mention the fact that after all those years he may already be comfortable with his new endeavors. Besides the relationship between petitioners and respondent Bayani has been unduly strained, more so since the latter held a key position where he could work efficiently and effectively only if he enjoyed the full and complete trust and confidence of top management. Therefore instead of reinstatement, we hold that respondent Bayani is entitled to separation pay equivalent to one (1) month salary for every .year of service or in the amount of TWENTY THOUSAND SIX HUNDRED SEVENTY PESOS (P20,670.00), thus -P3,180.00 (Bayani's last monthly salary) x 6.5 (Bayani's years of service) P20,670.00 On the issue, of joint and solidary liability of petitioner Amistoso as president of petitioner corporation, and of petitioner Halili as vice-president of the same corporation, we have already said that corporate officers are not personally liable for money claims of 18 discharged corporate employees unless they acted with evident malice and bad faith in terminating their employment. In the case at bar, while petitioners Amistoso and Halili may have had a hand in the relief of respondent. Bayani, there are no indications of malice and bad faith on their part. We take exception to the conclusion of respondent Court of Appeals that "the manner by which 19 Halili and Amistoso acted is characterized by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' On the contrary it is apparent that the relief order was a business judgment on the part of the officers, with the best interest of the corporation in mind, based on their opinion that respondent Bayani had failed to perform the duties expected of him. Hence both the trial court and respondent Court of Appeals committed a reversible error in holding petitioners Amistoso and Halili jointly and solidarily liable with petitioner corporation. We however agree with the conclusion of respondent Court of Appeals that because of the unlawful act of petitioner corporation, private respondent is entitled to recover attorney's fees as he was compelled to litigate 20 and incur expenses to protect his interests. WHEREFORE, the Decision of 31 August 1993 of respondent Court of Appeals affirming the 25 January 1989 Decision of the RTC of Cebu City is MODIFIED. Petitioner American Hospital Supplies/Philippines, Inc., is ordered to PAY respondent dentist Alfonso R. Bayani: (a) back wages for three (3) years without deduction or qualification in the amount of ONE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED EIGHTY PESOS (P114,480.00); (b) separation pay equivalent to one (1) month salary for every year of service or TWENTY THOUSAND SIX HUNDRED SEVENTY PESOS (P20,670.00); and, (c) attorney's fees of TWENTY FIVE THOUSAND PESOS (P25,000.00). SO ORDERED.

13

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-appellee. Uy & Artiaga and Antonio M. Molina for plaintiff-appellant. Aruego, Mamaril & Associates for defendant-appellees. BENGZON, J.P., J.: No less than three times have the parties here appealed to this Court. In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00. Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it, payment already made had been considered. Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant. Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. Plaintiff allegedinter alia that defendant was a corporation duly organized and existing under the laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest due; and that defendant had failed to pay the second installment. Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages.1wph1.t Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him. The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the dispositive portion IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and against the defendant the University Publishing Co., Inc., ordering the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date of the filing of this complaint until the whole amount shall have been fully paid. The defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of evidence. As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification from the securities and Exchange Commission dated July 31, 1961, attesting: "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case," and that, therefore, plaintiff's petition should be denied. Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would not want Jose M. Aruego to be considered a party to the present case: should a separate action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of limitations. The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed. The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange Commission has not been disputed. Defendant would only raise the point that "University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely, however, on account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued independently. The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a nonexistent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). "University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant. Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of corporate * fiction to administer the ends of justice. And in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was not so named, the matters of "day in court" and "due process" have arisen. In this connection, it must be realized that parties to a suit are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has been substantially observed. By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality. For substance must prevail over form. It may now be trite, but none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing side as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities. The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him. We need hardly state that should there be persons who under the law are liable to Aruego for reimbursement or contribution with respect to the payment he makes under the judgment in question, he may, of course, proceed against them through proper remedial measures. PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.

ALGER ELECTRIC, INC., petitioner vs. COURT OF APPEALS and NORTHERN CEMENT CORPORATION, respondents. GUTIERREZ, JR., J.: In accordance with Republic Act No. 3826, petitioner Alger Electric, Inc., was granted a legislative franchise for a period of fifty (50) years from June 22, 1963 with the right, privilege, and authority to construct, maintain and operate an electric light, heat, and power system for the generation and/or distribution of electric light, heat, and/or power for sale within the municipalities of Sto. Tomas, Damortis and Rosario, province of La Union, and in the municipality of Sison, province of Pangasinan. On August 16, 1968, respondent Northern Cement Corporation (Northern) and the National Power Corporation (NPC) executed a contract for NPC to directly supply electric power to Northern's cement plant located in Labayog, Sison, Pangasinan. As a result, the petitioner filed a petition for prohibition with preliminary injunction against Northern and NPC in the Court of First Instance of Manila. The petition alleged that the contract was patently illegal in view of Section 2, Republic Act No. 3826, which provides: Section 2. In the event that the National Power Corporation should have established its lines in the areas adjacent to or near the territory covered by this franchise, the National Power Corporation may make available its powers and heat only after registration with and through the Alger Electric, Inc., or with the authority and consent of the grantee. The petitioner prayed that the August 16, 1968 contract between Northern and NPC be declared null and void and that pending the resolution of the case, a writ of preliminary injunction be immediately issued, enjoining the respondents, their managers, attorneys, agents and/or representatives acting for and in their behalf from enforcing said contract. The petitioner questions direct sale of power to Northern by NPC. It wants the distribution to be effected through it or by it. The case was docketed as Civil Case No. 74748. The writ of preliminary injunction prayed for was denied by the court in two (2) separate orders. After Northern had filed its answer and after the petitioner had formally offered all its testimonial and documentary evidence, Northern filed a motion to dismiss and/or for summary judgment on the following grounds: (a) the petition did not state a cause of action due to its failure to alleged and make out a proper case of prohibition or any similar special civil action; (b) the Court of First Instance of Manila had no jurisdiction over the subject matter of the action because the specific act sought to be restrained by a writ of prohibition was to be performed outside of its territorial jurisdiction; (c) Section 2 of the petitioner's legislative franchise is unconstitutional; and (d) the legislative franchise contains no specific prohibition against Northern's obtaining electric power directly from the National Power Corporation. For its part, the petitioner filed an urgent motion for leave to amend complaint and to admit attached amended complaint. The amendments sought were: (1) the change of the word "Petitioner" to plaintiff and the word "respondent" to defendant; (2) the omission of the designation "Prohibition with Preliminary Injunction"; (3) the change of the word "Petition" to Amended Complaint; (4) omission of the allegation in paragraph 16 of the original pleading and the addition of an allegation as to the actual damages to be suffered by the petitioner; and (5) the addition of a new paragraph between paragraphs 14 and 15 of the previous pleading and paragraph 5 of the prayer. Respondent Northern filed an opposition thereto reiterating its previous allegation that the court had no jurisdiction over the case and that the amended complaint substantially altered not only the theory and cause of action of the petitioner but also the very nature of the proceedings before the trial court. After considering the two aforestated motions as wen as an opposition interposed by the petitioner to the respondent's motion, the trial court, "... in the light of the evidence on record and in proper advertence to the principles of liberality observed in our procedural statutes ...", admitted the amended complaint and set the continuation of the trial of the case to January 6, 1970. A motion for reconsideration of this order was denied by the court, thus leading the respondent to file a petition for certiorari, prohibition, and mandamus with preliminary injunction in the Court of Appeals. The appellate court sustained the position of respondent Northern and set aside the questioned October 24, 1969 order of the trial court. It also ordered the trial court to act on the respondent's motion to dismiss the case. The appellate court ruled that the Court of First Instance of Manila did not have jurisdiction over the original complaint considering that the act sought to be enjoined was to be performed in Sison, Pangasinan which is outside of the court's territorial jurisdiction. It, therefore, held that the original "petition" could no longer be amended otherwise it would be in violation of the legal prohibition of a complaint not amendable in order to confer jurisdiction on the court in which it is filed, if the cause of action originally set forth was not within The court's jurisdiction. This decision is now challenged in this petition. A cursory look at the facts alleged in the original complaint reveals that the petitioner's cause of action revolves around the contract executed between the Northern Cement Corporation and the National Power Corporation. This contract was alleged to be iii violation of Alger's legislative franchise, particularly Section 2 thereof. It prayed to have the contract annulled for being null and void ab initio. To forestall the implementation of the contract, the petitioner further prayed for a writ of preliminary injunction, not a writ for prohibition as argued by the respondent. The writ of preliminary injunction prayed for was an ancillary remedy to enjoin the respondent and the National Power Corporation from enforcing the contract which was the subject matter of the petition. The fact that the original pleading was denominated as a petition for prohibition with preliminary injunction should not have deterred the court from considering it as a civil action for annulment of contract as indicated by the facts and allegations therein. The wellentrenched principle is that the "... nature of an action filed in court is determined by the facts alleged in the complaint as constituting the cause of action" (De Tavera v. Philippine Tuberculosis Society, Inc. 112 SCRA 243). In view of the foregoing, the trial court had jurisdiction from the inception of the case. Hence, it was well within the trial court's jurisdiction to admit the amended complaint considering that the amendments sought did not alter the cause of action of the original complaint. The case was brought to the Court of Appeals on whether or not the original petition could be amended and the proceedings converted from a special civil action for prohibition into an ordinary civil action for annulment of contract Now that the case is before us, we apply the rule enunciated in Gayos v. Gayos (67 SCRA 146) that it is a cherished rule of procedure for this Court to always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if this case is remanded to the trial court only to have its decision raised again to the Intermediate Appellate Court and from there to this Court.

The pivotal issue raised in the main case revolves around the interpretation to be given to Section 2 of Republic Act No. 3826, quoted earlier. Respondent Northern argues: xxx xxx xxx 12. In any case, petitioner does not have a lawful, valid and sufficiently cause of action to complain against, and seek the nullification of, the contract dated August 15, 1968, because Section 2 of Rep. Act No. 3826 which is the basis of petitioner's stated cause of action and which reads. Section 2. In the event that the National Power Corporation shall have established its lines in the areas adjacent to or over the territory covered by this franchise, the National Power Corporation may make available its power and heat only after negotiation with and through the Alger Electric, Inc., or with the authority and consent of the grantee., is null and void ab initio because: (a) The above-quoted section of Rep. Act No. 3826 is patently unconstitutional for being exclusive in character. Sec. 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines * * *, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.* * * (Art. XIV, Constitution of the Philippines; (b) The provisions of Sec. 2 of Rep. Act No. 3826 are completely foreign to the subject matter of said law which was clearly stated in its title as 'An Act Granting the Alger Electric, Inc., a Franchise for an Electric Light, Heat and Power System in the Municipalities of Sto. Tomas, Damortis and Rosario, Province of La Union, and Sison, Province of Pangasinan'. The insertion of Section 2 as a 'rider' in Rep. Act No. 3826 violated the constitutional injunction that 'No bill which may be enacted into law shall embrace more than one subject which shall be expressed in the title of the bill' (Art. VI, Sec. 21 (1), Constitution of the Philippines). (c) The provisions of said Section 2 are inconsistent with, and repugnant to, the following provisions of the special law which created the National Power Corporation, to wit: Sec. The powers, functions, rights and activities of the said corporation shall be the following: "'********* (g) To construct operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof * * * to establish, develop, operate, maintain and administer power and lighting system for the use of the Government and the general public to sell electric power and to fix the rates and provide for the collection of the charges for any service renders Provided, that the rates of charges shall not be subject to revision by the Public Service Commission. (Com Act No. 120, as amended. It also points out that Alger was not and may never be in a position to supply the electric power requirements of Northern's cement plant in Sison, Pangasinan. In other words, its main function insofar as Northern is concerned would be to enforce a legal fiction that electric power from NPC must first pass symbolically, but not actually, through its lines before it may be used by the cement plant. Alger admits that it is a small and struggling corporation but claims that it will have the production capacity to supply the needs of Northern. At any rate, if direct sale of power to Northern is effected, it wants this to be done only after negotiations with and through Alger. Respondent Northern alleges that the provisions of Section 2 of Republic Act No. 3826 are foreign to the subject matter of the law as stated in its title "An Act Granting the Alger Electric, Inc., a Franchise for an Electric Light, Heat, and Power System in the Municipalities of Sto. Tomas, Damortis and Rosario, Province of La Union and Sison, Province of Pangasinan", and, therefore, violative of the provision against riders in legislative bills expressed in Article VI, Section 21(l) of the 1935 Constitution, now Article VIII, Section 19(l) of the Constitution as amended. It also states that Section 2 of the franchise violates the constitutional mandate that no franchise for the operation of a public utility shall be exclusive in character (Article XIV, Section 8 of the 1935 Constitution, now Article XIV, Section 5 of the Constitution as amended). We see no necessity of passing upon the constitutional issues raised by respondent Northern. This Court does not decide questions of a constitutional nature unless absolutely necessary to a decision of the case. If there exists some other ground based on statute or general law or other grounds of construction, we decide the case on a non-constitutional determination. (See Burton v. United States, 196 U.S. 283; Siler v. Lousville & Nashville R. Co. 213 U.S. 175; Berea College v. Kentucky 211 U.S. 45.) We start with the established principle that the exclusive nature of any public franchise is not favored. We may interpret in favor of exclusiveness only when the statute grants it in express, clear, and unmistakable terms. In all grants by the government to private corporations, the interpretation of rights, privileges, or franchises is taken against the grantee. Whatever is not clearly and expressly granted is withheld. (See Public Service Commission v. Havemeyer 296 U.S. 506; Piedmont Power and L. Co. v. Graham 253 U.S. 193; Pearsall v. Great Northern R. Co. 161 U.S. 646). We have interpreted monopolistic claims of corporations, which want to protect themselves through the exclusion of competitors and antagonistic parties, as necessarily yielding to the higher claims of public interest. (Gokongwei, Jr. v. Securities and Exchange Commission, et al., 89 SCRA 336) This interpretation is even more called for when the exclusiveness is claimed on the basis of a public franchise. Section 2 of Republic Act No. 3826 was obviously enacted to prevent the NPC from distributing or selling electric power where petitioner Alger is already selling or is able to sell its own self-generated electricity. In this case, Northern is a bulk purchaser of power. It had never purchase's Alger's electricity before the suit was filed. It is not the usual consumer residential or commercial for whom retail sales are Ideal. Exclusivity is given by law with the understanding that the company enjoying it is self-sufficient and capable of supplying the needed service or product at moderate or reasonable prices. It would be against public interest where the firm granted a monopoly is merely ail unnecessary conduit of electric power, jacking up prices as a superfluous middleman or an inefficient producer which cannot supply cheap electricity to power intensive industries. It is in the public interest when industries dependent on the heavy use of electricity are given reliable and direct power at the lowest costs thus enabling the sale of nationally

marketed products at prices within the reach of the masses. Applying the above principles to the specific facts of this case, Northern cannot be said to have committed an act void ab initio when it concluded the questioned contract with NPC. Accordingly, the respondent corporation is not liable for damages to the petitioner. WHEREFORE, the instant petition is DISMISSED for lack of merit. SO ORDERED.

FRANCISCO ALONSO (Deceased), substituted by MERCEDES V. ALONSO, TOMAS V. ALONSO and ASUNCION V. ALONSO, petitioners, vs. CEBU COUNTRY CLUB, INC., respondent. RESOLUTION AUSTRIA-MARTINEZ, J.: In our Decision dated January 31, 2002, we declared that: ... neither Tomas N. Alonso nor his son Francisco M. Alonso or the latters heirs are the lawful owners of Lot No. 727 in dispute. Neither has the respondent Cebu Country Club, Inc. been able to establish a clear title over the contested estate. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A reconstituted title, like the original certificate of title, by [1] itself does not vest ownership of the land or estate covered thereby. on which basis, the dispositive portion of the decision reads: WHEREFORE, we DENY the petition for review. However, we SET ASIDE the decision of the Court of Appeals and that of the Regional Trial Court, Cebu City, Branch 08. IN LIEU THEREOF, we DISMISS the complaint and counterclaim of the parties in Civil Case No. CEB 12926 of the trial court. We declare that Lot No. 727 D-2 of the Banilad Friar Lands Estate covered by Original Certificate of Title Nos. 251, 232, and 253 legally belongs to the Government of the Philippines. No costs. [2] SO ORDERED. Petitioners and respondent filed separate motions for reconsideration, each assailing a different aspect of the decision. Petitioners, in their Motion for Reconsideration dated March 6, 2002, vigorously argue that: (a) the majority decision unduly deprives petitioners of their property without due process of law and in a manner shocking to good conscience; (b) in invalidating the sale of Lot 727 to the late Tomas Alonso, the ponencia unfairly deviated from established doctrine to favor a mere obiter dictum as misapplied in Liao vs. Court of Appeals, using as basis factual findings either unsupported by the evidence or contradicted by the appellate courts findings of fact; (c) the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondent Cebu Country Clubs title were not squarely and frontally met, to the prejudice and damage of the petitioners; and (d) the dissenting opinion deserves a second hard look as it presents a more balanced, sober, factually accurate, and juridically precise approach to the critical issues of this case, including prescription and laches. On the other hand, respondent Cebu Country Club, Inc., in its Motion for Reconsideration dated March 5, 2002, staunchly assails the decision insofar as it declared that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines. Respondent argues that the Office of the Solicitor General (OSG), as representative of the Government, has not intervened nor has it been impleaded in the Regional Trial Court (RTC) nor during the appeal in the Court of Appeals, and, the Torrens Certificate of Title, TCT No. RT-1310 (T-11351) of respondent, covering Lot 727, Banilad Friar Lands Estate, cannot be collaterally attacked and nullified in this case at bar. We find no merit in petitioners motion for reconsideration. The matters raised in the motion have already been substantially discussed in the decision. It must be emphasized that in civil cases, the burden of proof to be established by preponderance of evidence is on the plaintiff who is asserting the affirmative of an issue. He has the burden of presenting evidence required to obtain a favorable judgment, and [3] he, having the burden of proof, will be defeated if no evidence were given on either side. Inasmuch as petitioners pray for the Declaration of Nullity and Non-Existence of Deed/Title, Cancellation of Certificates of Title and Recovery of Property against the respondent, they had the burden to establish their claims of ownership of the subject property which they failed to do in this case. [4] Section 18 of Act No. 1120 or the Friar Lands Act unequivocally provides: No lease or sale made by the Chief of the Bureau of Public Lands (now the Director of Lands) under the provisions of this Act shall be valid until approved by the Secretary of the Interior (now, the Secretary of Natural Resources). Thus, petitioners claim of ownership must fail in the absence of positive evidence showing the approval of the Secretary of Interior. Approval of the Secretary of the Interior cannot simply be presumed or inferred from certain acts since the law is explicit in its mandate. This is the settled rule as enunciated in Solid State Multi-Products [5] [6] Corporation vs. Court of Appeals and reiterated in Liao vs. Court of Appeals. Petitioners have not offered any cogent reason that would justify a deviation from this rule. Contrary to petitioners protestations, we squarely resolved the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondents title. While we held that the issue of the validity of respondents title is factual which cannot be [7] reviewed on appeal, nevertheless, we have answered each ground raised by petitioner in assailing respondents title. Needless to [8] stress, mere allegations of fraud are not enough. Fraud is never presumed but must be proved by clear and convincing [9] [10] evidence, mere preponderance of evidence not even being adequate. As we have held in Saguid vs. Court of Appeals, contentions must be proved by competent evidence and reliance must be had on the strength of the partys own evidence and not [11] upon the weakness of the opponents defense. Petitioners failed to discharge that burden. Moreover, it cannot be over-accentuated that Tomas Alonso, petitioners predecessor-in-interest, never asserted any claim of ownership over the disputed property during his lifetime. When he was alive, Tomas Alonso did not exert any effort to have the title of the disputed property reconstituted in his name or seek recovery thereof from the respondent which was in possession since [12] 1931. Significantly, Tomas Alonso had caused the reconstitution of his title on Lot 810, which is adjacent to the disputed property, sometime in 1946 and yet petitioners failed to show that Tomas Alonso exerted the same effort to reconstitute his alleged title to the subject property. As successors-in-interest, petitioners merely stepped into the shoes of Tomas Alonso. They cannot claim a right greater than that of their predecessor. Notably, Tomas Alonso and his son Francisco Alonso were not ordinary or unschooled men. They were learned men of the law. They belonged to the landed gentry and, thus, had adequate financial resources at their disposal. Tomas Alonso was even a member of Congress. The length of time that has elapsed, spanning six decades, before the institution of the suit to recover the property, begs for a valid explanation, of which none was convincingly offered. Petitioners silent acquiescence for several decades and belated invocation of an alleged right speak strongly of the staleness of their claim. Their claims can hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt. If eternal vigilance is the price of [13] safety, one cannot sleep on ones right for more than a tenth of a century and expect it to be preserved in its pristine purity. We likewise find no merit in respondents motion for reconsideration insofar as the decision declared that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines.

It must be borne in mind that the disputed property is part of the Friar Lands over which the Government holds title and are [14] not public lands but private or patrimonial property of the Government and can be alienated only upon proper compliance with the requirements of Act No. 1120 or the Friar Lands Act. Sections 11, 12 and 18 of Act No. 1120 provide: SECTION 11. Should any person who is the actual and bona fide settler upon and occupant of any portion of said lands . . . desire to purchase the land so occupied by him, he shall be entitled to do so at the actual cost thereof to the Government, and shall be allowed ten years from the date of purchase within which to pay for the same in equal annual installments, if he so desires, all deferred payments to bear interest at the rate of four per centum per annum on all deferred payments. ... SECTION 12. ... When the cost thereof shall have been thus ascertained the Chief of the Bureau of Public Lands shall give the said settler and occupant a certificate which shall set forth in detail that the Government has agreed to sell to such settler and occupant the amount of land so held by him, at the prize so fixed, payable as provided in this Act . . . and that upon the payment of the final installment together with all accrued interest the Government will convey to such settler and occupant the said land so held by him by proper instrument of conveyance, which shall be issued and become effective in the manner provided in section one hundred and twenty-two of the Land Registration Act. ... SECTION 18. No lease or sale made by the Chief of the Bureau of Public Lands under the provisions of this Act shall be valid until approved by the Secretary of the Interior. It was thus primordial for the respondent to prove its acquisition of its title by clear and convincing evidence in view of the nature of the land. In fact, it is essential for both respondent and petitioners to establish that it had become private property. Both parties failed to do so. As we have held earlier, petitioners have not succeeded to prove their claim of ownership over the subject property. On the part of respondent, it failed to shed light on how its predecessor in interest, United Services Country Club, Inc., acquired its title. Surprisingly, there is not even one evidence to show when and how its predecessor in interest, United Services Country Club, Inc., acquired the property from anybody. It may be true that records were destroyed during the war, but respondent has not offered any clear evidence, testimonial or documentary, on the circumstances surrounding the acquisition of Lot 727, thereby creating a wide chasm in its claim of ownership. It only serves to underscore the paucity of the proof of respondent to support its claim of ownership over the disputed property. Respondent relies solely on its reconstituted title which, by itself, does not determine or resolve the ownership of the land covered by the lost or destroyed title. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A [15] reconstituted title, like the original certificate of title, by itself does not vest ownership of the land or estate covered thereby. Neither may the rewards of prescription be successfully invoked by respondent, as it is an iron-clad dictum that prescription can never lie against the Government. Since respondent failed to present the paper trail of the propertys conversion to private property, the lengthy possession and occupation of the disputed land by respondent cannot be counted in its favor, as the subject property being a friar land, remained part of the patrimonial property of the Government. Possession of patrimonial property of the Government, whether spanning decades or centuries, can not ipso facto ripen into ownership. Moreover, the rule that statutes of limitation do not run against the State, unless therein expressly provided, is founded on the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or [16] agents to whose care they are confided. Furthermore, the declaration in the Courts judgment that the subject property belongs to the Government is not an offshoot of a collateral attack on respondents title. The validity of the reconstitution of title to the land in question was directly in dispute, and the proceedings before the trial court was in the nature of a direct attack on the legality of respondents title. Finally, our declaration that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government does not amount to reversion without due process of law insofar as both parties are concerned. The disputed property is a Friar Land and both parties failed to show that it had ceased to belong to the patrimonial property of the State or that it had become private property. IN VIEW THEREOF, we DENY with finality the separate motions for reconsideration of the petitioners and respondent. SO ORDERED.

AM. No. 11-3-6-SC AMENDMENT OF SECTION 12, RULE 14 OF THE RULES OF COURT ON SERVICE UPON FOREIGN PRIVATE JURIDICAL ENTITY Section 12, Rule 14 of the Rules of Court is hereby amended to read as follows: "SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, i f there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service may, with leave of court, be effected out of the Philippines through any of the following means: a) B y personal service coursed through the appropriate court in the foreign country with the assistance of the Department of Foreign Affairs; b) B y publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy of the summons and the court order by-registered mail at the last known address of the defendant; c) B y facsimile or any recognized electronic means that could generate proof of service; or d) B y such other means as the court may in its discretion direct." This rule shall take effect fifteen (15) days after publication in a newspaper of general circulation in the Philippines. March 15, 2011

ERNESTO M. APODACA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS PHILS., INC., respondents. Diego O. Untalan for petitioner. The Solicitor General for public respondent. Barcelona, Perlas, Joven & Academia Law Offices for private respondents. GANCAYCO, J.: Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? These are the issues brought to this court through this petition for review of a decision of the NLRC dated September 18, 1987. The only remedy provided for by law from such a decision is a special civil action for certiorari under Rule 65 of the Rules of Court based on jurisdictional grounds or on alleged grave abuse of discretion amounting to lack or excess of jurisdiction, not by way of an appeal by certiorari. Nevertheless, in the interest of justice, this petition is treated as a special civil action for certiorari. Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the payment of the unpaid subscription and that, accordingly, the alleged obligation is not enforceable. In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the employer has no right to withhold payment of wages already earned under Article 103 of the Labor Code. Upon the appeal of the private respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a decision dated September 18, 1987. The NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation and that the setoff of said obligation against the wages and others due to petitioner is not contrary to law, morals and public policy. Hence, the instant petition. The petition is impressed with merit. Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in 1 the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this 2 case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation. What the records show is that the respondent corporation deducted the amount due to petitioner from the amount receivable from 3 him for the unpaid subscriptions. No doubt such set-off was without lawful basis, if not premature. As there was no notice or call for the payment of unpaid subscriptions, the same is not yet due and payable. Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set it off against the wages and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of the employees by the employer, only in three instances, to wit: ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except: (a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; (b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by the employer or authorized in writing by the individual worker concerned; and 4 (c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor. WHEREFORE, the petition is GRANTED and the questioned decision of the NLRC dated September 18, 1987 is hereby set aside and another judgment is hereby rendered ordering private respondents to pay petitioner the amount of P17,060.07 plus legal interest computed from the time of the filing of the complaint on December 19, 1986, with costs against private respondents. SO ORDERED.

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation, respondents. DECISION KAPUNAN, J.: The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest). Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the [1] exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation. MMIC is a domestic corporation engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US [2] Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million. DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts. [3] On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the [4] MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority [5] of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties. In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount ofP8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand Seven Hundred Seventy and [6] 05/100 (P22,668,537,770.05), Philippine Currency. Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest [7] expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. On April 30, 1984, the FRP was [8] approved by the Board of Directors of the MMIC. However, the proposed FRP had never been formally adopted, approved or [9] ratified by either PNB or DBP. In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the [10] mortgages in accordance with the Mortgage Trust Agreement. The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets [11] were transferred to the Asset Privatization Trust (APT). On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP [12] and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages. The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees, litigation expenses and costs. In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating, inter alia: NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the parties agreed as follows: 1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement. In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims; and (b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other [13] forms of reliefs which they prayed for or should have payed for in Civil Case No. 9900. The Compromise and Arbitration Agreement limited the issues to the following: 5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions leading to, and [14] including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith. This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an order, to wit: WHEREFORE, this Court orders: 1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant. 2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus Motion. 3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and [15] 4. The Complaint is hereby DISMISSED. The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows: Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less. Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. x x x. As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest. DISPOSITION WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and 4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY. [16] IT IS SO ORDERED. Motions for reconsiderations were filed by both parties, but the same were denied. On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following grounds: 1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB); 2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs; 4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter submitted to them was not [17] made. Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration Committee had exceeded its powers. In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads: WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds are fully applied, shall be executed against the APT; (b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary damages; (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration costs. In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory. [18] SO ORDERED. On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto. On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of merit and for having been filed out of time. The trial court declared that considering that the defendant APT through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the filling of a motion for reconsideration thereof. On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6, 1995. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994 [19] and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. As ground therefor, petitioner alleged that: I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED. II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD. III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING [20] COUNSELS COPY THEREOF. On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition for certiorari. Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors. ASSIGNMENT OF ERRORS I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC. II THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD. IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD V THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO [21] FILE A MOTION FOR RECONSIDERATION. The petition is impressed with merit. I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms: [22] 4. The Complaint is hereby DISMISSED. The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues [23] involved. Conclude, discontinue, terminate, quash. Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 [24] should have merely suspended the case and not dismissed it, neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error. It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court. II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, [25] let alone to confer that jurisdiction, this matter being legislative in character. As a rule the, neither waiver nor estoppel shall [26] apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. One such exception was [27] enunciated in Tijam vs. Sibonghanoy, where it was held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court." Petitioners situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction. III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as substitute to the lost right of appeal. We do not agree. [28] Section 29 of Republic Act No. 876, provides that: x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x. The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course of law. Thus, Section 1 of Rule 65 provides: SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings, as the law requires, of such tribunal, board or officer. In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondent motion to confirm the arbitral award and, worse, in confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated. IV
The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the [29] facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by [30] the arbitrators. They will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of [31] litigation. Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient [32] to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a [33] trial.

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the [34] scope of the submission agreement. The parties to such an agreement are bound by the arbitrators award only to the extent and [35] in the manner prescribed by the contract and only if the award is rendered in conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in [36] [37] [38] Articles 2038, 2039 and 2040 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled. [39] In Chung Fu Industries (Phils.) vs. Court of Appeals, we held: x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to both compromises and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and 25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted. Accordingly, Section 20 of R.A. 876 provides: SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to, the specific performance of a contract. xxx The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of the award shall be confined to such disputes. (Underscoring ours). xxx. Section 24 of the same law enumerating the grounds for vacating an award states: SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. (Underscoring ours). xxx. Section 25 which enumerates the grounds for modifying the award provides: SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court. x x x. Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award [40] [41] must be vacated. In the same manner, an award must be vacated if it was made in manifest disregard of the law. Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis. V
There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks right to foreclose. As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion: 1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable; 2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming; 3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP; 4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself. Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary?

A Q

: Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received, and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. : And this statement that it was premised upon the known fact that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant by no longer feasible? : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market. : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMICs products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met? : Yes.

xxx Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to [42] support its allegation in this regard. Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows: SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.) Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been [43] followed. VI Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement. In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor: 1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof; 2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984; 3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation. [44] Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises. Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following: (a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid [45] and in good faith. Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution. In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other. On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will [46] thus be released in full in favor of APT. The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP. In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims. There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be [47] overemphasized that a FRP, as a contract, requires the consent of the parties thereto. The contract must bind both contracting [48] parties. Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans [49] of MMIC had not yet been converted into equity. However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into [50] equity raising the equity of DBP to 87%. [51] The Arbitration Committee ruled that there was a commitment to carry out the FRP on the ground of promissory estoppel. Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its conspicuous representations. Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the MMIC. The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts. The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It is not excuse, [52] however, for the government to deny its commitments. Atty. Sison, however, did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with [53] thousands of stockholders will be suppressed and rendered nugatory. As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While [54] a corporation may appoint agents to enter into a contract in its behalf, the agent, should not exceed his authority. In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debtfor-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP. Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it: Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a reputation [55] besmirches by the act of foreclosure.
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only nominal party. The corporation should be included as a party in the suit. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real [56] party in interest. x x x. It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res [57] ajudicata against it. The reasons given for not allowing direct individual suit are: (1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law xxx; (3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the [58] corporation for the same act. If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate [59] right. Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit: WHEREFORE, premises considered, judgment is hereby rendered: xxx. 3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that [60] would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; x x x The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he [61] Jesus S. Cabarrus, Sr., may be awarded in this proceeding. Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred res judicata from [62] filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case. Worse, private respondents violated the rule against non-forum shopping. [63] It is a basic postulate that s corporation has a personality separate and distinct from its stockholders. The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr. Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.: It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFSthemselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent [64] from the award of moral damages to Cabarrus.

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is [65] sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us. WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED. SO ORDERED

ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners, vs. COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA R. BACLAY, respondents. DECISION BELLOSILLO, J.: ARB CONSTRUCTION CO., INC. (ARBC) and MARK MOLINA, Vice President for Operations of ARBC, in this consolidated petition, assail the Decision of the Court of Appeals in CA-G.R. SP Nos. 36330 and 36489 as well as the orders of the trial court dated 9 September 1994 and 9 December 1994 granting private respondent TBS Security and Investigation Agencys Motion for Leave to File Amended and Supplemental Complaint and denying petitioner Mark Molina's Motion to Dismiss, respectively. On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two (2) Service Contracts with ARBC wherein TBSS agreed to provide and post security guards in the five (5) establishments being maintained by ARBC. Clause 10 of the Service Contracts provides 10. This contract shall be effective for a period of one (1) year commencing from 15th August 1993 and shall be considered automatically renewed for the same period unless otherwise a written notice of termination shall have been given by one party to the other party thirty (30) days in advance. In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate the Service Contracts effective thirty (30) days after receipt of the letter. Also, in a letter dated 22 March 1994, ARBC through its Vice President for Operations, Mark Molina, informed TBSS that it was replacing its security guards with those of Global Security Investigation Agency (GSIA). In response to both letters, TBSS informed ARBC that the latter could not preterminate the Service Contracts nor could it post security guards from GSIA as it would run counter to the provisions of their Service Contracts. On 23 March 1994 Molina wrote TBSS conceding that indeed the "security contract dated 15 August 1993 stipulates that the duration of the service shall be for a period of one year, ending on 15 August 1994 x x x and could not be preterminated until [1] then." Nevertheless, Molina decreased the security guards to only one (1) allegedly pursuant to Clause 2 of the Service Contracts which provides 2. The AGENCY shall adopt a guarding system and post guards in accordance thereof, in the premises of the client throughout the whole 24 hours daily, using variable shifts of the guards at such hours as may be designated by the CLIENT or AGENCY. As required by the CLIENT, the security guards to be assigned by the AGENCY shall consist initially of the following x x x subject to be increased or decreased by the CLIENT at its sole discretion depending on [2] the security situation or the exigency of the service, by giving the AGENCY at least SEVEN (7) days prior notice. Thus on 28 March 1994 TBSS filed a Complaint for Preliminary Injunction against ARBC and GSIA praying A. Forthwith and Ex-parte, that a Temporary Restraining Order be issued declaring the status quo and directing the Defendants or any person(s) acting in their behalf from performing acts of replacing the Plaintiffs security guards from other agencies; B. After due hearing that a Writ of Preliminary Injunction, in like tenor, be issued upon posting of such bond as the Honorable Court may require; C. After due hearing, that judgment be rendered 1. Declaring the two (2) contracts for Security Services between Plaintiff and ARBC to be subsisting until August 15, 1994; 2. Ordering Defendant GLOBAL to refrain from taking over the security services of ARBC and to withdraw its guards from the premises of ARBC, if they have been posted earlier; [3] 3. Ordering ARBC to pay Plaintiff attorneys fees in the amount of P50,000.00 x x x In Answer, ARBC claimed that it decreased the number of security guards being posted at its establishments to only one (1) as the security guards assigned by TBSS were found to be grossly negligent and inefficient, citing the following incidents 8. On February 6, 1994, a Mitsubishi roadgrader of herein defendant was stripped of parts amounting to P58,642.00; 9. On February 25, 1994, a concrete vibrator and mercury light assembly were stolen from the construction site of [4] the Multipurpose Hall beside the swimming pool of herein defendant which is worth P2,800.00 x x x x In conclusion, it prayed that the complaint against it be dismissed for lack of merit. On 16 May 1994 TBSS filed a Motion for Leave to File Attached Amended and Supplemental Complaint. TBSS submitted that it now desired to pursue a case for Sum of Money and Damages instead of the one previously filed for Preliminary Injunction. It maintained that the Amended and Supplemental Complaint would not substantially alter its cause of action as both the original and amended [5] complaint were based on the same set of facts. In addition to the allegations in its original complaint, TBSS alleged in its Amended and Supplemental Complaint that ARBC illegally deducted from the payroll the amounts of P15,500.00 and P2,800.00 representing the value of one (1) unit concrete vibrator and cassette recorder, respectively. It further argued that ARBC withheld additional amounts from its payroll as payment for the parts of [6] the grader that were stolen. TBSS maintained that ARBC had an outstanding obligation of P472,080.46. Corollarily, TBSS prayed for moral damages of P500,000.00, exemplary damages of P200.000.00 and attorney's fees of P50,000.00. On 2 May 1994 the trial court issued a temporary restraining order but due to the exigency of the situation TBSS decided to withdraw its security contingent from ARBC's premises on 13 May 1994. [7] ARBC opposed the Motion for Leave to File Amended and Supplemental Complaint contending that the cause of action had been substantially altered. On 9 September 1994 the RTC of Makati, Br. 59, granted the motion of TBSS to file the Amended and Supplemental Complaint rationalizing thus Should the court find the allegations in the pleadings to be inadequate, the Court should allow the party to file proper amendments in accordance with the mandate of the Rules of Court that amendments to pleadings are favored and should be liberally allowed, particularly in the early stages of the law suit, so that the actual merit of the controversy may be speedily determined without regard to technicalities and in the most expeditious and [8] inexpensive manner x x x x ARBC filed a Motion for Reconsideration but on 3 November 1994 the motion was denied.

Meanwhile, Mark Molina filed a Motion to Dismiss the Amended and Supplemental Complaint on the ground that it did not state a cause of action insofar as he was concerned. But on 9 December 1994 the trial court denied the motion to dismiss and directed Molina instead to file his answer within ten (10) days from receipt of the order. [10] On 30 January 1995 ARBC filed a Petition with the Court of Appeals alleging that the trial court committed grave abuse of discretion in issuing the Orders of 9 September 1994 and 3 November 1994. On 15 February 1995 Molina likewise filed a Petition before the Court of Appeals similarly attributing grave abuse of discretion to the trial court in issuing the order of 9 December 1994. Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R. SP No. 36484 was consolidated with the petition of ARBC in CA-G.R. SP No. 36330. [11] On 16 August 1996 the Court of Appeals rendered a Decision denying both petitions of ARBC and Molina. On 3 October 1996 [12] petitionersMotion for Reconsideration was denied. Hence, this petition. In their consolidated Petition before this Court, petitioners first submit that THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT HAD THE RIGHT TO CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN THE SITUATION OF THE PARTIES [13] AFTER THE FILING OF THE ORIGINAL COMPLAINT. In support of this assigned error petitioners insist that x x x (T)here was not only a substantial change in private respondents cause of action but there was even an alteration in the theory of the case x x x (W)hile in the original complaint the only thing alleged and is being prayed for is for petitioner ARB (ARBC) to be enjoined from replacing the security guards of private respondent x x x and for the two contracts x x x to be enforced until August 15, 1994 and for petitioner ARB (ARBC) to be ordered to pay x x x attorneys fees, what is alleged and is being prayed for in the amended and supplemental complaint is for both petitioners to be ordered to pay P171,853.80 (for unpaid services) x x x and P300,226.66 (for lost income) x x x plus moral and exemplary damages and attorneys fees. Obviously, petitioner ARB (ARBC) is being required to answer for a liability or legal obligation under the amended and supplemental complaint wholly different from that stated in the original complaint such as but not limited to the amount ofP171,852.80 which was never mentioned in the original contract. Under these circumstances, a different cause of action was introduced by the amendment. Also, there was a change in the theory of the case. Whereas in the original contract what is sought for by private respondent is the enforcement of the two (2) contracts which is what is known in legal parlance as specific performance, in the amended and supplemental complaint what is sought for is x x x a rescission of the contracts [14] with damages x x x x We cannot subscribe to the contention of petitioners that the Amended and Supplemental Complaint substantially changed TBSS' cause of action nor was there any alteration in the theory of the case. As correctly observed by the Court of Appeals, "the amendatory allegations are mere amplifications of the cause of action for damages x x x x An amendment will not be considered as stating a new cause of action if the facts alleged in the amended complaint show substantially the same wrong with respect to the same transaction, or if what are alleged refer to the same matter but are more fully and differently stated, or where averments which were implied are made in expressed terms, and the subject of the controversy or the liability sought to be enforced remains [15] the same." The original as well as amended and supplemental complaints readily disclose that the averments contained therein are almost identical. In the original complaint, TBSS prays, among others, that the two (2) Service Contracts be declared as subsisting until 15 [16] August 1994 and that petitioners be made to pay P50,000.00 as attorneys fees. Significantly, in its penultimate paragraph, TBSS [17] prays "for such other reliefs that are considered just and equitable under the premises." This is a "catch-all" phrase which definitely covers the amplifications and additional averments contained in the Amended and Supplemental Complaint. Due to events supervening after the filing of the original complaint, it became incumbent upon TBSS to amend its original complaint. One of the supervening events was the withholding by petitioner ARBC of some amounts intended for the payroll of TBSS due to pilferage or losses which allegedly occurred due to the negligence and inefficiency of TBSS' security guards. Plainly, this withholding of the payroll was only an offshoot of the pretermination of the two (2) Service Contracts on the part of ARBC. Significantly, the pretermination of the Service Contracts was already alleged in the original complaint. In fact it was one, if not the most basic, issue discussed therein. Since the withholding of the payroll was only an offshoot of the issue on the pretermination of the contract, we can safely conclude that the allegation on the withholding of the payroll in the Amended and Supplemental Complaint was only an amplification of an issue that was already included and discussed in the original complaint. It was therefore error on the part of petitioners to conclude that private respondent changed its cause of action in the Amended and Supplemental Complaint. Neither could they say that they were being made to answer for a liability or legal obligation that was wholly different from that stated in the original complaint. Grave abuse of discretion therefore could not be imputed to the trial court for admitting the Amended and Supplemental Complaint of private respondent TBSS. It also follows that the appellate court could not be faulted for putting its stamp of approval on the order of the trial court admitting the same. Petitioners also argue, as their second assigned error, that THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGATIONS IN THE AMENDED AND SUPPLEMENTAL COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER MOLINA LIABLE TO PRIVATE RESPONDENT IN HIS PERSONAL CAPACITY. In support of their contention petitioners submit x x x (W)hen x x x Molina allegedly applied P171,853.80 payable to private respondent to the losses suffered by petitioner ARB (ARBC) due to the negligence and indifference of the private respondents security guards and when petitioner Molina replaced the said security guards x x x Molina was not acting in his personal capacity but x x x as officer of petitioner ARB (ARBC). Since petitioner Molina did not so act in his personal capacity but only in his official capacity as officer of petitioner ARB (ARBC) then petitioner Molina cannot be held personally liable for the alleged liability of petitioner ARB [18] (ARBC) x x x x In affirming the order of the trial court denying petitioner Molinas Motion to Dismiss, the appellate court ruled Similarly, We find no error committed by respondent Judge in denying the motion to dismiss. In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is alleged: 5. But fate would have it that defendant ARBC would subsequently breach the aforesaid contracts by surreptitiously preterminating the same and as precursor thereto, defendant ARBC,

[9]

through defendant Mark Molina, would impute against plaintiff pretended and fabricated violations and baselessly blame plaintiff for alleged losses of company properties by just deducting the values thereof from plaintiffs billings without even complying with the procedure agreed upon in the contracts x x x x It may be pertinent to state that all these accusations and imputations, albeit false and concocted, were made by defendant Mark P. Molina x x x x 17. Such unsalutary breach of contract by defendant ARBC through defendant Mark Molina has resulted to plaintiffs damage and prejudice by way of lost income consisting of the unexpired portion of the contract, i.e., up to August 15, 1994, entailing a total amount of P300, 266.66 x x x x The above allegations, particularly the subparagraph, "It may be pertinent to state that all these accusations and imputations, albeit false and concocted, were made by defendant Mark P. Molina," are sufficient statement of a [19] cause of action against petitioner Mark Molina in his personal capacity. In this regard, we agree with petitioners. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole [20] benefit of the stockholders. Prescinding from the foregoing, the general rule is that officers of a corporation are not personally liable for their official acts unless [21] it is shown that they have exceeded their authority. Article 31 of the Corporation Code is in point Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons x x x x On the basis hereof, petitioner Molina could not be held jointly and severally liable for any obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude that there was a sufficient cause of action against Molina as to make him personally liable for his actuations as Vice President for Operations of ARBC. A cursory reading of the records of the instant case would reveal that Molina did not [22] summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances which in his view were enough bases to do so. Finally, petitioners contend that THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT DID NOT GRAVELY ABUSE ITS DISCRETION IN GRANTING PRIVATE RESPONDENTS MOTION FOR LEAVE TO FILE AMENDED AND SUPPLEMENTAL COMPLAINT AND IN DENYING PETITIONER MOLINAS MOTION TO DISMISS. In support hereof, petitioners submit that x x x (T)he trial court admitted the amended and supplemental complaint which substantially changed the cause of action and theory of the case of the private respondent. Therefore, there is (sic) abuse of discretion on the part of [23] the trial court contrary to the ruling of the Court of Appeals that there is none. As already discussed, the Amended and Supplemental Complaint did not substantially alter the cause of action and theory of the case. Consequently, the trial court and the appellate court could not be charged with grave abuse of discretion in admitting the same. WHEREFORE, the PETITION is PARTIALLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 36489 affirming the 9 December 1994 Order of the Regional Trial Court-Br. 59, Makati City, which denied the Motion to Dismiss of petitioner Mark Molina is REVERSED and SET ASIDE. However, the assailed Decision of the appellate court in CA-G.R. SP No. 36330 affirming the 9 September 1994 Order of the Regional Trial Court-Br. 59, Makati City, granting TBS Security and Investigation Agency's Motion for Leave to File Amended and Supplemental Complaint is likewise AFFIRMED. The case is remanded to the trial court for further proceedings. No costs. SO ORDERED.

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHiLIPPINE NATIONAL BANK, respondents. [G.R. No. 107612. January 31, 1996] PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; A FORGED SIGNATURE IS WHOLLY INOPERATIVE AND NO ONE CAN GAIN TITLE TO THE INSTRUMENT THROUGH IT. - A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never aparty and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payees indorsement. 2. ID.; ID.; ID.; EXCEPTION. - The exception to the general rule in Section 23 is where a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 3. ID.; ID.; BEARER INSTRUMENT; SIGNATURE OF PAYEE OR HOLDER, NOT NECESSARY TO PASS TITLE TO THE INSTRUMENT. - In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 4. ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF HOLDER, ESSENTIAL TO TRANSFER TITLE TO THE INSTRUMENT; EFFECT OF FORGED INDORSEMENT OF HOLDER. - Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. 5. ID.; ID.; ID.; LIABILITY OF GENERAL ENDORSER. - An indorser of an order instrument warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting. He cannot interpose the defense that signatures prior to him are forged. 6. ID.; ID.; ID.; ID.; COLLECTING BANK WHERE CHECK IS DEPOSITED AND INDORSES CHECK, AN INDORSER. - A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. 7. ID.; ID.; ID.; PAYMENT UNDER A FORGED INDORSEMENT IS NOT TO THE DRAWERS ORDER; REASON. - The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawers instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. 8. ID.; ID.; ID.; ID.; EXCEPTIONS. - If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. 9. ID.; ID.; ID.; WHERE THE DRAWERS SIGNATURE IS FORGED, THE DRAWER CAN RECOVER FROM THE DRAWEE BANK. - In cases involving a forged check, where the drawers signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawers signature since the latter is its customer. 10. ID.; ID.; ID.; IN CASES OF FORGED INDORSEMENTS, THE LOSS FALLS ON THE PARTY WHO TOOK THE CHECK FROM THE FORGER OR THE FORGER HIMSELF. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. 11. ID.; ID.; ID.; ID.; CASE AT BAR. - In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payees or holders indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. 12. ID.; ID.; ID.; GENERAL INDORSER; COLLECTING BANK OR LAST ENDORSER SUFFERS LOSS ON FORGED IN-DORSEMENT; REASON. - More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to .the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because

13.

14.

15.

16.

17.

18.

19.

of its indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. ID.; ID.; ID.; DRAWEE BANK NOT LIABLE FOR LOSS ON FORGED INDORSEMENT; REASON. - The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO PROMPTLY INFORM PRESENTOR OF THE FORGERY UPON DISCOVERY; EFFECT OF FAILURE TO PROMPTLY INFORM. The drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF CON-TRIBUTORY NEGLIGENCE IN CASE AT BAR. - Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of TarJac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinans retirement on February 28, 1978. After nearly three years, the Treasurers office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurers office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinans retirement and consequent dissociation from the hospital. The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent(50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement. ID.; ID.; ID.; FORGERY; DELAY IN INFORMING COLLECTING BANK OF FORGERY BY THE DRAWEE BANK SIGNIFIES NEGLIGENCE. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. ID.; ID.; ID.; RETURN OF FORGED INDORSEMENT; 24-HOUR PERIOD BUT NOT BEYOND PERIOD FOR FILING LEGAL ACTION FOR BANKS OUTSIDE METRO MANILA; CASE AT BAR. - Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. ID.; ID.; ID.; ID.; RATIONALE. - The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. ID.; ID.; ID.; ID.; FAILURE TO RETURN FORGED INDORSEMENT WITHIN 24 HOURS FROM DISCOVERY DOES NOT PREJUDICE COLLECTING BANK WHICH PRESENTED FORGER AS ITS REBUTTAL WITNESS. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks

and conduct its own investigation. Thereafter, it requested the Provincial Treasurers office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. Associated Bank was also furnished a copy of the Provinces letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinans account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinans account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNBs failure to comply with the twenty-four-hour return rule. 20. REMEDIAL LAW; ACTIONS; ESTOPPEL; WILL NOT APPLY TO DRAWEE BANK WHO FAID AND CLEARED CHECKS WITH FORGED INDORSEMENT. - Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payees Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. PNBs duty was to verify the genuineness of the drawers signature and not the genuineness of payees indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payees indorsement. 21. CIVIL LAW; OBLIGATIONS AND CON-TRACTS; THERE IS NO PRIVITY OF CONTRACT BETWEEN THE DRAWER AND COLLECTING BANK; DRAWER CAN RECOVER FROM DRAWEE BANK AND DRAWEE BANK CAN SEEK REIMBURSEMENT FROM COLLECTING BANK. - PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. 22. COMMERCIAL LAW; BANKS; BANK DEPOSITS ARE LOANS; RECOVERY OF AMOUNT DEPOSITED IN CURRENT ACCOUNT GIVEN 6% INTEREST PER ANNUM. - The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial courts use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. APPEARANCES OF COUNSEL Jose A. Soluta, Jr. & Associates for Associated Bank. Santiago, Jr., Vidad, Corpus & Associates for PNB. The Solicitor General for public respondent. DECISION ROMERO, J.: Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank? This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in Province of 1 Tarlac v. Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et. al. (CA-G.R. No. CV No. 17962). The facts of the case are as follows: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. 2 A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said government hospital are drawn to the order of Concepcion. Emergency Hospital, Concepcion, Tarlac or The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac. The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping 3 4 the hospital follow up the release of the checks and had official receipts. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure 5 for the second check, in the amount of P5,000.00 and dated April 20, 1978, as well as for twenty-eight other checks, of various 6 amounts and on various dates. The last check negotiated by Pangilinan was for P8,000.00 and dated February 10, 1981. All the checks bore the stamp of Associated Bank which reads All prior endorsements guaranteed ASSOCIATED BANK. Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for 7 certain projects with the hospital. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his wife and Pangilinans wife are first cousins, the manager denied having 8 given Pangilinan preferential treatment on this account.

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts 9 debited from the current account of the Province. 10 In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as 11 third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20, 1981 until fully paid; 2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid;. 3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter. 4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of merit. 12 SO ORDERED. 13 PNB and Associated Bank appealed to the Court of AppealS. Respondent court affirmed the trial courts decision in toto on September 30, 1992. Hence these consolidated petitions which seek a reversal of respondent appellate courts decision. PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospitals cashier and administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss. Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability 14 directly to the Province of Tarlac to avoid circuity. Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss. Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular 15 No. 580, which, being an administrative regulation issued pursuant to law, has the force and effect of law. The PCHC Rules are merely contractual stipulations among and between member-banks. As such, they cannot prevail over the aforesaid CB Circular. It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to place the stamp of guarantee; otherwise, there would be no clearing. The bank 16 will be in a no-win situation and will always bear the loss as against the drawee bank. Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the 17 primary duty to verify the genuineness of payees indorsement before paying the check. While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. xxx xxx xxx The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payees (Concepcion Emergency Hospital) indorsements which are forgeries. At the time of their indorsement, the checks were order instruments. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. Section 23 of the Negotiable Instruments Law (NIL) provides: Sec. 23. FORGED SIGNATURE, EFFECT OF. - When a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the 18 contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged 19 signature. Thus, a forged indorsement does not operate as the payees indorsement. The exception to the general rule in Section 23 is where a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. 20 Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instIument. In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the 21 indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all 22 parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto.

An indorser of an order instrument warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid 23 and subsisting. He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawers instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did 24 not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule 25 then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss 26 from the forgery can be apportioned between the negligent drawer and the negligent bank. In cases involving a forged check, where the drawers signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawers signature since the latter is its 27 customer. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection 28 chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can 29 seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payees or holders indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must 30 necessarily return the money paid by the latter because it was paid wrongfully. More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is 31 an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness 32 of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is 33 deemed negligent and can no longer recover from the presentor. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinans retirement on February 28, 1978. After nearly three years, the Treasurers office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurers office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinans retirement and consequent dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified:. ATTY. MORGA:

Q : Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco? JOSE MERU: A : Yes, sir. Q : Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss Juco? A : Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to acknowledge these receipts and according to them since this is a government check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks, they released the checks to Pangilinan aside from Miss 34 Juco. The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, theProvince of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. As earlier stated, PNB can recover from the collecting bank. 35 In the case of Associated Bank v. CA, six crossed checks with forged indorsements were deposited in the forgers account with the collecting bank and were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held: The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondents account. xxx The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bahks discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. It is here that Associated Banks assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Court deems it unnecessary to discuss Associated Banks assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-fourhour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurers office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two 36 days later, Associated Bank received the checks from PNB. Associated Bank was also furnished a copy of the Provinces letter of demand to PNB dated March 20, 1981, thus giving it 37 notice of the forgeries. At this time, however, Pangilinans account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinans account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even 38 presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNBs failure to comply with the twenty-fourhour return rule. Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payees Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee 39 bank. PNBs duty was to verify the genuineness of the drawers signature and not the genuineness of payees indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payees indorsement.

PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer,Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by theProvince of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its 40 current account with the PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial courts use of the legal interest rate, or six percent (6%) per 41 annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to. P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement. IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until payment is made. SO ORDERED.

G.R. No. 9321 September 24, 1914 NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL DE YRIARTE, respondent-appellee. Modesto Reyes for appellants. Attorney-General Villamor for appellee. MORELAND, J.: This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive Bureau to file a certain articles of incorporation. The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable. The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the division of archives to receive and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the persons named in the articles. The court below found in favor of the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment. The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purpose of the proposed corporation. It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has no authority to pass upon the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this proposition and we are of the opinion that it is not sound. Section 6 of the Corporation Law reads in part as follows: Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a notary public, . . . . Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of archives, when articles of incorporation are presented for registration, to determine whether the objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation presented foe registration are perfect in form, the division of archives must accept and register them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the articles. We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and thereby put the seal of approval of the Government upon, a corporation which was organized for base of immoral purposes. That such corporation might later, if it sought to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should have been created in the first instance. It seems to us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the objects and purposes of the corporation before it issues a certificate of incorporation. It having determined that the division of archives, through its officials, has authority to determine not only the sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the purposes of leads us to the determination of the question whether or not the chief of the division of archives, who is the representative thereof and clothed by it with authority to deal subject to mandamus in the performance of his duties. We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with the law. While we have held that defendant has power to pass upon the lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of his duties, determine the question of law whether or not those purposes are lawful and embraced within that class concerning which the law permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise discretion in receiving and registering articles of incorporation. He may exercise judgment that is, the judicial function in the determination of the question of law referred to, but he may not use discretion. The question whether or not the objects of a proposed corporation are lawful is one that can be decided one way only. If he err in the determination of that question and refuse to file articles which should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of determination which a court makes when it decides a case upon the merits, the court makes when it decides a case upon the merits. When a case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has discretion in the resolution of a question, then, within certain limitations, he may decide the question either way and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by which he may decide a question either way and still be right. The power conferred upon the division of archives with respect to the registration of articles of incorporation is not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly. If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for. The next question leads us to the determination of whether or not the purposes of the corporation as stated in the articles of incorporation are lawful within the meaning of the Corporation Law. The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize and regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural

products of the said property for institutions, foundations, and charitable works of common utility and advantage to the barrio or its inhabitants." The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of Pasig through its municipal president and council. The president and members of the municipal council are elected by a general vote of the municipality, the qualified electors of all the barrios having the right to participate. The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality. The various barrios of the municipality have no right to own or hold property, they not being recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue to the municipality from public property and receive all the benefits incident to residence in a municipality organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to the general government or the province, it belongs to the municipality of Pasig and the sole authority to manage and administer the same resides in that municipality. Until the present laws upon the subject are charged no other entity can be the owner of such property or control or administer it. The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and administer any property belonging to the municipality of Pasig found within the limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the property which they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate corporation, would take over the ownership, administration, and control of that portion of the municipal territory within its limits. This would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller municipalities entirely independent of the original municipality. What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly repugnant to the provisions of the Municipal Code and the governments of municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.) The judgment appealed from is affirmed, with costs against appellants.

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION,respondents. DECISION PARDO, J.: [1] What is before the Court are separate appeals from the decision of the Court of Appeals, ruling that Hi-Cement Corporation is not liable for four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation. On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, [2] petitioner Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason payment [3] stopped. Atrium, thus, instituted this action after its demand for payment of the value of the checks was denied. After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million [4] corresponding to the value of the four checks, plus interest and attorneys fees. On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra viresacts; and (3) The subject checks were [5] not issued for valuable consideration. At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by HiCement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the [6] issuance of the four checks in favor of E.T. Henry in payment for petroleum products. Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of HiCement, Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject [7] checks would secure as collateral. On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence, judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid, plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorneys fees and the cost of suit. All other claims are, for lack of merit dismissed. [8] SO ORDERED. [9] In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals. Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the [10] rediscounted checks. Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. [11] Henry. On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which reads: Judgement is hereby rendered: (1) dismissing the plaintiffs complaint as against defendants Hi-Cement Corporation and Antonio De las Alas; (2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus P20,000.00 for attorneys fees. (3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-Cement Corporation, the sum of P20,000.00 as and for attorneys fees. With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon. [12] So ordered. [13] Hence, the recourse to this Court. The issues raised are the following: In G. R. No. 109491 (Atrium, petitioner): 1. Whether the issuance of the questioned checks was an ultra vires act; 2. Whether Atrium was not a holder in due course and for value; and 3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as [14] attorneys fees. In G. R. No. 121794 (de Leon, petitioner): 1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry; 2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course; 3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable for the value of the checks, which were declared to be issued without consideration;

4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorneys fees and costs. We affirm the decision of the Court of Appeals. We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a kiting operation to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its [16] organization and therefore beyond the power conferred upon it by law The term ultra vires is distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and [17] cannot be validated. The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. "Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or [18] 4. He is made, by a specific provision of law, to personally answer for his corporate action. In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payees account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, that the checks issued to E.T. Henry were in payment of Hydro oil bought by HiCement from E.T. Henry. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor. The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. In the instant case, the checks were crossed checks and specifically indorsed for deposit to payees account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payees account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course. However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in [19] due course can not recover on the instrument. The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it [20] [21] were non-negotiable. One such defense is absence or failure of consideration. We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions. WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are hereby AFFIRMED in toto. No costs. SO ORDERED.

[15]

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents. GUTIERREZ, JR., J.: These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI. The antecedent facts can be summarized as follows: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation." The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation: 3. Articles of Incorporation (a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for (1) Cumulative voting for directors: xxx xxx xxx 5. Management (a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875) At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions. Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals. The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired: ... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, ACG.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored,

Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76) These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation. The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision. The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission. Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors: I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL. II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW. III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875) Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds: 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by stockholders and the replacement of the conditions of such agreements with terms never contemplated by the stockholders but merely dictated by the CA . 11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76) On the other hand, the petitioners in G.R. No. 75951 contend that: I THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW. II THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951) The issues raised in the petitions are interrelated, hence, they are discussed jointly. The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors. The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture. They specifically mention number 16 under Miscellaneous Provisions which states: xxx xxx xxx c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875) They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of

the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties. The parol evidence Rule under Rule 130 provides: Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the validity of the agreement is put in issue by the pleadings. (b) When there is an intrinsic ambiguity in the writing. Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit: xxx xxx xxx 4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417) It has been ruled: In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC: According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority. An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)]. The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2). xxx xxx xxx It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder. Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5) Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties. Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture

arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens. The Lagdameo Group stated in their appellees' brief in the Court of Appeal In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the exercise of their voting rights. Sec. 100. Agreements by stockholders.xxx xxx xxx 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof). Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation. In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied principles of corporation law designed primarily for public issue corporations. These courts have indicated that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied on the orthodox principles of corporation law. As correctly held by the SEC Hearing Officer: It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16) Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain: Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405) In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94) In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of directors, the Court of Appeals correctly stated: As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special relationships with each other to pursue and implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not adversely affect third parties. In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to be done is to give life and effect to the particular contractual rights and obligations which the parties have assumed for themselves. On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected. In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo75875, pp. 38-39) The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides: And provided finally that the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975) The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint venture with clearly defined agreements: The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and LopezCampos Comments, Notes and Selected Cases, Corporation Code 1981) Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556). Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote their additional equity lies in the agreement of the parties. Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees. This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors. To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875) Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign investors. With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate or appoint." They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select their nominees separately and not as a common slot determined by the majority of their group. Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality. The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should be maintained. WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875. SO ORDERED.

AVON DALE GARMENTS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents. RESOLUTION FRANCISCO, J.: This special civil action for certiorari seeks to set aside the decision of the National Labor Relations Commission, dated August 31, 1994, in NLRC CA 005068-93, for allegedly having been rendered with grave abuse of discretion. Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute brought about by the rotation of workers, a compromise agreement was entered into between petitioner and private respondents wherein the latter were terminated from service and given their corresponding separation pay. However, upon refusal of the petitioner to include in the computation of private respondents' separation pay the period during which the latter were employed by Avon Dale Shirt Factory, private respondents filed a complaint with the labor arbiter claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-00810-93). According to private respondents, their previous employment with petitioner's predecessor-in-interest, Avon Dale Shirt Factory, should be credited in computing their separation pay considering that Avon Dale Shirt factory was not dissolved and they were not in turn hired as new employees by Avon Dale Garments, Inc. In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint and held that Avon Dale Shirt Factory and Avon Dale Garments, Inc. are not one and the same entity as the former was in fact dissolved on December 27, 1978, when it 1 filed its Articles of Dissolution with the Securities and Exchange Commission. Private respondents appealed to the NLRC and the latter reversed the decision of the labor arbiter after finding that upon dissolution of Avon Dale Shirt Factory, Inc., there was no showing that its terminated employees, as creditors insofar as their separation pay were concerned, were ever paid. Thus, petitioner Avon Dale Garments, Inc., as successor-in-interest, was held liable 2 for private respondents' unpaid claim. The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored on the sole ground that, as a separate and distinct entity, it should not be held liable for private respondents' separation pay from Avon Dale Shirt Factory. Pending resolution of the instant petition, counsel for private respondents, instead of filing a comment to the petition, filed a Manifestation indicating that the parties have already reached an amicable settlement on December 27, 1994, wherein private 3 respondents were paid their corresponding separation pay, after which, they executed a waiver and quitclaim. It appeared however, upon verification by the Office of the Solicitor General, that the aforementioned compromise agreement was executed 4 between the parties without the knowledge and participation of the NLRC. The established rule is that compromise agreements involving labor standard cases, like the one entered into by the parties herein, must be reduced in writing and signed in the presence of the Regional Director or his duly authorized representative. Otherwise, 5 they are not deemed to be duly executed. For this reason, the compromise agreement submitted by private respondents' counsel cannot be recognized by this court for being improperly executed. Nevertheless, we find the petition to be without merit as the assailed decision is in complete accord with the law and evidence on record. Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity from Avon Dale Shirt Factory, absent any showing that there was indeed an actual closure and cessation of the operations of the latter. The mere filing of the Articles of Dissolution with the Securities and Exchange Commission, without more, is not enough to support the conclusion that actual dissolution of an entity in fact took place. On the contrary, the prevailing circumstances in this case indicated that petitioner company is not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under the same owners, the same business venture, at 6 same address , and even continued to hire the same employees (herein private respondents). Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where there is a 7 showing that one is merely the continuation of the other. In fact, even a change in the corporate name does not make a new corporation, whether effected by a special act or under a general law, it has no effect on the identity of the corporation, or on its 8 property, rights, or liabilities. Respondent NLRC therefore, did not commit any grave abuse of discretion in holding that petitioner should likewise include private respondents' employment with Avon Dale Shirt Factory in computing private respondents' separation pay as petitioner failed to substantiate its claim that it is a distinct entity. ACCORDINGLY, the instant petition is hereby DISMISSED. SO ORDERED.

AVON INSURANCE PLC. BRITISH RESERVE INSURANCE CO. LTD., vs. COURT OF APPEALS, REGIONAL TRIAL COURT OF MANILA, BRANCH 51. YUPANGCO COTTON MILLS. WORLDWIDE SURETY & INSURANCE CO., INC., respondents. TORRES, JR., J.: Just how far can our courts assert jurisdiction over the persons of foreign entities being charged with contractual liabilities by residents of the Philippines? 1 Appealing from the Court of Appeals' October 11, 1990 Decision in CA-G.R. No. 22005, petitioners claim that the trial court's jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Having entered into reinsurance contracts abroad, petitioners are beyond the jurisdictional ambit of our courts and cannot be served summons through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through the Insurance Commissioner, under Section 14. Private respondent Yupangco Cotton Mills contend on the other hand that petitioners are within 2 our courts' cognitive powers, having submitted voluntarily to their jurisdiction by filing motions to dismiss the private respondent's suit below. The antecedent facts, as found by the appellate court, are as follows: Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the Office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motions to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an Order dated April 30, 1990, respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In 3 an order dated June 4, 1990, respondent court denied due course to the appeal. To this day, trial on the merits of the collection suit has not proceeded as in the present petition, petitioners continue vigorously to dispute the trial court's assumption of jurisdiction over them. 4 It will be remembered that in the plaintiff's complaint, it was contended that on July 6, 1979 and on October 1, 1980. Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance. As fate would have it, on December 16, 1979 and May 2, 1981, within the respective effectivity periods of Policies 20719 and 25896, the properties therein insured were razed by fire, thereby giving rise to the obligation of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and Insurance and some of the reinsurance companies. On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the petitioners. Service of summons upon the petitioners was made by notification to the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of 5 Court. In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that respondent Court has no jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office, place of business or agents in the Philippines. The remedy of Certiorari was resorted to by the petitioners on the premise that if petitioners had filed an answer to the complaint as ordered by the respondent court, they would risk, abandoning the issue of jurisdiction. Moreover, extra-territorial service of summons on petitioners is null and void because the complaint for collection is not one affecting plaintiffs status and not relating to property within the Philippines. The Court of Appeals found the petition devoid of merit, stating that: 1. Petitioners were properly served with summons and whatever defect, if any, in the service of summons were cured by their voluntary appearance in court, via motion to dismiss. 2. Even assuming that petitioners have not yet voluntarily appeared as co-defendants in the case below even after having filed the motions to dismiss adverted to, still the situation does not deserve dismissal of the complaint as far as they are concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125 SCRA 523; A case should not be dismissed simply because an original summons was wrongfully served. It should be difficult to conceive for example, that when a defendant personally appears before a court complaining that he had not been validly summoned, that the case filed against him should be dismissed. An alias summons can be actually served on said defendant. 3. Being reinsurers of respondent Worldwide Surety and Insurance of the risk which the latter assumed when it issued the fire insurance policies in dispute in favor of respondent Yupangco, petitioners cannot now validly argue that they do not do business in this country. At the very least, petitioners must be deemed to have engaged in business in the Philippines no matter how isolated or singular such business might be, even on the assumption that among the local domestic insurance corporations of this country, it is only in favor of Worldwide Surety and Insurance that they have ever reinsured any risk arising from any reinsurance within the territory. 4. The issue of whether or not petitioners are doing business in the country is a matter best referred to a trial on the merits of the case, and so should be addressed there. Maintaining its submission that they are beyond the jurisdiction of Philippine Courts, petitioners are now before us, stating: Petitioners, being foreign corporations, as found by the trial court, not doing business in the Philippines with no office, place of business or agents in the Philippines, are not subject to the jurisdiction of Philippine courts.

The complaint for sum of money being a personal action not affecting status or relating to property, extraterritorial service of summons on petitioners all not doing business in the Philippines is null and void. The appearance of counsel for petitioners being explicitly "by special appearance without waiving objections to the jurisdiction over their persons or the subject matter" and the motions to dismiss having excluded non-jurisdictional 6 grounds, there is no voluntary submission to the jurisdiction of the trial court. For its part, private respondent Yupangco counter-submits: 1. Foreign corporations, such as petitioners, not doing business in the Philippines, can be sued in Philippine Courts, not withstanding petitioners' claim to the contrary. 2. While the complaint before the Honorable Trial Court is for a sum of money, not affecting status or relating to property, petitioners (then defendants) can submit themselves voluntarily to the jurisdiction of Philippine Courts, even if there is no extrajudicial (sic) service of summons upon them. 3. The voluntary appearance of the petitioners (then defendants) before the Honorable Trial Court amounted, in effect, to 7 voluntary submission to its jurisdiction over their persons. In the decisions of the courts below, there is much left to speculation and conjecture as to whether or not the petitioners were determined to be "doing business in the Philippines" or not. To qualify the petitioners' business of reinsurance within the Philippine forum, resort must be made to the established principles in determining what is meant by "doing business in the Philippines." In Communication Materials and Design, Inc. et. al. vs. Court of 8 Appeals, it was observed that. There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and 9 object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in 10 the Philippines. There is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. More specifically, there is nothing to substantiate the private respondent's submission that the petitioners had engaged in business activities in this country. This is not an instance where the erroneous service of summons upon the defendant can be cured by the issuance and service of alias summons, as in the absence of showing that petitioners had been doing business in the country, they cannot be summoned to answer for the charges leveled against them. 11 The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals that for the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation. As it is, private respondent has made no allegation or demonstration of the existence of petitioners' domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely 12 because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted 13 14 risk is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract of reinsurance. 15 A foreign corporation, is one which owes its existence to the laws of another state, and generally, has no legal existence within the 16 state in which it is foreign. In Marshall Wells Co. vs. Elser, it was held that corporations have no legal status beyond the bounds of the sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain restrictions, arising from the state's sovereign right of regulation. 17 Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here and secure the proper authorizations under existing law. If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or 18 agency in the Philippines. The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the 19 foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts.

The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. In the alternative, private respondent submits that foreign corporations not doing business in the Philippines are not exempt from 20 suits leveled against them in courts, citing the case of Facilities Management Corporation vs.Leonardo Dela Osa, et. al. where we ruled "that indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine Courts for acts done against a person or persons in the Philippines." We are not persuaded by the position taken by the private respondent. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The Court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign corporations not doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines. As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court's jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or 21 inconvenience of a party. It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they cannot maintain the contrary at this juncture. This argument is at the most, flimsy. In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission 22 to its authority or by service of summons. Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the 23 complaint. The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his 24 person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation 25 of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the 26 suit. 27 When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have 28 submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the 29 wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any 30 other ground for dismissing the action, or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court. In this instance, however, the petitioners from the time they filed their motions to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines. As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence 31 to the court's jurisdiction. Thus, it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturings, were all in protest of the private respondent's insistence on holding them to answer a charge in a forum where they believe they are not subject to. Clearly, to 32 continue the proceedings in a case such as those before Us would just "be useless and a waste of time." ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET ASIDE and the instant petition is hereby GRANTED. The respondent Regional Trial Court of Manila, Branch 51 is declared without jurisdiction to take cognizance of Civil Case No. 86-37932, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. The respondent court is hereby ORDERED to DESIST from maintaining further proceeding in the case aforestated. SO ORDERED.

AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO ZULUAGA/Owner, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents. DECISION BELLOSILLO, J.: AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the National Labor Relations Commission which reversed the decision of the Labor Arbiter dismissing the complaint of [1] respondent Candido Capulso against petitioners. Candido Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal and illegal deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground that there was no employer-employee relationship between AZCOR and herein respondent Capulso; that the latter became an employee of Filipinas Paso effective 1 March 1990 but voluntarily resigned therefrom a year after. Capulso later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor Arbiter. On 14 January 1992, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that the allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the presentation of evidence by both parties. The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00 plus other benefits such as vacation and sick leaves. From April to September 1989 the amount of P50.00 was deducted from his salary without informing him of the reason therefor. In the second week of February 1991, upon his doctors recommendation, Capulso verbally requested to go on sick leave due to bronchial asthma. It appeared that his illness was directly caused by his job as ceramics worker where, for lack of the prescribed occupational safety gadgets, he inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his request. Later, on 1 June 1991, Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. He was not allowed to do so by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him to continue in his job. He returned five (5) times to AZCOR but when it became apparent that he would not be reinstated, he [2] immediately filed the instant complaint for illegal dismissal. Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and testimony to prove that he [3] was terminated without just cause and without due process; (b) Identification card issued by AZCOR which he continued to use [4] [5] even after his supposed employment by Filipinas Paso; (c) Certification of SSS premium payments; (d) SSS Member Assistance [6] Form wherein he stated that he worked with AZCOR from March 1989 to April 1991; (e) Certification of Employee Contribution [7] [8] with SSS; and, (f) Payslips issued by AZCOR. On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown by a contract of employment; in February 1991 Capulso allegedly informed his supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal leave because he was not feeling well; on 1 March 1991 he submitted a letter of resignation addressed to the President of Filipinas Paso, Manuel Montilla; and, in the early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy. Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from AZCOR to transfer to Filipinas Paso, and thereafter, from [9] Filipinas Paso due to failing health; (b) Contract of Employment between Filipinas Paso and respondent which took effect 1 March [10] [11] 1991; (c) Letter of resignation of respondent from AZCOR dated 28 February 1990, to take effect on the same date; (d) Undated [12] letter of resignation of respondent addressed to Filipinas Paso to take effect 1 March 1991; (e) BIR Form No. W-4 filed 6 June [13] [14] 1990; (f) Individual Income Tax Return of respondent for 1990; and, (g) BIR Form 1701-B which was an alphabetical list of [15] employees of Filipinas Paso for the year ending 31 December 1990. On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200.00 representing the amount illegally deducted from his salary. On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC modified the Labor Arbiters decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause; (b) ordering petitioners to reinstate Capulso to his former or equivalent position without loss of seniority rights and without diminution of benefits; and, (c) ordering petitioners to jointly and solidarily pay Capulso his back wages computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC held in part x x x x the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant indicates that the work to be done during the period was contracted with Filipinas Paso. The said contract was signed by the Personnel Officer of Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months, which establishes a presumption that the said contract could pass either as to cover the probationary period, or job contracting, the completion of which automatically terminates employment, whichever will work to respondents advantage should the case be filed. However, appellant continued working with respondent after the lapse of the contract and until the alleged termination of employment of appellant. Secondly, the two resignation letters allegedly executed by appellant are exactly worded, which only shows that the same were prepared by respondents-appellees plus after the fact that complainant denied having executed and signed the same. x x x x the letter of resignation (Exh. 3, p. 188, Rollo) supposed to have been executed by complainant-appellant shows that he resigned from Ascor Mfg., Inc. on February 28, 1990 while Exhibit 2, page 187, Rollo, which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor Mfg., Inc. shows that appellant was being hired from March 1, 1990 to August 31, 1990 by respondent Ascor Mfg., Inc. to do jobs for Filipinas Paso. A run-around of events and dates. The events that transpired clearly show that there was no interruption in the service of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when complainant was unceremoniously dismissed. Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that appeared to be in order with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious as explained above, likewise overwhelmingly show the bad faith of respondents in the treatment of their employees.

Petitioners motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994; hence, the instant petition. Meanwhile, during the pendency of the case before this Court, Capulso succumbed to asthma and heart disease. The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso for back wages. As a rule, the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion. The NLRCs factual findings, if supported by substantial evidence, are entitled to great respect and even finality, unless petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly [16] appreciated. We find no cogent reason to disturb the findings of the NLRC. Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed. We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as such. There must be [17] an intention to relinquish a portion of the term of office accompanied by an act of relinquishment. In the instant case, the fact that Capulso signified his desire to resume his work when he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case for illegal dismissal before the labor courts when he was refused admission by his employer, negated any intention on his part to relinquish his job at AZCOR. Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly addressed by him to AZCOR; (b) both were predrafted with blank spaces filled up with the purported dates of effectivity of his resignation; and, (c) it was written in English, a language which Capulso was not conversant with considering his low level of education. No other plausible explanation can be drawn from these circumstances than that the subject letters of resignation were prepared by a person or persons other than Capulso. And the fact that he categorically disowned the signatures therein and denied having executed them clearly indicates that the resignation letters were drafted without his consent and participation. Even assuming for the sake of argument that the signatures were genuine, we still cannot give credence to those letters in the absence of any showing that Capulso was aware that what he was signing then were in fact resignation letters or that he fully understood the contents thereof. Having introduced those resignation letters in evidence, it was incumbent upon petitioners to prove clearly and convincingly their genuineness and due execution, especially considering the serious doubts on their authenticity. Petitioners miserably failed in this respect. The Labor Arbiter held that Capulsos repudiation of the signatures affixed in the letters of resignation was weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal. But it should be noted that private respondent still wanted his job and thus, understandably, refrained from filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with his employment. True enough, when it became apparent that he was no longer welcome at AZCOR he immediately instituted the instant case. In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil Code. Hence, Capulsos case which was filed after a measly delay of four (4) months should not be treated with skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his complaint for illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal case is more than sufficient compliance with the prescriptive period. It may betray an unlettered mans lack of awareness of his rights as a lowly worker but, certainly, he must not be penalized for his tarrying. In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee was for a valid and [18] authorized cause rests on the employer and failure to discharge the same would mean that the dismissal is not justified and [19] therefore illegal. Petitioners failed in this regard. Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate personalities; and, the mere fact that the businesses of these corporations are interrelated and both owned and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate entities. We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point [20] beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be [21] merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the other. In this particular case, there was much confusion as to the identity of Capulsos employer - whether it was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the following: First, Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he continued to retain his AZCOR Identification card; Second, his payslips contained the name of AZCOR giving the impression that AZCOR was paying his salary;Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor; Fourth, there was no gap in his employment as he continued to work from the time he was hired up to the last day of his work; Fifth, the casting department of AZCOR where Capulso was working was abolished when he, together with six (6) others, transferred to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR personnel officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. The employment contract provided in part: The contract is for a specific job contract only and shall be effective for the period covered, unless sooner terminated when the job contract is completed earlier or withdrawn by client, or when the employee is dismissed for just and lawful causes provided by law and the companys rules and regulations, in which case the employment contract will automatically terminate. As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either as a probationary period or a job contracting, the completion of which automatically terminated the employment. Observe further, however, that respondent continued working even after the lapse of the period in the contract - for whom it was not clear. It may be asked: Was the six (6)-month period probationary in nature, in which case, after the lapse of the period he became a regular employee of Filipinas Paso? Or was the period job-contracting in character, in which case, after the period he was deemed to have come back to AZCOR?

Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them solidarily liable to [22] Capulso when the latter himself testified that he was not even an employee of Filipinas Paso. After causing much confusion, petitioners have the temerity to use as evidence the ignorance of Capulso in identifying his true employer. It is evident from the foregoing discussion that Capulso was led into believing that while he was working with Filipinas Paso, his real employer was AZCOR. Petitioners never dealt with him openly and in good faith, nor was he informed of the developments within the company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCORs manufacturing operations beginning 1 March [23] 1990. Understandably, he sued AZCOR alone and was constrained to implead Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be his employer. In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing him as to who really was his true employer - such a callous and despicable treatment of a worker who had rendered faithful service to their company. However, considering that private respondent died during the pendency of the case before this Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With respect to the amount of back wages, it shall be computed from the time of private respondents illegal dismissal up to the time of his death. WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent Candido Capulso the amounts representing his back wages, inclusive of allowances and other benefits, and separation pay to be computed in accordance with law. SO ORDERED.

BA SAVINGS BANK, petitioner, vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents. DECISION PANGANIBAN, J.: The certificate of non-forum shopping required by Supreme Court Circular 28-91 may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents.
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the August 6, 1997 Resolution [2] the Court of Appeals (CA) in CA-GR SP No. 43209. [3] Also challenged by petitioner is the October 24, 1997 CA Resolution denying its Motion for Reconsideration.
The Facts

[1]

of

On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x. A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was a BA Savings Bank Corporate [4] Secretarys Certificate, dated August 14, 1997. The Certificate showed that the petitioners Board of Directors approved a Resolution on May 21, 1996, authorizing the petitioners lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme Court Revised Circular No. 28-91 requires that it is the petitioner, not the counsel, who must certify under oath to all of the facts and undertakings required therein. [5] Hence, this appeal.
Issue

In its Memorandum, petitioner submits the following issues for the consideration of the Court: I Whether or not petitioner-corporations lawyers are authorized to execute and sign the certificate of non-forum shopping. x xx II Whether or not the certification of petitioners authorized lawyers will bind the corporation. III Whether or not the certification by petitioner corporations lawyers is in compliance with the requirements on non-forum [6] shopping. Simply stated, the main issue is whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf.
The Courts Ruling Main Issue:

The Petition is meritorious.

Authority of Counsel

A corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. All acts within the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities [7] as are agents of individuals and private persons. In the present case, the corporations board of directors issued a Resolution specifically authorizing its lawyers to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of nonforum shopping and other instruments necessary for such action and proceeding. The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. As already stated, corporations act only through their officers and duly authorized agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate entity, only by specifically authorized individuals. It is noteworthy that the Circular does not require corporate officers to sign the certificate. More important, there is no prohibition against authorizing agents to do so. In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. [8] Consistent with this rationale, the Court en banc in Robern Development Corporation v. Judge Jesus Quitain has allowed even an acting regional counsel of the National Power Corporation to sign, among others, the certificate of non-forum shopping required by Circular 28-91. The Court held that the counsel was in the best position to verify the truthfulness and the correctness of the [9] allegations in the Complaint and to know and to certify if an action x x x had already been filed and pending with the courts. Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We see no circumvention of this rationale if the certificate was signed by the corporations specifically authorized counsel, who had personal [10] knowledge of the matters required in the Circular. In Bernardo v. NLRC, we explained that a literal interpretation of the Circular should be avoided if doing so would subvert its very rationale. Said the Court:

x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping. [11] Finally, we stress that technical rules of procedure should be used to promote, not frustrate, justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal. WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continue the proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs. SO ORDERED.

CHESTER BABST, petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL CORPORATION, respondents. DECISION YNARES-SANTIAGO, J.: These consolidated petitions seek the review of the Decision dated April 29, 1991 of the Court of Appeals in CA-G.R. CV No. [1] 17282 entitled, Bank of the Philippine Islands, Plaintiff-Appellee versus Elizalde Steel Consolidated, Inc., Pacific Multi-Commercial Corporation, and Chester G. Babst, Defendants-Appellants. The complaint was commenced principally to enforce payment of a promissory note and three domestic letters of credit which Elizalde Steel Consolidated, Inc. (ELISCON) executed and opened with the Commercial Bank and Trust Company (CBTC). On June 8, 1973, ELISCON obtained from CBTC a loan in the amount of P8,015,900.84, with interest at the rate of 14% per [2] annum, evidenced by a promissory note. ELISCON defaulted in its payments, leaving an outstanding indebtedness in the amount of [3] P2,795,240.67 as of October 31, 1982. The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific MultiCommercial Corporation (MULTI) with the said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on August 31, 1977 which reads: WHEREAS, at least 90% of the Companys gross sales is generated by the sale of tin-plates manufactured by Elizalde Steel Consolidated, Inc.; WHEREAS, it is to the best interests of the Company to continue handling said tin-plate line; WHEREAS, Elizalde Steel Consolidated, Inc. has requested the assistance of the Company in obtaining credit facilities to enable it to maintain the present level of its tin-plate manufacturing output and the Company is willing to extend said requested assistance; NOW, THEREFORE, for and in consideration of the foregoing premises --BE IT RESOLVED AS IT IS HEREBY RESOLVED, That the PRESIDENT & GENERAL MANAGER, ANTONIO ROXAS CHUA, be, as he is hereby empowered to allow and authorize ELIZALDE STEEL CONSOLIDATED, INC. to avail and make use of the Credit Line of PACIFIC MULTICOMMERCIAL CORPORATION with the COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, Makati, Metro Manila; RESOLVED, FURTHER, That the Pacific Multi-Commercial Corporation guarantee, as it does hereby guarantee, solidarily, the payment of the corresponding Letters of Credit upon maturity of the same; RESOLVED, FINALLY, That copies of this resolution be furnished the Commercial Bank & Trust Company of the Philippines, Makati, [4] Metro Manila, for their information. [5] Subsequently, on September 26, 1978, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in favor of National Steel Corporation three (3) domestic letters of credit [6] [7] [8] in the amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used to purchase tin black plates from National Steel Corporation. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving an [9] outstanding account, as of October 31, 1982, in the total amount of P3,963,372.08. On December 22, 1980, the Bank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving [10] corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16. On December 28, 1978, ELISCON and [11] DBP executed a Deed of Cession of Property in Payment of Debt. In June 1981, ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. In October 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCONs obligations to its creditors, but BPI expressly rejected the formula submitted to it for [12] not being acceptable. Consequently, on January 17, 1983, BPI, as successor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, [13] Branch 147, a complaint for sum of money against ELISCON, MULTI and Babst, which was docketed as Civil Case No. 49226. [14] ELISCON, in its Answer, argued that the complaint was premature since DBP had made serious efforts to settle its obligations with BPI. Babst also filed his Answer alleging that he signed the Continuing Suretyship on the understanding that it covers only obligations which MULTI incurred solely for its benefit and not for any third party liability, and he had no knowledge or information [15] of any transaction between MULTI and ELISCON. MULTI, for its part, denied knowledge of the merger between BPI and CBTC, and averred that the guaranty under its board resolution did not cover purchases made by ELISCON in the form of trust receipts. It set up a cross-claim against ELISCON alleging [16] that the latter should be held liable for any judgment which the court may render against it in favor of BPI. [17] On February 20, 1987, the trial court rendered its Decision, the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor of the plaintiff and against all the defendants: 1) Ordering defendant ELISCON to pay the plaintiff the amount of P2,795,240.67 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering defendant ELISCON to pay the plaintiff interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering defendant ELISCON to pay interests at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering defendant ELISCON to pay attorneys fees equivalent to 10% of the total amount due under the preceding paragraphs; 5) Ordering defendants Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally with defendant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with

interests and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst; 6) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally plaintiff interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof; 7) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, attorneys fees of not less than 10% of the total amount due under paragraphs 5 and 6 hereof. With costs. SO ORDERED. [18] In due time, ELISCON, MULTI and Babst filed their respective notices of appeal. On April 29, 1991, the Court of Appeals rendered the appealed Decision as follows: WHEREFORE, the judgment appealed from is MODIFIED, to now read (with the underlining to show the principal changes from the decision of the lower court) thus: 1) Ordering appellant ELISCON to pay the appellee BPI the amount of P2,731,005.60 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering appellant ELISCON to pay the appellee BPI interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering appellant ELISCON to pay appellee BPI interest at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering appellant Pacific Multi-Commercial Corporation and appellant Chester G. Babst to pay appellee BPI, jointly and severally with appellant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interest and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst; 5) Ordering appellant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, appellee BPI interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof and the plaintiffs lawyers fees in the nominal amount of P200,000.00; 6) Ordering appellant ELISCON to reimburse appellants Pacific Multi-Commercial Corporation and Chester Babst whatever amount they shall have paid in said Eliscons behalf particularly referring to the three (3) letters of credit as of 31 October 1982 and other related charges. No costs. [19] SO ORDERED. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was, however, denied in a Resolution [20] dated March 9, 1992. Subsequently, ELISCON filed a petition for review on certiorari, docketed as G.R. No. 104625, on the following grounds: A. THE BANK OF THE PHILIPPINE ISLANDS IS NOT ENTITLED TO RECOVER FROM PETITIONER ELISCON THE LATTERS OBLIGATION WITH COMMERCIAL BANK AND TRUST COMPANY (CBTC) B. THERE WAS A VALID NOVATION OF THE CONTRACT BETWEEN ELISCON AND BPI THERE BEING A PRIOR CONSENT TO AND APPROVAL BY BPI OF THE SUBSTITUTION BY DBP AS DEBTOR IN LIEU OF THE ORIGINAL DEBTOR, ELISCON, THEREBY RELEASING ELISCON FROM ITS OBLIGATION TO BPI. C. PACIFIC MULTI COMMERCIAL CORPORATION AND CHESTER BABST CANNOT LAWFULLY RECOVER FROM ELISCON WHATEVER AMOUNT THEY MAY BE REQUIRED TO PAY TO BPI AS SURETIES OF ELISCONS OBLIGATION TO BPI; THEIR CAUSE OF ACTION MUST BE DIRECTED AGAINST DBP AS THE NEWLY SUBSTITUTED DEBTOR IN PLACE OF ELISCON. D. THE DBP TAKEOVER OF THE ENTIRE ELISCON AMOUNTED TO AN ACT OF GOVERNMENT WHICH WAS A FORTUITOUS EVENT EXCULPATING ELISCON FROM FURTHER LIABILITIES TO RESPONDENT BPI. E. PETITIONER ELISCON SHOULD NOT BE HELD LIABLE TO PAY RESPONDENT BPI THE AMOUNTS STATED IN THE [21] DISPOSITIVE PORTION OF RESPONDENT COURT OF APPEALS DECISION. [22] BPI filed its Comment raising the following arguments, to wit: 1. Respondent BPI is legally entitled to recover from ELISCON, MULTI and Babst the past due obligations with CBTC prior to the merger of BPI with CBTC. 2. BPI did not give its consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected. 3. Express consent of creditor to substitution should be recorded in the books. 4. Petitioner Chester G. Babst and respondent MULTI are jointly and solidarily liable to BPI for the unpaid letters of credit of ELISCON. 5. The question of the liability of ELISCON to BPI has been clearly established. 6. Since MULTI and Chester G. Babst are guarantors of the debts incurred by ELISCON, they may recover from the latter what they may have paid for on account of that guaranty. [23] Chester Babst filed a Comment with Manifestation, wherein he contends that the suretyship agreement he executed with Antonio Roxas Chua was in favor of MULTI; and that there is nothing therein which authorizes MULTI, in turn, to guarantee the obligations of ELISCON. [24] In its Comment, MULTI maintained that inasmuch as BPI had full knowledge of the purpose of the meeting in June 1981, wherein the takeover by DBP of ELISCON was announced, it was incumbent upon the said bank to formally communicate its objection to the assumption of ELISCONs liabilities by DBP in answer to the call for the meeting. Moreover, there was no showing that the availment by ELISCON of MULTIs credit facilities with CBTC, which was supposedly guaranteed by Antonio Roxas Chua, was indeed authorized by the latter pursuant to the resolution of the Board of Directors of MULTI. [25] In compliance with this Courts Resolution dated March 17, 1993, the parties submitted their respective memoranda. Meanwhile, in a petition for review filed with this Court, which was docketed as G.R. No. 99398, Chester Babst alleged that the Court of Appeals acted without jurisdiction and/or with grave abuse of discretion when:

1. IT AFFIRMED THE LOWER COURTS HOLDING THAT THERE WAS NO NOVATION INASMUCH AS RESPONDENT BANK OF THE PHILIPPINE ISLANDS (OR BPI) HAD PRIOR CONSENT TO AND APPROVAL OF THE SUBSTITUTION AS DEBTOR BY THE DEVELOPMENT BANK OF THE PHILIPPINES (OR DBP) IN THE PLACE OF ELIZALDE STEEL CONSOLIDATED, INC. (OR ELISCON) IN THE LATTERS OBLIGATION TO BPI. 2. IT CONFIRMED THE LOWER COURTS CONCLUSION THAT THERE WAS NO IMPLIED CONSENT OF THE CREDITOR BANK OF THE PHILIPPINE ISLANDS TO THE SUBSTITUTION BY DEVELOPMENT BANK OF THE PHILIPPINES OF THE ORIGINAL DEBTOR ELIZALDE STEEL CONSOLIDATED, INC. 3. IT AFFIRMED THE LOWER COURTS FINDING OF LACK OF MERIT OF THE CONTENTION OF ELISCON THAT THE FAILURE OF THE OFFICER OF BPI, WHO WAS PRESENT DURING THE MEETING OF ELISCONS CREDITORS IN JUNE 1981 TO VOICE HIS OBJECTION TO THE ANNOUNCED TAKEOVER BY THE DBP OF THE ASSETS OF ELISCON AND ASSUMPTION OF ITS LIABILITIES, CONSTITUTED AN IMPLIED CONSENT TO THE ASSUMPTION BY DBP OF THE OBLIGATIONS OF ELISCON TO BPI. 4. IN NOT TAKING JUDICIAL NOTICE THAT THE DBP TAKEOVER OF THE ENTIRE ELISCON WAS AN ACT OF GOVERNMENT CONSTITUTING A FORTUITOUS EVENT EXCULPATING ELISCON FROM ANY LIABILITY TO BPI. 5. IN NOT FINDING THAT THE DACION EN PAGO BETWEEN DBP AND BPI RELIEVED ELISCON, MULTI AND BABST OF ANY LIABILITY TO BPI. 6. IN FINDING THAT MULTI AND BABST BOUND THEMSELVES SOLIDARILY WITH ELISCON WITH RESPECT TO THE OBLIGATION INVOLVED HERE. 7. IN RENDERING JUDGMENT IN FAVOR OF BPI AND AGAINST ELISCON ORDERING THE LATTER TO PAY THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF THE DECISION; AND ORDERING PETITIONER AND MULTI TO PAY SAID AMOUNTS JOINTLY AND [26] SEVERALLY WITH ELISCON. Petitioner Babst alleged that DBP sold all of ELISCONs assets to the National Development Company, for the latter to take over and continue the operation of its business. On September 11, 1981, the Board of Governors of the DBP adopted Resolution No. 2817 which states that DBP shall enter into a contractual arrangement with NDC for the latter to pay ELISCONs creditors, including BPI in the amount of P4,015,534.54. This was followed by a Memorandum of Agreement executed on May 4, 1983 by and between DBP and NDC, wherein they stipulated, inter alia, that NDC shall pay to ELISCONs creditors, through DBP, the amount of P299,524,700.00. Among the creditors mentioned in the agreement was BPI, with a listed credit of P4,015,534.54. Furthermore, petitioner Babst averred that the assets of ELISCON which were acquired by the DBP, and later transferred to the NDC, were placed under the Asset Privatization Trust pursuant to Proclamation No. 50, issued by then President Corazon C. Aquino on December 8, 1986. [27] In its Comment, BPI countered that by virtue of its merger with CBTC, it acquired all the latters rights and interest including all receivables; that in order to effect a valid novation by substitution of debtors, the consent of the creditor must be express; that in addition, the consent of BPI must appear in its books, it being a private corporation; that BPI intentionally did not consent to the assumption by DBP of the obligations of ELISCON because it wanted to preserve intact its causes of action and legal recourse against Pacific Multi-Commercial Corporation and Babst as sureties of ELISCON and not of DBP; that MULTI expressly bound itself solidarily for ELISCONs obligations to CBTC in its Resolution wherein it allowed the latter to use its credit facilities; and that the suretyship agreement executed by Babst does not exclude liabilities incurred by MULTI on behalf of third parties, such as ELISCON. [28] ELISCON likewise filed a Comment, wherein it manifested that of the seven errors raised by Babst in his petition, six are arguments which ELISCON itself raised in its previous pleadings. It is only the sixth assigned error --- that the Court of Appeals erred in finding that MULTI and Babst bound themselves solidarily with ELISCON --- that ELISCON takes exception to. More particularly, ELISCON pointed out the contradictory positions taken by Babst in admitting that he bound himself to pay the indebtedness of MULTI, while at the same time completely disavowing and denying any such obligation. It stressed that should MULTI or Babst be finally adjudged liable under the suretyship agreement, they cannot lawfully recover from ELISCON, but from the DBP which had been substituted as the new debtor. [29] MULTI filed its Comment, admitting the correctness of the petition and adopting the Comment of ELISCON insofar as it is not inconsistent with the positions of Babst and MULTI. At the outset, the preliminary issue of BPIs right of action must first be addressed. ELISCON and MULTI assail BPIs legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the [30] other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right to institute the case a quo. We now come to the primordial issue in this case whether or not BPI consented to the assumption by DBP of the obligations of ELISCON. Article 1293 of the Civil Code provides: Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. BPI contends that in order to have a valid novation, there must be an express consent of the creditor. In the case of Testate [31] Estate of Mota, et al. v. Serra, this Court held: It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation, which waiver must be express under the principle of renuntiatio non prsumitur, recognized by the law in declaring that a waiver of right may not be performed [should read: presumed] unless the will to waive is indisputably shown by him who holds the [32] right. The import of the foregoing ruling, however, was explained and clarified by this Court in the later case of Asia Banking [33] Corporation v. Elser in this wise: The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditors consent to the substitution of the new debtor for the old be express, or given at the time of the substitution, and the Supreme Court of Spain, in its judgment of June 16, 1908, construing said article, laid down the doctrine that article 1205 of the Civil Code does not mean or require that the creditors consent to the change of debtors must be given simultaneously with the debtors consent to the substitution, its evident purpose

being to preserve the creditors full right, it is sufficient that the latters consent be given at any time and in any form whatever, while the agreement of the debtors subsists. The same rule is stated in the Enciclopedia Jurdica Espaola, volume 23, page 503, which reads: The rule that this kind of novation, like all others, must be express, is not absolute; for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words. The understanding between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to Luis R. Yangcos stock in said corporation, and the acts of the board of directors after Henry W. Elser had acquired said shares, in substituting the latter for Luis R. Yangco, are a clear and unmistakable expression of its consent. When this court said in the case of Estate of Motavs. Serra (47 Phil., 464), that the creditors express consent is necessary in order that there may be a novation of a contract by the substitution of debtors, it did not wish to convey the impression that the word express was to be given an unqualified [34] meaning, as indicated in the authorities or cases, both Spanish and American, cited in said decision. [35] Subsequently, in the case of Vda. e Hijos de Pio Barretto y Ca., Inc. v. Albo & Sevilla, Inc., et al., this Court reiterated the rule that there can be implied consent of the creditor to the substitution of debtors. In the case at bar, Babst, MULTI and ELISCON all maintain that due to the failure of BPI to register its objection to the take-over by DBP of ELISCONs assets, at the creditors meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor. We find merit in the argument. Indeed, there exist clear indications that BPI was aware of the assumption by DBP of the obligations of ELISCON. In fact, BPI admits that --the Development Bank of the Philippines (DBP), for a time, had proposed a formula for the settlement of Eliscons past obligations to its creditors, including the plaintiff [BPI], but the formula was expressly rejected by the plaintiff as not acceptable (long before the [36] filing of the complaint at bar). The Court of Appeals held that even if the account officer who attended the June 1981 creditors meeting had expressed consent to the assumption by DBP of ELISCONs debts, such consent would not bind BPI for lack of a specific authority therefor. In its petition, ELISCON counters that the mere presence of the account officer at the meeting necessarily meant that he was authorized to represent BPI in that creditors meeting. Moreover, BPI did not object to the substitution of debtors, although it objected to the payment formula submitted by DBP. Indeed, the authority granted by BPI to its account officer to attend the creditors meeting was an authority to represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for the bank. Even granting arguendo that the said account officer was not so empowered, BPI could have subsequently registered its objection to the substitution, especially after it had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to do so can only mean an acquiescence in the assumption by DBP of ELISCONs obligations. As repeatedly pointed out by ELISCON and MULTI, BPIs objection was to the proposed payment formula, not to the substitution itself. BPI gives no cogent reason in withholding its consent to the substitution, other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to pay only arises upon the principal debtors failure or refusal to pay. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation [37] [38] if the debtor does not. A surety is an insurer of the debt; he promises to pay the principals debt if the principal will not pay. In the case at bar, there was no indication that the principal debtor will default in payment. In fact, DBP, which had stepped [39] into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government. More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCONs creditors, and [40] earmarked for that purpose the amount of P4,015,534.54 for payment to BPI. Notwithstanding the fact that a reliable institution backed by government funds was offering to pay ELISCONs debts, not as mere surety but as substitute principal debtor, BPI, for reasons known only to itself, insisted in going after the sureties. The course of action chosen taxes the credulity of this Court. At the very least, suffice it to state that BPIs actuation in this regard runs counter to the good faith covenant in contractual relations, provided for by the Civil Code, to wit: ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. ART. 1159. Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith. BPIs conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new [41] obligation. The original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being [42] accessory obligations, are likewise extinguished. Hence, BPI should enforce its cause of action against DBP. It should be stressed that notwithstanding the lapse of time within which these cases have remained pending, the prescriptive period for BPI to file its action was interrupted when it filed Civil Case [43] No. 49226. WHEREFORE, the consolidated petitions are GRANTED. The appealed Decision of the Court of Appeals, which held ELISCON, MULTI and Babst solidarily liable for payment to BPI of the promissory note and letters of credit, is REVERSED and SET ASIDE. BPIs complaint against ELISCON, MULTI and Babst is DISMISSED. SO ORDERED.

BAGUIO MIDLAND COURIER, REPRESENTED BY ITS PRESIDENT AND GENERAL MANAGER, OSEO HAMADA AND CECILLE AFABLE, TH EDITOR-IN-CHIEF, petitioners, vs. THE COURT OF APPEALS (FORMER SP, 6 DIVISION) AND RAMON LABO, JR., respondents. DECISION CHICO-NAZARIO, J.: [1] This is a petition for review on certiorari seeking to set aside the Decision of the Court of Appeals, dated 07 January 1992, and [2] the Resolution, dated 29 September 1992, reversing the decision of the Regional Trial Court (RTC), dated 14 June 1990, which dismissed herein private respondents claim for damages. Culled from the records are the following facts: During the time material to this case, petitioner Oseo C. Hamada (Hamada) was the president and general manager of the Baguio Printing and Publishing Co., Inc., which publishes the Baguio Midland Courier, a weekly newspaper published and circulated in Baguio City and other provinces within the Cordillera region. He was also, at that time, the business manager of said newsweekly. Petitioner Cecille Afable (Afable) was Baguio Midland Couriers editor-in-chief and one of its columnists who ran the column In and Out of Baguio. On the other hand, private respondent Ramon L. Labo, Jr., was among the mayoralty candidates in Baguio City for the 18 [3] January 1988 local elections. Prior to this, in 1984, private respondent had already embarked on a political career by running for a seat in the formerBatasang Pambansa during which time he appointed a certain Benedicto Carantes (Carantes) as his campaign manager. It appears that as part of the campaign propaganda for private respondent in the 1984 local elections, political ads appeared in the various issues of Baguio Midland Courier and campaign paraphernalia were printed by Baguio Printing and Publishing Co., Inc., on his behalf. Apart from his political endeavors, private respondent was also an active member of the civic group Lions Club having been elected governor of said organization in 1984, 1986, and 1988. Before the 18 January 1988 local elections, petitioner Afable wrote in her column a series of articles dealing with the candidates for the various elective positions in Baguio City. Quoted hereunder are excerpts from said articles, as well as the respective dates when they were published in the Baguio Midland Courier January 3, 1988 . . . Of all the candidates for mayor, Labo has the most imponderables about him, people would ask, Can he read and write? Why is he always talking about his Japanese father-in-law? Is he really a Japanese Senator or a barrio kapitan? Is it true that he will send P18 million aid to Baguio? Somebody wanted to put an advertisement of Labo in the Midland Courier but was refused because he has not yet paid his account of the last time he was a candidate for Congress. We will accept all advertisements for him if he pays [4] his old accounts first. January 10, 1988 I heard that the Dumpty in the egg is campaigning for Cortes. Not fair. Some real doctors are also busy campaigning against Labo, because he has not also paid their medical services with them. Since he is donating millions he should settle his small debts like the reportedly insignificant amount of P27,000 only. If he wins several teachers were signifying to resign and leave Baguio forever, and [5] Pangasinan will be the franca-liqua of Baguio. Claiming that the aforequoted portions of petitioner Afables column were tainted with malice, private respondent instituted separate criminal and civil actions for libel against herein petitioners. In a resolution, dated 26 December 1988, the Department of [6] Justice dismissed the criminal case due to insufficiency of evidence while the civil suit was raffled off to RTC, Branch 6, Baguio City. In the complaint for damages, private respondent alleged that in her 03 January 1988 and 10 January 1988 columns, petitioner Afable made it appear that he (private respondent) could not comply with his financial obligations; that Yuko Narukawa Labo (Narukawa Labo), his co-plaintiff in the case before the trial court, was accused of misrepresenting her social status to the general public thereby subjecting her to public ridicule; that the subject articles were written solely for the purpose of destroying his reputation, integrity, and personality as well as that of Ms. Narukawa Labo; and that said articles were false, untrue, libelous, and published with evil intent. Private respondent and Ms. Narukawa Labo, therefore, prayed for moral damages, exemplary damages, litigation expenses, attorneys fees, and costs of litigation. [7] Prior to filing their respective answers, petitioners filed separate motions to dismiss upon the ground that there was failure to [8] comply with Section 6 of Presidential Decree (P.D.) No. 1508, otherwise known as the Katarungang Pambarangay Law, which required the referral of certain disputes to the barangay conciliation process before they are filed in court. Petitioner Hamada also claimed that the complaint stated no cause of action. On 05 April 1988, private respondent and Ms. Narukawa Labo filed a motion with leave of court to amend and admit attached [9] [10] amended complaint. Impleaded in the amended complaint was the Baguio Printing and Publishing Co., Inc., as the publisher of the Baguio Midland Courier. [11] In its Order, dated 12 April 1988, the trial court denied petitioners motions to dismiss. According to the trial court, as one of the parties to this case was a corporation, P.D. No. 1508 was not applicable as said statute pertained only to actions involving natural persons. In the same order, the trial court granted private respondent and Ms. Narukawa Labos motion to admit their amended complaint and directed the petitioners to file their answers. [12] In their answer, petitioners Baguio Midland Courier and Hamada denied that petitioner Afables 03 and 10 January 1988 articles were libelous. They also claimed that per their companys records, private respondent still owed them a certain sum of money for the political ads and campaign paraphernalia printed by Baguio Printing and Publishing Co., Inc., during private respondents 1984 campaign, and that the 03 January 1988 column did not accuse Ms. Narukawa Labo of misrepresenting herself before the public. Moreover, they asserted that petitioner Afables write-ups were fair comments on facts and reports that were of public interest as private respondent was a mayoralty candidate at that time. Finally, petitioners Baguio Midland Courier and Hamada interposed counterclaims for moral damages, exemplary damages, attorneys fees, and costs. [13] In her answer, petitioner Afable also denied that the quoted portions of her 03 and 10 January 1988 column were libelous, [14] insisting that they were devoid of malice and at most contained valid and timely doubts. She also contended that the contents of her column were protected by the constitutional guarantees of freedom of speech and of the press and that the same were privileged as they dealt with a public figure. Petitioner Afable likewise sought counterclaims for moral damages, exemplary damages, and attorneys fees.

During the pre-trial of the case on 31 March 1989, the parties agreed to limit the issues to the following: (1) whether the published items were libelous, false and malicious; (2) whether plaintiffs below were entitled to damages; and (3) whether petitioners (defendants therein) were entitled to damages as claimed in their respective counterclaims. On 17 July 1989, private respondents counsel manifested before the trial court that Ms. Narukawa Labo would no longer [15] testify in support of the allegations in the amended complaint as far as they pertain to her. In addition, the 03 January 1988 article was no longer offered in evidence by the private respondents counsel thus, the trial court interpreted this development to mean that the same ceased to be a part of this suit. The court a quo thereafter proceeded with the trial of the case taking into consideration only the 10 January 1988 column. In the trial that ensued, private respondent testified that he felt that the phrase dumpty in the egg referred to him, [16] interpreting the same to mean someone who is a failure in his business undertakings. Private respondent asserted that such allegation was baseless as he was successful in his various endeavors abroad. With regard to the remainder of the article, private respondent insisted that petitioner Afable made it appear to the public that he owed P27,000 in unpaid medical expenses while in [17] truth, he could not remember having been hospitalized. Subsequently, private respondent presented Dr. Pedro Rovillos, his fellow Lions Club member, who testified that he [18] understood the term dumpty in the egg to mean a zero or a big lie. He further testified that the 10 January 1988 article [19] painted private respondent as abalasubas due to the latters alleged failure to pay his medical expenses. On the other hand, the petitioners presented Ms. Sylvia Lambino (Lambino), Baguio Printing and Publishing Co., Inc.s, bookkeeper and accountant, as their first witness. According to Lambino, Baguio Printing and Publishing Co., Inc., sent several statements of accounts and demand letters to private respondent pertaining to his unpaid obligations amounting to P27,415 which [20] he incurred during his campaign for theBatasang Pambansa in 1984. She further testified that despite the repeated demands to [21] private respondent, the aforementioned obligations remained unpaid. Thereafter, petitioner Hamada himself took the witness stand. In his testimony, petitioner Hamada stated that as the president and general manager of the Baguio Printing and Publishing Co., Inc., and as the business manager of the Baguio Midland Courier, he only dealt with the business and advertising aspects of their newspaper business and that the contents of the articles [22] appearing in the pages of the Baguio Midland Courier were overseen by the rest of the staff. In addition, petitioner Hamada also corroborated the earlier testimony of Lambino with respect to the outstanding obligations of private respondent. On 20 December 1989, Carantes took the witness stand for the petitioners. Carantes testified that he was appointed as private respondents campaign manager when the latter ran for assemblyman in Batasang Pambansa in 1984 and that in his capacity as [23] campaign manager, he hired the services of a certain Noli Balatero to oversee the printing of campaign paraphernalia and [24] publication of political advertisements of private respondent. Carantes further testified that the P27,415 indebtedness to Baguio Printing and Publishing Co., Inc., had remained unpaid because the campaign funds private respondent entrusted to him were already fully exhausted. Besides, according to Carantes, the campaign materials printed by the Baguio Printing and Publishing Co., Inc., and political advertisements published in Baguio Midland Courier were no longer covered by the agreement he had with Balatero. However, these materials were printed and published upon the instructions of one Atty. Conrado Bueno who acted as private respondents unofficial campaign manager during the said election. Carantes thus concluded that private respondent was supposed to pay for these campaign materials and advertisements before or after the 1984 election. For her part, petitioner Afable acknowledged having written the 10 January 1988 article but denied that the same was malicious and intended to destroy private respondents reputation and integrity; that the phrase dumpty in the egg referred to Horato Aquino who was among the candidates for the 1988 local elections in Baguio City; and that the P27,000 pertained to private respondents unpaid obligation to Baguio Printing and Publishing Co., Inc., the exact amount of which was P27,415. In its decision, dated 14 June 1990, the trial court dismissed the complaint for lack of merit. According to the trial court, the article in question was privileged and constituted fair comment on matters of public interest as it dealt with the integrity, reputation, and honesty of private respondent who was a candidate for local elective office at that time. This decision of the trial court was, however, reversed by the appellate court in a decision, dated 07 January 1992, the dispositive portion of which reads: Construed in the light of the facts and the principles on the matter, and under the plain language of the applicable law, We hold that the evidence was sufficient to prove by preponderance of evidence that the defendants were GUILTY of committing libel on the person of the complainant Ramon Labo, Jr. and should be liable to pay damages. The decision of the trial court is hereby REVERSED and SET ASIDE and the defendants are hereby ordered to pay the plaintiffs as follows: 1) The amount of P200,000.00 as moral damages; 2) The amount of P100,000.00 as exemplary damages; [25] 3) The amount of P50,000.00 for attorneys fees plus costs of litigation. In brushing aside the conclusion reached by the trial court, the Court of Appeals noted that private respondent was, at the time the article in question was published, not a public official but a private citizen seeking an elective office and petitioner Afables article was intended to impeach his honesty, virtue or reputation and to make him appear in the eyes of the public as unfit for public office. The appellate court also declared that the malicious nature of the article may be deduced from the fact that it was published in the Baguio Midland Courier a few days before the scheduled local elections and from the style and tone of writing employed by petitioner Afable. According to the Court of Appeals, while the entire article was composed of ten paragraphs and referred to several unnamed personalities, it was only in the disputed paragraph where a specific individual was named herein private respondent. The appellate court therefore concluded that the phrase dumpty in the egg could only refer to private respondent and the claimed P27,000 indebtedness is imputable solely to him. [26] Petitioners thereafter filed their respective motions for reconsideration of the aforementioned decision of the Court of [27] Appeals but these were denied through a resolution of the appellate court, dated 29 September 1992. Thus, petitioners now come before us raising the following issues: I THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THERE IS GOOD REASON AND REASONABLE GROUND TO ASSUME THAT THE PUBLICATION OF THE LIBELOUS ARTICLES WAS A MANIFESTATION OF THE SPOUSES (DEFENDANTS OSEO HAMADA and CECILLE AFABLE) THINKING ON THE MERIT OR DEMERIT OF CANDIDATES FOR BAGUIO CITY MAYOR FOR THE JANUARY 18, 1988 ELECTIONS SINCE THEY ARE NOT SPOUSES NOR RELATED TO ONE ANOTHER.

II THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT PLAINTIFF-APPELLANT RAMON LABO, JR. WAS THE ONE REFERRED TO AS THE DUMPTY IN THE EGG. III THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE PORTION OF THE SUBJECT ARTICLE WHICH STATES THAT SINCE HE IS DONATING MILLIONS HE SHOULD SETTLE HIS SMALL DEBTS LIKE THE REPORTEDLY INSIGNIFICANT AMOUNT OF P27,000.00 REFERS TO AN INDEBTEDNESS OF LABO TO THE REAL DOCTORS AND NOT TO THE BAGUIO MIDLAND COURIER. IV THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THERE WAS MALICE WHEN THE DEFENDANT-APPELL(ANT) CECILLE AFABLE INVITED PUBLIC ATTENTION ON LABOS PRIVATE LIFE BEING A CANDIDATE FOR THE HIGHEST PUBLIC OFFICE IN THE CITY OF BAGUIO OR THAT THE DEFENDANTS WERE ACTUALLY NOT MOTIVATED BY GOOD AND JUSTIFIABLE ENDS IN PUBLISHING SAID ARTICLES ABOUT THE PRIVATE RESPONDENT. V THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN REVERSING THE DECISION OF THE TRIAL COURT DISMISSING THE [28] COMPLAINT FOR LACK OF MERIT. In a manifestation dated 10 November 1993, we were informed of the death of petitioner Hamada. In our resolution of 08 [29] December 1993, we resolved to substitute the estate of Oseo C. Hamada, for the deceased petitioner Hamada. The Courts Ruling We shall first address the contention of petitioners with regard to alleged errors of facts committed by the Court of Appeals. [30] While we adhere to the principle that findings of fact of the appellate court are binding and conclusive upon us, such adherence has not prevented this Court from setting aside the findings of fact of the Court of Appeals when circumstances so warrant. In the [31] recent case of The Insular Life Assurance Company, Ltd. v. Court of Appeals and Sun Brothers & Company, this Court had the occasion to enumerate the exceptions to the general rule as regards the conclusiveness of the findings of fact of the appellate court, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of facts are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if [32] properly considered, would justify a different conclusion. In the case at bar, except for numbers (1), (6), (9), and (10), all of the above exceptions are present. First. Contrary to the findings of the Court of Appeals that private respondent was the only candidate named in petitioner Afables column on 10 January 1988, said article actually dealt with the other named candidates for the 1988 local elections in Baguio City and Benguet. A perusal of said article would likewise reveal that it contained not only the opinion of petitioner Afable regarding private respondent but also her take on the other issues involving the other candidates. It would be grave error to impute malice on the subject article based upon a finding that private respondent was unduly singled out by petitioner Afable in her column. In this regard, we dismiss the following conclusion of the appellate court: . . . Malice may also be inferred from the style and tone of the publication. The entire column on In and Out of Baguio on January 10 was composed of ten paragraphs and each paragraph featured or referred to a single person without knowing the person; however, in the second paragraph which mentions the non-payment of P27,000.00, the complainant [private respondent herein] was specifically mentioned in name; hence, no amount of reasoning would erase the fact that the dumpty in the egg was referring to [33] Labo. (Emphasis supplied) Second. From the abovequoted portion of the Court of Appeals ruling, it is daylight clear that the appellate court assumed that since the name of private respondent and the phrase dumpty in the egg appeared in the same paragraph, the epithet referred only to the former. We cannot, however, subscribe to such simplistic deduction. A perusal of the paragraph in question easily reveals that the person alluded to by petitioner Afable in her use of dumpty in the egg was someone who was campaigning for a certain Atty. Reynaldo Cortes - one of the mayoralty candidates in Baguio City at that time. If, indeed, dumpty in the egg referred to private respondent, it follows that he campaigned for his own opponent during the 1988 local elections. Although such gracious attitude on the part of private respondent towards his political opponent would have been commendable, nevertheless, the same is totally contrary to human experience. On this score, we uphold the following argument of petitioners: Clearly, the private respondent was hallucinating when he claims himself as the person referred to as the Dumpty in the egg. Otherwise, he would be the one making a mockery out of himself for campaigning against himself and in favor of his political opponent. Had he done that, it is doubtful whether he could have won as City Mayor of Baguio in the 1988 elections, which he [34] actually did. Third. In its assailed decision, the Court of Appeals likewise highlighted the fact that petitioners Hamada and Afable were husband and wife and went on to conclude, albeit erroneously, that (t)here is good reason and reasonable ground to assume that the publication of the libelous article was a manifestation of the spouses thinking on the merit or demerit of candidates for Baguio [35] City mayor for the 18 January 1988 elections. Again, we disagree in this conclusion of the appellate court. The records of this case clearly establish the fact that petitioners Hamada and Afable were siblings and not spouses in that during his testimony on 19 [36] December 1989, petitioner Hamada referred to petitioner Afable as his sister. The Court of Appeals supposition, therefore, that the article subject of this petition reflected the stance of the husband and wife team of the petitioners utterly lacks factual support. Having addressed the factual issues of this case, we shall now proceed to discuss its substantive question of whether the 10 January 1988 article of petitioner Afable was defamatory. It is a basic precept that in cases involving claims for damages arising out of alleged defamatory articles, it is essential that the [37] alleged victim be identifiable although it is not necessary that he be named. It is enough if by intrinsic reference the allusion is apparent or if the publication contains matters of descriptions or reference to facts and circumstances from which others reading

the article may know the plaintiff was intended, or if extraneous circumstances point to him such that persons knowing him could [38] and did understand that he was the person referred to. [39] In the case of Borjal v. Court of Appeals, this Court declared that *i+t is also not sufficient that the offended party recognized himself as the person attacked or defamed, but it must be shown that at least a third person could identify him as the object of the [40] libelous publication. Plainly, private respondent has the bounden duty to present before the court evidence that a third person could easily identify him as the person libeled. In this case, private respondent has utterly failed to dispose of this responsibility. To be sure, private respondents lone witness, Dr. Rovillos, was able to offer his own understanding of what the phrase [41] dumpty in the egg meant. However, during his cross-examination, he failed to sufficiently explain before the court a quo how he arrived at the conclusion that the term referred to private respondent, thus: Q Now, you said you read this first sentence that says: I heard that the Dumpty in the egg is campaigning for Cortes. Then you gave us what you thought was the meaning of Dumpty in the egg. You did not tell us, however, whether you thought that was Ramon Labo or somebody else. Could you tell us, Doctor, when you heard that, you understood that to be Ramon Labo? A That is what I understand. Q You understood that to be Ramon Labo because a dumpty in the egg means a big zero. Why? You consider Labo a big zero that is why you understood him to be referred to when Cecille C. Afable said dumpty in the egg? A That is what I understand. Q You also said a dumpty in the egg is a big lie. You consider Ramon Labo a big lie that you also thought he was referred to as dumpty in the egg? A No, sir. Q In fact, Ramon Labo, in your assessment, is the exact opposite of a dumpty [in] the egg? A That I cannot answer. A So, from your honest perception, some this this Labo (sic) is a big zero or a big lie that is why you cannot say he is the exact opposite? [42] A Maybe. This Court finds Dr. Rovilloss proposition as to what dumpty in the egg meant is insufficient to support any finding of liability on the part of the petitioners as he was unable to offer an iota of justification for his conclusion that it pertained to private respondent. The Court of Appeals also maintained that petitioners could not invoke public interest in their defense. It ruled that *a+n abuse of the freedom of speech and the press should not be tolerated and encouraged if the article published transcends the limit of decent, fair and impartial news reporting and instead becomes a bludgeon or a scalpel to brow beat or slice into shreds a private [43] citizen, of his rights to his good name. We do not agree. Concededly, private respondent was not yet a public official at the time the 10 January 1988 article was published. Nevertheless, this fact does not remove said article from the mantle of protection guaranteed by the freedom of expression [44] provision of the Constitution. Indeed, as early as 1909, in the case of United States v. Sedano, this Court had recognized the publics right to be informed on the mental, moral, and physical fitness of candidates for public office. [45] Subsequently, in the leading case of New York Times Co. vs. Sullivan, the US Supreme Court expounded on this principle, viz: . . . It is of the utmost consequence that the people should discuss the character and qualifications of candidates for their suffrages. The importance to the state and to society of such discussions is so vast, and the advantages derived are so great, that they more than counterbalance the inconvenience of private persons whose conduct may be involved, and occasional injury to the reputations of individuals must yield to the public welfare, although at times such injury may be great. The public benefit from publicity is so great, and the chance of injury to private character so small, that such discussion must be privileged. ... In such a case the occasion gives rise to a privilege, qualified to this extent: any one claiming to be defamed by the communication must show actual malice or go remediless. The privilege extends to a great variety of subjects, and includes matters of public [46] concern, public men, and candidates for office. Plainly, the rule only applies to fair comment on matters of public interest, fair comment being that which is true, or which if [47] false, expresses the real opinion of the author based upon reasonable degree of care and on reasonable grounds. The principle, therefore, does not grant an absolute license to authors or writers to destroy the persons of candidates for public office by exposing the latter to public contempt or ridicule by providing the general public with publications tainted with express or actual malice. In the latter case, the remedy of the person allegedly libeled is to show proof that an article was written with the authors knowledge that it was false or with reckless disregard of whether it was false or not. While the law itself creates the presumption that every [48] defamatory imputation is malicious, nevertheless, the privileged character of a communication destroys said presumption. The [49] burden of proving actual malice shall then rest on the plaintiff, private respondent herein. In the present case, private respondent was unable to prove that petitioner Afables column was tainted with actual malice. Verily, the records are replete with evidence that, indeed, private respondent incurred an obligation which had remained unpaid until the time the questioned article was published. While counsel for private respondent persistently harped at the difference between the P27,000 which appeared in petitioner Afables column and the P27,415 actual indebtedness of private respondent to Baguio Printing and Publishing Co., Inc., the minuscule difference in the amount fails to establish reckless disregard for truth on the part of petitioners. As held by this Court in the Borjalcase Even assuming that the contents of the articles are false, mere error, inaccuracy or even falsity alone does not prove actual malice. Errors or misstatements are inevitable in any scheme of truly free expression and debate. Consistent with good faith and reasonable care, the press should not be held to account, to a point of suppression, for honest mistakes or imperfections in the choice of language. There must be some room for misstatement of fact as well as for misjudgment. Only by giving them much leeway and [50] tolerance can they courageously and effectively function as critical agencies in our democracy. Lastly, we hold that petitioner Afables article constitutes a fair comment on a matter of public interest as it dealt with the character of private respondent who was running for the top elective post in Baguio City at the time. Considering that private respondent assured his would-be constituents that he would be donating millions of his own money, petitioner Afables column with respect to private respondents indebtedness provided the public with information as regards his financial status which, in all

probability, was still unbeknownst to them at that time. Indeed, the information might have dissuaded some members of the electorate from voting in favor of private respondent but such is the inevitable result of the application of the law. The effect would have been adverse to the private respondent but public interest in this case far outweighs the interest of private respondent. WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated 07 January 1992, and its Resolution, dated 29 September 1992, denying reconsideration are REVERSED and SET ASIDE, and the trial courts Decision of 14 June 1990 is AFFIRMED. No costs. SO ORDERED.

IRINEO S. BALTAZAR, plaintiff-appellee, vs. LINGAYEN GULF ELECTRIC POWER, CO., INC., DOMINADOR C. UNGSON, BRIGIDO G. ESTRADA, MANUEL L. FERNANDEZ, BENEDICTO C. YUSON and BERNARDO ACENA, defendants-appellants. PAREDES, J.: In Civil Case G.R. No. L-16236 (CFI No. 13211), Irineo S. Baltazar, filed the complaint against Lingayen Gulf Electric Power Co., Inc., Dominador C. Ungson, Brigido G. Estrada, Manuel L. Fernandez, Benedicto C. Yuson and Bernardo Acena. In Civil Case G.R. No. L-16237 (CFI No. 13212), Marvin O. Rose filed the complaint against the same defendants. In Civil Case G.R. No. L-16238 (CFI No. 13340), Baltazar and Rose filed their complaint against Bernardo Acena alone. The Lingayen Gulf Electric Power Co., Inc., hereinafter referred to as Corporation, was doing business in the Philippines, with principal offices at Lingayen, Pangasinan, and with an authorized capital stock of P300.000.00 divided into 3,000 shares of voting stock at P100.00 par value, per share. Plaintiffs Baltazar and Rose were among the incorporators, having subscribed to 600 and 400 shares of the capital stock, or a total par value of P60,000.00 and P40.000.00, respectively. It is alleged that it has always been the practice and procedure of the Corporation to issue certificates of stock to its individual subscribers for unpaid shares of stock. Of the 600 shares of capital stock subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued to him several fully paid up and non-assessable certificates of stock, corresponding to the 535 shares. After having made transfers to third persons and acquired new ones, Baltazar had to his credit, on the filing of the complaint 341 shares fully paid and non-assessable. He had also 65 shares with par value of P6,500.00, for which no certificate was issued to him. Of the 400 shares of stock subscribed by Rose, he had 375 shares of fully paid stock, duly covered by certificates of stock issued to him. The respondents Ungson, Estrada, Fernandez and Yuson were small stockholders of the Corporation, all holding a total number of fully paid-up shares of stock, of not more than 100 shares, with a par value of P10,000.00 and the defendant Acena, was likewise an incorporator and stockholder, holding 600 shares of stock, for which certificate of stock were issued to him and as such, was the largest individual stockholder thereof. Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover seven-member Board of Directors of the Corporation, in 1955, two (2) of said defendants having been elected as members of the Board in the annual stockholders' meeting held in May 1954, largely on the vote of their co-defendant Acena, while the other two (2) were elected mainly on the vote of the plaintiffs and their group of stockholders. Let the first group be called the Ungson group and the second, the Baltazar group. The date of the annual stockholders' meeting of the Corporation had been fixed, under its by-laws, on the first Tuesday of February of every year, but for one reason or another, the meeting was to be held on May 1, 1955, principally for the purpose of electing new officers and Board of Directors for the calendar year 1955. In connection with said meeting since January 1, 1955, there was a realignment effected, and the fight for control of the management and property of the corporation was close and keen. The total number of fully paid-up shares held by stockholders of one group, was almost equal the number of fully paid-up shares held by the other group. The Ungson group (specially defendant Acena), which had been in complete control of the management and property of the Corporation since January 1, 1955, in order to continue retaining such control, over the objection oil three majority members of the Board, in the regular meeting of the Board of Directors, held on January 30, 1955, passed three (3) resolutions (Exhs. A, B, C). Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and Jubenville, "of no value and consequently cancelled from the books of the Corporation. Resolution No. 3 (Exh. B) resolved that "... all unpaid subscriptions should bear interest annually from the year of subscription on the basis of quarterly payment, and any or all payments already made on said unpaid subscriptions should be credited to pay interest first, then the capital debt after all interest is fully paid. All shares of stock issued to and in favor of any stockholder or stockholders of the Lingayen Gulf Electric Power Co., Inc., on account of payments on unpaid subscriptions without the interest thereon accrued and collectible having been fully paid from the date of subscription as required by the Corporation Law, shall be declared of no value and cancelled from its books, and if the payments already made exceeded the interest accrued and collectible by virtue of the provision of law and the previous resolution of its board of directors, the excess should be applied to the payment of the unpaid subscription. For this purpose, the accountant of the corporation is directed to make and report the proper computation of the interest. Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf Electric Power Co., Inc., issued as fully paidup to stockholders whose subscription to a number of shares have been declared delinquent with the accrued interest on the unpaid thereof per Resolution No. 42, S. 1954, of the Board of Directors which has been duly published in the "Manila Chronicle," are hereby incapacitated to utilize or avail of the voting power until such delinquency with the accrued interest is fully paid up as indicated in Resolution No. 3, S. 1955. On the authority of these resolutions, the Ungson group was threatening and procuring to expel and oust the plaintiffs and their companion stockholders, for the ultimate purpose of depriving them of their right to vote in the said annual stockholders' meeting scheduled for May 1, 1955. In their complaint, Baltazar and Rose prayed that a writ of preliminary injunction be issued against the defendants, enjoining them to desist and refrain from carrying out the objects and purposes of the three resolutions aforestated, and commanding them to allow plaintiffs and companions to vote in the stockholders' meeting, on May 1, 1955, their fully paid up shares of stocks, as evidenced by stock certificates issued to them and outstanding on the stock book of the defendant Corporation, on or before January 30, 1955, to declare said three resolutions illegal and invalid, and to pay plaintiffs the sum of P10,000.00 each, as damages. On April 29, 1955, the trial court, after due hearing, issued Preliminary Injunction, as prayed for. The defendants, in their answers, allege that during the years that plaintiffs and their allies were in control of the Corporation, no serious effort was attempted to retrieve it from its financial collapse, caused by accumulated indebtedness and by poor and inefficient management, resulting in losses of big sums of money from vicious manipulation of funds, nepotism, unconscionable grant of big salaries and allowances, illegal payments, unaccounted funds of Caltex business and sales department store, etc.; that during the time the management was in the hands of plaintiffs (Rose, as manager); attempts were made to release themselves from liability of their unpaid subscriptions; that the three resolutions were merely functional instruments to bolster the faith in the assets of the defendant Corporation and did not deprive the plaintiffs of their property without due process of law; that the issuance of a writ of injunction for the purpose of arresting the holding of the election of the Board, was beyond the jurisdiction of the court. They

set up counterclaims. They prayed that the resolutions be declared legal and valid, thus invalidating the "watered stocks" of plaintiffs, if not paid, and disqualifying the delinquent subscribers, among whom were the plaintiffs, from voting totally or partially, their subscriptions; to order plaintiffs to pay the defendant Corporation first, the interest due and payable quarterly at 6% per annum from January 11, 1946 to December 31, 1954, on their liability under their delinquent subscriptions, out of the installment made therein; to pay defendant entity damages under the counterclaims and expenses for the enforcement of the collection; and that after complete payment of the interests and the balance of their unpaid subscriptions, the defendant Corporation should issue the shares of stock to plaintiffs for their full subscription. Plaintiffs filed their answer to defendants' counterclaims, with counterclaims against defendants. On August 8, 1955, the lower court issued an order dismissing plaintiffs' counterclaims against Acena, Ungson and Fernandez "without prejudice to filing the proper separate actions therefor by the parties." Consequently, and as heretofore mentioned, Baltazar and Rose filed Case No. 13340 (supra). The following tentative amicable settlement, dated September 13, 1958, formulated and entered into by some of the parties and their respective attorneys, before presiding Judge Jesus P. Morfe, in the three cases, was submitted: 1. As to the so-called water stocks P30,000.00 each of the holders of said stock, namely, Irineo Baltazar, Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each of said stocks, thereby retaining P6,500 worth of stocks to be considered as valid for each under this compromise; 2. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly representing, his profit, he will return to the corporation P3,500 of said share of stock and retain P7,500 worth thereof ; 3. With respect to the interest on unpaid balance of subscription it is agreed that the subscribers with unpaid subscription be given the opportunity to pay in two installments, the first installment to cover one-half of the unpaid balance to be paid in three months, and the second installment will be for the remaining unpaid half payable in another three months, from the time of the approval of this agreements, with the understanding that those who comply with this arrangement will not pay interest on the balance of their subscription, for the date of incorporation up to the grant of franchise on February 24, 1948, which shall be deemed as condoned, and from 1948 they will pay only as interest 3% compounded annually, it being understood that failure of any subscriber to pay any of the installment here provided will subject the stockholders concerned to the provision of the corporation law of the payment of 6% interest compounded quarterly. 4. All claims and counterclaims other than those covered by the preceding paragraph of stipulation will be deemed dismissed without prejudice, in all these three cases; 5. All the resolutions of the Board and the stockholders involved in these instant cases will be deemed modified in accordance with this agreement. On February 20, 1959, the lower court rendered a decision, approving the agreement and requiring the parties to comply with the same, and dissolved the writ of preliminary injunction, with costs. The pertinent portions of the decision are: In view of the agreement of the parties transcribed above, this Court is called upon to decide whether or not any of the agreements of the parties as above transcribed is contrary to law or public policy. First, as regards pars. 1 and 2, of said agreement, the legal capacity of the parties to sue and be sued carries with it the power to enter into an amicable settlement of pending litigations and to expressly or impliedly make admissions of facts; and they could, therefore, agree and recognize as fully paid for and valid the shares of stocks mentioned in said paragraphs of their agreement, which agreement must be held valid and binding among the parties, and even as against their persons who have no proof that said agreement was entered into in fraud of creditors. The next question for decision is whether or not a corporation may validly condone interest on unpaid subscriptions to its capital stock. The fact that our Corporation Law authorizes provisions in the by-laws of a corporation different from that set out in Sec. 37 of said law, shows that the provision of said law is to interest of unpaid stock subscriptions is merely directory, so that a corporation may fix a different interest rate, or condone the payment of interest altogether if such condonation would, as in the instant cases, serve as inducement for early payment of stock subscriptions. The condonation and reduction of interest agreed upon in par. 3 of the aforequoted agreement is, therefore, valid in the absence of proof that said agreement was entered into in fraud of creditors. In connection with par. 5 of the aforequoted agreement, in relation to par. 3 thereof, this, Court is of the opinion, and so holds, that the periods of time allowed for making payments under par. 3 of said agreement, must be counted from date of receipt of a copy of this decision by counsel of the parties, this decision constituting the final approval of said agreement, and as to stockholders who are not parties to these cases, from date of notice of the said time extension. The extension of time to pay, as granted in par. 3 of the repealing previous declaration of delinquency of the corresponding shares of stock, and all subscribed shares of stock, except those ordered to be returned as provided in pars. 1 and 2 of said agreement, will therefore be entitled to vote until once again declared delinquent after the expiration of the periods of time set out in par. 3 of said agreement. Defendants on March 14, 1959 filed a motion for reconsideration, alleging that the decision was partly against the spirit and intention of the parties to the agreement and portions of the decision, carried "prejudicial eventualities," and asking that the same be amended in the sense that "the payment of obligations of delinquent incorporators has been reduced by the agreement as stated in paragraphs 3 and 5" of said agreement; that delinquent stocks cannot be voted until fully paid in accordance with the agreement and that if the plaintiffs in the above entitled cases could not pay in full their obligations within the periods stated in the agreement, the resolutions of delinquency would automatically stand. On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212, filed a petition for immediate execution and for preliminary injunction and/or mandamus, praying that a writ be issued, ordering the defendants, as controlling majority of hold-over board of directors, to hold immediately the long delayed stockholders' meeting, and to allow the plaintiffs and all the stockholders, with still unpaid subscriptions, to vote all their stocks and subscriptions at said stockholders' meeting, as directed in the decision. On March 25, 1959, the Court issued an amending decision, pertinent portions of which are hereunder reproduced ... . After hearing the parties in extensive oral argument, this Court agrees with the defendants that par. 5 of the compromise agreement of the parties, dated September 13, 1958, contemplates a modification and not a repeal of the resolutions of the Board of Directors and of the Stockholders referred to in said agreement. The question is, therefore, to what extent has said resolutions been modified? Considering that the primary intention of each of said resolutions was to effect an early collection of unpaid balance of stock subscriptions and interest thereon, and the moving consideration for a compromise settlement of the instant cases is likewise the early collection of the obligations of stockholders of the defendant corporation, the extension of time to pay, as granted in par. 3 of said agreement, was clearly intended to cover not only the accrued interest but also the unpaid stock subscription of the stockholders, for to hold otherwise would be to defeat the primary purpose of early collection of said obligations. Considering the

same paramount intention of said resolution, and of the aforesaid compromise agreement, it likewise follows that the extension of time to pay and the reduction of interest embodied in the said agreement must apply to all stockholders similarly situated. Regarding the right to vote, this Court likewise agrees with the defends its that the facts considered during the negotiations for settlement effected by the parties in the Chambers of the presiding judge do not warrant repeal of the declaration of delinquency and complete restoration of voting rights until full payment of the unpaid stock subscriptions and interest within the time and to the extent mentioned in par. 3 of the aforesaid compromise agreement. To rule otherwise would be to encourage non-payment of the balance of stock subscriptions and thus defeat the paramount intention of the compromise agreement. Stated differently, this Court now holds that the extension of time to pay, as granted in par. 3 of the aforesaid compromise agreement, has the effect of lifting the previous declaration of delinquency effective as of full payment of the balance of said stock subscriptions and interest within the periods of time mentioned in par. 3 of said compromise agreement. In view of the uncertainty brought about by the motion for reconsideration and the motion for execution aforementioned, it would be unjust to count the periods of time mentioned in the aforesaid compromise agreement from the date of receipt of the original decision of this Court in these cases. The extension of time to pay should, therefore, be counted from receipt by counsel for the parties of a copy of this amending decision, and from receipt by the other stockholders of notice of said extension of time; and the injunction in the instant case should be deemed in force for the duration of said extension of time to pay. WHEREFORE, the decision of this Court rendered in these cases on February 20, 1959 is hereby modified in the manner set out above, maintaining said decision in all other respects. On April 4, 1959 , plaintiffs filed a motion for reconsideration and/or new trial, praying that the amending decision dated March 25, 1959, be reconsidered and/or further clarified. On July 16, 1959, the trial court reversed its amending decision in an order, the relevant parts thereof follow: WHEREFORE, by way of amendment to both the original and amending decisions of this Court in the instant case, this Court hereby expressly rules that all shares of the capital stock of the defendant corporation covered by fully paid capital stock shares certificates are entitled to vote in all meetings of the stockholders of this corporation, and Resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-2) of defendant's corporation's Board of Directors are hereby nullified insofar as they are inconsistent the this ruling. The extensions of time to pay, referred to in par. 3 of the settlement agreement of the parties, will start to run from the date of receipt by counsel for the parties of a copy of this Order, and from receipt by the other stockholders of notice of said extension of time. The injunction granted in the instant case is hereby dissolved, and the injunction bond filed by the plaintiffs is hereby cancelled and released. Defendants on August 14, 1959 perfected their appeal against the above ruling, on purely questions of law. Plaintiffs-appellees did not file any brief, manifesting that they were relying on their arguments contained in their motion for reconsideration, dated April 4, 1959 filed with the trial court. (pp. 213 to 218, rec. on appeal) and on the reasons set forth in the trial court's order, dated July 16, 1959, third decision (pp. 219 to 230 R.A.). Pending decision, the parties were required to show cause why the cases should not be dismissed for having become moot or academic, in view of the fact that the appellees, taking advantage of the decision of the trial court, "had paid all other delinquencies and interest thereon," but the appellants manifested that these cases should be decided on the issues raised, to determine, once and for all, the voting rights of the other delinquent subscribers, in the election of the company's Board of Directors which had been suspended since May 1, 1955, because of the litigation. The questions posted in the appeal, in view of the above facts would, therefore, be: 1. If a stockholder, in a stock corporation, subscribes to a certain number of shares of stock, and he pays only partially, for which he is issued certificates of stock, is he entitled to vote the latter, notwithstanding the fact that he has not paid the balance of his subscription, which has been called for payment or declared delinquent? 2. If a stockholder subscribes to a certain number of shares of stock and makes partial payment only and declared delinquent as to the rest, with interest, should previous payments on account of the capital, be first applied to interest, thus diminishing the voting power of the shares of stock already paid? In other words, if the entire subscribed shares of stock are not paid, will the paid shares of stock be deprived of the right to vote, until the entire subscribed shares of stock are fully paid, including interest? 3. Has estoppel or waiver, by virtue of the settlement agreement, set in? Defendants-appellants claim that resolution No. 4 (Exh. C-2), withdrawing or nullifying the voting power of all the aforesaid shares of stock is valid, notwithstanding the existence of partial payments, evidenced by certificates duly issued therefor. They invoke the ruling laid down by the Court in the Fua Cun v. Summers case (44 Phil, 705, March 27, 1923) pertinent portion of which states: In the absence of special agreement to the contrary, a subscriber for a certain number of shares of stock does not, upon payment of one-half of the subscription price, become entitled to the issuance of certificates for one-half of the number of shares subscribed for; the subscriber's right consists only in equity entitling him to a certificate for the total number of shares subscribed for by him upon payment of the remaining portion of the subscription price. The cited case connotes the principle that a partial payment of a subscription does not entitle the stockholder to a certificate for the total number of shares subscribed by him; his right consists only in equity to a certificate of the total number of shares subscribed for, upon payment of the remaining portion of the subscription price. In other words, it is contended, as in the present case, that if Baltazar subscribed to 600 shares of stock in a single subscription, and he merely paid for 300 shares, for which he was given fully paid certificates for 300 shares, he cannot vote said 300 shares, in any meeting of the Corporation, until he shall have paid the remaining 300 shares of stock. The saving clause in the quoted pronouncement, "in the absence of special agreement to the contrary," reveals that the doctrine is not mandatory, but merely directory, which is not violative of law, the rigor of the pronouncement may be relaxed. The plaintiffs-appellees seem to sustain an adverse concept, postulating that once a stockholder has subscribed to a certain number of shares, although he has made partial payments only, but is issued a certificate for the paid-up shares of stock, he is entitled to vote the whole number of shares subscribed by him, paid or not, until the said unpaid shares shall have been called for payment or declared delinquent. The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v. Summers case, because it was the practice and procedure, since the inception of the corporation, to issue certificates of stock to its individual subscribers for unpaid shares of stock and gave voting power to shares of stock fully paid. And even though no agreement existed, the ruling in said case, does not now reflect the correct view on the matter, for better than an agreement or practice, there is the law, which renders the said case of Fua Cun-Summers, obsolescent.

Section 37 of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929, six (6) years afterthe promulgation of the Fua-Summers case (decided in 1923), provides: SEC. 37. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof, or the full subscription in the case of no par stock, has been paid by him to the corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent. The law just quoted was originally section 36 of the Corporation Law of 1906, which reads as follows: SEC. 36. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof has been paid by him to the corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent. As may readily be seen, said Section 37 makes payment of the "par value" as prerequisite for the issuance of certificates of par value stocks, and makes payment of the "full subscription" as prerequisite for the issuance of certificates of no par value stocks. No such distinction was contained in section 36 of our Corporation Law of 1906, corresponding to section 37 now. The present law could have simply provided that no certificate of par value and no par value stock shall be issued to a subscriber, as fully paid up, until the full subscription has been paid by him to the corporation, if full payment of subscription were intended is the criterion in the issuance of certificates, for both the par value and no par value stocks. Stated in another way, the present law requires as a condition before a share holder can vote his shares, that his full subscription be paid in the case of no par value stock; and in case of stock corporation with par value, the stockholder can vote the shares fully paid by him only, irrespective of the unpaid delinquent shares. As well-observed by the trial court, a corporation may now, in the absence of provisions in their by-laws to the contrary, apply payment made by , subscribers-stockholders, either as: "(a) full payment for the corresponding number of shares of stock, the par value of each of which is covered by such payment; or (b) as payment pro-rata to each and all the entire number of shares subscribed for" (amended decision). In the cases at bar, the defendant-corporation had chosen to apply payments by its stockholders to definite shares of the capital stock of the corporation and had fully paid capital stock shares certificates for said payments; its call for payment of unpaid subscription and its declaration of delinquency for non-payment of said call affecting only the remaining number of shares of its capital stock for which no fully paid capital stock shares certificates have been issued, "and only these have been legally shorn of their voting rights by said declaration of delinquency" (amended decision). The third paragraph of the settlement agreement relates to interest on the unpaid balance of subscription to the capital stock. The second paragraph of resolution No. 3 (Exh. C-1), unilaterally declared as of no value and cancelled all capital stock shares certificates issued as fully paid up, upon payments made by stockholders, when interests on unpaid subscription from date of subscription were not previously and/or then and there paid. Defendants-appellants, invoking Art. 1253 NCC (Art. 1173 of the Old Civil Code) which provides that "if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered," and relying on an opinion of the Securities and Exchange Commission, claim that said unilateral nullification and/or cancellation of previously issued capital stock shares certificates was valid. This provision of law only applies in the absence of verbal or written agreement, to the contrary (8 Manresa, p. 317); it is likewise merely directory, and not mandatory. (Art. 1252 NCC). In the present case, the defendant-corporation had applied the payments made by the stockholders to the full par value of the shares of stock subscribed by them, instead of the accepted interest, as shown by the capital stock shares certificate issued for the payments made, and the stockholders had accepted such certificates issued for such payments. This being the case, the said application of payments must be deemed to have been agreed upon by the Corporation and the stockholders, and the same cannot now be changed without the consent of the stockholders concerned. The Corporation Law and the by-laws of the defendant Corporation do not contain any provision, prohibiting the application of stockholders' payments to the full par value of a corporation's capital stock, ahead of the payment of accrued interest for unpaid subscriptions. It would, therefore, result that a corporation may, upon request of an interested stockholder, as his option, apply payment by them to the full par value of shares of capital leaving its collection later of the accrued interest on unpaid subscriptions, and that once such option has been exercised and the corresponding stock certificates have been issued, the corporation cannot, by a unilateral act, legally nullify and cancel the capital stock certificates so issued. It is finally argued by defendants-appellants that the plaintiffs-appellees waived, under the agreement heretofore quoted, the right to enforce the voting power they were claiming to exercise, and upon the principle of estoppel, they are now prohibited from insisting on the existence of such power, ending with the exhortation, that "they should lie upon the bed they helped built, for a lasting peace in the interest of the corporation." It should, however, be stated as heretofore exposed, that certain clauses of the agreement are contrary to law and public policy and would cause injury to plaintiffs-appellees and other stockholders similarly situated. Estoppel cannot be predicated on acts which are prohibited by law or are against public policy (Benguet Cons. Mining Co. v. Pineda, 52 Off. Gaz. 1961, L-7231, March 28, 1956; Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of the Philippines Digest, p. 269-270). WHEREFORE, the order of the trial court of July 16, 1959, (1) Expressly ruling "that all shares of the capital stocks of the defendant corporation covered by fully paid capital stock shares of certificates are entitled to vote in all meetings of the stockholders of this corporation and resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-2) of defendant corporation's Board of Directors are hereby nullified insofar as they are inconsistent with this ruling"; and (2) Dissolving the injunction granted in the cases and releasing the injunction bond filed by the plaintiffs-appellees, is correct and the same should be, as it is hereby affirmed. Costs taxed against the defendantsappellants.

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR, Petitioners,

G.R. No. 163825 Present: CARPIO, J., BRION, Acting Chairperson, *** ABAD, VILLARAMA, JR., and **** MENDOZA, JJ.
** *

versus -

PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR., Respondents. --

Promulgated:

July 13, 2010 x------------------------------------------------------------------------------------------------x DECISION

BRION, J.: Before the Court is a petition for review on certiorari assailing the December 19, 2003 decision and the May 5, 2004 [3] resolution of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision reversed the Regional Trial Court (RTC) [4] decision of June 27, 2001 granting the petitioners complaint for specific performance and damages against the respondent [5] Philippine Countryside Rural Bank, Inc. (PCRB). THE FACTUAL ANTECEDENTS On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from PCRB for P1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their [6] property, Lot 12868-H-3-C, including the house constructed thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate [7] promissory notes and secured by mortgages on their other properties. Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for P1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed. The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused the publication of a news report stating that they surreptitiously caused the transfer of ownership of Lot 12868-H-3-C. The petitioners considered the news report false and malicious, as PCRB knew of the sale of the subject properties and, in fact, consented thereto. PCRB countered the petitioners allegations by invoking the cross-collateral stipulation in the mortgage deed which states: 1. That as security for the payment of the loan or advance in principal sum of one million seventy thousand pesos only (P1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and encumbrances; TRANSFER CERTIFICATE OF TITLE NO. 82746
[8] [1] [2]

Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties from the mortgage lien. PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it allowed the release of the owners

duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties from the mortgage constituted thereon. After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as necessitous men, could not have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in [9] the mortgage contract should not benefit PCRB. The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang under the subject loan was only about P1.2 million; that Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made with PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to [10] execute a deed of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorneys fees. On appeal, the CA reversed the RTCs decision. The CA did not consider as valid the petitioners new agreement with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The CA did not consider as material the release of the owners duplicate copy of the title, as it [11] was done merely to allow the annotation of the sale of the subject properties to Banate. Dismayed with the reversal by the CA of the RTCs ruling, the petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence. THE PETITION The petitioners argue that their claims are consistent with their agreement with PCRB; they complied with the required full payment of the subject loan to allow the release of the subject properties from the mortgage. Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its commitment to release the mortgage over the subject properties. The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had been novated by the subsequent agreement with Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of authority on the part of Mondigo to novate the mortgage contract, the petitioners contend that PCRB should nevertheless return the amount paid to settle the subject loan since the new agreement should be deemed rescinded. The basic issues for the Court to resolve are as follows: 1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon PCRB. 2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the subject properties on the theory that the new agreement with Mondigo is deemed rescinded.

THE COURTS RULING

We resolve to deny the petition.

The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation isvalid and binding between the parties and is known as the blanket mortgage clause (also known as the dragnet [12] clause). In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for such other loans or advances already obtained, or still to be obtained. The crosscollateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well. The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage contract, including the stipulated cross-collateral provision. Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it devolves upon PCRB to execute the corresponding Deed of Release of Mortgage.

We find the petitioners argument unpersuasive. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. An extinctivenovation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the [13] extinguishment of the old obligation; and (4) the birth of a valid new obligation. The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing [14] obligation but, more importantly, the creation of a valid new obligation. For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by [15] persons with the proper authority to bind their respective principals is necessary. Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to its officers, committees or agents. The authority of these individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, [17] custom or acquiescence in the general course of business. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agents express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits [18] accepted by his principal. The doctrine of apparent authority, on the other hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent authority may be ascertained through: 1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.
[16]

Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when [19] the power was exercised without any objection from its board or shareholders. Notably, the petitioners action for specific performance is premised on the supposed actual or apparent authority of the branch manager, Mondigo, to release the subject properties from the mortgage, although the other obligations remain unpaid. In light of our discussion above, proof of the branch managers authority becomes indispensable to support the petitioners contention. The petitioners make no claim that Mondigo had actual authority from PCRB, whether express or implied. Rather, adopting the trial courts observation, the petitioners posited that PCRB should be held liable for Mondigos commitment, on the basis of the latters apparent authority. We disagree with this position. Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the [20] principal. The principals liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by [21] the acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third [22] partys detriment. In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed principal, has clothed or held out its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to [23] verbally alter the terms of mortgage contracts. Neither was there any allegation, much less proof, that PCRB ratified Mondigos [24] act or is estopped to make a contrary claim. Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrines ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business [25] entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate contracts remains

generally in the board of directors. Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with apparent authority to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement to release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or [27] novate the mortgage contract has not been established. It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agents authority, and in case either is controverted, the burden of [28] proof is upon them to establish it. As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed. Rescission has no legal basis; there can be no restitution of the amount paid The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the rationale that if PCRBs branch manager was not authorized to accept payment in consideration of separately releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned. PCRB, on the other hand, counters that the petitioners alternative prayer has no legal and factual basis, and insists that the clear agreement of the parties was for the full payment of the subject loan, and in return, PCRB would deliver the title to the subject properties to the buyer, only to enable the latter to obtain a transfer of title in her own name. We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently established, since it is not binding on the bank for lack of authority of PCRBs branch manager, then the prayer for restitution of the amount paid would have no legal basis. Of course, it will be asked: what then is the legal significance of the payment made by Banate? Article 2154 of the Civil Code reads: Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

[26]

Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article 2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject [29] loan that the Maglasangs owed PCRB. The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to verbally alter the mortgage contract, and not as to whether the Cortels, as sellers, were entitled to payment. This mistake (on Mondigos lack of authority to alter the mortgage) did not affect the validity of the payment made to the bank as the existence of the loan was never disputed. The dispute [30] was merely on the effect of the payment on the security given. Consequently, no right to recover accrues in Banates favor as PCRB never dealt with her. The borrowers-mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the subject loan was due on January 18, 1998, but was paid sometime in November 1997. It appears, however, that at the time the complaint was filed, the subject loan had already matured. Consequently, recovery of the amount paid, even under a claim of premature payment, will not prosper. In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged injurious publication, we quote with approval the CAs ruling on the matter, viz: Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial sale. There was no evidence submitted to prove that *respondent+ PCRB authored the words Mortgagors surreptitiously caused the transfer of ownership of Lot 12868-H-3-C x x x contained in the publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.s name. Moreover, there was not even an [31] iota of proof which shows damage on the part of [petitioner] Mary Melgrid M. Cortel[VAC1] .

WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit, and AFFIRM the decision of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs. SO ORDERED.

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. Apostol, Bernas, Gumaru, Ona and Associates for petitioner. Vicente G. Sison for intervenor A.T. Abesamis. NARVASA, J.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. 1. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows: RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies. 1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard) 2. Baseco Quarry 3. Philippine Jai-Alai Corporation 4. Fidelity Management Co., Inc. 5. Romson Realty, Inc. 6. Trident Management Co. 7. New Trident Management 8. Bay Transport 9. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. To implement this sequestration order with a minimum disruption of these companies' business activities. 2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. 3. To report to the Commission on Good Government periodically. Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1 b. Order for Production of Documents On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit: 1. Stock Transfer Book 2. Legal documents, such as: 2.1. Articles of Incorporation 2.2. By-Laws 2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986 2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2.5. Minutes of the Executive Committee Meetings from 1973 to 1986 2.6. Existing contracts with suppliers/contractors/others. 3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary. 4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985. 5. Monthly Financial Statements for the current year up to March 31, 1986. 6. Consolidated Cash Position Reports from January to April 15, 1986. 7. Inventory listings of assets up dated up to March 31, 1986. 8. Updated schedule of Accounts Receivable and Accounts Payable. 9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof. 2 10. Schedule of company investments and placements. The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." c. Orders Re Engineer Island (1) Termination of Contract for Security Services A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's 3 Vice-President for Finance, terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area, (2) Change of Mode of Payment of Entry Charges On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that

the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly 4 billing as was originally agreed upon." d. Aborted Contract for Improvement of Wharf at Engineer Island On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area 5 where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations." It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus 6 "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 7 1986. f. Order to Dispose of Scrap, etc. By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and 8 machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. g. The TAKEOVER Order By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine 9 Dockyard Corporation and all their affiliated companies." Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission * * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers: 1. Conducts all aspects of operation of the subject companies; 2. Installs key officers, hires and terminates personnel as necessary; 3. Enters into contracts related to management and operation of the companies; 4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for; and disburses funds only as may be necessary; 5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order; 6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order. h. Termination of Services of BASECO Officers Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10 2. Petitioner's Plea and Postulates It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12 It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13 b. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14 c. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by 1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16 3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17 4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18 5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies; 6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 20 7) planning to elect its own Board of Directors; 8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable 21 wires, worth P600,000.00 on May 11, 1986; 22 9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with. 4. The Governing Law a. Proclamation No. 3 The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by 23 Proclamation No. 3, that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect 24 the interest of the people through orders of sequestration or freezing of assets or accounts." b. Executive Order No. 1 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both 25 26 here and abroad." Upon these premises, the Presidential Commission on Good Government was created, "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including thetakeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking 27 undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and authority" to do the following particular acts, to wit: 1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. 2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. 3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or 28 frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of 29 evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. It was given power also to 30 promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). c. Executive Order No. 2 Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that: 1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and 2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in 31 various countries of the world." Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation; 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty 32 (30) days from publication of * (the) Executive Order, * *. d. Executive Order No. 14 33 A third executive order is relevant: Executive Order No. 14, by which the PCGG is empowered, "with the assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by 34 its findings." All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and 35 original jurisdiction thereof." Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of 36 evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 5. Contemplated Situations The situations envisaged and sought to be governed are self-evident, these being: 37 1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue 38 advantage of their public office and/or using their powers, authority, influence, Connections or relationship; b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust 39 enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in 40 various countries of the world;" and 2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by 41 entities or persons close to former President Marcos. 6. Government's Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth." Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of Government. But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim. * * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every 42 progressive and happy country. a. Need of Evidentiary Substantiation in Proper Suit Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14. b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same. 7. Provisional Remedies Prescribed by Law To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the 43 Marcos Administration or by entities or persons close to former President Marcos." a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust 44 enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is 45 commonly understood in other jurisdictions. b. "Freeze Order" A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its 46 transfer, encumbrance, concealment, or dissipation." In other words, it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or 47 credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof. c. Provisional Takeover In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the 48 public interest or to prevent disposal or dissipation of the enterprises." Such a "provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with the least possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." d. No Divestment of Title Over Property Seized It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate 49 authorities." Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted. e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command 50 There is thus no cause for the apprehension voiced by BASECO that sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules. Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 51 of its Transitory Provisions, lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more thaneighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period. A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein 52 provided. f. Kinship to Attachment Receivership As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or 53 receivership. By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the 54 action. By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a 55 receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. All these remedies sequestration, freezing, provisional, takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law 56 authorized to issue against property of a delinquent taxpayer. BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a 57 new one, should conform to due process and the other prescriptions of the Bill of Rights of the Constitution." It is, to be sure, a proposition on which there can be no disagreement. h. Orders May Issue Ex Parte Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevinsuits, sequestration 58 and provisional takeover writs may issue ex parte. And as in preliminary attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest 59 of the people;" as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at 60 the just recovery thereof. 8. Requisites for Validity What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its 61 negation or nullification. Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG. a. Prima Facie Evidence as Basis for Orders 62 Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before 63 appropriate Philippine authorities." Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested 64 party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall 65 be issued only upon showing of a prima facie case." b. Opportunity to Contest And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order, viz: SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof. SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof. Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis 66 in fact or law, or are whimsical and capricious, are condemned and struck down. 9. Constitutional Sanction of Remedies If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 67 Constitution treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of 68 promoting the public welfare by restraining and regulating the use of liberty and property," and as "the most essential, insistent 69 and illimitable of powers * * in the promotion of general welfare and the public interest," and said to be co-extensive with self70 protection and * * not inaptly termed (also) the'law of overruling necessity." " 10. PCGG not a "Judge"; General Functions It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the 71 72 Sandiganbayan. There can therefore be no serious regard accorded to the accusation, leveled by BASECO, that the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities. 12. Organization and Stock Distribution of BASECO BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, 73 Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the 74 incorporators. The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres. By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there 75 were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. Their names and the number of shares respectively held by them are as follows: 1. Jose A. Rojas 2. Severino G. de la Cruz 3. Emilio T. Yap 4. Jose Fernandez 5. Jose Francisco 6. Manuel S. Mendoza 7. Anthony P. Lee 8. Hilario M. Ruiz 9. Constante L. Farias 10. Fidelity Management, Inc. 11. Trident Management 12. United Phil. Lines 13. Renato M. Tanseco 14. Fidel Ventura 15. Metro Bay Drydock 16. Manuel Jacela 17. Jonathan G. Lu 18. Jose J. Tanchanco 19. Dioscoro Papa 20. Edward T. Marcelo TOTAL 1,248 shares 1,248 shares 2,508 shares 1,248 shares 128 shares 96 shares 1,248 shares 32 shares 8 shares 65,882 shares 7,412 shares 1,240 shares 8 shares 8 shares 136,370 shares 1 share 1 share 1 share 128 shares 4 shares 218,819 shares.

13 Acquisition of NASSCO by BASECO Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a governmentowned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) 76 years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO.

14. Subsequent Reduction of Price; Intervention of Marcos Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by 77 Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum. 15. Acquisition of 300 Hectares from Export Processing Zone Authority On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the 78 balance stipulated to be payable in installments. 16. Acquisition of Other Assets of NASSCO; Intervention of Marcos Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was 79 accomplished by a deed entitled "Contract of Purchase and Sale," which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines. 17. Loans Obtained It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage 80 fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." On September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, 81 82 in the sum of P12,400,000.00. The claim has been made that not a single centavo has been paid on these loans. 18. Reports to President Marcos In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated 83 September 5, 1977 of Hilario M. Ruiz, BASECO president. The second was embodied in a confidential memorandum dated 84 September 16, 1977 of Capt. A.T. Romualdez. They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity. a. BASECO President's Report In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts 85 to the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos that BASECO was * * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the 86 REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. b. Romualdez' Report Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption: MEMORANDUM: FOR : The President SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission FROM: Capt. A.T. Romualdez. Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as expected * * did not materialize." He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit: * * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations; 2. By getting their replacements, the families cannot question us later on; and 87 3. We will owe no further favors from them. 88 He also transmitted to Marcos, together with the report, the following documents: 89 1. Stock certificates indorsed and assigned in blank with assignments and waivers; 2. The articles of incorporation, the amended articles, and the by-laws of BASECO; 3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila; 4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island"; 5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan; 6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan; 8. List of BASECO's fixed assets; 9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00; 10. BASECO-REPACOM Agreement dated May 27, 1975; 90 11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in order for the company to meet loan obligations," and that An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of 91 BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems. 19. Marcos' Response to Reports President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments." a. Instructions re "Spin-Off" Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines: a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit: 1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation) 2. LUSTEVECO P32,538,000 (Reparation) b. Equity participation of government shall be in the form of non- voting shares. 92 For immediate compliance. Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective 93 corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would 94 seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." b. Letter of Instructions No. 670 Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows: * * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector. xxx xxx xxx And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total 95 amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 20. Evidence of Marcos' Ownership of BASECO It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently shown. Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly 96 owned by twenty (20) stockholders. Four of these twenty are juridical persons: (1)Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3)Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock. Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not 97 notarized. More specifically, found in Malacanang (and now in the custody of the PCGG) were: 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as aforesaid 65,882 shares of BASECO stock; 2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation which allegedly owns 136,370 shares of BASECO stock; 3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns 7,412 shares of 98 BASECO stock, assigned in blank; and 4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % all 99 endorsed in blank.

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration. By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103 In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacaang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105 In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos. 21. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time. 22. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112 In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder. 23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. 24. Scope and Extent of Powers of the PCGG One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation. a. PCGG May Not Exercise Acts of Ownership One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with

good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity. In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. 25. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion. WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

BATONG BUHAY GOLD MINES, INC., petitioner, vs. THE COURT OF APPEALS and INC. MINING CORPORATION, respondents. Taada, Sanchez, Taada & Taada Law Office for petitioner. Quisumbing, Caparas, Ilagan Alcantara & Mosqueda Law Office for private respondent. PARAS, J.: This is a petition to review the decision dated August 27, 1976 of the Court of Appeals (CA) in CA-G.R. No. 51313-R which modified the decision of the then Court of First Instance (CFI) of Manila, Branch 11 in Civil Case No. 79183 Also sought for review are the resolutions of the aforenamed court dated October 21, 1976 and November 12, 1976 which denied petitioner's motion for reconsideration of the subject decision and petition and/or motion for new trial, respectively. The dispositive portion of the CFI judgment reads: WHEREFORE, the Court renders judgment enjoining the defendants to effect the transfer of the shares covered by Stock Certificate No. 16807 to and in the name of plaintiff INCORPORATED Mining Corporation, and the writ of preliminary mandatory injunction issued on March 16, 1970 is hereby declared permanent. SO ORDERED. Upon the other hand, the decretal portion of the CA decision states: WHEREFORE, the judgment appealed from is hereby modified by adding the following to the dispositive portion thereof: Ordering defendant Batong Buhay Gold Mines, Inc. to pay to the plaintiff the sum of P5,625.55, with interest at the legal rate from March 5, 1970 until full payment; and dismissing the complaint with respect to defendant Del Rosario and Company. Defendant Batong Buhay shall pay the costs. IT IS SO ORDERED. (pp. 67-68, Rollo) The antecedent facts, as found by the Court of Appeals, are as follows: The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering 62,495 shares with a par value of P0.01 per share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses had lived separately for more than fourteen (14) years prior to the said date. On December 16, 1969, Francisco Aguac sold his 62,495 shares covered by Stock Certificate No. 16807 for the sum of P9,374.70 in favor of the plaintiff, the said transaction being evidenced by a deed of sale (Exhibit D). The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G. Aguac. On the same date of the sale, December 16, 1969, Paula G. Aguac wrote a letter to the president of defendant Batong Buhay Gold Mines, Inc. asking that the transfer of the shares sold by her husband be withheld, inasmuch as the same constituted conjugal property and her share of proceeds of the sale was not given to her (Exhibit 1). On January 5, 1970, under a covering letter dated December 26, 1969, plaintiff's counsel presented Stock Certificate No. 16807 duly endorsed by Francisco Aguac for registration and transfer of the said stock certificate in the name of the plaintiff (Exhibit F). The said letter was addressed to defendant Del Rosario and Company which was the transfer agent of Batong Buhay at that time. In a letter dated February 24, 1970 also addressed to Del Rosario and Company, plaintiff's counsel requested information as to the action taken on the transfer of Stock Certificate No. 16807 in favor of the plaintiff, nothing about which having heard despite the lapse of over a month (Exhibit H). In a reply letter dated February 28, 1970, Del Rosario and Company informed plaintiff's counsel that Batong Buhay has referred the matter to their attorneys, inasmuch as there was a "technical problem that has developed in the transfer of stock," and further advised that the plaintiff communicate directly with Batong Buhay for further details (Exhibit 1).lwphl@it It developed that when Batong Buhay was about to effect the cancellation of Stock Certificate No. 16807 and transfer the 62,495 shares covered thereby to the plaintiff and had, in fact, prepared new Stock Certificate No. 27650 dated January 5, 1970, it received the letter of Paula G. Aguac advising it to withhold the transfer of the subject shares of stock on the ground that the same are conjugal property. On March 2, 1970 Francisco Aguac was charged in a criminal complaint Pasil Kalinga-Apayao, docketed as Criminal Case No. 10, entitled "People vs. Francisco Aguac, et al." The defendants justify their refusal to transfer the shares of stock of Francisco Aguac in the name of the plaintiff in view of their apprehension that they might he held liable for damages under Article 173 of the Civil Code and the ruling of the Supreme Court in Bucoy vs. Paulino, 23 SCRA 248. On March 5, 1970, in view of the defendant's inaction on the request for the transfer of the stock certificate in its name, the plaintiff commenced this action before the Court of First Instance of Manila, praying that the defendants be ordered to issue and release the transfer stock certificate covering 62,495 shares of defendant Batong Buhay, formerly registered in the name of Francisco Aguac, in favor of the plaintiff, and for the recovery of compensatory, exemplary and corrective damages and attorney's fees. A writ of preliminary mandatory injunction was prayed for to order the defendants to issue immediately the transfer certificate covering the aforesaid shares of stock of defendant Batong Buhay in the name of the plaintiff. The trial court granted the prayer for the issuance of the writ of preliminary mandatory injunction in its order of March 16, 1970. In compliance therewith, Stock Certificate No. 16807 was cancelled and new Stock Certificate No. 27650 dated January 5, 1970 was issued to and received by the plaintiff on July 20, 1970." On October 28, 1971, the trial court handed down its judgment ordering the defendant (herein petitioner) to effect the transfer of the shares covered by Stock Certificate No. 16807 in the name of herein respondent Incoporated Mining Corporation and declaring permanent the writ of preliminary mandatory injunction issued on March 16, 1970. Private respondent seasonably appealed the aforesaid decision to the Court of Appeals anchored on the lower court's alleged failure to award damages for the wrongful refusal of petitioner to transfer the subject shares of stock and alleged failure to award attorney's fees, cost of injunction bond and expenses of litigation. On August 27, 1986, respondent appellate court rendered the subject decision the dispositive portion of which has already been quoted hereinabove. Hence, this petition. In assailing the decision of the Court of Appeals, petitioner poses the following issues:

1. May the Court of Appeals award damages by way of unrealized profits despite the absence of supporting evidence, or merely on the basis of pure assumption, speculation or conjecture; or can the respondent recover damages by way of unrealized profits when it has not shown that it was damaged in any manner by the act of petitioner? 2. May the appellate court deny the petitioner the chance to present evidence discovered after judgment which were not only very material to its case, but would also show the untenability and illegality of private respondent's position? We answer the first issue in the negative. The petitioner alleges that the appellate court gravely and categorically erred in awarding damages by way of unrealized profit (or lucro cesante) to private respondent. Petitioner company also alleges that the claim for unrealized profit must be duly and sufficiently established, that is, that the claimant must submit proof that it was in fact damaged because of petitioner's act or omission. The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is true that shares of stock may go up or down in value (as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus this Court has ruled that speculative damages cannot be recovered. It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's name at the time demand was made, but then it is also true that human nature, being what it is, private respondent's officials could also have refused to sell and instead wait for expected further increases in value. In view of what has been said, We find no necessity to discuss the second issue. WHEREFORE, the assailed decision and resolutions of the Court of Appeals are hereby SET ASIDE, and a new one is hereby rendered REINSTATING the decision of the trial court. No costs. SO ORDERED.

SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents. E. A. Beltran for petitioners. Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent. OZAETA, J.: Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following referring to the petitioner Josefa Naval, is typical: AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.," Silang, Cavite, P. I. THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company, Inc.," a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller, WITNESSETH: That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum until paid. That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings. The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances. In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935. (Sgd.) JOSEFA NAVAL SILANG TRAFFIC COMPANY, INC. Subscriber By (Sgd.) LINO GOMEZ President. (Exhibit 1. Notarial acknowledgment omitted.) The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as the foregoing except as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares and, up to April 30, 1937, had paid the following sums on account thereof: Sofronio T. Bayla....... Venancio Toledo........ Josefa Naval.............. Paz Toledo................ 8 shares 8 shares P360 375

15 shares 15 shares

675 675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent corporation on August 1, 1937, of the following tenor: A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta Directiva los siguientes: (a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o jornal que se hara por trimestre. (b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes: Lino Gomez..................... Venancio Toledo............. Melchor P. Benitez........ Isaias Videa................. Esteban Velasco............ 10 Acciones 8 Acciones 17 Acciones 14 Acciones 10 Acciones

Numeriano S. Aldaba.... Inocencio Cruz................. Josefa Naval .................. Sofronio Bayla................. Dionisio Dungca.............

15 Acciones 8 Acciones

15 Acciones 8 Acciones 3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones. (c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc. (d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.) The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937. The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows: That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription. Without pronouncement as to costs. Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove quoted. The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of subscription to the capital stock of the respondent corporation. It should be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and organization of the corporation, which took place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares. Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares. The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. The contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the

nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the recission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale of the shares in question among others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners. We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission. The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners. Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. So ordered.

NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA,respondents. NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU, respondents. DECISION BELLOSILLO, J.: [1] These twin cases originated from a derivative suit filed by petitioner Nora A. Bitong before the Securities and Exchange Commission(SEC hereafter) allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & [2] Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as presidentdirector and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other third parties. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms. would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as shown in a statement prepared by the accounting firmPunongbayan and Araullo, there were increases from 1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to P10,143,046.00; in the total stockholders equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders. Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. [3] On 6 December 1990, the SEC Hearing Panel issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled x x x respondents contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest x x x x is bereft of any merit. No less than respondents Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that `The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares represented

and continues to represent JAKA in the Board. This statement refers to petitioner sitting in the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by the respondents indicates an admission on respondents part of the petitioners legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc. The Hearing Panel however denied petitioners prayer for the constitution of a management committee. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-in-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition, was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October 1991 the Hearing Panel denied the motion for amendment. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKAs interest and holdings in that publishing firm. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms. board meeting of 22 September 1988, seven (7) times no less. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. [4] On 24 January 1994 the SEC En Banc reversed the decision of the Hearing Panel and, among others, ordered private respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest. The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. & Ms.and ordered them to forthwith deliver said shares to Mr. & Ms. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8 December 1994 the two (2) petitions were consolidated. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-in-interest, petitioners complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed. Respondent appellate court ruled that [5] the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void. On 18 January 1996, petitioner's motion for reconsideration was denied for lack of merit. Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of her Amended Petition before the SEC, she stated that she was a stockholder and director of Mr. & Ms. In par. 1 under the caption "II. The Facts" she declared that she "is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares" and that she was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception until 11 April 1989. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission. Consequently, private respondents admission that petitioner has 1,000 shares of stock registered in her name in the books of Mr. & Ms. forecloses any question on her status and right to bring a derivative suit on behalf of Mr. & Ms. Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered [6] by the adversary. The Amended Petition before the SEC alleges -

I. THE PARTIES 1. Petitioner is a stockholder and director of Mr. & Ms. x x x x II. THE FACTS 1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares. Petitioner, at all times material to this petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of Mr. & Ms. until 11 April 1989 was its treasurer x x x x On the other hand, the Amended Answer to the Amended Petition states I. PARTIES 1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the Petition referring to the personality, addresses and capacity of the parties to the petition except x x x x but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses x x x x II. THE FACTS 1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer x x x x V. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses, that x x x x 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms. Publishing Co., Inc.x x x x Mr. Luis Villafuerte contributed his own P100,000.00. JAKA and respondent Jose Z. Apostol, original investors of Ex Libris contributed P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent Mr. & Ms. were: Cert./No./Date Name of Stockholder No. of Shares % 001-9-15-76 JAKA Investments Corp. 1,000 21% 002-9-15-76 Luis Villafuerte 1,000 21% 003-9-15-76 Ramon L. Siy 1,000 21% 004-9-15-76 Jose Z. Apostol 1,000 21% 005-9-15-76 Ex Libris Publishing Co. 800 16% 4,800 96% 4. The above-named original stockholders of respondent Mr. & Ms. continue to be virtually the same stockholders up to this date x xxx 8. The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares, represented and continues to represent JAKA in the Board x x x x 21. Petitioner Nora A. Bitong is not the true party to this case, the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivative suit, and should therefore be dismissed x x x x The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial [7] admissions. More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable [8] mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to [9] the judgment of the court. Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or [10] matter but it is not the final decision of the whole controversy. Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and dissolving the writ of preliminary injunction, was favorable to private respondents. Hence, they were not expected to appeal therefrom.

In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real partyin-interest was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for the latter to appeal to the SEC En Banc. It was in fact petitioners turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioners lack of legal capacity to sue before the SEC. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the corporation. And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. Section 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred x x x x This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of [11] stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted [12] therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this [13] presumption may be rebutted. Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including ones status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no [14] records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a [15] more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void [16] and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to [17] question its validity since an estoppel cannot operate to create stock which under the law cannot have existence. As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholders derivative suit against private respondents. Aside from petitioners own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. Private respondents stress that petitioners counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioners name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before. Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioners submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owners interest

therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure, Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares numbering 1,000 covered by Certificate of Stock No. [18] 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank. Petitioner now claims that a few days after JAKAs shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to [19] petitioner 997 shares of JAKA. For this purpose, a deed of sale was executed and antedated to 10 May 1983. This submission of petitioner is however contradicted by the records which show that a deed of sale was executed by JAKA transferring 1,000 shares [20] of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. & Ms.Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms. and Ex Libris to respondent Apostol [21] as a nominal holder. He then finally decided to transfer the shareholdings to petitioner. When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said that there was no other document evidencing the assignment to [22] petitioner because the stocks were personal property that could be transferred even orally. Contrary to Senator Enriles testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor. A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of [23] Trust and Deed of Sale. It should be emphasized that on 10 May 1983 JAKA executed a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms.shares covered by Certificate of Stock No. 007. The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the [24] execution of this document. Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or by a duly authorized officer ofJAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock [25] certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Petitioner being the chief executive [26] officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer. Considering that petitioners status is being questioned and several factual circumstances have been presented by private respondents disproving petitioners claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) [27] to be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. The records show that the original stock and transfer book and the stock certificate book of Mr. & Ms. were in the possession of [28] petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro. On 25 May 1988, Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the corporations external auditors,Punongbayan and Araullo, in their audit. Atty. Unson even informed respondent Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps strangely, upon verification with theSEC, it was discovered that the general file of the corporation with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all.

On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock [29] and Transfer Book without prior notice to the corporate officers. In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to the JAKA shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established [30] practice. This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary [31] resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December [32] 1986. This only means, very obviously, that Mr. & Ms. shares in question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit [33] was earned. Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the [34] minutes thereof which she duly signed 5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base of the Company has improved and profits were realized. It is for this reason that the Company has declared a 100% cash dividend in 1986. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf of her principals, as follows: She recalled that her principals were invited by Mrs. E. Apostol to invest in Ex-Libris and eventually Mr. & Ms. The relationship between her principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. In many instances, her principals supplied first hand and newsworthy information that made Mr. & Ms. a popular paper x x x x 6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms. survive during those years that it was cash strapped x x x x Ms. N.A. Bitong pointed out that the practice of using the former Ministers influence and stature in the government is one thing which her principals themselves are strongly against x x x x 7. x x x x At this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. Her principals when asked for an opinion, said that they recognized the concept as something very noble and visible x x x x Then Ms. Bitong asked a very specific question - "When you conceptualized Ex-Libris and Mr. & Ms., did you not think of my shareholders the Ponce Enriles as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. Apostol did not answer the question. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive [35] evidence against him. These admissions render nugatory any argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee [36] of JAKA as its managing officer, as testified to by Senator Enrile himself. However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that [37] exercises its corporate powers and not in the president or officer thereof. It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and [38] indirectly upon the stockholders. The stockholders right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for [39] which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of [40] the directors or management to make suitable measures for its protection. The basis of a stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of [41] the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the petition for certiorari and prohibition filed by respondent Edgardo B. Espiritu as well as annulling the 5 November 1993, 24 January 1994 and 18 February 1994 Orders of the SEC En Banc in CA-G.R. No. SP 33873, is AFFIRMED. Costs against petitioner. SO ORDERED.

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., DOLORES A. POTENCIANO, MAX JOSEPH A. POTENCIANO, MERCEDELIN A. POTENCIANO, and DELFIN C. YORRO, petitioners, vs. BENJAMIN M. BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM, and GEMMA M. SANTOS, respondents. DECISION YNARES-SANTIAGO, J.: These cases involve the Batangas Laguna Tayabas Bus Company, Inc., which has been owned by four generations of the Potenciano family. Immediately prior to the events leading to this controversy, the Potencianos owned 87.5% of the outstanding capital stock of [1] BLTB. On October 28, 1997, Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro, and Maya [2] Industries, Inc., entered into a Sale and Purchase Agreement, whereby they sold to BMB Property Holdings, Inc., represented by its President, Benjamin Bitanga, their 21,071,114 shares of stock in BLTB. The said shares represented 47.98% of the total outstanding capital stock of BLTB. The purchase price for the shares of stock was P72,076,425.00, the downpayment of which, in the sum of P44,354,723.00, was made payable upon signing of Agreement, while the balance of P27,721,702.00 was payable on November 26, 1997. The contracting parties stipulated that the downpayment was conditioned upon receipt by the buyer of certain documents upon signing of the Agreement, namely, the Secretarys Certificate stating that the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and the execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact; the Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano for purposes of the Agreement; the undated written resignation letters of the Directors of BLTB, except Henry John A. Potenciano, Michael A. Potenciano and Candido A. Potenciano); a revocable proxy to vote the subject shares made by the sellers in favor of the buyer; a Declaration of Trust made by the sellers in favor of the buyer acknowledging that the subject shares shall be held in trust by the sellers for the buyer pending their transfer to [3] the latters name; and the duly executed capital gains tax return forms covering the sale, indicating no taxable gain on the same. Furthermore, the buyer guaranteed that it shall take over the management and operations of BLTB but shall immediately surrender [4] the same to the sellers in case it fails to pay the balance of the purchase price on November 26, 1997. Barely a month after the Agreement was executed, on November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and Monina Grace Lim were elected as directors of the corporation, replacing Dolores and Max Joseph Potenciano. Subsequently, on November 28, 1997, another stockholders meeting was held, wherein Laureano A. Siy and Renato L. Leveriza were elected as directors, replacing Candido Potenciano and Delfin Yorro who had both resigned as such. At the same meeting, the Board of Directors of BLTB elected the following officers: Benjamin Bitanga as Chairman of the Board, President and Chief Executive Officer; Monina Grace Lim as Vice President for Finance and Supply and Treasurer; James Olayvar as Vice President for Operations and Maintenance; Eduardo Azucena as Vice President for Administration; Evelio Custodia as Corporate Secretary; and [5] Gemma Santos as Assistant Corporate Secretary. During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of BLTB scheduled the annual stockholders meeting on May 19, 1998, to be held at the principal office of BLTB in San Pablo, Laguna. Before the scheduled meeting, on May 16, 1998, Michael Potenciano wrote Benjamin Bitanga, requesting for a postponement of the stockholders meeting due to the absence of a thirty-day advance notice. However, there was no response from Bitanga on whether or not the request for postponement was favorably acted upon. On the scheduled date of the meeting, May 19, 1998, a notice of postponement of the stockholders meeting was published in the Manila Bulletin. Inasmuch as there was no notice of postponement prior to that, a total of two hundred eighty six stockholders, representing 87% of the shares of stock of BLTB, arrived and attended the meeting. The majority of the stockholders present rejected the postponement and voted to proceed with the meeting. The Potenciano group was re-elected to the Board of [6] [7] Directors, and a new set of officers was thereafter elected. However, the Bitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB. The conflict between the Potencianos and the Bitanga group escalated to levels of unrest and even violence among laborers and employees of the bus company. On May 21, 1998, the Bitanga group filed with the Securities and Exchange Commission a Complaint for Damages and Injunction, [8] docketed as SEC Case No. 05-98-5973. Their prayer for the issuance of a temporary restraining order was, however, denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr. Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and Damages with Preliminary Injunction and [9] Temporary Restraining Order with the SEC, docketed as SEC Case No. 05-98-5978. SEC Chairman Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group from acting as officers and directors of BLTB. On June 8, 1998, the Bitanga group filed another complaint with application for a writ of preliminary injunction and prayer for temporary restraining order, seeking to annul the May 19, 1998 stockholders meeting. The complaint was docketed as SEC Case No. 06-98-5994. A Hearing Panel of the SEC conducted joint hearings of SEC Cases Nos. 05-98-5973 and 05-98-5978. On June 17, 1998, the SEC Hearing Panel granted the Bitanga groups application for a writ of preliminary injunction upon the posting of a bond in the amount [10] of P20,000,000.00. It declared that the May 19, 1998 stockholders meeting was void on the grounds that, first, Michael Potenciano had himself asked for its postponement due to improper notice; and, second, there was no quorum, since BMB Holdings, Inc., represented by the Bitanga group, which then owned 50.26% of BLTBs shares having purchased the same from the Potenciano group, was not present at the said meeting. The Hearing Panel further held that the Bitanga Board remains the legitimate Board in a hold-over capacity. [11] The Potenciano group filed a petition for certiorari with the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to restrain the implementation of the Hearing Panels assailed Order. On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel and issued the writ of preliminary [12] injunction prayed for. [13] The Bitanga group immediately filed a petition for certiorari with the Court of Appeals on July 22, 1998, followed by a Supplemental Petition on August 10, 1998. The petition was docketed as CA-G.R. SP No. 48374. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group, after the [14] Potencianos posted the required bond of P20,000,000.00.

On November 23, 1998, the Court of Appeals rendered the now assailed Decision, reversing the assailed Orders of the SEC En Banc [15] and reinstating the Order of the Hearing Panel ordered dated June 17, 1998. The Court of Appeals denied the Motions for [16] Reconsideration in a Resolution dated March 25, 1999. Petitioners Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano and Delfin C. Yorro filed the instant petition for review, docketed as G.R. No. 137934, against respondents Benjamin M. Bitanga, Renato L. Leveriza, Laureano A. Siy, James A. Olayvar, Eduardo A. Azucena, Monina Grace S. Lim and Gemma M. Santos. Petitioners contend that --I WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DISREGARDED, CONTRARY TO WELLESTABLISHED JURISPRUDENCE, THE FACTUAL FINDINGS OF THE SEC WHICH IS A SPECIALIZED QUASI-JUDICIAL AGENCY, AND INVALIDATED THE PRELIMINARY INJUNCTION ISSUED BY THE LATTER. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BECAUSE THERE IS NO SHOWING THAT THE SEC MADE ANY ERROR IN EITHER JURISDICTION OR JUDGMENT. II WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENTS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS BECAUSE: (1) A FULL-BLOWN HEARING WAS CONDUCTED ON 6 JULY 1998 WHERE THE PARTIES FULLY ARGUED THEIR POSITIONS AND WERE HEARD BY THE SEC EN BANC; (2) THE LAW DOES NOT REQUIRE A SEPARATE HEARING FOR THE FIXING OF THE AMOUNT OF THE INJUNCTION BOND; AND (3) IN ANY CASE, THE ALLEGED FAILURE OF THE SEC TO FIX THE AMOUNT OF THE INJUNCTION BOND IN ITS 21 JULY 1998 ORDER AND SUBSEQUENT FIXING THEREOF IN ITS 26 JULY 1998 ORDER IS NOT A FATAL ERROR. III WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE 21 JULY 1998 ORDER OF THE SEC RESOLVED THE MAIN CASE. THE SEC, ACTING WITHIN THE BOUNDS OF ITS JURISDICTION, MERELY MADE A PRELIMINARY EVALUATION TO RESOLVE THE PRAYER FOR PRELIMINARY INJUNCTION, WHICH, BY ITS VERY NATURE, IS AN ANCILLARY [17] REMEDY. THE MAIN PETITION REMAINS PENDING BEFORE THE SEC FOR THE RESOLUTION OF ITS MERITS. Another petition for review, docketed as G.R. No. 137936, was filed by petitioners Danilo L. Concepcion, Fe Eloisa Gloria and Edijer A. Martinez, in their capacities as Associate Commissioners of the Securities and Exchange Commission, Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Michael A. Potenciano, Mercedelin A. Potenciano, Candido A. Potenciano, Henry John A. Potenciano, Delfin C. Yorro, Reynaldo Magtibay, Lorna Navarro and Restituto Baylon based on the following grounds: I THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE JULY 21, 1998 ORDER OF THE SEC IN SEC EN BANC CASE NO. 611 RESOLVED THE MAIN CASE. II THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE PRIVATE RESPONDENTS WERE DENIED THEIR RIGHT TO DUE PROCESS. III THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE SEC ORDER OF JULY 21, 1998 IS VALID AND IN DISREGARDING [18] THE FACTUAL FINDINGS OF THE SEC. The two petitions for review were consolidated. We find that the petitions are impressed with merit. Contrary to the findings of the Court of Appeals, the Bitanga group was not deprived of due process when the SEC En Banc issued its Order dated July 21, 1998. [19] Due process, in essence, is simply an opportunity to be heard. It cannot be denied that in the case at bar, a hearing on the prayer for injunction was held on July 9, 1998. Both parties were represented at the said hearing, and the Bitanga group presented its arguments in opposition to the injunctive relief. This alone negates any proposition that the Bitanga group was denied due process. In applications for preliminary injunction, the requirement of hearing and prior notice before injunction may issue has been relaxed to the point that not all petitions for preliminary injunction must undergo a trial-type hearing, it being hornbook doctrine that a formal or trial-type is not at all times and in all instances essential to due process. Due process simply means giving every contending party the opportunity to be heard and the court to consider every piece of evidence presented in their favor. Accordingly, this Court has recently rejected a claim of denial of due process where such claimant was given the opportunity [20] to be heard, having submitted his counter-affidavit and memorandum in support of his position. Much ado has been made over the fact that the injunction order was issued with deliberate speed even before the Bitanga group filed its Comment to the Potenciano groups Petition. However, the said Comment is rather directed to the petition of the Potenciano group; it is not essential to the resolution of the prayer for injunction. The Rules of Court do not require that issues be joined before preliminary injunction may issue. Preliminary injunction may be granted at any stage of an action or proceeding prior to the judgment or final order, ordering a party or a court, agency or a person to refrain from a particular act or acts. For as long as [21] the requisites for its issuance are present in the case, the injunctive writ was properly issued. Respondents argue that the SEC En Bancs July 21, 1998 Order amounted to a ruling on the main case. We disagree. A reading of the said Order readily reveals that it merely delved on the propriety of granting a writ of preliminary injunction against the Bitanga group. The main case is far from being disposed of as there are several issues still awaiting resolution, including, whether or not the Bitanga group has taken funds and assets of BLTB and if so, in what amount and consisting of what assets; and whether or not the Potenciano group is entitled to the payment of exemplary damages, attorneys fees and costs of suit. There is no merit, therefore, in the statement that the SEC En Bancs ruling is a prejudgment of the main case, as several matters need yet to be addressed. The fact that the aforesaid Order was merely provisional in character may be gleaned from the very nature of the injunctive writ granted. Generally, injunction is a preservative remedy for the protection of one's substantive right or interest. It is not a cause of [22] action in itself but merely a provisional remedy, an adjunct to a main suit. Thus, it has been held that an order granting a writ of [23] preliminary injunction is an interlocutory order. As distinguished from a final order which disposes of the subject matter in its entirety or terminates a particular proceeding or action, leaving nothing else to be done but to enforce by execution what has been determined by the court, an interlocutory order does not dispose of a case completely, but leaves something more to be adjudicated [24] upon.

In the case at bar, it cannot be said that the July 21, 1998 Order of the SEC En Banc terminated the Potenciano groups petition in its entirety. As mentioned above, there remain several issues which have yet to be resolved and adjudicated upon by the SEC. The next issue --- whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to the extraordinary remedy of certiorari --- should likewise be resolved in the negative. In the July 21, 1998 Order of the SEC En Banc, the validity of the BLTB stockholders meeting held on May 19, 1998 was sustained, in light of the time-honored doctrine in corporation law that a transfer of shares is not valid unless recorded in the books of the corporation. The SEC En Banc went on to rule that It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the Bitanga group has not yet been recorded in the books of the corporation. Hence, the group of Dolores Potenciano, in whose names those shares still stand, were the ones entitled to attend and vote at the stockholders meeting of the BLTB on 19 May 1998. This being the case, the Hearing Panel [25] committed grave abuse of discretion in holding otherwise and in concluding that there was no quorum in said meeting. Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a specialized administrative agency specifically tasked to deal with corporate law issues. We are in full accord with the SEC En Banc on this matter. Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a [26] [27] stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a stockholders resolution was approved, despite the claim of the alleged [28] transferee. On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the [29] purpose of voting, must secure such a standing by having the transfer recorded on the corporate books. Until the transfer is [30] registered, the transferee is not a stockholder but an outsider. We find no error either in jurisdiction or judgment on the part of the SEC En Banc, since its conclusions of law were anchored on established principles and jurisprudence. Indeed, nowhere in the Bitanga groups petition for certiorari before the Court of Appeals was it shown that the SEC En Banc committed such patent, gross and prejudicial errors of law or fact, or a capricious disregard of settled law and jurisprudence, as to amount to a grave abuse of discretion or lack of jurisdiction on its part. Absent such showing, neither the Court of Appeals nor this Court should engage in a review of the facts found nor even of the law as interpreted or applied by the SEC En Banc, for the writ of certiorari is an extraordinary remedy, and certiorari jurisdiction is not to be equated with appellate jurisdiction. The main thrust of a petition for certiorari under Rule 65 of the Rules of Court is only the correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction. However, for this Court or the Court of Appeals to properly exercise the power of judicial review over a decision of an administrative agency, such as the SEC, it must first be shown that the tribunal, board or officer exercising judicial or quasi-judicial functions has indeed acted without or in excess of its or his jurisdiction, and that there is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. In the absence of any showing of lack of jurisdiction or grave abuse tantamount to lack or excess of jurisdiction, judicial review may not be had over an [31] administrative agencys decision. We have gone over the records of the case at bar and we see no cogent reason to hold that the SEC En Banc had abused its discretion. Moreover, it is a fundamental rule that factual findings of quasi-judicial agencies like the SEC, if supported by substantial evidence, are generally accorded not only great respect but even finality, and are binding upon this Court, unless petitioner is able to show that it had arbitrarily disregarded evidence before it or had misapprehended evidence to such an extent as to compel a contrary conclusion if such evidence had been properly appreciated. This rule is rooted in the doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the determinations made by administrative bodies in general on matters falling within their [32] respective fields of specialization or expertise. In light of all the foregoing, we find that the Court of Appeals erred in granting the extraordinary remedy of certiorari to the Bitanga group. It is elementary that a special civil action for certiorari is limited to correcting errors of jurisdiction or grave abuse of [33] discretion. None of these have been found to obtain in the petition before the Court of Appeals. What is more, it is also settled that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. The exercise of sound judicial discretion by the [34] lower court in injunctive matters should not be interfered with except in cases of manifest abuse. WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED. SO ORDERED.

G.R. No. L-18805 August 14, 1967 1 THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant, vs. 2 3 HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendantsappellees. Simeon M. Gopengco and Solicitor General for plaintiff-appellant. L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendantsappellees. SANCHEZ, J.: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether 4 eliminate, the margin of middlemen, mostly aliens. General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz: (a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd. (b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd. (c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947. (d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery: November, 1947. (e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947. (f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947. (g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co. (h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co. (i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem. When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated. As was to be expected, NACOCO but partially performed the contracts, as follows: Buyers Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus Louis Dreyfus (Adamson contract of July 30, 1947) Tons Delivered Undelivered 2,386.45 None 1,000 800 1,150 4,613.55 1,000 500 2,200 850 245 9,408.55

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 TOTALS 7,091.45

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14

contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below: x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for nondelivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at 5 least settlement for nominal sums like what happened in the Syjuco case. All the settlements sum up to P1,343,274.52. In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. Plaintiff appealed direct to this Court. Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94. Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of 6 affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error. 1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the 7 Rules of Court [which superseded Section 66 of the Corporation Law] whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, 8 stockholders, creditors, and others interested." It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in the manner hereinafter provided. Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation 9 of its life even for purposes of pending litigation" and that suit "cannot be continued or revived; nor can a valid judgment be 10 rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." So it is, that 11 abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, unless the 12 statute merely requires a commencement of suit within the added time. For, the court cannot extend the time alloted by 13 statute. We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO. By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to

see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) 14 years." However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue 15 the management of such matters as may then be pending." We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, the Board of Liquidators. Defendants' position is vulnerable to attack from another direction. By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final 16 conclusion. The provisions of Section 78 of the Corporation Law the third method of winding up corporate affairs find application. We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case. 2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. 17 Appellee heirs of Kalaw raised in their motion to dismiss, which was overruled, and in their nineteenth special defense, that 18 plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death. They say 19 that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court. which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is 20 embraced in suits filed "to recover damages for an injury to person or property, real or personal", which survive. The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared: Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffsappellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194, "to include all purely personal obligations other than those which have their source in delict or tort."

Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953). The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives. The preliminaries out of the way, we now go to the core of the controversy. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized." Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or 21 appropriate to the conduct of the ordinary business of the corporation. As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may 22 bind the corporation by contracts in matters arising in the usual course of business. The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative than the exporters with big capital. This shortselling was inevitable at the time in the light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such were the environmental circumstances when Kalaw went into copra trading. Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties." These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw. Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO". And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra. It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. Knowledge by the board is also discernible from other recorded instances.1wph1.t When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw 23 informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra."

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of 24 P5.00 to P7.00 per hundred kilos." We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947: 521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons: (1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the 25 Nacoco is much more conservative than the other big exporters in this respect. Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and 26 policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must bepresumed to have, of acts and doings of its subordinates in and about 27 the affairs of the corporation. So also, x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was 28 in fact exercised. x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors 29 to manage its business. In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. 4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the 30 time." The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, 31 and any ratification or adoption is equivalent to a grant of prior authority." 32 Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." By 33 corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid. 5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it 34 partakes of the nature of fraud. Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to 35 pocket money at the expense of the corporation. We have had occasion to affirm that bad faith contemplates a "state of mind 36 affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts. Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the ratification of the contracts was "an act of simple justice and fairness to the general

manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of 37 those contracts which proved disadvantageous." 38 The directors are not liable." 6. To what then may we trace the damage suffered by NACOCO. The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money 39 in the trade." NACOCO was not immune from such usual business risk. The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond 40 the buying price of the plaintiff under the contract." A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's 41 ratification of the contracts. 42 Indeed, were it not for the typhoons, NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. 43 There cannot be an actionable wrong if either one or the other is wanting. 7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts ratified by the board 44 to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel concedes that Kalaw all along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the 45 46 Nacoco." Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440.00. Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him. Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations. That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. 47 Kalaw as General Manager of the National Coconut Corporation." And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation. Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962: "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 48 390.) 49 Kalaw's good faith, and that of the other directors, clinch the case for defendants. Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed. Without costs. So ordered.

THE BOARD OF DIRECTORS AND ELECTION COMMITTEE OF THE SMB WORKERS SAVINGS AND LOAN ASSOCIATION, INC., ET AL., petitioners, vs. HON. BIENVENIDO A. TAN, ETC., ET AL., respondents. Panfilo M. Manguera and Restituto L. Opiz for petitioners. Cipriano Cid and Associates for respondents. PADILLA, J.: Petitioners pray for a writ of certiorari with the preliminary injunction. On 17 January 1957 John Castillo et al., commenced a suit in the court of First Instance of Manila to declare null and void election of the members of the board of directors of the SMB Workers Savings and Loan Association, Inc. and of the members of the board of directors of the association to call for and hold another election in accordance with its constitution and by-laws and the Corporation Law; to restain the defendants who had been illegally elected as members of the board of directors from exercising the functions of their office; to order the defendants to pay the plaintiffs attorney's fees and costs of the suit; and to grant them other just and equitable relief (civil No. 31584, Annex A). The defendants filed an answer (Annex B), and after joinder of issues the Court set the case for trial. On the day set for trial of the case, neither the defendants nor their attorney appeared. The Court proceeded to received the plaintiffs' evidence. On 11 February, the Court rendered judgment declaring the election held on 11 and 12 January null and void, ordering the defendants to call for and hold another election in accordance with the constitution and by-laws of the association and the Corporation Law, and sentencing the defendants to pay the plaintiffs the sum of P1,500 as attorney's fees, and 1 to pay the cost of the suit (Annex C). On 15 February, before the expiration of the time to appeal, the plaintiffs move for immediate execution of the judgment (Annex F). On 4 March the Court granted the plaintiffs motion and issued the writ of execution prayed for (Annex G). On 9 March the defendants moved for stay of execution of the judgment, for which they offered to file a supersedeas bond in the amount to be fixed by the Court (Annex H). On 23 March the Court denied the defendants' motion. In compliance with the judgment rendered by the Court, on 26 March the election committee composed of Quintin Tesalona, Manuel Dumaup and Jose' Capinio Santos set the meeting of the members of the association for 28 March at 5:30 o'clock in the afternoon to elect the new members of the board of directors (Annexes J & 4). On 27 March the plaintiff filed an ex-parte motion alleging that the election committee that had called the meeting of members of the association is composed of the same members that had conducted and supervised the election of the members of the board of directors that was declared null and void by the Court; that in view thereof it would be inequitable to allow them to conduct and supervise again the forthcoming election; that the election to be conducted and supervised by the said committee would not be held in accordance with the constitution and by laws of the association providing for five days notice to the members before the election, since the notice was posted and sent out only on 26 March, and the election would be held on 28 March, or two days after notice; that the notice that beginning 26 March any member could secure his ballot and proxy from the office of the association is in violation of section 5, article III of the constitution and by laws, which prohibits 2 voting by proxy in the election of members of the board of directors, and that the defendant did not show that arrangement is being made "to guarantee that the election will be held in accordance with the constitution and by laws." They prayed that the Court appoint its representative or representatives, whose compensation shall be paid out of the funds of the association, to supervise and conduct the election ordered by it (Annex 4). On the same day, 27 March the Court entered an order providing as follows: . . . the Court hereby orders that the election scheduled for March 28, 1957 be, as it hereby is, cancelled, and a committee of three is hereby constituted and appointed to call, conduct and supervise the election of the members of the board of directors of the association for 1957, said committee to be composed of: Mr. Candido C. Viernes as representative of the Court and to act as Chairman; and one representative each from the plaintiffs and defendant, as members. The committee is vested with the sole and exclusive power and authority to call conduct and supervise the election of the members of the board of directors of the association for the year 1957. The chairman of the committee shall received a compensation of P50.00 per day and the members thereof P30.00 each per day, said compensation to be paid by the association. SO ORDERED. (Annexes E & 3.) On 28 March the defendants moved for reconsideration of the foregoing order (Annex L). On 30 March the Court denied the motion for reconsideration. Claiming that in issuing the order of 27 March 1957 (Annexes E & 3) and in denying their motion for reconsideration, the Court acted without or in excess of jurisdiction or with grave abuse of discretion; and that there being no appeal or any plain, speedy and adequate remedy in the ordinary course of law, the petitioners pray for a writ of certiorari to annul and set aside the order assailed, and a writ of preliminary injunction to restrain the respondent court from enforcing its order of 27 March 1957 (Annexes E & 3) after filing of a bond in the amount to be fixed by this Court; for costs to be taxed against the respondents, and for such other just and equitable relief as may be granted to them. On 14 May 1957, after the petitioners had filed a bond in the sum of P200, this Court issued a writ of preliminary injunction prayed for. Section 3, article III, of the constitution and by-laws the association provides: Notice of the time and place of holding of any annual meeting, or any special meeting, the members, shall be given either by posting the same in a postage prepaid envelope, addressed to each member on the record at the address left by such member with the Secretary of the Association, or at his known post-office address or by delivering the same person at least (5) days before the date set for such meeting. . . . In lieu of addressing or serving personal notices to the members, notice of the members, notice of a regular annual meeting or of a special meeting of the members may be given by posting copies of said notice at the different departments and plants of the San Miguel Brewery Inc., not less than five (5) days prior to the date of the meeting. (Annex K.) Notice of a special meeting of the members should be given at leasts five days before the date of the meeting. Therefore, the five days previous notice required would not be complied with. As regards the creation of a committee of three vested with the authority to call, conduct and supervise the election, and the appointment thereto of Candido C. Viernes as chairman and the representative of the court and one representative each from the parties, the Court in the exercise of its equity jurisdiction may appointment such committee, it having been shown that the Election Committee provided for in section 7 of the by-laws of the association that conducted the election annulled by the respondent court if allowed to act as such may jeopardise the rights of the respondents.

In a proper proceeding a court for equity may direct the holding of a stockholders' meeting under the control of a special master, and the action taken at such a meeting will not be set aside because of a wrongful use of the court' interlocutory decree, where not brought to the attention of the court prior to the meeting. (18 C.J.S. 1270.) A court of equity may, on showing of good reason, appoint a master to conduct and supervise an election of directors when it appears that a fair election cannot make directions contrary to statute and public policy with respect to the conduct of such election. (19 C.J.S. 41) The writ prayed for is denied and the writ of preliminary injunction heretofore issued dissolved, with costs against the petitioners

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS and NILCAR Y. FAJILAN, respondents. Lim, Duran & Associates for petitioner. Renato J. Dilag for private respondent. GRIO-AQUINO, J.: The only issue in this case is whether or not a suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due on the consideration (evidenced by a corporate promissory note) for the surrender of his shares of stock and interests in the corporation, involves an intra-corporate dispute. The resolution of that issue will determine whether the Securities and Exchange Commission (SEC) or a regular court has jurisdiction over the action. On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. The letter-offer (Exh. A1) reads as follows: 07 May 1984 THE BOARD OF DIRECTORS, BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION 2nd Floor, AGS Building, 466 EDSA, Makati, Metro Manila Gentlemen: With deepest regrets, I am tendering my resignation as member of the Board of Directors and President of the Company effective as soon as my shares and interests thereto are sold and fully paid. It is really painful to leave the Company which we painstakingly labored and nortured for years to attain its success today, however, family interests and other considerations dictate me otherwise. Thank you for your interest of buying my shares and other interests on the Company. It is really my intention to divest myself of these investments and sell them all for PESOS: THREE HUNDRED THOUSAND (P 300,000) payable in cash in addition to the Isuzu pick up I am presently using for and in behalf of the Company. Thank you. NILCAR Y. FAJILAN Director/President (p. 239, Rollo.) At a meeting of the Board of Directors of BEDECO on June 14, 1984, Fajilan's resignation as president was accepted and new officers were elected. Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay for them on a staggered basis from July 15, 1984 to December 15, 1984 (Annex B).<re||an1w>The resolution of the Board was communicated to Fajilan in the following letter-agreement dated June 25, 1984 to which he affixed his conformity (Annex C): June 25, 1984 Mr. Nilcar Y. Fajilan No. 159 Aramismis Street Project 7, Quezon City Dear Mr. Fajilan: Please be informed that after due deliberation the Board of Directors has accepted your offer to sellyour share and interest in the company at the price of P300,000.00, inclusive of your unpaid salary from February 1984 to May 31, 1984, loan principal, interest on loan, profit sharing and share on book value of the corporation as at May 31, 1984. Payment of the P300,000.00 shall be as follows: July 15, 1984 September 15, 1984 October 15, 1984 December 15, 1984 P 100,000.00 P 75,000.00 P 62,500.00 P 62,500.00 P 300,000.00. To assure you of payment of the above amount on respective due dates, the company will execute the necessary promissory note. In addition to the above, the Ford Courier Pick-up will belong to you subject to your assumption of the outstanding obligation thereof with Fil-Invest. It is understood that upon your full payment of the pick-up, arrangement will be made and negotiated with Fil-Invest regarding the transfer of the ownership of the vehicle to your name. If the above meets your requirements, kindly signify your conformity/approval by signing below. Very truly yours, (SGD) JAMES C. PERALTA Corporate Secretary CONFORME: (SGD) NILCAR Y. FAJILAN Noted: (SGD) ALFREDO S. PANGILINAN (SGD) MAXIMO R. REBALDO (SGD) BENEDICTO M. EMPAYNADO SUBSCRIBED AND SWORN TO before me, this 3rd day of July, 1984, Alfredo S. Pangilinan exhibiting to me his Residence Certificate No. 1696224 issued at Makati, Metro Manila on January 24, 1984, in his capacity as President of Boman Environmental Development Corporation with Corporate Residence Certificate No. 207911 issued at Makati, Metro Manila on March 26, 1984.

(SGD) ERNESTO B. DURAN NOTARY PUBLIC Until December 31, 1984 PTR No. 8582861 Issued on January 24, 1984 at Makati, Metro Manila Doc. No. 392 Page No. 80 Book No. X Series of 1984. (p. 245, Rollo.) A promissory note dated July 3, 1984, was signed by BEDECO'S new president, Alfredo Pangilinan, in the presence of two directors, committing BEDECO to pay him P300,000 over a six-month period from July 15, 1984 to December 15, 1984. The promissory note (Exh. D) provided as follows: PROMISSORY NOTE Makati, Metro Manila July 3, 1984 FOR VALUE RECEIVED, BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, a domestic corporation duly registered with the Securities and Exchange Commission, with office at Rm. 608, Metro Bank Bldg., Ayala Blvd., Makati, Metro Manila, promise to pay NILCAR Y. FAJILAN of 17 Aramismis St., Project 7, Quezon City, the sum of PESOS: THREE HUNDRED THOUSAND (P300,000.00), Philippine Currency payable as follows: P100,000.00 75,000.00 62,500.00 62,500.00 P300,000.00 BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION By: (SGD) ALFREDO S. PANGILINAN President Signed in the presence of: (SGD) MAXIMO R. REBALDO (SGD) BENEDICTO M. EMPAYNADO (Annex D, p. 247, Rollo.) However, BEDECO paid only P50,000 on July 15, 1984 and another P50,000 on August 31, 1984 and defaulted in paying the balance of P200,000. On April 30, 1985, Fajilan filed a complaint in the Regional Trial Court of Makati for collection of that balance from BEDECO. In an order dated September 9, 1985, the trial court, through Judge Ansberto Paredes, dismissed the complaint for lack of jurisdiction. It ruled that the controversy arose out of intracorporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide it. His motion for reconsideration of that order having been denied, Fajilan filed a "Petition for Certiorari, and mandamus with Preliminary Attachment" in the Intermediate Appellate Court. In a decision dated March 2, 1987, the Court of Appeals set aside Judge Paredes' order of dismissal and directed him to take cognizance of the case. BEDECO's motion for reconsideration was denied in a resolution dated March 24, 1987 of the Court of Appeals. In its decision, the Appellate Court characterized the case as a suit for collection of a sum of money as Fajilan "was merely suing on the balance of the promissory note" (p. 4, Decision; p. 196, Rollo) which BEDECO failed and refused to pay in full. More particularly, the Court of Appeals held: While it is true that the circumstances which led to the execution of the promissory note by the Board of Directors of respondent corporation was an intra- corporate matter, there arose no controversy as to the sale of petitioner's interests and rights as well as his shares as Member of the Board of Directors and President of respondent corporation. The intra-corporate matter of the resignation of petitioner as Member of the Board of Directors and President of respondent corporation has long been settled without issue. The Board of Directors of respondent corporation has likewise long settled the sale by petitioner of all his shares, rights and interests in favor of the corporation. No controversy arose out of this transaction. The jurisdiction of the Securities and Exchange Commission therefore need not be invoked on this matter. (p. 196, Rollo.) The petition is impressed with merit. Section 5(b) of P.D. No. 902-A, as amended, grants the SEC original and exclusive jurisdiction to hear and decide cases involving b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; ... (Emphasis supplied.) This case involves an intra-corporate controversy because the parties are a stockholder and the corporation. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan's participation and interests in BEDECO and the execution of the promissory note for payment of the price of the sale did not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as amended, for both the said agreement (Annex C) and the promissory note (Annex D) arose from intra-corporate relations. Indeed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an intra-corporate transaction, hence, this suit is an intra-corporate controversy. July 15, 1984 Sept. 15, 1984 October 15, 1984 Dec. 15, 1984

Fajilan's offer to resign as president and director "effective as soon as my shares and interests thereto (sic) are sold and fully paid" (Annex A-1, p. 239, Rollo) implied that he would remain a stockholder until his shares and interests were fully paid for, for one cannot be a director or president of a corporation unless he is also a stockholder thereof. The fact that he was replaced as president of the corporation did not necessaryily mean that he ceased to be a stockholder considering how the corporation failed to complete payment of the consideration for the purchase of his shares of stock and interests in the goodwill of the business. There has been no actual transfer of his shares to the corporation. In the books of the corporation he is still a stockholder. Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code, which reads as follows: SEC. 41. Power to acquire own shares.A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired; 1. To eliminate fractional shares arising out of stock dividends; 2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code, Sec. 12. Corporate liquidation. ... xxx xxx xxx Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities, (77a, 89a, 16a). These provisions of the Corporation Code should be deemed written into the agreement between the corporation and the stockholders even if there is no express reference to them in the promissory note. The principle is well settled that an existing law enters into and forms part of a valid contract without need for the parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA 437). The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. "Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of directors will not use the assets of the corporation to purchase its own stock ..."(Steinberg vs. Velasco, 52 Phil. 953.) WHEREFORE, the petition for certiorari is granted. The decision of the Court of Appeals is reversed and set aside. The order of the trial court dismissing the complaint for lack of jurisdiction is hereby reinstated. No costs. SO ORDERED.

SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY,respondent. RESOLUTION DE LEON, JR., J.: An affidavit-complaint dated August 31, 1999 was filed before the Office of the Court Administrator (OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court (RTC), Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of Authority relative to Civil Case No. 1718 entitled, Felipe G. Javier, Jr. vs. Rufino Booc. Complainant is the President of five Star Marketing Corporation. On August 22, 1994 herein respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 filed a Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209 and owned by Five Star Marketing Corporation. Complainant alleged that respondent sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent sheriffs knowledge that the property is owned by the corporation which was not a party to the civil case. On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that it was the owner of the property and Rufino Booc had no share or interest in the corporation. Hence, the corporation demanded that respondent sheriff cancel the notice of levy, otherwise the corporation would take the appropriate legal steps to protect its interest. Respondent sheriff, however, did not heed the corporations demand inasmuch as on August 20, 1999 the corporation received a Notice of Sale on Execution of Real Property, dated August 11, 1999, covering the subject property. Respondent sheriff scheduled the public auction on August 31, 1999. Consequently, the corporation, to protect its rights and interests, was compelled to file an action for Quieting of Title with the RTC, Branch 4 of Iligan City. Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and participation of Rufino Booc in the parcel of land owned by Five Star Marketing Corporation. Respondent sheriff claimed that Rufino Booc is the owner of around 200 shares of stock in said corporation according to a document issued by the Securities and Exchange Commission. Respondent sheriff stressed that the levy was made on the share, rights and/or interest and participation which Rufino Booc, as president and stockholder, may have in the parcel of land owned by Five Star Marketing Corporation. Claiming that he was only acting pursuant to his duties as sheriff, respondent cited Section 15, Rule 39 of the Rules of Court which states that x x x The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and nature whatsoever, and which may be disposed of for value of the judgment debtor not exempt from execution. Real property stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of execution. Respondent sheriff said that while complainant Salvador Booc made a demand for the cancellation of levy made, the former deemed it wise to have the judgment satisfied in accordance with Section 39 of the Rules of Court. Respondent sheriff added that the trial court where the case for Quieting of Title filed by the corporation was pending ordered the auction sale of the shares of stock of Rufino Booc. The corporation allegedly never questioned said order of the RTC. Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his brother Sheikding Booc. Respondnet sheriff submitted as an exhibit an affidavit executed by Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc, the latter simulated a transfer of his shares of stock in Five Star [1] Marketing Corporation so that the property may not be levied upon. Complainant, in his reply to respondent sheriffs comment belied the latters allegation that the corporation never questioned the auction sale. Complainant averred that contrary to the respondent sheriffs assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiffs counsel manifested that the respondent sheriff would only auction Rufino Boocs shares of stock in the corporation and not the subject property. The OCA found respondent sheriff liable for the charges filed against him, stating that respondent sheriff acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara had already warned him that the public auction should pertain only to shares of stock owned by Rufino Booc in Five Star Marketing Corporation. Respondent sheriff, however, in violation of the order issued by Judge Mangotara and in disregard of the manifestation filed by plaintiffs counsel that the sale should involve only the shares of stock, proceeded to auction the subject property. The OCA, thus, made the recommendation that: 1) The instant case be RE-DOCKETED as a regular administrative matter; and 2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos (P10,000.00) for conducting the auction sale in violation of the terms of the order issued by Acting Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a commission of the same or similar acts in the future shall be dealt with more severely. A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the subject property as well as in the certificate of sale, did not fail to mention that what was being levied upon and sold was whatever shares, rights, interests and participation Rufino Booc, as president and stockholder in Five Star Marketing Corporation may have on subject property. Respondent sheriff, however, overstepped his authority when he disregarded the distinct and separate personality of the corporation from that of Rufino Booc as stockholder of the corporation by levying on the property of the corporation. Respondent sheriff should not have made the levy based on mere conjecture that since Rufino Booc is a stockholder and officer of the corporation, then he might have an interest or share in the subject property. It is settled that a corporation is clothed with a personality separate and distinct from that of its stockholders. It may not be held [2] liable for the personal indebtedness of its stockholders. In the case of Del Rosario vs. Bascar, Jr., we imposed the fine of P5,000.00 on respondent sheriff Bascar for allocating unto himself the power of the court to pierce the veil of corporate entity and improvidently assuming that since complainant Esperanza del Rosario is the treasurer of Miradel Development Corporation, they are one and the same. In the said case we reiterated the principle that the mere fact that one is a president of the corporation does not render the property he owns or possesses the property of the corporation since the president, as an individual, and the corporation are separate entities. Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he levied the property of Five Star Marketing Corporation. The fact, however, that respondent sheriff, in levying said property, had stated in the notice of levy as well as in the certificate of sale that what was being levied upon and sold was whatever rights, shares interest and/or participation Rufino Booc, as stockholder and president in the corporation, may have on the subject property, shows that respondent sheriffs conduct was impelled partly by ignorance of Corporation Law and partly by mere overzealousness to comply with his duties and not by bad

faith or blatant disregard of the trial courts order. Hence, we deem that the penalty of a fine of Five Thousand Pesos (P5,000.00) to be imposed on respondent sheriff would suffice. WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City , Branch 3, is hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a repetition of the same or similar acts in the future will be dealt with more severely. SO ORDERED.

Boy Scout of the Philippines vs Commission on Audit

DECISION

LEONARDO-DE CASTRO, J.:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject matter of this [1] controversy that reached us via petition for prohibition filed by the BSP under Rule 65 of the 1997 Rules of Court. In this petition, [2] [3] the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision, its February 21, 2007Resolution, as well [4] as all other issuances arising therefrom, and that all of the foregoing be rendered null and void. Antecedent Facts and Background of the Case This case arose when the COA issued Resolution No. 99-011 on August 19, 1999 (the COA Resolution), with the subject Defining the Commissions policy with respect to the audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential Decree No. [6] 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission, the Supreme Court ruled that the BSP, as constituted under its charter, was a government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution; and that the BSP is appropriately regarded as a government instrumentality under the 1987 [7] Administrative Code. The COA Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads: NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in accordance with generally accepted auditing standards, and express an opinion on whether the financial statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial position and results of operations. xxxx BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit [8] Office I, to be audited, similar to the subsidiary corporations, by employing the team audit approach. (Emphases supplied.)
[9] [5]

The BSP sought reconsideration of the COA Resolution in a letter dated November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote: It is the position of the BSP, with all due respect, that it is not subject to the Commissions jurisdiction on the following grounds: 1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored on the substantial Government participation in the National Executive Board of the BSP. It is to be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by Presidential Decree 460. However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs charter after the cited case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National Executive Board of the BSP. The said RA virtually eliminated the substantial government participation in the National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as Chief Scout, over the members of the said Board. The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the cases conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized as stock or non-stock corporations which the BSP, under its present charter, is not. Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides is that the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to time donate and contribute funds to the BSP. xxxx Also the BSP respectfully believes that the BSP is not appropriately regarded as a government instrumentality under the 1987 Administrative Code as stated in the COA resolution. As defined by Section 2(10) of the said code, instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.

The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x It may be argued also that the BSP is not an agency of the Government. The 1987 Administrative Code, merely referred the BSP as an attached agency of the DECS as distinguished from an actual line agency of departments that are included in the National Budget. The BSP believes that an attached agency is different from an agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct unit therein. Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal subdivision or unit of any [10] department (Section 2[8], Administrative Code). Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon, Regional Scout [11] Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog City. In a letter dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a [13] copy of the Memorandum dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law eliminated the substantial government participation in the selection of members of the National Executive Board of the BSP. The Memorandum further provides: Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the BSPs purposes and functions which has a public aspect and the statutory designation of the BSP as a public corporation. These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A. No. 7278. On the argument that BSP is not appropriately regarded as a government instrumentality and agency of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a government-controlled corporation with an original charter and as an instrumentality of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or [14] instrumentalities, including government-owned or controlled corporations with original charters.
[12]

Based on the Memorandum of the COA General Counsel, Director Sunico wrote: In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with the provisions of [15] the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that a preliminary [16] survey of its organizational structure, operations and accounting system/records shall be conducted on November 21 to 22, 2000. Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA in its questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied under its [17] questioned Resolution. This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining order against the COA. The Issue As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COAs audit jurisdiction.

The Parties Respective Arguments The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National Labor Relations Commission [18] over a case for illegal dismissal and unfair labor practice filed by certain BSP employees. While the BSP concedes that its functions do relate to those that the government might otherwise completely assume on its own, it avers that this alone was not determinative of the COAs audit jurisdiction over it. The BSP further avers that the Court inBoy Scouts

of the Philippines v. National Labor Relations Commission simply stated x x x that in respect of functions, the BSP isakin to a public corporation but this was not synonymous to holding that the BSP is a government corporation or entity subject to audit by the [19] COA. The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government has ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be taken only within the context of that case; that the Court had categorically found that its assets were acquired from the Boy Scouts of America and not from the Philippine government, and that its operations are financed chiefly from membership dues of the Boy Scouts themselves as well as from property rentals; and that the BSP may correctly be characterized as non-governmental, and hence, beyond the audit jurisdiction of the COA. It further claims that the designation by the Court of the BSP as a government agency or instrumentality is [20] mere obiter dictum. The BSP maintains that the provisions of Republic Act No. 7278 suggest that governance of BSP has come to be overwhelmingly a [21] private affair or nature, with government participation restricted to the seat of the Secretary of Education, Culture and Sports. It [22] cites Philippine Airlines Inc. v. Commission on Audit wherein the Court declared that, PAL, having ceased to be a government[23] owned or controlled corporation is no longer under the audit jurisdiction of the COA. Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event that changed the BSPs corporate identity in the same way that the governments privatization program changed PALs, the BSP makes the case that the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines v. National Labor Relations Commission as its basis for the exercise of its [24] jurisdiction and the issuance of COA Resolution No. 99-011. The BSP further claims as follows: It is not far-fetched, in fact, to concede that BSPs funds and assets are private in character. Unlike ordinary public corporations, such as provinces, cities, and municipalities, or government-owned and controlled corporations, such as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not derived from any government grant. For its operations, BSP is not dependent in any way on any government appropriation; as a matter of fact, it has not even been included in any appropriations for the government. To be sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or continues to receive assets and funds from any agency of the government. The foregoing simply point to the private nature of the funds and assets of petitioner BSP. xxxx As stated in petitioners third argument, BSPs assets and funds were never acquired from the government. Its operations are not in any way financed by the government, as BSP has never been included in any appropriations act for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of government property or funds; nor have properties of the government been held in trust by BSP. This is precisely the reason why, until this time, the COA has not attempted to subject BSP [25] to its audit jurisdiction. x x x.

To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the government. In its Comment,
[26]

the COA argues as follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably prove that it is a government agency. 2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution. 3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled corporation and [27] government instrumentality.

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism, courage, selfreliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by the Court inBoy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it as a public corporation and its [28] statutory mandate embraces performance of sovereign functions. The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced under the term government [29] instrumentality. The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes, wherein the Court held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640, designates it as one. Furthermore, the COA quotes the Court as saying in that case: In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of country. xxxx Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues and lease rentals earned from administering government lands reserved for the VFP. The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous application of the law by public officers does not bar a [31] subsequent correct application of the law. (Citations omitted.)

[30]

The COA points out that the government is not precluded by law from extending financial support to the BSP and adding to its funds, and that as a government instrumentality which continues to perform a vital function imbued with public interest and reflective of the governments policy to stimulate patriotic sentiments and love of country, the BSPs funds from whatever source are public [32] funds, and can be used solely for public purpose in pursuance of the provisions of Republic Act No. *7278+. The COA claims that the fact that it has not yet audited the BSPs funds may not bar the subsequent exercise of its audit jurisdiction. The BSP filed its Reply on August 29, 2007 maintaining that its statutory designation as a public corporation and the public character of its purpose and functions are not determinative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because the aspect of government ownership and control has been removed by Republic Act No. 7278; and concluding that the funds and property that it either owned or held in trust are not public funds and are not subject to the COAs audit jurisdiction. Thereafter, considering the BSPs claim that it is a private corporation, this Court, in a Resolution dated July 20, 2010, required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective comments on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional. In compliance with the Courts resolution, the parties filed their respective Comments. In its Comment dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as amended, is not determinative of the resolution of the present controversy on the COAs audit jurisdiction over petitioner, and in fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth [36] [37] inCommissioner of Internal Revenue v. Court of Tax Appeals, have not been fully met. Moreover, the COA maintains that [38] behind every law lies the presumption of constitutionality. The COA likewise argues that contrary to the BSPs position, repeal of [39] a law by implication is not favored. Lastly, the COA claims that there was no violation of Section 16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government corporation. Citing Philippine Society for the Prevention of [40] Cruelty to Animals v. Commission on Audit, the COA further alleges: The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying [41] out its governmental functions, then that corporation is considered public; otherwise, it is private. x x x.
[42] [35] [34] [33]

For its part, in its Comment filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP alleges that while *it+ is not a public corporation within the purview of COAs audit jurisdiction, neither is it a private corporation created by [43] special law falling within the ambit of the constitutional prohibition x x x. The BSP further alleges: Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus: xxxx A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that petitioners purpose and functions are more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization without any distinction. It does not limit its membership to a particular class of boys. Petitioners members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to become [44] model citizens and outstanding leaders of the country.

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an entity may be [45] subject of said jurisdiction. It avers that it merely stated in its Reply that the withdrawal of government control is akin to [46] privatization, but it does not necessarily mean that petitioner is a private corporation. The BSP claims that it has a unique [47] characteristic which neither classifies it as a purely public nor a purely private corporation; that it is not a quasi-public [48] corporation; and that it may belong to a different class altogether. The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the enactment of the BSPs [49] charter, as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation are not its officers but its entire membership consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all boys who wish to join the organization without any distinction; and (iv) it does not limit its membership to a particular class or group of boys. Thus, the enactment of its charter confers no special privilege to particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to certain groups to the prejudice of others or of the interest of the country, which are [50] the evils sought to be prevented by the constitutional provision involved. Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear showing of its [51] repugnancy to the Constitution. The Ruling of the Court After looking at the legislative history of its amended charter and carefully studying the applicable laws and the arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COAs audit jurisdiction. The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes created the BSP as a public corporation to serve the following public interest or purpose: Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided substantial changes in the BSP organizational structure. Pertinent provisions are quoted below: Section II. Section 5 of the said Act is also amended to read as follows: The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number of individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their respective regions, all members of the National Executive Board shall be either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of members of the National Executive Board necessary to constitute a quorum of the board, which number may be less than a majority of the whole number of the board. The National Executive Board shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 by strengthening thevolunteer and democratic character of the BSP and reducing government representation in its governing body, as follows: Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows: "Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt bylaws, rules and regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue

certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and not for pecuniary profit of its members. "Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts." Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4 shall read as follows: "Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines." Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows: "Sec. 5. The governing body of the said corporation shall consist of a National Executive Board, the members of which shall be Filipino citizens of good moral character. The Board shall be composed of the following: "(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of the National Council at its meeting called for this purpose; "(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman need not be the chairman of a local scout council; "(c) The Secretary of Education, Culture and Sports; "(d) The National President of the Girl Scouts of the Philippines; "(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called for this purpose, to represent the boy scout membership; "(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called for this purpose; "(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be elected by the members of the National Executive Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National Executive Board which shall be held immediately after the meeting of the National Council wherein the twelve (12) regular members and the one (1) charter member were elected. xxxx "Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads: Art. 44. The following are juridical persons: (1) The State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)

The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45 of the Civil Code, which provides: Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing them. Private corporations are regulated by laws of general application on the subject. Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy declared in Article II, Section 13 of the Constitution, which reads: ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class of public corporations defined by paragraph 2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code. The BSPs Classification Under the Administrative Code of 1987 The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative Code of 1987, which states: TITLE VI EDUCATION, CULTURE AND SPORTS Chapter 8 Attached Agencies SEC. 20. Attached Agencies. The following agencies are hereby attached to the Department: xxxx (12) Boy Scouts of the Philippines; (13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987 as follows: BOOK IV THE EXECUTIVE BRANCH Chapter 7 ADMINISTRATIVE RELATIONSHIP SEC. 38. Definition of Administrative Relationship. Unless otherwise expressly stated in the Code or in other laws defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as follows: xxxx (3) Attachment. (a) This refers to the lateral relationship between the department or its equivalent and the attached agency or corporationfor purposes of policy and program coordination. The coordination may be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency. (Emphasis ours.)

As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by having at least one representative of government in its governing board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not under government control or supervision and control. Still this characteristic does not make the attached chartered agency a private corporation covered by the constitutional proscription in question. Art. XII, Sec. 16 of the Constitution refers to private corporations created by government for proprietary or economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of Article XII is quoted as follows: SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices. In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration of state policies and goals which pertains to national economy and patrimony and the interests of the people in economic development. Section 16, Article XII deals with the formation, organization, or regulation of private corporations, which should be done through a general law enacted by Congress, provides for an exception, that is: if the corporation is government owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The rationale behind Article XII, [53] Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on Audit, in the following manner: The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain [54] individuals, families or groups special privileges denied to other citizens. (Emphasis added.)
[52]

It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of private corporations by special law. The said constitutional provision should not be construed so as to prohibit the creation of public corporations or a corporate agency or instrumentality of the government intended to serve a public interest or purpose, which should not be measured on the basis of economic viability, but according to the public interest or purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of 1987. The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there exists another distinct class of corporations or chartered institutions which are otherwise known as public corporations. These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Departments or Offices. Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution recognizes only two classes of corporations: private corporations under a general law, and government-owned or controlled corporationscreated by special charters. We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the constitutional policies or objectives. In his dissent, Justice Carpio contends that this ponente introduces a totally different species of corporation, which is neither a private corporation nor a government owned or controlled corporation and, in so doing, is missing the fact that the BSP, which was created as a non-stock, non-profit corporation, can only be either a private corporation or a government owned or controlled corporation. Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter, was regarded as both a government owned or controlled corporation with original charter and a public corporation. The said case pertinently stated: While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a public corporation" and the substantial participation of the Government in the selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled corporation within the meaning of Article IX (B) (2) (1) of the Constitution. We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or -controlled

corporation, or local government or distinct unit therein. "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner: Instrumentality - refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered institutions and governmentowned or controlled corporations. The same Code describes a "chartered institution" in the following terms: Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the State. We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code. It thus appears that the BSP may be regarded as both a "government controlled corporation with an original charter" and as an [55] "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x x. (Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct from private corporations and government owned or controlled corporation is best exemplified by the 1987 Administrative Code cited above, which we quote in part: Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx (10) "Instrumentality" refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. xxxx (12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges and the monetary authority of the State. (13) "Government-owned or controlled corporation" refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fiftyone (51) per cent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases to be a government instrumentality as it still retains all the characteristics of the latter as an attached agency of the DECS under the Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the government is not constitutionally prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative Code. Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations

As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be owned or controlled by the government and be economically viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing a new class of public corporation(s) created by special charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented. However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest law of our land to distinguish between government corporations performing governmental functions and corporations involved in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized. MR. FOZ. Madam President, I support the proposal to insert ECONOMIC VIABILITY as one of the grounds for organizing government corporations. x x x. MR. OPLE. Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers money through new equity infusions from the government and what is always invoked is the common good. x x x Therefore, when we insert the phrase ECONOMIC VIABILITY together with the common good, this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. x x x. xxxx THE PRESIDENT. Commissioner Quesada is recognized. MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability? THE PRESIDENT. Please proceed. MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all benefits, including economic external as well as internal benefits. These are what they call externalities in economics, so that these are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of the country that are not quantifiable in financial terms. x x x. xxxx MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into activities engaged in by corporations? MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved that there should be minimum government participation and intervention in the economy. MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements when the government would get into corporations. But this time around, we specifically mentioned economic viability. x x x. MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment. MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with Commissioner Foz. During the past three decades, there had been a proliferation of government corporations, very few of which have succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for liquidation because they failed the economic test. x x x. xxxx MS. QUESADA. But would not the Commissioner say that the reason why many of the government-owned or controlled corporations failed to come up with the economic test is due to the management of these corporations, and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of management of these corporations which could be remedied, not by eliminating government corporations or the idea of getting into state-owned corporations, but improving management which our technocrats should be able to do, given the training and the experience. MR. OPLE. That is part of the economic viability, Madam President. MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-controlled corporations were given to private hands, and that there will be more goods and services that will be affordable and within the reach of the ordinary citizens? MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation in accordance with a special charter given by Congress. However, we are raising the standard a little bit so that, in the future, corporations established by the government will meet the test of the common good but within that framework we should also build a certain standard of economic viability. xxxx THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for government-owned or controlled corporations, will these be in the pioneer fields or in places where the private enterprise does not or cannot enter? Or is this so general that these government corporations can compete with private corporations organized under a general law? MR. MONSOD. Madam President, x x x. There are two types of government corporations those that are involved in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed for corporations that want to go into business. First is for government corporations to first prove that they can be efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the private sector can do better. MR. PADILLA. There is no question about corporations performing governmental functions or functions that are impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively, by private enterprise. It seems that under this provision the only qualification is economic viability and common good, but shall government, through government-controlled corporations, compete with private enterprise? MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private enterprise is engaged [56] in and can do better. x x x. (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions, to which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this constitutional ban on the creation of public corporations where the economic viability test would be irrelevant. The said test would only apply if the corporation is engaged in some economic activity or business function for the government. It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one of the bills sponsors, Senator Joey Lina, described the BSP as follows: Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should be given this kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these two groups, I do not think there are other groups similarly situated. The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how huge the population of the young people is, at this point in time, and also considering the importance of having an organization such as this that will inculcate moral uprightness among the young people, and further considering that the development of these young people at that tender age of seven to sixteen is vital in the development of the country producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines from this general prohibition against providing tax [57] exemption and privileges.

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress to return the BSP to the private sector. It was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth organization, which has been its partner in forming responsible citizens for decades. In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached under its original charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the amendments to its Charter under Presidential Decree No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of the different departments in government who were too busy to attend the meetings of the BSPs National Executive Board (the Board) sent representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils established in the provinces and cities were [58] not in touch with what was happening on the national level, but they were left to implement what was decided by the Board. A portion of the legislators discussion is quoted below to clearly show their intent: HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout Movement has done not only for the youth in particular but for the country in general. And that is why, if we look around, our past and present national leaders, prominent men in the various fields of endeavor, public servants in government offices, and civic leaders in the communities all over the land, and not only in our country but all over the world many if not most of them have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have the early approval of this measure if only to pay back what we owe much to the Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just the Scouting Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest scouting organization in the world x x x. And to our mind, Mr. Chairman, this erratic growth and this decrease in membership [number] is because of the bad policy measures that were enunciated with the enactment or promulgation by the President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of the National Council in the election of the national board. x x x. And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working together, the Boy Scout of the Philippines officers

working together with the House of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the [59] Boy Scout Movement. x x x. (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the bill, in the Committee on Government Enterprises: HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of the Philippines did not provide for any direct government support by way of appropriation from the national budget to support the activities of this organization. The point here is, and at the same time they have been subjected to a governmental intervention, which to their mind has been inimical to the objectives and to the institution per se, that is why they are seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act 111. Such having been the experience in the hands of government, meaning, there has been negative interference on their part and inasmuch as their mandate is coming from a legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be better for this organization to seek a mandate from, lets say, the government the Corporation Code of the Philippines and register with the SEC as non-profit non-stock corporation so that government intervention could be very very minimal. Maybe thats a rhetorical question, they may or they may not answer, ano. I dont know what would be the benefit of a charter or a mandate being provided for by way of legislation versus a registration with the SEC under the Corporation Code of the Philippines inasmuch as they dont get anything from the government anyway insofar as direct funding. In fact, the only thing that they got from government was intervention in their affairs. Maybe we can solicit some commentary comments from the resource persons. Incidentally, dont take that as an objection, Im not objecting. Im all for the objectives of these two bills. It just occurred to me that since you have had very bad experience in the hands of government and you will always be open to such possible intervention even in the future as long as you have a legislative mandate or your mandate or your charter coming from legislative action. xxxx MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of scout organization. Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the organization will lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze the assets of the organization and hamper the operation of the organization. I dont know, Mr. Chairman, how you look at it but there could be a danger for anybody filing a complaint against the organization in the SEC and the SEC might suspend the registration permit of the organization and we will not be able to operate. HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC because even if you are government corporation, court action may be taken against you in other judicial bodies because the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first point that you raised. In effect, what you are saying is that with the legislative mandate creating your charter, in effect, you have been given some sort of a franchise with this movement. MR. ESCUDERO: Yes. HON. AQUINO: Exclusive franchise of that movement? MR. ESCUDERO: Yes. HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr. Chairman. x x x.
[60]

(Emphases added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board, this was done to more strongly promote the BSPs objectives, which were not supported under Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-being of the youth, the future leaders of the country. The amendments were not done with the view of changing the character of the BSP into a privatized corporation. The BSP remains an agency attached to a department of the government, the DECS, and it was not at all stripped of its public character. The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary sits at the BSP Board ex officio,thus facilitating the policy and program coordination between the BSP and the DECS. Requisites for Declaration of Unconstitutionality Not Met in this Case The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone does not comply with the requisites for judicial review, which were clearly set forth in a recent case: When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the earliest opportunity; and [61] (4) the constitutional question is the lis mota of the case. (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota, or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be ignored under the dissents rather overreaching view of how this case should have been decided. True, it was the Court that asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a law. Re: the COAs Jurisdiction Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive contributions or donations from the government. Section 8 reads: Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the Executive Board in pursuance of this Act.

The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises while the bill was being deliberated, and the pertinent portion of the discussion is quoted below: MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time, Mr. Chairman, when we have special activities we request for assistance or financial assistance from government agencies, from private business and corporations, but this is only during special activities that the Boy Scouts of the Philippines would conduct during the year. Otherwise, we have to raise our own funds to [62] support the organization.

The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought up in said congressional deliberations, to wit: HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government corporation classified as such, are your funds or your finances subjected to the COA audit? MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall under the jurisdiction of the COA. HON. AQUINO: All right, but before were you? MR. ESCUDERO: No, Mr. Chairman. MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was and the Boy Scouts then because of this funding partly from government was being subjected to audit in the contributions being made in the part of the Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding from government, but then in the case of the local councils and this legislative charter, so to speak, enables the local councils even the national headquarters in view of the provisions in the existing law to receive donations from the government or any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private corporation with the Securities and Exchange Commission. Government bodies would be estopped from making donations to the Boy Scouts, which at present is not the case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463. xxxx HON. AMATONG: Mr. Chairman, in connection with that. THE CHAIRMAN: Yeah, Gentleman from Zamboanga. HON. AMATONG: There is no auditing being made because theres no money put in the organization, but how about donated funds to this organization? What are the remedies of the donors of how will they know how their money are being spent? MR. ESCUDERO: May I answer, Mr. Chairman? THE CHAIRMAN: Yes, gentleman. MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to submit a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise is accounted for at the end of [63] the year by our external auditor. In this case the SGV.

Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under the Constitution, which pertinently provides:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other governmentowned or controlled corporations with original charters and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law of the granting institution to [64] submit to such audit as a condition of subsidy or equity. x x x.

Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of the BSP Charter. WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED. SO ORDERED.

BPI VS BPI EMPLOYEES UNION DECISION

LEONARDO-DE CASTRO, J.:

May a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed employees from the coverage of a union shop clause contained in its existing Collective Bargaining Agreement (CBA) with its own certified labor union? That is the question we shall endeavor to answer in this petition for review filed by an employer after the Court of Appeals decided in favor of respondent union, which is the employees recognized collective bargaining representative. At the outset, we should call to mind the spirit and the letter of the Labor Code provisions on union security clauses, specifically Article 248 (e), which states, x x x Nothing in this Code or in any other law shall stop the parties from requiring membership in a recognized collective bargaining agent as a condition for employment, except those employees who are already members of [1] another union at the time of the signing of the collective bargaining agreement. This case which involves the application of a collective bargaining agreement with a union shop clause should be resolved principally from the standpoint of the clear provisions of our labor laws, and the express terms of the CBA in question, and not by inference from the general consequence of the merger of corporations under the Corporation Code, which obviously does not deal with and, therefore, is silent on the terms and conditions of employment in corporations or juridical entities. This issue must be resolved NOW, instead of postponing it to a future time when the CBA is renegotiated as suggested by the Honorable Justice Arturo D. Brion because the same issue may still be resurrected in the renegotiation if the absorbed employees insist on their privileged status of being exempt from any union shop clause or any variant thereof. We find it significant to note that it is only the employer, Bank of the Philippine Islands (BPI), that brought the case up to this Court via the instant petition for review; while the employees actually involved in the case did not pursue the same relief, but had instead chosen in effect to acquiesce to the decision of the Court of Appeals which effectively required them to comply with the union shop clause under the existing CBA at the time of the merger of BPI with Far East Bank and Trust Company (FEBTC), which decision had already become final and executory as to the aforesaid employees. By not appealing the decision of the Court of Appeals, the aforesaid employees are bound by the said Court of Appeals decision to join BPIs duly certified labor union. In view of the apparent acquiescence of the affected FEBTC employees in the Court of Appeals decision, BPI should not have pursued this petition for review. However, even assuming that BPI may do so, the same still cannot prosper. What is before us now is a petition for review under Rule 45 of the Rules of Court of the Decision dated September 30, 2003 [3] [4] of the Court of Appeals, as reiterated in its Resolution of June 9, 2004, reversing and setting aside the Decision dated November 23, 2001 of Voluntary Arbitrator Rosalina Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled BPI Employees Union-Davao ChapterFederation of Unions in BPI Unibank v. Bank of the Philippine Islands, et al. The antecedent facts are as follows: On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger executed on January 20, 2000 by and [5] between BPI, herein petitioner, and FEBTC. This Article and Plan of Merger was approved by the Securities and Exchange [6] Commission on April 7, 2000. Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC employees, including those in its different branches across the country, were hired by petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained. Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank (hereinafter the Union, for brevity) is the exclusive bargaining agent of BPIs rank and file employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, or on March 31, 2000, respondent Union invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the existing [7] CBA between petitioner BPI and respondent Union. The parties both advert to certain provisions of the existing CBA, which are quoted below: ARTICLE I Section 1. Recognition and Bargaining Unit The BANK recognizes the UNION as the sole and exclusive collective bargaining representative of all the regular rank and file employees of the Bank offices in Davao City. Section 2. Exclusions Section 3. Additional Exclusions Section 4. Copy of Contract ARTICLE II
[2]

Section 1. Maintenance of Membership All employees within the bargaining unit who are members of the Union on the date of the effectivity of this Agreement as well as employees within the bargaining unit who subsequently join or become members of the Union during the lifetime of this Agreement shall as a condition of their continued employment with the Bank, maintain their membership in the Union in good standing. Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their [8] continued employment with the Bank. (Emphases supplied.)

After the meeting called by the Union, some of the former FEBTC employees joined the Union, while others refused. Later, [9] however, some of those who initially joined retracted their membership. Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as those who retracted their membership, and called them to a hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their [10] employment pursuant thereto. After two months of management inaction on the request, respondent Union informed petitioner BPI of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. However, the issue remained [11] unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties. Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision dated November 23, 2001, ruled in favor of petitioner BPIs interpretation that the former FEBTC employees were not covered by the Union Security Clause of the CBA between the Union and the Bank on the ground that the said employees were not new employees who were hired and subsequently regularized, but were absorbed employees by operation of law because the former employees of FEBTC can be considered assets and liabilities of the absorbed corporation. The Voluntary Arbitrator concluded that the former FEBTC employees could not be compelled to join the Union, as it was their constitutional right to join or not to join any organization. Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator denied the same in an Order dated March 25, [13] 2002. Dissatisfied, respondent then appealed the Voluntary Arbitrators decision to the Court of Appeals. In the herein assailed Decision [14] dated September 30, 2003, the Court of Appeals reversed and set aside the Decision of the Voluntary Arbitrator. Likewise, the Court of Appeals denied herein petitioners Motion for Reconsideration in a Resolution dated June 9, 2004. The Court of Appeals pertinently ruled in its Decision: A union-shop clause has been defined as a form of union security provision wherein non-members may be hired, but to retain employment must become union members after a certain period. There is no question as to the existence of the union-shop clause in the CBA between the petitioner-union and the company. The controversy lies in its application to the absorbed employees. This Court agrees with the voluntary arbitrator that the ABSORBED employees are distinct and different from NEW employees BUT only in so far as their employment service is concerned. The distinction ends there. In the case at bar, the absorbed employees length of service from its former employer is tacked with their employment with BPI. Otherwise stated, the absorbed employees service is continuous and there is no gap in their service record. This Court is persuaded that the similarities of new and absorbed employees far outweighs the distinction between them. The similarities lies on the following, to wit: (a) they have a new employer; (b) new working conditions; (c) new terms of employment and; (d) new company policy to follow. As such, they should be considered as new employees for purposes of applying the provisions of the CBA regarding the union-shop clause. To rule otherwise would definitely result to a very awkward and unfair situation wherein the absorbed employees shall be in a different if not, better situation than the existing BPI employees. The existing BPI employees by virtue of the union-shop clause are required to pay the monthly union dues, remain as members in good standing of the union otherwise, they shall be terminated from the company, and other union-related obligations. On the other hand, the absorbed employees shall enjoy the fruits of labor of the petitioner-union and its members for nothing in exchange. Certainly, this would disturb industrial peace in the company which is the paramount reason for the existence of the CBA and the union. The voluntary arbitrators interpretation of the provisions of the CBA concerning the coverage of the union-shop clause is at war with the spirit and the rationale why the Labor Code itself allows the existence of such provision. The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R. No. 76989, September 29, 1987) rule, to quote: This Court has held that a valid form of union security, and such a provision in a collective bargaining agreement is not a restriction of the right of freedom of association guaranteed by the Constitution.
[12]

A closed-shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs. It is THE MOST PRIZED ACHIEVEMENT OF UNIONISM. IT ADDS MEMBERSHIP AND COMPULSORY DUES. By holding out to loyal members a promise of employment in the closed-shop, it wields group solidarity. (Emphasis supplied) Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of industrial peace in the company. With the foregoing ruling from this Court, necessarily, the alternative prayer of the petitioner to require the individual respondents [15] to become members or if they refuse, for this Court to direct respondent BPI to dismiss them, follows.

Hence, petitioners present recourse, raising the following issues: I WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE FORMER FEBTC EMPLOYEES SHOULD BE CONSIDERED NEW EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION SHOP CLAUSE OF THE CBA II WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE VOLUNTARY ARBITRATORS INTERPRETATION OF THE COVERAGE OF THE UNION SHOP CLAUSE IS AT WAR WITH THE SPIRIT AND THE RATIONALE WHY THE LABOR CODE ITSELF [16] ALLOWS THE EXISTENCE OF SUCH PROVISION

In essence, the sole issue in this case is whether or not the former FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing CBA between petitioner and respondent Union. Petitioner is of the position that the former FEBTC employees are not new employees of BPI for purposes of applying the Union Shop Clause of the CBA, on this note, petitioner points to Section 2, Article II of the CBA, which provides: New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued [17] employment with the Bank. (Emphases supplied.)

Petitioner argues that the term new employees in the Union Shop Clause of the CBA is qualified by the phrases who may hereafter be regularly employed and after they become regular employees which led petitioner to conclude that the new employees referred to in, and contemplated by, the Union Shop Clause of the CBA were only those employees who were new to BPI, on account of having been hired initially on a temporary or probationary status for possible regular employment at some future date. BPI argues that the FEBTC employees absorbed by BPI cannot be considered as new employees of BPI for purposes of [18] applying the Union Shop Clause of the CBA. According to petitioner, the contrary interpretation made by the Court of Appeals of this particular CBA provision ignores, or even defies, what petitioner assumes as its clear meaning and scope which allegedly contradicts the Courts strict and restrictive enforcement of union security agreements. We do not agree. Section 2, Article II of the CBA is silent as to how one becomes a regular employee of the BPI for the first time. There is nothing in the said provision which requires that a new regular employee first undergo a temporary or probationary status before being deemed as such under the union shop clause of the CBA. Union security is a generic term which is applied to and comprehends closed shop, union shop, maintenance of membership or any other form of agreement which imposes upon employees the obligation to acquire or retain union membership as a condition affecting employment. There is union shop when all new regular employees are required to join the union within a certain period for their continued employment. There is maintenance of membership shop when employees, who are union members as of the effective date of the agreement, or who thereafter become members, must maintain union membership as a condition for continued employment until they are promoted or transferred out of the bargaining unit or the agreement is terminated. A closed-shop, on the other hand, may be defined as an enterprise in which, by agreement between the employer and his employees or their representatives, no person may be employed in any or certain agreed departments of the enterprise unless he or she is, becomes, and, for the duration of the agreement, remains a member in good standing of a union entirely comprised of [19] or of which the employees in interest are a part. In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,
[20]

we ruled that:

It is the policy of the State to promote unionism to enable the workers to negotiate with management on the same level and with more persuasiveness than if they were to individually and independently bargain for the improvement of their respective conditions. To this end, the Constitution guarantees to them the rights to self-organization, collective bargaining and negotiations and peaceful concerted actions including the right to strike in accordance with law. There is no question that these purposes could

be thwarted if every worker were to choose to go his own separate way instead of joining his co-employees in planning collective action and presenting a united front when they sit down to bargain with their employers. It is for this reason that the law has sanctioned stipulations for the union shop and the closed shop as a means of encouraging the workers to join and support the labor union of their own choice as their representative in the negotiation of their demands and the protection of their interest vis-vis the employer. (Emphasis ours.) In other words, the purpose of a union shop or other union security arrangement is to guarantee the continued existence of the union through enforced membership for the benefit of the workers. All employees in the bargaining unit covered by a Union Shop Clause in their CBA with management are subject to its terms. However, under law and jurisprudence, the following kinds of employees are exempted from its coverage, namely, employees who at the time the union shop agreement takes effect are bona fide members of a religious organization which [21] prohibits its members from joining labor unions on religious grounds; employees already in the service and already members of [22] a union other than the majority at the time the union shop agreement took effect; confidential employees who are excluded [23] from the rank and file bargaining unit; and employees excluded from the union shop by express terms of the agreement. When certain employees are obliged to join a particular union as a requisite for continued employment, as in the case of Union Security Clauses, this condition is a valid restriction of the freedom or right not to join any labor organization because it is in favor of unionism. This Court, on occasion, has even held that a union security clause in a CBA is not a restriction of the right of freedom of [24] association guaranteed by the Constitution. Moreover, a closed shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs. It is the most prized achievement of unionism. It adds membership and compulsory dues. By holding out to loyal members a promise of employment in the closed [25] shop, it wields group solidarity. Indeed, the situation of the former FEBTC employees in this case clearly does not fall within the first three exceptions to the application of the Union Shop Clause discussed earlier. No allegation or evidence of religious exemption or prior membership in another union or engagement as a confidential employee was presented by both parties. The sole category therefore in which petitioner may prove its claim is the fourth recognized exception or whether the former FEBTC employees are excluded by the express terms of the existing CBA between petitioner and respondent. To reiterate, petitioner insists that the term new employees, as the same is used in the Union Shop Clause of the CBA at issue, refers only to employees hired by BPI as non-regular employees who later qualify for regular employment and become regular employees, and not those who, as a legal consequence of a merger, are allegedly automatically deemed regular employees of BPI. However, the CBA does not make a distinction as to how a regular employee attains such a status. Moreover, there is nothing in the Corporation Law and the merger agreement mandating the automatic employment as regular employees by the surviving corporation in the merger. It is apparent that petitioner hinges its argument that the former FEBTC employees were absorbed by BPI merely as a legal consequence of a merger based on the characterization by the Voluntary Arbiter of these absorbed employees as included in the assets and liabilities of the dissolved corporation - assets because they help the Bank in its operation and liabilities because redundant employees may be terminated and company benefits will be paid to them, thus reducing the Banks financial status. Based on this ratiocination, she ruled that the same are not new employees of BPI as contemplated by the CBA at issue, noting that the Certificate of Filing of the Articles of Merger and Plan of Merger between FEBTC and BPI stated that x x x the entire assets and liabilities of FAR EASTERN BANK & TRUST COMPANY will be transferred to and absorbed by the BANK OF THE PHILIPPINE [26] ISLANDS x x x (underlining supplied). In sum, the Voluntary Arbiter upheld the reasoning of petitioner that the FEBTC employees became BPI employees by operation of law because they are included in the term assets and liabilities. Absorbed FEBTC Employees are Neither Assets nor Liabilities In legal parlance, however, human beings are never embraced in the term assets and liabilities. Moreover, BPIs absorption of former FEBTC employees was neither by operation of law nor by legal consequence of contract. There was no government regulation or law that compelled the merger of the two banks or the absorption of the employees of the dissolved corporation by the surviving corporation. Had there been such law or regulation, the absorption of employees of the non-surviving entities of the [27] merger would have been mandatory on the surviving corporation. In the present case, the merger was voluntarily entered into by both banks presumably for some mutually acceptable consideration. In fact, the Corporation Code does not also mandate the absorption of the employees of the non-surviving corporation by the surviving corporation in the case of a merger. Section 80 of the Corporation Code provides: SEC. 80. Effects of merger or consolidation. The merger or consolidation, as provided in the preceding sections shall have the following effects: 1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation; 2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code; 4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be taken and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed; and 5. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any claim, action or proceeding pending by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation, as the case may be. Neither the rights of creditors nor any lien upon the property of any of such constituent corporations shall be impaired by such merger or consolidated.

Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation. The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the parties. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage [28] them as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power.

Furthermore, this Court believes that it is contrary to public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to property rights and obligations of FEBTC and do not include the employment contracts of its personnel. A corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if BPI as an employer had the right to choose who to retain among FEBTCs employees, FEBTC employees had the concomitant right to choose not to be absorbed by BPI. Even though FEBTC employees had no choice or control over the merger of their employer with BPI, they had a choice whether or not they would allow themselves to be absorbed by BPI. Certainly nothing prevented the FEBTCs employees from resigning or retiring and seeking employment elsewhere instead of going along with the proposed absorption. Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without the consent of the employee is in violation of an individuals freedom to contract. It would have been a different matter if there was an express provision in the articles of merger that as a condition for the merger, BPI was being required to assume all the employment contracts of all existing FEBTC employees with the conformity of the employees. In the absence of such a provision in the articles of merger, then BPI clearly had the business management decision as to whether or not employ FEBTCs employees. FEBTC employees likewise retained the prerogative to allow themselves to be absorbed or not; otherwise, that would be tantamount to involuntary servitude. There appears to be no dispute that with respect to FEBTC employees that BPI chose not to employ or FEBTC employees who chose to retire or be separated from employment instead of being absorbed, BPIs assumed liability to these employees pursuant to the [29] [30] merger is FEBTCs liability to them in terms of separation pay, retirement pay or other benefits that may be due them depending on the circumstances. Legal Consequences of Mergers Although not binding on this Court, American jurisprudence on the consequences of voluntary mergers on the right to employment and seniority rights is persuasive and illuminating. We quote the following pertinent discussion from the American Law Reports: Several cases have involved the situation where as a result of mergers, consolidations, or shutdowns, one group of employees, who had accumulated seniority at one plant or for one employer, finds that their jobs have been discontinued except to the extent that they are offered employment at the place or by the employer where the work is to be carried on in the future. Such cases have involved the question whether such transferring employees should be entitled to carry with them their accumulated seniority or whether they are to be compelled to start over at the bottom of the seniority list in the "new" job. It has been recognized in some cases that the accumulated seniority does not survive and cannot be transferred to the "new" job. In Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three formerly separate railroad corporations, which had previously operated separate facilities, was consolidated in the shops of one of the roads. Displaced employees of the other two roads were given preference for the new jobs created in the shops of the railroad which took over the work. A controversy arose between the employees as to whether the displaced employees were entitled to carry with them to the new jobs the seniority rights they had accumulated with their prior employers, that is, whether the rosters of the three corporations, for seniority purposes, should be "dovetailed" or whether the transferring employees should go to the bottom of the roster of their new employer. Labor representatives of the various systems involved attempted to work out an agreement which, in effect, preserved the seniority status

obtained in the prior employment on other roads, and the action was for specific performance of this agreement against a demurring group of the original employees of the railroad which was operating the consolidated shops. The relief sought was denied, the court saying that, absent some specific contract provision otherwise, seniority rights were ordinarily limited to the employment in which they were earned, and concluding that the contract for which specific performance was sought was not such a completed and binding agreement as would support such equitable relief, since the railroad, whose concurrence in the arrangements made was essential to their effectuation, was not a party to the agreement. Where the provisions of a labor contract provided that in the event that a trucker absorbed the business of another private contractor or common carrier, or was a party to a merger of lines, the seniority of the employees absorbed or affected thereby should be determined by mutual agreement between the trucker and the unions involved, it was held in Moore v International Brotherhood of Teamsters, etc. (1962, Ky) 356 SW2d 241, that the trucker was not required to absorb the affected employees as well as the business, the court saying that they could find no such meaning in the above clause, stating that it dealt only with seniority, and not with initial employment. Unless and until the absorbing company agreed to take the employees of the company whose business was being absorbed, no seniority problem was created, said the court, hence the provision of the contract could have no application. Furthermore, said the court, it did not require that the absorbing company take these employees, but only that if it did take them the question of seniority between the old and new employees would be worked out by agreement or else be [31] submitted to the grievance procedure. (Emphasis ours.)

Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of the dissolved corporations employees or the recognition of the absorbed employees service with their previous employer may be demanded from the surviving corporation if required by provision of law or contract. The dissent of Justice Arturo D. Brion tries to make a distinction as to the terms and conditions of employment of the absorbed employees in the case of a corporate merger or consolidation which will, in effect, take away from corporate management the prerogative to make purely business decisions on the hiring of employees or will give it an excuse not to apply the CBA in force to the prejudice of its own employees and their recognized collective bargaining agent. In this regard, we disagree with Justice Brion. Justice Brion takes the position that because the surviving corporation continues the personality of the dissolved corporation and acquires all the latters rights and obligations, it is duty-bound to absorb the dissolved corporations employees, even in the absence of a stipulation in the plan of merger. He proposes that this interpretation would provide the necessary protection to labor as it spares workers from being left in legal limbo. However, there are instances where an employer can validly discontinue or terminate the employment of an employee without violating his right to security of tenure. Among others, in case of redundancy, for example, superfluous employees may be [32] terminated and such termination would be authorized under Article 283 of the Labor Code. Moreover, assuming for the sake of argument that there is an obligation to hire or absorb all employees of the non-surviving corporation, there is still no basis to conclude that the terms and conditions of employment under a valid collective bargaining agreement in force in the surviving corporation should not be made to apply to the absorbed employees. The Corporation Code and the Subject Merger Agreement are Silent on Efficacy, Terms and Conditions of Employment Contracts

The lack of a provision in the plan of merger regarding the transfer of employment contracts to the surviving corporation could have very well been deliberate on the part of the parties to the merger, in order to grant the surviving corporation the freedom to choose who among the dissolved corporations employees to retain, in accordance with the surviving corporations business needs. If terminations, for instance due to redundancy or labor-saving devices or to prevent losses, are done in good faith, they would be valid. The surviving corporation too is duty-bound to protect the rights of its own employees who may be affected by the merger in terms of seniority and other conditions of their employment due to the merger. Thus, we are not convinced that in the absence of a stipulation in the merger plan the surviving corporation was compelled, or may be judicially compelled, to absorb all employees under the same terms and conditions obtaining in the dissolved corporation as the surviving corporation should also take into consideration the state of its business and its obligations to its own employees, and to their certified collective bargaining agent or labor union. Even assuming we accept Justice Brions theory that in a merger situation the surviving corporation should be compelled to absorb the dissolved corporations employees as a legal consequence of the merger and as a social justice consideration, it bears to emphasize his dissent also recognizes that the employee may choose to end his employment at any time by voluntarily resigning. For the employee to be absorbed by BPI, it requires the employees implied or express consent. It is because of this human element in employment contracts and the personal, consensual nature thereof that we cannot agree that, in a merger situation, employment contracts are automatically transferable from one entity to another in the same manner that a contract pertaining to purely proprietary rights such as a promissory note or a deed of sale of property is perfectly and automatically transferable to the surviving corporation. That BPI is the same entity as FEBTC after the merger is but a legal fiction intended as a tool to adjudicate rights and obligations between and among the merged corporations and the persons that deal with them. Although in a merger it is as if there is no change in the personality of the employer, there is in reality a change in the situation of the employee. Once an FEBTC employee is absorbed, there are presumably changes in his condition of employment even if his previous tenure and salary rate is recognized by BPI. It is reasonable to assume that BPI would have different rules and regulations and company practices than FEBTC and it is incumbent upon the former FEBTC employees to obey these new rules and adapt to their new environment. Not the least of the changes in employment condition that the absorbed FEBTC employees must face is the fact that prior to the merger they

were employees of an unorganized establishment and after the merger they became employees of a unionized company that had an existing collective bargaining agreement with the certified union. This presupposes that the union who is party to the collective bargaining agreement is the certified union that has, in the appropriate certification election, been shown to represent a majority of the members of the bargaining unit. Likewise, with respect to FEBTC employees that BPI chose to employ and who also chose to be absorbed, then due to BPIs blanket assumption of liabilities and obligations under the articles of merger, BPI was bound to respect the years of service of these FEBTC employees and to pay the same, or commensurate salaries and other benefits that these employees previously enjoyed with FEBTC. As the Union likewise pointed out in its pleadings, there were benefits under the CBA that the former FEBTC employees did not enjoy with their previous employer. As BPI employees, they will enjoy all these CBA benefits upon their absorption. Thus, although in a sense BPI is continuing FEBTCs employment of these absorbed employees, BPIs employment of these absorbed employees was not under exactly the same terms and conditions as stated in the latters employment contracts with FEBTC. This further strengthens the view that BPI and the former FEBTC employees voluntarily contracted with each other for their employment in the surviving corporation. Proper Appreciation of the Term New Employees Under the CBA In any event, it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their former employer upon their absorption by petitioner. This fact would not remove them from the scope of the phrase new employees as contemplated in the Union Shop Clause of the CBA, contrary to petitioners insistence that the term new employees only refers to those who are initially hired as non-regular employees for possible regular employment. The Union Shop Clause in the CBA simply states that new employees who during the effectivity of the CBA may be regularly employed by the Bank must join the union within thirty (30) days from their regularization. There is nothing in the said clause that limits its application to only new employees who possess non-regular status, meaning probationary status, at the start of their employment. Petitioner likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are absorbed as regular employees from the beginning of their employment. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioners new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment. The dissenting opinion of Justice Brion dovetails with Justice Carpios view only in their restrictive interpretation of who are new employees under the CBA. To our dissenting colleagues, the phrase new employees (who are covered by the union shop clause) should only include new employees who were hired as probationary during the life of the CBA and were later granted regular status. They propose that the former FEBTC employees who were deemed regular employees from the beginning of their employment with BPI should be treated as a special class of employees and be excluded from the union shop clause. Justice Brion himself points out that there is no clear, categorical definition of new employee in the CBA. In other words, the term new employee as used in the union shop clause is used broadly without any qualification or distinction. However, the Court should not uphold an interpretation of the term new employee based on the general and extraneous provisions of the Corporation Code on merger that would defeat, rather than fulfill, the purpose of the union shop clause. To reiterate, the provision of the Article 248(e) of the Labor Code in point mandates that nothing in the said Code or any other law should stop the parties from requiring membership in a recognized collective bargaining agent as a condition of employment. Significantly, petitioner BPI never stretches its arguments so far as to state that the absorbed employees should be deemed old employees who are not covered by the Union Shop Clause. This is not surprising. By law and jurisprudence, a merger only becomes effective upon approval by the Securities and Exchange Commission (SEC) of the [33] articles of merger. In Associated Bank v. Court of Appeals, we held: The procedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. (Emphasis ours.)

In other words, even though BPI steps into the shoes of FEBTC as the surviving corporation, BPI does so at a particular point in time, i.e., the effectivity of the merger upon the SECs issuance of a certificate of merger. In fact, the articles of merger themselves provided that both BPI and FEBTC will continue their respective business operations until the SEC issues the certificate of merger and in the event SEC does not issue such a certificate, they agree to hold each other blameless for the non-consummation of the merger. Considering the foregoing principle, BPI could have only become the employer of the FEBTC employees it absorbed after the approval by the SEC of the merger. If the SEC did not approve the merger, BPI would not be in the position to absorb the employees of FEBTC at all. Indeed, there is evidence on record that BPI made the assignments of its absorbed employees in BPI effective April [34] 10, 2000, or after the SECs approval of the merger. In other words, BPI became the employer of the absorbed employees only at some point after the effectivity of the merger, notwithstanding the fact that the absorbed employees years of service with FEBTC were voluntarily recognized by BPI.

Even assuming for the sake of argument that we consider the absorbed FEBTC employees as old employees of BPI who are not members of any union (i.e., it is their date of hiring by FEBTC and not the date of their absorption that is considered), this does not necessarily exclude them from the union security clause in the CBA. The CBA subject of this case was effective from April 1, 1996 until March 31, 2001. Based on the allegations of the former FEBTC employees themselves, there were former FEBTC employees who were hired by FEBTC after April 1, 1996 and if their date of hiring by FEBTC is considered as their date of hiring by BPI, they would undeniably be considered new employees of BPI within the contemplation of the Union Shop Clause of the said CBA. Otherwise, it would lead to the absurd situation that we would discriminate not only between new BPI employees (hired during the life of the CBA) and former FEBTC employees (absorbed during the life of the CBA) but also among the former FEBTC employees themselves. In other words, we would be treating employees who are exactly similarly situated (i.e.,the group of absorbed FEBTC employees) differently. This hardly satisfies the demands of equality and justice. Petitioner limited itself to the argument that its absorbed employees do not fall within the term new employees contemplated under the Union Shop Clause with the apparent objective of excluding all, and not just some, of the former FEBTC employees from the application of the Union Shop Clause. However, in law or even under the express terms of the CBA, there is no special class of employees called absorbed employees. In order for the Court to apply or not apply the Union Shop Clause, we can only classify the former FEBTC employees as either old or new. If they are not old employees, they are necessarily new employees. If they are new employees, the Union Shop Clause did not distinguish between new employees who are non-regular at their hiring but who subsequently become regular and new employees who are absorbed as regular and permanent from the beginning of their employment. The Union Shop Clause did not so distinguish, and so neither must we. No Substantial Distinction Under the CBA Between Regular Employees Hired After Probationary Status and Regular Employees Hired After the Merger

Verily, we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a merger, for purposes of applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At the time they are being required to join the Union, they are both already regular rank and file employees of BPI. They belong to the same bargaining unit being represented by the Union. They both enjoy benefits that the Union was able to secure for them under the CBA. When they both entered the employ of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their preference for unionism or not. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new employees, for they are undeniably similarly situated. The effect or consequence of BPIs so-called absorption of former FEBTC employees should be limited to what they actually agreed to, i.e. recognition of the FEBTC employees years of service, salary rate and other benefits with their previous employer. The effect should not be stretched so far as to exempt former FEBTC employees from the existing CBA terms, company policies and rules which apply to employees similarly situated. If the Union Shop Clause is valid as to other new regular BPI employees, there is no reason why the same clause would be a violation of the absorbed employees freedom of association. Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and Inimical to Industrial Peace

It is but fair that similarly situated employees who enjoy the same privileges of a CBA should be likewise subject to the same obligations the CBA imposes upon them. A contrary interpretation of the Union Shop Clause will be inimical to industrial peace and workers solidarity. This unfavorable situation will not be sufficiently addressed by asking the former FEBTC employees to simply pay agency fees to the Union in lieu of union membership, as the dissent of Justice Carpio suggests. The fact remains that other new regular employees, to whom the absorbed employees should be compared, do not have the option to simply pay the agency fees and they must join the Union or face termination. Petitioners restrictive reading of the Union Shop Clause could also inadvertently open an avenue, which an employer could readily use, in order to dilute the membership base of the certified union in the collective bargaining unit (CBU). By entering into a voluntary merger with a non-unionized company that employs more workers, an employer could get rid of its existing union by the simple expedient of arguing that the absorbed employees are not new employees, as are commonly understood to be covered by a CBAs union security clause. This could then lead to a new majority within the CBU that could potentially threaten the majority status of the existing union and, ultimately, spell its demise as the CBUs bargaining representative. Such a dreaded but not entirely far-fetched scenario is no different from the ingenious and creative union-busting schemes that corporations have fomented throughout the years, which this Court has foiled time and again in order to preserve and protect the valued place of labor in this jurisdiction consistent with the Constitutions mandate of insuring social justice. There is nothing in the Labor Code and other applicable laws or the CBA provision at issue that requires that a new employee has to be of probationary or non-regular status at the beginning of the employment relationship. An employer may confer upon a new employee the status of regular employment even at the onset of his engagement. Moreover, no law prohibits an employer from voluntarily recognizing the length of service of a new employee with a previous employer in relation to computation of benefits or seniority but it should not unduly be interpreted to exclude them from the coverage of the CBA which is a binding contractual obligation of the employer and employees.

Indeed, a union security clause in a CBA should be interpreted to give meaning and effect to its purpose, which is to afford protection to the certified bargaining agent and ensure that the employer is dealing with a union that represents the interests of the legally mandated percentage of the members of the bargaining unit. The union shop clause offers protection to the certified bargaining agent by ensuring that future regular employees who (a) enter the employ of the company during the life of the CBA; (b) are deemed part of the collective bargaining unit; and (c) whose number will affect the number of members of the collective bargaining unit will be compelled to join the union. Such compulsion has legal effect, precisely because the employer by voluntarily entering in to a union shop clause in a CBA with the certified bargaining agent takes on the responsibility of dismissing the new regular employee who does not join the union. Without the union shop clause or with the restrictive interpretation thereof as proposed in the dissenting opinions, the company can jeopardize the majority status of the certified union by excluding from union membership all new regular employees whom the Company will absorb in future mergers and all new regular employees whom the Company hires as regular from the beginning of their employment without undergoing a probationary period. In this manner, the Company can increase the number of members of the collective bargaining unit and if this increase is not accompanied by a corresponding increase in union membership, the certified union may lose its majority status and render it vulnerable to attack by another union who wishes to represent the [35] same bargaining unit. Or worse, a certified union whose membership falls below twenty percent (20%) of the total members of the collective bargaining unit may lose its status as a legitimate labor organization altogether, even in a situation where there is no competing [36] union. In such a case, an interested party may file for the cancellation of the unions certificate of registration with the Bureau of [37] Labor Relations. Plainly, the restrictive interpretation of the union shop clause would place the certified unions very existence at the mercy and control of the employer. Relevantly, only BPI, the employer appears to be interested in pursuing this case. The former FEBTC employees have not joined BPI in this appeal. For the foregoing reasons, Justice Carpios proposal to simply require the former FEBTC to pay agency fees is wholly inadequate to compensate the certified union for the loss of additional membership supposedly guaranteed by compliance with the union shop clause. This is apart from the fact that treating these absorbed employees as a special class of new employees does not encourage worker solidarity in the company since another class of new employees (i.e. those whose were hired as probationary and later regularized during the life of the CBA) would not have the option of substituting union membership with payment of agency fees. Justice Brion, on the other hand, appears to recognize the inherent unfairness of perpetually excluding the absorbed employees from the ambit of the union shop clause. He proposes that this matter be left to negotiation by the parties in the next CBA. To our mind, however, this proposal does not sufficiently address the issue. With BPI already taking the position that employees absorbed pursuant to its voluntary mergers with other banks are exempt from the union shop clause, the chances of the said bank ever agreeing to the inclusion of such employees in a future CBA is next to nil more so, if BPIs narrow interpretation of the union shop clause is sustained by this Court. Right of an Employee not to Join a Union is not Absolute and Must Give Way to the Collective Good of All Members of the Bargaining Unit The dissenting opinions place a premium on the fact that even if the former FEBTC employees are not old employees, they nonetheless were employed as regular and permanent employees without a gap in their service. However, an employees permanent and regular employment status in itself does not necessarily exempt him from the coverage of a union shop clause. In the past this Court has upheld even the more stringent type of union security clause, i.e., the closed shop provision, and held that it can be made applicable to old employees who are already regular and permanent but have chosen not to join a [38] union. In the early case of Juat v. Court of Industrial Relations, the Court held that an old employee who had no union may be compelled to join the union even if the collective bargaining agreement (CBA) imposing the closed shop provision was only entered into seven years after of the hiring of the said employee. To quote from that decision: A closed-shop agreement has been considered as one form of union security whereby only union members can be hired and workers must remain union members as a condition of continued employment. The requirement for employees or workers to become members of a union as a condition for employment redounds to the benefit and advantage of said employees because by holding out to loyal members a promise of employment in the closed-shop the union wields group solidarity. In fact, it is said that "the closed-shop contract is the most prized achievement of unionism." xxxx This Court had categorically held in the case of Freeman Shirt Manufacturing Co., Inc., et al. vs. Court of Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961, that the closed-shop proviso of a collective bargaining agreement entered into between an employer and a dulyauthorized labor union is applicable not only to the employees or laborers that are employed after the collective bargaining agreement had been entered into but also to old employees who are not members of any labor union at the time the said collective bargaining agreement was entered into. In other words, if an employee or laborer is already a member of a labor union different from the union that entered into a collective bargaining agreement with the employer providing for a closedshop, said employee or worker cannot be obliged to become a member of that union which had entered into a collective bargaining agreement with the employer as a condition for his continued employment. (Emphasis and underscoring supplied.)

Although the present case does not involve a closed shop provision that included even old employees, the Juat example is but one of the cases that laid down the doctrine that the right not to join a union is not absolute. Theoretically, there is nothing in law or jurisprudence to prevent an employer and a union from stipulating that existing employees (who already attained regular and permanent status but who are not members of any union) are to be included in the coverage of a union security clause. Even Article 248(e) of the Labor Code only expressly exempts old employees who already have a union from inclusion in a union security [39] clause. Contrary to the assertion in the dissent of Justice Carpio, Juat has not been overturned by Victoriano v. Elizalde Rope Workers [40] [41] Union nor by Reyes v. Trajano. The factual milieus of these three cases are vastly different. In Victoriano, the issue that confronted the Court was whether or not employees who were members of the Iglesia ni Kristo (INK) sect could be compelled to join the union under a closed shop provision, despite the fact that their religious beliefs prohibited them from joining a union. In that case, the Court was asked to balance the constitutional right to religious freedom against a host of other constitutional provisions including the freedom of association, the non-establishment clause, the non-impairment of contracts clause, the equal protection clause, and the social justice provision. In the end, the Court held that religious freedom, [42] although not unlimited, is a fundamental personal right and liberty, and has a preferred position in the hierarchy of values. However, Victoriano is consistent with Juat since they both affirm that the right to refrain from joining a union is not absolute. The relevant portion of Victoriano is quoted below: The right to refrain from joining labor organizations recognized by Section 3 of the Industrial Peace Act is, however, limited. The legal protection granted to such right to refrain from joining is withdrawn by operation of law, where a labor union and an employer have agreed on a closed shop, by virtue of which the employer may employ only member of the collective bargaining union, and the employees must continue to be members of the union for the duration of the contract in order to keep their jobs. Thus Section 4 (a) (4) of the Industrial Peace Act, before its amendment by Republic Act No. 3350, provides that although it would be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization" the employer is, however, not precluded "from making an agreement with a labor organization to require as a condition of employment membership therein, if such labor organization is the representative of the employees." By virtue, therefore, of a closed shop agreement, before the enactment of Republic Act No. 3350, if any person, regardless of his religious beliefs, wishes to be employed or to keep his employment, he must become a member of the collective bargaining union. Hence, the right of said employee not to join the labor [43] union is curtailed and withdrawn. (Emphases supplied.)

If Juat exemplified an exception to the rule that a person has the right not to join a union, Victoriano merely created an exception to the exception on the ground of religious freedom. Reyes, on the other hand, did not involve the interpretation of any union security clause. In that case, there was no certified bargaining agent yet since the controversy arose during a certification election. In Reyes, the Court highlighted the idea that the freedom of association included the right not to associate or join a union in resolving the issue whether or not the votes of members of the INK sect who were part of the bargaining unit could be excluded in the results of a certification election, simply because they were not members of the two contesting unions and were expected to have voted for NO UNION in view of their religious affiliation. The Court upheld the inclusion of the votes of the INK members since in the previous case of Victoriano we held that INK members may not be compelled to join a union on the ground of religious freedom and even without Victoriano every employee has the right to vote no union in a certification election as part of his freedom of association. However, Reyes is not authority for Justice Carpios proposition that an employee who is not a member of any union may claim an exemption from an existing union security clause because he already has regular and permanent status but simply prefers not to join a union. The other cases cited in Justice Carpios dissent on this point are likewise inapplicable. Basa v. Federacion Obrera de la [44] [45] Industria Tabaquera y Otros Trabajadores de Filipinas, Anucension v. National Labor Union, and Gonzales v. Central Azucarera [46] de Tarlac Labor Union all involved members of the INK. In line with Victoriano, these cases upheld the INK members claimed exemption from the union security clause on religious grounds. In the present case, the former FEBTC employees never claimed any religious grounds for their exemption from the Union Shop Clause. As for Philips Industrial Development, Inc. v. National Labor [47] [48] Relations Corporation and Knitjoy Manufacturing, Inc. v. Ferrer-Calleja, the employees who were exempted from joining the respondent union or who were excluded from participating in the certification election were found to be not members of the bargaining unit represented by respondent union and were free to form/join their own union. In the case at bar, it is undisputed that the former FEBTC employees were part of the bargaining unit that the Union represented. Thus, the rulings in Philips and Knitjoy have no relevance to the issues at hand. Time and again, this Court has ruled that the individual employees right not to join a union may be validly restricted by a union [49] security clause in a CBA and such union security clause is not a violation of the employees constitutional right to freedom of [50] association. It is unsurprising that significant provisions on labor protection of the 1987 Constitution are found in Article XIII on Social [51] [52] Justice. The constitutional guarantee given the right to form unions and the State policy to promote unionism have social justice considerations. In Peoples Industrial and Commercial Employees and Workers Organization v. Peoples Industrial and [53] Commercial Corporation, we recognized that *l+abor, being the weaker in economic power and resources than capital, deserve protection that is actually substantial and material.

The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the individual employees right or freedom of association, is not to protect the union for the unions sake. Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. This is the rationale behind the State policy to promote unionism declared in the [54] Constitution, which was elucidated in the above-cited case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc. In the case at bar, since the former FEBTC employees are deemed covered by the Union Shop Clause, they are required to join the certified bargaining agent, which supposedly has gathered the support of the majority of workers within the bargaining unit in the appropriate certification proceeding. Their joining the certified union would, in fact, be in the best interests of the former FEBTC employees for it unites their interests with the majority of employees in the bargaining unit. It encourages employee solidarity and affords sufficient protection to the majority status of the union during the life of the CBA which are the precisely the objectives of union security clauses, such as the Union Shop Clause involved herein. We are indeed not being called to balance the interests of individual employees as against the State policy of promoting unionism, since the employees, who were parties in the court below, no longer contested the adverse Court of Appeals decision. Nonetheless, settled jurisprudence has already swung the balance in favor of unionism, in recognition that ultimately the individual employee will be benefited by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice.

Also in the dissenting opinion of Justice Carpio, he maintains that one of the dire consequences to the former FEBTC employees who refuse to join the union is the forfeiture of their retirement benefits. This is clearly not the case precisely because BPI expressly recognized under the merger the length of service of the absorbed employees with FEBTC. Should some refuse to become members of the union, they may still opt to retire if they are qualified under the law, the applicable retirement plan, or the CBA, based on their combined length of service with FEBTC and BPI. Certainly, there is nothing in the union shop clause that should be read as to curtail an employees eligibility to apply for retirement if qualified under the law, the existing retirement plan, or the CBA as the case may be. In sum, this Court finds it reasonable and just to conclude that the Union Shop Clause of the CBA covers the former FEBTC employees who were hired/employed by BPI during the effectivity of the CBA in a manner which petitioner describes as absorption. A contrary appreciation of the facts of this case would, undoubtedly, lead to an inequitable and very volatile labor situation which this Court has consistently ruled against. In the case of former FEBTC employees who initially joined the union but later withdrew their membership, there is even greater reason for the union to request their dismissal from the employer since the CBA also contained a Maintenance of Membership Clause. A final point in relation to procedural due process, the Court is not unmindful that the former FEBTC employees refusal to join the union and BPIs refusal to enforce the Union Shop Clause in this instance may have been based on the honest belief that the former FEBTC employees were not covered by said clause. In the interest of fairness, we believe the former FEBTC employees should be given a fresh thirty (30) days from notice of finality of this decision to join the union before the union demands BPI to terminate their employment under the Union Shop Clause, assuming said clause has been carried over in the present CBA and there has been no material change in the situation of the parties. WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of Appeals isAFFIRMED, subject to the thirty (30) day notice requirement imposed herein. Former FEBTC employees who opt not to become union members but who qualify for retirement shall receive their retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may be.

ENRIQUE P. BRIAS Y ROXAS, petitioner, vs. JOHN S. HORD, ET AL., respondents. Haussermann, Cohn and Fisher, for petitioner. W.A. Kincaid and Thomas L. Hartigan, for respondents. PER CURIAM: The present is an original action in this court for the writ of mandamus. The questions presented are best shown by the pleadings, pro and con, presented by the respective parties. The complaint alleges: I. That petitioner and respondents are now and at all times hereinafter mentioned have been residents of the city of Manila, Philippine Islands. II. That the respondent, John S. Hord, is now and at all of the times hereinafter mentioned has been the duly elected, qualified, and acting president of the Bank of the Philippine Islands, a banking corporation duly organized and existing under and by virtue of the laws of the Philippine Islands, and that the remaining respondents above named are, and have been, duly elected, qualified, and acting members of the board of directors of said corporation. III. That heretofore, to wit, on the 13th day of February, 1912, at a regular meeting of the shareholders of the said Bank of the Philippine Islands, your petitioner was duly elected as a member of the board of directors of said corporation, and ever since said date your petitioner, having been and being duly qualified for said office, has been, and now is, in the continued possession and exercise of the same and has duly acted as a member of said board of directors save and except as hereinafter set forth. IV. That thereafter, to wit, on or about the 19th day of February, 1912, at a regular meeting of the board of directors of the said Bank of the Philippine Islands, your petitioner was duly elected and appointed as a member of the committee of credits of said board of directors. V. That the powers, duties, and functions of the board of directors of said corporation are fixed and defined by the by-laws thereof, and are as follows: 1. To inspect the issuance and transfer of certificates of stock and to establish regulations therefor; 2. To determine from time to time the number and amount of currency bills which shall be issued and placed in circulation in accordance with the provisions of Act No. 1170; 3. To fix the rate of interest for loans and discounts; 4. To form confidential lists of firms and companies to whom they consider that discounts can be granted, fixing the amount of credit granted to each one; 5. To appoint agents and correspondents and designate the places where they should be established; 6. To authorize the establishment of branch banks at the places which suit the public convenience and the bank in accordance with Article IV of the statutes; 7. To ratify, if found necessary, the transactions between the bank and the Government and the other current transactions; 8. To watch the strict fulfillment in all of the offices of the bank of the by-laws, regulations, orders, and resolutions in force; 9. To examine and to take into consideration at each regular meeting the transactions of the employees of the bank and the operations thereof; 10. To elect the secretary and the cashier of the bank; 11. To appoint, at the suggestion of the managers of the bank, the bookkeepers and subordinate employees of the bank and its branches; 12. To discharge or suspend the employees of the bank, with or without the recommendation of the managers; 13. To prepare the annual report relative to the transactions of the bank, which should be read at the general shareholder's meeting;

14. To examine and revise the accounts presented by the managers and approve the general balance; 15. To declare, semiannually, in accordance with said balance and the condition of the voluntary reserve fund, the dividend to be distributed to the shareholders; 16. To examine and to consider the proposals made by the shareholders at the general meeting for the welfare of the bank, and to present them with its report at the succeeding general meeting; 17. To make at said general meeting, upon its own initiative, all of the proposals deemed necessary for the welfare of the bank. VI. That heretofore, to wit, on or about the 15th day of August, 1912, your petitioner, acting as a member of the board of directors of said corporation and of the committee of credits thereof, made application to the respondent John S. Hord, as president of said corporation, for authority and opportunity to examine and inspect the books of account of said corporation then and there in the possession and under the immediate control of said respondent, John S. Hord. That thereupon the said authority and opportunity were refused and denied to your petitioner by said respondent, and, although repeatedly requested so to do, the said respondent and the remaining respondents hereinabove named failed, omitted, and refused, at all times since said last-named date, to permit your petitioner to examine or inspect the books of account of said corporation or any part thereof. VII. That heretofore, to wit, on or about the 24th day of October, 1912, the respondents hereinabove named wrongfully and illegally pretending a resignation on the part of your petitioner from the offices hereinabove mentioned and referred to, and wrongfully and illegally conspiring to remove your petitioner therefrom, have declared the said offices so possessed and exercised by your petitioner to be vacant by reason of said pretended resignation and wrongfully and illegally have excluded, and are excluding, your petitioner from the exercise and enjoyment of any and all of the functions, powers, and attributes of said offices and have deprived and are depriving your petitioner of the means of performing the duties thereof. VIII. That heretofore, to wit, on the 24th day of October, 1912, and at various other times which your petitioner is unable to specify, the above-named respondents, without notice of any kind unto your petitioner, and without the knowledge of the latter, who had theretofore made specific application in writing for notice of the time and place of said intended meeting, assembled in meeting and wrongfully and illegally terming and styling said meeting "a regular meeting of the board of directors" of the said corporation, the above-named respondents proceeded to perform the functions and discharge the duties of the board of directors of said corporation in regular meeting assembled, and to cause the minutes of said proceedings of respondents so assembled as aforesaid to be entered upon the minutes of the proceedings of the board of directors of said corporation in regular meeting assembled. IX. That your petitioner has no other plain, speedy, and adequate remedy in the ordinary course of law. Wherefore, your petitioner respectfully prays judgment granting a peremptory order against the respondents, and each of them, commanding said respondents, immediately after the receipt, of such order: (1) To offer, extend and afford unto your petitioner, at any and all reasonable times during the usual business hours of said corporation, the means, opportunity, and facilities for examining and inspecting, fully and freely, the books of account, documents, and papers of said Bank of the Philippine Islands; (2) To fully and freely admit your petitioner into the use, exercise, and enjoyment of the offices of director of the said corporation, and member of the committee of credits of the board of directors thereof; (3) To cancel, annul, and strike from the minutes of the board of directors of said corporation all proceedings had by said respondents on the 24th day of October, 1912, as alleged proceedings of the board of directors of said corporation, and all proceedings so had by said respondents at any and all other times; and (4) To do and perform all other acts which this honorable court may deem necessary to be done in order to fully protect the rights of your petitioner. And petitioner further prays that respondents be condemned to pay unto petitioner his costs of suit, and for such other and further relief as may be just and equitable in the premises. The foregoing complaint was duly sworn to by the petitioner. All of the respondents, except Mariano Lim Jap, presented the following answer: Now come all the defendants in the foregoing case, except Mariano Lim Jap, and in answer to the plaintiff's petition represent to the court: 1. They admit the facts alleged in Paragraph I.

2. They admit the facts alleged in Paragraph II. 3. They admit that the plaintiff was elected, as is alleged in Paragraph III of the petition, but that later he resigned from his position, as hereinafter appears, ceasing to belong to the board of directors of said bank. 4. They admit that the plaintiff was appointed, not elected, by the president of said bank a member of the committee of credits. 5. They admit the facts set forth in Paragraph V. 6. They deny the facts alleged in Paragraph VI, for these are not true. 7. They deny the facts set forth in Paragraph VII and state that on the occasion referred to the plaintiff resigned and finally separated himself from his position as member of the board of directors of said bank. 8. They deny the facts set forth in Paragraph VIII, in so far as they are relevant, and state that after the plaintiff's separation from his office as member of the board of directors the members thereof continued to hold ordinary sessions and, as their duty was, to transact the business of said bank devolving upon said board in the usual and customary manner. The respondent, Mariano Lim Jap, answered as follows: Now comes the defendant Mariano Lim Jap, in the foregoing case, and in answer to the plaintiff's petition represents to the court: 1. He admits the facts alleged in Paragraph I. 2. He admits the facts alleged in Paragraph II. 3. He admits that the plaintiff was elected, as is alleged in Paragraph II of the petition, but that later he resigned from his position, as hereinafter appears, ceasing to belong to the board of directors of said bank. 4. He admits that the plaintiff was appointed, not elected, by the president of said bank a member of the committee of credits. 5. He admits the facts alleged in Paragraph V. 6. With reference to the other allegations of the petition, the defendant was absent when the events set forth in said allegations occurred. 7. That he subscribes to the allegations contained in Paragraphs VII and VIII of the answer of his codefendants, for he believes them to be true according to trustworthy reports he possesses. Upon the issues thus formed, proof was presented by both parties. From a reading of the evidence adduced, it is made clear that the question presented is whether or not the petitioner resigned as a member of the board of directors of the respondent bank on the 26th of September, 1912. If the petitioner did, in fact, resign as a member of said board, then the respondents had a right to deny to him the rights and privileges which he demanded. If, on the other hand, he did not resign, then the respondents have illegally denied and deprived him of the rights and privileges to which he was legally entitled as a member of said board, and he has, therefore, a right to the extraordinary remedy of mandamus to be restored to his legal rights as a member of said board. The petitioner obtained his right to act as a member of the board of directors of said bank from the stockholders thereof, at their annual meeting. There is nothing in the record which would justify said board of directors in depriving the petitioner of the rights and privileges belonging or pertaining to the membership of such board, unless and until he should have voluntarily relinquished such rights and privileges, or until his tenure of office should have expired. We have then the question squarely presented Did the petitioner resign as is claimed by the respondent? Did the petitioner voluntarily surrender the rights conferred upon him by the stockholders? It is not disputed that a resignation per verba is just as effective and binding as a resignation per scripta. It is claimed by the respondents that the petitioner did, on the 26th of September, 1912, resign, voluntarily, unequivocally, and absolutely, as a member of said board of directors. Proof upon that question was offered pro and con. It becomes necessary, therefore, to examine the proof upon that question. It may be observed that the proof can not be read without creating the impression that there existed among certain members of the board at said meeting more or less feeling towards the petitioner on account of the fact that he was insisting upon making an investigation into certain credits of the bank. It appears that at the meeting of the board of the 26th of September, 1912, a renewal of the discussion relating to such credits took place and that personal feeling ran high. Certain members of the board did not hesitate to make remarks which seemed to reflect upon the personal honor of others. It was at this time and under these conditions,

when some members of the board were apparently much excited, when it is alleged that the respondent unequivocally resigned his position. It appears from the record that the minutes of the proceedings of the meeting of the 26th of September, 1912, such as were kept by the secretary, were destroyed; that two or three meetings of the board or of certain members of the board were held afterwards, for the purpose of preparing other minutes of said meeting, and that the minutes of said meeting were finally prepared nearly a month (Oct. 24, 1912) after the facts which they relate actually took place. At none of these subsequent meetings at which said minutes were prepared was the petitioner present, and, so far as the record shows, he had no notice thereof. The minutes thus prepared were presented as proof at the hearing of the cause, for the purpose of showing that the petitioner had resigned. The minutes of the transactions of a board such as the present, prepared by its secretary or some person named or appointed for the purpose of keeping a record of the proceedings, are generally accepted, once approved by the board, as prima facie evidence of what actually took place during that meeting. This is true upon the theory that the secretary is, for the time being, the hand of the board. In the present case the minutes were not prepared by the secretary. His minutes had been destroyed. The minutes presented in evidence were prepared by the board itself, or by certain members of the same, and then, too, in the absence of the petitioner. It is also a fact that said minutes were prepared after the president of the board had received a letter from the petitioner, dated September 28, 1912, two days after the alleged resignation was made, in which he (the petitioner) expressly indicated that he did not intend to resign from his position as a member of such board. At the meeting of the said board of directors on the 26th of September, 1912, according to the minutes, there were fourteen members present. At that meeting, the petitioner, during a heated discussion between himself and other members, arose and left the room, giving certain reasons for his action. The respondents claim that at that time the petitioner resigned as a member. The petitioner says that he did not resign. If the petitioner did resign at that time and it was so understood by the members of the board, it would seem that the members would be able to agree upon the words used by the petitioner in so resigning. We will examine the proof, for the purpose of ascertaining whether or not a preponderance of the same shows that the petitioner did, in fact, resign at the time he left the said meeting, or whether or not he simply withdrew from said meeting in disgust. No rule or requirement has been called to our attention making it necessary for him to remain at any meeting of the board longer than his own pleasure might dictate. With reference to what actually took place at the meeting of the board in question, the minutes ought to give us some light. Referring to the minutes (Exhibit 1), we find that the minutes record the following. The minutes say that the petitioner "Mr. Brias then arose from his seat and in a violent tone and a rather disconcerted attitude addressed the board, saying that he could not decently continue to belong to a corporation whose president denied him the quality of honesty and one of whose members styled him an obstructionist; and that therefore he withdrew from it and ceased to attend its meetings." In this quotation from the minutes, it will appear that an attempt was made to quote exactly what the petitioner said at the time he left the meeting of the board. It would be difficult, if that statement was all the information to resign as a member of said board. Accepting the minutes as a true statement of what occurred, they simply show that the petitioner "could not continue to belong to a corporation" etc., "and therefore he withdrew from it and ceased to attend its meetings." It will be noted that no words are here attributed to the petitioner which indicate that he then and there absolutely and unequivocally resigned. The most that can be said is that he "ceased to attend its meetings." No words are attributed to him, even by said minutes, which show conclusively that the petitioner did then and there resign. From an examination of the proof adduced during the trial of the cause, we find that the members of the board of directors who declared as witnesses do not agree exactly with said minutes as to just what was said and done by the petitioner at the time he arose and left the meeting on the 26th of September, 1912. Referring to the declarations of the witnesses, we find that the petitioner gives the following explanation of what took place at said meeting, with reference to the question here presented, which in many important ways differ from the facts as recorded in the minutes: Q. A. Q. A. Q. Did you attend the meeting of September 26? Yes, sir; and it was there that the report of the committee was read. Did you remain in the meeting of the board until its conclusion that day? Until its conclusion, no. State briefly your reason for not remaining there until its conclusion.

A. Because in discussing the matter of the P20,000 that he had been paid to Mr. Javella I asked the president, up to the point of obtaining from him a confession that in fact the P20,000 had been paid to Mr. Javellana for warehouse expenses, adding that it was an injustice that had been done that gentleman. Then I made plain that my objection to approving his action with regard to the sugar when report was made thereof after the close of the meeting of August 15 was, therefore, well founded, for the directors approved it over my objection, and as Mr. Moreta had just said that I was an obstructionist, I wished to demonstrate that I was aware of cause for objecting; and I said that I knew that Mr. Javellana had been paid

P20,000 so that he would desist from suing the bank for the illegal sale of his sugar. I had a letter that Mr. Javellana had addressed to the firm of Brias Hermanos, a commercial letter, thanking it for the sale of its shares in the bank and giving his opinion of the sale, and saying that the treatment had he had received from the bank had been bad, for he had lost over P100,000 and that the P20,000 were secured by a deal, it thus being that after he had been a patron of the bank for fifteen years it had treated him in such a bad way; discussing heatedly the matter of Mr. Javellana, the president, through spite or whatever it was, insulted me; he told me that he had previously proffered other insulting remarks to me, that he prided himself on his frankness and that I was not at all frank and that there are men who pass for being honest who are not so and that I was one of them. Indignant, and not knowing what to do, I thought the most prudent thing was to take the door instead of a chair or some other object, and I said that I was withdrawing from the meeting because I could not submit to being insulted. I withdrew, the president called to me and said: "I understand that you are tendering your resignation." And I replied: "I shall tender my resignation." Then I left, but first I called the secretary's attention to the fact that I wished it recorded in the minutes that my withdrawal from that meeting was due to the fact that Mr. Moreta had said that I was an obstructionist, and that the president had addressed a discourteous remark to me, that is, that I am not an honest man, and that I could not remain in a meeting where I was insulted. Referring to the declaration of Mr. Hord, president of the board, we find that he, among other things, declared during the trial of the cause as follows, in which he attempts to relate the language used by the petitioner when he left the room on the occasion when it is alleged he resigned: Q. A. Q. And when Mr. Brias arose did you call to him to deny the remark attributed to you? He had stopped. He had said that he resigned. That I had insulted him: what I had just said. In what words did he say that he resigned?

A. I resign. I withdraw. No; I can't tell exactly the words, but two or three times in that meeting he wished to resign; we advised him not to do so and he agreed to remain on the committee of credits. Mr. Felix Roxas, another member of the board, after relating more or less of what actually occurred at the meeting, also attempts to state exactly what the petitioner said at the time he left the meeting of the board, relating to the question before us: Q. With what words did he resign?

A. He said that he was leaving there because he had not been treated right, something of that kind. I don't remember his words exactly, but he intimated that he would appeal to the general meeting and that he was leaving. He insistently manifested his desire to withdraw and quit the position. Mr. Phil. C. Whitaker, another member of the board, attempts to explain just what happened and just what was said by the petitioner at the time he left the meeting of the board. Mr. Whitaker said: A. Mr. Moreta tried to pacify him. He appealed to him and told him not to take that action, but Mr. Brias insisted and arose saying that he resigned. Thereupon Mr. Barrera called to him, when he was going away, or rather when he was descending the stairs from the platform and called his attention to the fact that he had been appointed or designated to appear before the committee to investigate doubtful accounts, or what he alleged were doubtful, and he said that there was no need because he was going to resign. Thereupon Mr. Hord called to him and asked him if he would tender his resignation in writing, and Mr. Brias said yes, that in the morning he would send it in writing and he left the room. Q. Did he say that he was going to resign or that he had resigned?

Mr. COHN. I object to the question for it tends to impugn the witness's own testimony. A. He said that he was resigning. Mr. Emilio Moreta, another member of the board, attempts to state exactly what occurred at the time it is alleged the petitioner resigned. Mr. Moreta said: Q. A. Q. And after that he was addressed by the president? Yes. Did Mr. Hord ask if he would tender his resignation in writing?

A. That was after what was said by Mr. Barrera, who called to him saying: "How can you withdraw, when you have just agreed with us to form part of the investigating committee?" These were Mr. Barrera's words, approximately. Q. What did Mr. Brias reply?

A.

I don't remember, but he insisted; the president addressed other words to him and Mr. Brias left the meeting.

The declarations of the other members of the board of directors are much to the same effect as those which we have quoted above. Comparing the alleged statement of the petitioner, as given by the different members of the board, in which his resignation was couched, with his alleged statement as found in the minutes (Exhibit 1), we find that there is a marked and irreconcilable conflict. Some of the witnesses for the respondents say that the petitioner said that "he was resigning;" others that "he was going to resign;" while the minutes (Exhibit 1) say that the petitioner said "he could not continue to belong to a corporation" etc., "and that therefore he withdrew from it and ceased to attend its meetings." It will be noted that the minutes fail to put into the mouth of the petitioner the words "he was resigning" or the phrase "he was going to resign." It is quite evident that in preparing the minutes it was intended by those preparing them to make them show just what the petitioner did and said. This fact is indicated not only by the fact that they expressly assume to state what the petitioner said, but also by the fact that they relate in detail things which are not ordinarily included in minutes. It is very unusual to find in the minutes of an association or corporation a detailed statement of what was said and done by members in a passionate discussion of certain questions. The result of such discussions is generally considered sufficient for the minutes. In the irreconcilable conflict between what the said minutes make the petitioner say and what the members say he said, we find an important fact, to wit: that the members are not clear in their understanding of just exactly what the petitioner said with reference to the alleged resignation. That some of the members did not, at that moment, fully understand or believe that the petitioner had resigned is supported by the facts: (a) That the president then and there "asked him if he would send in writing the resignation he had just tendered verbally;" and (b) That a member of the board, Mr. Enrique Barrera, at the time the petitioner was leaving the meeting of the board, asked him if he desired to continue to take part in the meetings of the committee on credits. If the petitioner had resigned, at the time and in the manner alleged, then he had forfeited his right to act in any relation with the board. His resignation per verba was sufficient. No formal acceptance of his resignation was necessary; neither was it necessary to make an entry thereof in the minutes of the board. While this is true, it must, however, appear that he positively and affirmatively stated or indicated that it was his intention to resign then and there. If there was the slightest condition attached to his statement relating to his resignation, then it was not a resignation. A mere statement by a member that he withdraws from a meeting or that he will have nothing more to do with the office is not sufficient upon which to predicate an absolute resignation. That members of boards become momentarily disgusted with the method of procedure of their associates and withdraw, is not an infrequent occurrence. For the associates to take advantage of this common weakness of men and distort the momentary action into a meaning really not intended or justified by actual and positive words, would be to do great and irrevocable injustice to their fellows. In addition to what has been said above, which throws some doubt upon just what the petitioner said and did relating to his alleged resignation, we have his own statement. The petitioner states what took place at the meeting substantially as the respondents do, except as to the exact word or phrase used in relation to his alleged resignation. The petitioner says that he said, "I shall tender my resignation." This statement is not altogether in conflict with what Mr. Whitaker says the petitioner said and is in entire harmony with what Mr. Hord and Mr. Barrera believed at the time if their respective questions presented at that time correctly indicate what each had in mind. In addition to the above positive statement by the petitioner himself, we have the fact that one full day after said meeting, he wrote a letter to the president of the board, in which he signs himself as still a member and in which he says that he had not resigned. No one knows better than the petitioner himself what was in his mind and what he said at the time he withdrew from said meeting. To conclude that his testimony given at the trial of the present cause and his letter of September 28, 1912, are not in accord with the real facts, as he believed they were, would be attribute to the petitioner a quality of mind which we believe even the respondents would not maintain. Men are liable to err, and innocently. All men are liable to have misunderstandings. In the heat of passion men are liable to make, momentarily, their wishes the mother of their thoughts. Under such circumstances men are liable to have things done which their passions desire to have done. We must remember that accurate weights are ascertained after the beam of the scales has become quiet and not during the time that it is quivering with the suddenness of the weight placed upon it. We fully believe that the conflict between the members of the board and the petitioner with reference to just what was done and the real intention of the petitioner grows out of the differences which existed at that time and not out of any intention to do any person a wrong. A man may be ever so honest and yet be absolutely wrong in his understanding of certain facts. In practically every civil action each of the parties thinks and honestly believes that he is right. That fact, however, does not prevent it being shown and demonstrated that one or the other is absolutely mistaken. For that purpose, among other things, dispassionate courts are established. For all of the foregoing reasons and after a careful examination of the proof, we are forced to the conclusion that the record fails to show that the petitioner did resign his position as a member of the board of directors of the respondent bank. We therefore find that he is entitled to exercise all of the rights, privileges, and emoluments belonging and pertaining to a member of said board. Therefore the prayer of the petitioner is hereby granted and it is hereby ordered and decreed that the extraordinary writ of mandamus be issued, directing the respondents and requiring them and each of them, to fully and freely admit the petitioner into the use, exercise, and enjoyment of the office of the board of directors of said corporation and as a member of the committee on

credits of the board of directors thereof; and to enjoy and to freely exercise all of the rights and privileges belonging and pertaining to each of the members of the board of directors of the respondent bank, which are granted to them under the laws of the Philippine Islands and the regulations of said bank. It is so ordered, with costs against the respondents.

HATHIBHAI BULAKHIDAS, petitioner, vs. THE HONORABLE PEDRO L. NAVARRO, as Presiding Judge of the Court of First Instance of Rizal, Seventh Judicial District, Pasig, Metro Manila, Branch 11 and DIAMOND SHIPPING CORPORATION,respondent. Teves, Campos, Hernandez & Lim Law Office for private respondent. PATAJO, J.: This is a petition for review on certiorari of the order of the then Court of First Instance of Rizal, Branch 11 dated August 21, 1978, dismissing petitioner's complaint. Petitioner, a foreign partnership, filed a complaint against a domestic corporation, Diamond Shipping Corporation, before the Court of First Instance of Rizal for the recovery of damages allegedly caused by the failure of the said shipping corporation to deliver the goods shipped to it by petitioner to their proper destination. Paragraph 1 of said complaint alleged that plaintiff is "a foreign partnership firm not doing business in the Philippines" and that it is "suing under an isolated transaction." Defendant filed a motion to dismiss the complaint on the ground that plaintiff has no capacity to sue and that the complaint does not state a valid cause of action against defendant. Acting on said motion to dismiss, the Court of First Instance dismissed the complaint on the ground that plaintiff being "a foreign corporation or partnership not doing business in the Philippines it cannot exercise the right to maintain suits before our Courts." Hence, this petition. The issue of whether or not a foreign corporation not engaged in business in the Philippines can institute an action before our courts is already wen settled in this jurisdiction. Aetna Casualty and Surety Co. vs. Pacific Star Lines, 80 SCRA 635, is a case similar to the present one in that the action is also one for recovery of damages sustained by cargo shipped on defendants' vessels. Defendants set up the defense that plaintiff is a foreign corporation not duly licensed to do business in the Philippines and, therefore, without capacity to sue and be sued. In overruling said defense, this Court said: It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be denied the right to file an action in Philippine courts for isolated transactions. The object of Sections 68 and 69 of the Corporation law was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts. In Mentholatum Co. Inc. et al. vs. Mangaliman, et al., this Court ruled that: No general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging' in or 'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. vs. Collectors of Int. Revenue (C.C. A. Ohio], 223 F. 984, 987.) The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. (Griffin vs. Implement Dealers Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. vs. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. vs. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367.) And in Eastboard Navigation, Ltd. et al vs. Juan Ysmael & Co., Inc., this Court held that: (d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is not necessary because it is not engaged in business in the Philippines. In fact, the transaction herein involved is the first business undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated transactions do not constitute engaging in business in the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our courts. (Marshall Wells Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angle O. Singson, G.R. No. L-7917, April 29, 1955.) Again, in Facilities Management Corporation vs. De la Osa 89 SCRA 131, 139, following Aetna Casualty & Surety Co. vs. Pacific Star Line, supra, held a foreign corporation not engaged in business in the Philippines is not barred from seeking redress from the courts of the Philippines. The case of Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co., 17 SCRA 1037, cited by respondent finds no application to the case at bar. It must be observed in the Atlantic case that there was no allegation in the complaint that the two foreign corporations involved therein were not engaged in business in the Philippines. All that was averred in the complaint was that they were both foreign corporations existing under the laws of the United States. Thus, the qualifying circumstance of the said foreign corporations' capacity to sue is wanting. Contrary to theAtlantic case, the complaint filed by petitioner herein sufficiently alleged that it is a foreign partnership (or corporation) not engaged in business in the Philippines and that it was suing under an isolated transaction. WHEREFORE, the order of respondent Court dismissing the petitioner's complaint is hereby set aside and the case remanded for further proceedings, with costs against private respondent. SO ORDERED.

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs. TEODORO SANDIKO, defendant-appellee. Arsenio P. Dizon for appellant. Sumulong, Lavides and Sumulong for appellee. LAUREL, J.: This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint. Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217. On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine National Bank 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 the Philippine National Bank. The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is 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 right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15, 1932. The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors. In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from the reasons which we shall presently state. The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before the incorporation of the company. Unquestionably, 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 (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). 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 (secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. 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 law 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. (14 C. J., sec. 111, p. 118.) 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 there is not a corporation nor does it possess franchise or faculties for it or others to exercise, until it acquires a complete existence. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.) Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent for a projected corporation since that which 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 (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), 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.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial reverses. He formed a corporation

composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land. If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to discuss this point.lawphil.net The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.

CAGAYAN VALLEY DRUG CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION VELASCO, JR., J.: The Case 1 This petition for review under Rule 45 of the Rules of Court seeks the recall of the August 31, 2000 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 59778, which dismissed petitioner Cagayan Valley Drug Corporations petition for review of the April 2 26, 2000 Decision of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5581 on the ground of defective verification and certification against forum shopping. The Facts Petitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed retailer of medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao, Cagayan, and the other in Roxas, Isabela, under the name and style of "Mercury Drug." Petitioner alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of medicine pursuant to 3 Republic Act No. (RA) 7432 and its implementing rules and regulations. In compliance with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales discounts granted to qualified senior citizens in 1995 as deductions from the gross sales in order to arrive at the net sales, instead of treating them as tax credit as provided by Section 4 of RA 7432. On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue (BIR) a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432. The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file on March 18, 1998 a petition for review 4 before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the two-year prescriptive period provided under Sec. 230 of the 1977 Tax Code, as amended. Thereafter, on March 31, 2000, petitioner amended its petition for review. The Ruling of the Court of Tax Appeals 5 On April 26, 2000, the CTA rendered a Decision dismissing the petition for review for lack of merit. The CTA sustained petitioners contention that pursuant to Sec. 4 of RA 7432, the 20% sales discounts petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and not as deductions from the gross sales as erroneously interpreted in RR 2-94. The CTA reiterated its consistent holdings that RR 2-94 is an invalid administrative interpretation of the law it purports to implement as it contravenes and does not conform to the standards RA 7432 prescribes. Notwithstanding petitioners entitlement to a tax credit from the 20% sales discounts it extended to qualified senior citizens in 1995, the CTA nonetheless dismissed petitioners action for refund or tax credit on account of petitioners net loss in 1995. First, the CTA rejected the refund as it is clear that RA 7432 only grants the 20% sales discounts extended to qualified senior citizens as tax credit and not as tax refund. Second, in rejecting the tax credit, the CTA reasoned that while petitioner may be qualified for a tax credit, it cannot be so extended to petitioner on account of its net loss in 1995. The CTA ratiocinated that on matters of tax credit claim, the government applies the amount determined to be reimbursable after proper verification against any sum that may be due and collectible from the taxpayer. However, if no tax has been paid or if no amount is due and collectible from the taxpayer, then a tax credit is unavailing. Moreover, it held that before allowing recovery for claims for a refund or tax credit, it must first be established that there was an actual collection and receipt by the government of the tax sought to be recovered. In the instant case, the CTA found that petitioner did not pay any tax by virtue of its net loss position in 1995. 6 Petitioners Motion for Reconsideration was likewise denied through the appellate tax courts June 30, 2000 Resolution. The Ruling of the Court of Appeals Aggrieved, petitioner elevated the matter before the CA, docketed as CA-G.R. SP No. 59778. On August 31, 2000, the CA issued the 7 assailed Resolution dismissing the petition on procedural grounds. The CA held that the person who signed the verification and certification of absence of forum shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was duly authorized by the board of directors to do so. As far as the CA was concerned, the main issue was whether or not the verification and certification of non-forum shopping signed by the President of petitioner is sufficient compliance with Secs. 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure. The verification and certification in question reads: nd I, JACINTO J. CONCEPCION, of legal age with office address at 2 Floor, Mercury Drug Corporation, No. 7 Mercury Ave, Bagumbayan, Quezon City, under oath, hereby state that: 1. I am the President of Cagayan Valley Drug Corporation, Petitioner in the above-entitled case and am duly authorized to sign this Verification and Certification of Absence of Forum Shopping by the Board of Director. xxxx The CA found no sufficient proof to show that Concepcion was duly authorized by the Board of Directors of petitioner. The appellate court anchored its disposition on our ruling in Premium Marble Resources, Inc. v. Court of Appeals (Premium), that "[i]n the absence 8 of an authority from the Board of Directors, no person, not even the officers of the corporation, can validly bind the corporation." Hence, we have this petition. The Issues Petitioner raises two issues: first, whether petitioners president can sign the subject verification and certification sans the approval of its Board of Directors. And second, whether the CTA committed reversible error in denying and dismissing petitioners action for refund or tax credit in C.T.A. Case No. 5581. The Courts Ruling The petition is meritorious. Premium not applicable As regards the first issue, we find the CA to have erroneously relied on Premium. In said case, the issue tackled was not on whether the president of Premium Marble Resources, Inc. was authorized to sign the verification and certification against forum shopping, but rather on which of the two sets of officers, both claiming to be the legal board of directors of Premium, have the authority to file

the suit for and in behalf of the company. The factual antecedents and issues in Premium are not on all fours with the instant case and is, therefore, not applicable. With respect to an individual litigant, there is no question that litigants must sign the sworn verification and certification unless they execute a power of attorney authorizing another person to sign it. With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification against forum shopping are silent as to who the authorized signatory should be. Said rules do not indicate if the submission of a board resolution authorizing the officer or representative is necessary. Corporate powers exercised through board of directors It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. This has been our constant holding in cases instituted by a corporation. In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or 9 acting general manager to sign the verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a verification signed by an "employment specialist" who had not even presented any proof of her authority to represent the 10 company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the 11 authority from the company is authorized to sign the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the boards 12 authorization. In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case. While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate 13 against forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition." Authority from board of directors required In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that only individuals vested with authority by a valid board resolution may sign the certificate of non-forum shopping on behalf of a corporation. The action can be 14 dismissed if the certification was submitted unaccompanied by proof of the signatorys authority. We believe that appending the board resolution to the complaint or petition is the better procedure to obviate any question on the authority of the signatory to the verification and certification. The required submission of the board resolution is grounded on the basic precept that corporate 15 powers are exercised by the board of directors, and not solely by an officer of the corporation. Hence, the power to sue and be sued in any court or quasi-judicial tribunal is necessarily lodged with the said board. There is substantial compliance with Rule 7, Secs. 4 and 5 In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted albeit belatedly by petitioner.Second, we apply our ruling in Lepanto with the rationale that the President of petitioner is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, the President of petitioner has signed the complaint before the CTA at the inception of this judicial claim for refund or tax credit. Consequently, the petition in CA-G.R. SP No. 59778 ought to be reinstated. However, in view of the enactment of RA 9282 which made the decisions of the CTA appealable to this Court, we will directly resolve the second issue which is a purely legal one. Petitioner entitled to tax credit The pith of the dispute between petitioner and respondent is whether petitioner is entitled to a tax refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the discount should be treated as a deduction from gross income. This issue is not new, as the Court has resolved several cases involving the very same issue. In Commissioner of Internal Revenue v. 16 Central Luzon Drug Corporation (Central Luzon), we held that private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified senior citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug 17 Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue, we ruled that petitioner therein is entitled to a tax credit of the "cost" or the full 20% sales discounts it granted pursuant to RA 7432. In the related case of Commissioner of 18 Internal Revenue v. Bicolandia Drug Corporation, we likewise ruled that respondent drug company was entitled to a tax credit, and we struck down RR 2-94 to be null and void for failing to conform with the law it sought to implement. A perusal of the April 26, 2000 CTA Decision shows that the appellate tax court correctly ruled that the 20% sales discounts petitioner granted to qualified senior citizens should be deducted from petitioners income tax due and not from petitioners gross sales as erroneously provided in RR 2-94. However, the CTA erred in denying the tax credit to petitioner on the ground that petitioner had suffered net loss in 1995, and ruling that the tax credit is unavailing. Net loss in a taxable year does not preclude grant of tax credit It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year. This fact, however, without more, does not preclude petitioner from availing of its statutory right to a tax credit for the 20% sales discounts it granted to qualified senior citizens. The law then applicable on this point is clear and without any qualification. Sec. 4 (a) of RA 7432 pertinently provides: Sec. 4. Privileges for the Senior citizens.The senior citizens shall be entitled to the following: a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit. (Emphasis ours.) The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax payments are not required for such grant. We explained:

Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be deducted from a future, not a present, tax liability, without which it does not have any use. x x x xxxx While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete 19 with provisions granting or allowing tax credits, even though no taxes have been previously paid. It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended to qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP 123,083 sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant them as tax credit in favor of petitioner. Consequently, petitioners appeal before the CA in CA-G.R. SP No. 59778 must be granted, and, necessarily, the April 26, 2000 CTA Decision in C.T.A. Case No. 5581 reversed and set aside. WHEREFORE, the petition is GRANTED. The August 31, 2000 CA Resolution in CA-G.R. SP No. 59778 isANNULLED AND SET ASIDE. The April 26, 2000 CTA Decision in C.T.A. Case No. 5581 dismissing petitioners claim for tax credit is accordingly REVERSED AND SET ASIDE. The Commissioner of Internal Revenue isORDERED to issue a Tax Credit Certificate in the name of petitioner in the amount of PhP 123,083. No costs. SO ORDERED.

CALATAGAN GOLF CLUB INCORPORATED VS. COMMISSIONER OF INTERNAL REVENUE DECISION TINGA, J.:
[1]

Seeking the reversal of the Decision dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331 and the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente). The key facts are undisputed. Clemente applied to purchase one share of stock of Calatagan, indicating in his application for membership his mailing address at Phimco Industries, Inc. P.O. Box 240, MCC, complete residential address, office and residence telephone numbers, as well as the company (Phimco) with which he was connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2 May 1990 after [2] paying P120,000.00 for the share. Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs for upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated in Calatagans Articles of Incorporation [3] and By-Laws. It is also reproduced at the back of each certificate of stock. As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads: 5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] P50.00 to meet the expenses for the general operations of the club, and the maintenance and improvement of its premises and facilities, in addition to such fees as may be charged for the actual use of the facilities x x x When Clemente became a member the monthly charge stood at P400.00. He paid P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9 December 1991. Then he ceased paying the dues. At that point, his balance amounted [4] toP400.00. Ten (10) months later, Calatagan made the initial step to collect Clementes back accounts by sending a demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both letters were sent to Clementes mailing address as indicated in his membership application but were sent back to sender with the postal note that the address had been [5] closed. Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty (60) days, specificallyP5,600.00 as of 31 October 1992. Calatagan also included Clementes name in the list of delinquent members posted on the clubs bulletin board. On 1 December 1992, Calatagans board of directors adopted a resolution authorizing the foreclosure of shares of delinquent members, including Clementes; and the public auction of these shares. On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his outstanding dues, his share would be included among the delinquent shares to be sold at public auction on 15 January 1993. Again, this letter was sent to Clementes mailing address that had [6] already been closed. On 5 January 1993, a notice of auction sale was posted on the Clubs bulletin board, as well as on the clubs premises. The auction [7] sale took place as scheduled on 15 January 1993, and Clementes share sold for P64,000. According to the Certificate of Sale issued [8] by Calatagan after the sale, Clementes share was purchased by a Nestor A. Virata. At the time of the sale, Clementes accrued [9] monthly dues amounted to P5,200.00. A notice of foreclosure of Clementes share was published in the 26 May 1993 issue of [10] the Business World. Clemente learned of the sale of his share only in November of 1997. He filed a claim with the Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.
[11]

On 15 November 2000, the SEC rendered a decision dismissing Clementes complaint. Citing Section 69 of the Corporation Code which provides that the sale of shares at an auction sale can only be questioned within six (6) months from the date of sale, the SEC concluded that Clementes claim, filed four (4) years after the sale, had already prescribed. The SEC further held that Calatagan had complied with all the requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan that the address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith in assuming as he claimed that his non-payment of monthly dues would merely render his share inactive.

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals promulgated a decision reversing the SEC. The appellate court restored Clementes one share with a directive to Calatagan to issue in his a new share, and awarded to Clemente a total of P400,000.00 in damages, less the unpaid monthly dues of P5,200.00. In rejecting the SECs finding that the action had prescribed, the Court of Appeals cited the SECs own ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation Code specifically refers to unpaid subscriptions to capital stock, and not to any other debt of stockholders. With the insinuation that Section 69 does not apply to unpaid membership dues in non-stock corporations, the appellate court employed Article 1140 of the Civil Code as the proper rule of prescription. The provision sets the prescription period of actions to recover movables at eight (8) years. The Court of Appeals also pointed out that since that Calatagans first two demand letters had been returned to it as sender with the notation about the closure of the mailing address, it very well knew that its third and final demand letter also sent to the same mailing address would not be received by Clemente. It noted the by-law requirement that within ten (10) days after the Board has ordered the sale at auction of a members share of stock for indebtedness, the Corporate Secretary shall notify the owner thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals ratiocinated that a person who is in danger of the [12] imminent loss of his property has the right to be notified and be given the chance to prevent the loss. Hence, the present appeal. Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation Code, and that the requisite notices under both the law and the by-laws had been rendered to Clemente. Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled Stocks and Stockholders and refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately preceding Section 68. The Court of Appeals debunked both Calatagans and the SECs reliance on Section 69 by citing another SEC ruling in the case of Caram v. Valley Golf. In connection with Section 69, Calatagan raises a peripheral point made in the SECs Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation Code which refers to such rights, privileges or restrictions as may be stated in the articles of incorporation, pointed out that the Articles of Incorporation of Valley Golf does not impose any lien, liability or restriction on the Golf Share *of Caram+, but only its (Valley Golfs) By-Laws does. Here, Calatagan stresses that its own Articles of Incorporation does provide that the monthly dues assessed on owners of shares of the corporation, along with all other obligations of the shareholders to the club, shall constitute a first lien on the shares and in the event of delinquency such shares may be ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the [13] shareholders. With its illative but incomprehensible logic, Calatagan concludes that the prescriptive period under Section 69 should also apply to the sale of Clementes share as the lien that Calatagan perceives to be a restriction is stated in the articles of incorporation and not only in the by-laws. We remain unconvinced. There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address that situation, decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar. Calatagan argues in the alternative that Clementes suit is barred by Article 1146 of the Civil Code which establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that Clementes action is governed by Article 1149 of the Civil Code which sets five (5) years as the period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law. Neither article is applicable but Article 1140 of the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years. Calatagans action is for the recovery of a share of stock, plus damages.

Calatagans advertence to the fact that the constitution of a lien on the members share by virtue of the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause. Calatagans Articles of Incorporation states that the dues, together with all other obligations of members to the club, shall constitute a first lien on the shares, second only to any lien in favor of the national or local government, and in the event of delinquency such shares may be ordered sold by the Board [14] of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the stockholders. In turn, there are several provisions in the By-laws that govern the payment of dues, the lapse into delinquency of the member, and the constitution and execution on the lien. We quote these provisions: ARTICLE XII MEMBERS ACCOUNT SEC. 31. (a) Billing Members, Posting of Delinquent Members The Treasurer shall bill al members monthly. As soon as possible after the end of every month, a statement showing the account of bill of a member for said month will be prepared and sent to him.

If the bill of any member remains unpaid by the 20 of the month following that in which the bill was incurred, the Treasurer shall notify him that if his bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his family, and his guests, may not avail of the facilities of the Club. (b) Members on the delinquent list for more than 60 days shall be reported to the Board and their shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the Board at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member may pay his overdue account at any time before the auction sale. Sec. 32. Lien on Shares; Sale of Share at Auction- The club shall have a first lien on every share of stock to secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may be enforced by the Club in the following manner: (a) Within ten (10) days after the Board has ordered the sale at auction of a members share of stock for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof, and shall advise the Membership Committee of such fact. (b) The Membership Committee shall then notify all applicants on the Waiting List and all registered stockholders of the availability of a share of stock for sale at auction at a specified date, time and place, and shall post a notice to that effect in the Club bulletin board for at least ten (10) days prior to the auction sale. (c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva voce bidding and award the sale of the share of stock to the highest bidder. (d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24) hours after the bidding. The winning bidder or the representative in the case of a juridical entity shall become a Regular Member upon payment of the purchase price and issuance of a new stock certificate in his name or in the name of the juridical entity he represents. The proceeds of the sale shall be paid by the Club to the selling stockholder after deducting his obligations to the Club. (e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-four (24) hours after the bidding, the auction procedures may be repeated from time to time at the discretion of the Membership Committee until the share of stock be sold. (f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid balance. If the member whose share of stock is sold fails or refuse to surrender the stock certificate for cancellation, cancellation shall be effected in the books of the Club based on a record of the proceedings. Such cancellation shall render the unsurrendered stock certificate null and void and notice to this effect shall be duly published.

th

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the payment of monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the shares and its eventual public sale to answer for the members debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. The By-law provisions are elaborate in explaining the manner and the causes for the termination of membership in Calatagan, through the execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due protection to the member by assuring that the member should be notified by the Secretary of the looming execution sale that would terminate membership in the club. In addition, the By-Laws guarantees that after the execution sale, the proceeds of the sale would be returned to the former member after deducting the outstanding obligations. If followed to the letter, the termination of membership under this procedure outlined in the By-Laws would accord with substantial justice. Yet, did Calatagan actually comply with the by-law provisions when it sold Clementes share? The appellate courts finding on this point warrants our approving citation, thus:

In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on December 7, 1992. The letter states that if the amount of delinquency is not paid, the share will be included among the delinquent shares to be sold at public auction. This letter was signed by Atty. Benjamin Tanedo, Jr., Calatagan Golfs Corporate Secretary. It was again sent to Clementes mailing address Phimco Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned because the post office box had been closed. Under the By-Laws, the Corporate Secretary is tasked to give or cause to be given, all notices required by law or by these By-Laws. .. and keep a record of the addresses of all stockholders. As quoted above, Sec. 32 (a) of the By-Laws further provides that within ten (10) days after the Board has ordered the sale at auction of a members share of stock for indebtedness under Section 31 (b) hereof, the Secretary shall notify the owner thereof and shall advise the Membership Committee of such fact., The records do not disclose what report the Corporate Secretary transmitted to the Membership Committee to comply with Section 32(a). Obviously, the reason for this mandatory requirement is to give the Membership Committee the opportunity to find out, before the share is sold, if proper notice has been made to the shareholder member. We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards of good faith and fairness that the law requires. As custodian of corporate records, he should also have known that the first two letters sent to Clemente were

returned because the P.O. Box had been closed. Thus, we are surprised given his knowledge of the law and of corporate records that he would send the third and final letter Clementes last chance before his share is sold and his membership lost to the same P.O. Box that had been closed. Calatagan argues that it exercised due diligence before the foreclosure sale and sent several notices to Clementes specified mailing address. We do not agree; we cannot label as due diligence Calatagans act of sending the December 7, 1992 letter to Clementes mailing address knowing fully well that the P.O. Box had been closed. Due diligence or good faith imposes upon the Corporate Secretary the chief repository of all corporate records the obligation to check Clementes other address which, under the By-Laws, have to be kept on file and are in fact on file. One obvious purpose of giving the Corporate Secretary the duty to keep the addresses of members on file is specifically for matters of this kind, when the member cannot be reached through his or her mailing address. Significantly, the Corporate Secretary does not have to do the actual verification of other addressees on record; a mere clerk can do the very simple task of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone call to Clementes phone numbers on file would have alerted him of his impending loss. Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of its own by-laws. The bylaw provisions was clearly conceived to afford due notice to the delinquent member of the impending sale, and not just to provide an intricate faade that would facilitate Calatagans sale of the share. But then, the bad faith on Calatagans part is palpable. As found by the Court of Appeals, Calatagan very well knew that Clementes postal box to which it sent its previous letters had already been closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it appears, as it had known very well that the letter would never actually reach Clemente. It is noteworthy that Clemente in his membership application had provided his residential address along with his residence and office telephone numbers. Nothing in Section 32 of Calatagans By-Laws requires that the final notice prior to the sale be made solely through the members mailing address. Clemente cites our aphorism-like pronouncement in Rizal Commercial Banking [15] Corporation v. Court of Appeals that *a+ simple telephone call and an ounce of good faith x x x could have prevented this present controversy. That memorable observation is quite apt in this case. Calatagans bad faith and failure to observe its own By-Laws had resulted not merely in the loss of Clementes privilege to play golf at its golf course and avail of its amenities, but also in significant pecuniary damage to him. For that loss, the only blame that could be thrown Clementes way was his failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first place, does he deserve answerability for failing to notify the club of the closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his home address as well as residence and office telephone numbers, he had every reason to assume that the club would not be at a loss should it need to contact him. In addition, according to Clemente, he was not even aware of the closure of the postal box, the maintenance of which was not his responsibility but his employer Phimcos. The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code, under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply, enunciate a general obligation under law for every person to act fairly and in good faith towards one another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its members. The obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or members, even if the latter find themselves contractually bound to perform certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization. We turn to the matter of damages. The award of actual damages is of course warranted since Clemente has sustained pecuniary injury by reason of Calatagans wrongful violation of its own By-Laws. It would not be feasible to deliver Clementes original Certificate of Stock because it had already been cancelled and a new one issued in its place in the name of the purchases at the auction who was not impleaded in this case. However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new certificate of stock. That sufficiently redresses the actual damages sustained by Clemente. After all, the certificate of stock is simply the evidence of the share. The Court of Appeals also awarded Clemente P200,000.00 as moral damages, P100,000.00 as exemplary damages, andP100,000.00 as attorneys fees. We agree that the award of such damages is warranted. The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of damages from any private individual who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs the right against deprivation of property without due process of laws. The plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter was able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason of Calatagans acts, thereby entitling him to moral damages under Article 2217 of the Civil Code. Moreover, it is evident that Calatagans bad faith as exhibited in the course of its corporate actions warrants correction for the public good, thereby justifying exemplary damages under Article 2229 of the Civil Code. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.
[16]

CALTEX (PHILS.), INC. (now CHEVRON PHILIPPINES, INC.), Petitioner, vs. ** NATIONAL LABOR RELATIONS COMMISSION AND ROMEO T. STO. TOMAS, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a Petition for Review on Certiorari under Rule 45 filed by Caltex (Philippines) Inc., now Chevron Philippines, Inc. 1 2 (petitioner) seeking to annul and set aside the Decision dated May 15, 2003, and the Resolution dated August 21, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 65405. Romeo T. Sto Tomas (private respondent) was a regular employee of petitioner since February 2, 1984. He was a Senior Accounting Analyst receiving a monthly salary of P29,860.00 at the time of his termination on July 31, 1997. In a letter dated October 21, 1996, petitioner informed the Department of Labor and Employment (DOLE) of its plan to implement a redundancy program in its Marketing Division and some departments in its Batangas Refinery for the period starting October 1996 to December 1998. The letter alleged that the redundancy program is a response to the market situation which constrained petitioner to rationalize and simplify its business processes; that petitioner undertook a review, restructuring and streamlining of its organization which resulted in consolidation, abolition and outsourcing of certain functions and in the identification of certain redundant positions. The letter also states that petitioner will provide the DOLE a list of affected employees as it implements each phase of the redundancy program. Petitioner, through a letter dated June 30, 1997, notified private respondent of his termination effective July 31, 1997 due to the redundancy of his position and awarded him a separation package in the amount of P559,458.90 consisting of the following: Regular separation/retirement benefits P352,721.25
4 3

under the New Retirement Plan; and Ex-gratia payment computed at months basic pay for every year of service 206,737.65 TOTAL P559,458.90
5

On June 8, 1998, respondent filed with the Labor Arbiter a complaint for illegal dismissal against petitioner and its President and Chief Executive Officer, Mr. Clifton Hon. Private respondent alleged that: being petitioners regular employee, he is entitled to security of tenure; he did not commit any serious misconduct, willful disobedience, gross and habitual neglect of duty or fraud and willful breach of trust to warrant the penalty of dismissal from employment; there was no independent proof or evidence presented by petitioner to substantiate its claim of redundancy nor was he afforded due process as he was not given any opportunity to present his side; he was dismissed due to his active participation in union activities; petitioner opened positions for hiring some of which offered jobs that are the same as what private respondent was performing; petitioner failed to give written notice to him and DOLE at least one month before the intended date of termination as required by the Labor Code. In its position paper, petitioner and Mr. Hon averred that private respondents dismissal from the service was due to redundancy of his position which was determined after petitioners business process re-engineering study and organization review, conducted with private respondents knowledge; that redundancy is an authorized cause to terminate an employee which is a management prerogative and cannot be interfered with absent any abuse of discretion; and that there is nothing in the law that requires petitioner to conduct impartial investigation or hearing to terminate an employee due to redundancy. On March 31, 1999, the Labor Arbiter (LA) rendered a decision dismissing the complaint without prejudice to the payment of private respondents separation pay as required by law or as granted by petitioner pursuant to company practice whichever is higher. The LA found that private respondent's dismissal from the service on the ground of redundancy was done in good faith and a valid exercise of management prerogative; that redundancy did not deter the employer to hire additional workers when it is deemed best for proper management; and that there is no need for petitioner to conduct an impartial investigation or hearing since private respondents dismissal was not related to his blameworthy act or omission. While the LA found that petitioner failed to give notice to DOLE one month before the intended date of private respondents termination, the LA ruled that non-compliance with the procedural requirement will not per se make the termination illegal and held that requirement of procedural process was not totally disregarded. Respondent filed his appeal with the National Labor Relations Commission (NLRC) which in a Decision dated January 30, 2001, reversed the decision of the LA, the dispositive portion of which reads: WHEREFORE, the decision of the Labor Arbiter is hereby VACATED and SET ASIDE and judgment is hereby rendered: 1. Declaring the dismissal of complainant to be without a just or authorized cause and, therefore, illegal.
8 7

2.

Ordering respondent Caltex (Phils.) Inc. to reinstate the complainant to his former or substantially equivalent position, without loss of seniority rights and other privileges and to pay complainant his full backwages inclusive of allowance and other benefits computed from August 1, 1997 up to his actual reinstatement. However, should complainants reinstatement be no longer feasible due to some valid reasons, respondent Caltex (Phils.) Inc., is hereby ordered to pay complainant his separation pay computed at one (1) month pay for every year of service, a fraction of at least six (6) months to be considered as one (1) whole year. The separation pay shall be in addition to complainants full backwages.
9

All other claims of complainant are hereby DISMISSED for lack of merit.

In so ruling, the NLRC expounded that although Article 283 of the Labor Code authorizes termination due to redundancy, there must be factual basis; that the records did not disclose any evidence to show basis for respondents termination; that neither did petitioner send notice to DOLE one month prior to respondents dismissal. Petitioners Motion for Reconsideration was denied in a Resolution dated March 27, 2001. Petitioner filed with the CA a Petition for Certiorari alleging grave abuse of discretion committed by the NLRC in finding respondents termination illegal. In a Decision dated May 15, 2003, the CA denied the petition. The CA ruled that there was no reason to deviate from the findings of the NLRC since the pieces of evidence presented by petitioner are not only insufficient but also baseless and self-serving; that petitioners main argument that private respondents dismissal on the ground of redundancy was only resorted to after a conduct of thorough business process reengineering study and research is nothing but a bare assertion; that nowhere in the records can it be found that there was indeed a study conducted by petitioner which culminated in the abolition and consolidation of certain positions in the office; that neither was there any proof that petitioner truly had a concrete redundancy program that is reflective of any financial loss or possible and obtainable substantial profits in case the program is implemented nor were there any named factors considered by the petitioner in undertaking the reduction program; that what petitioner presented was merely a copy of its letter to the DOLE informing the latter of its intention to implement a redundancy program and nothing more; and that petitioner failed to apply the criteria in effecting private respondents dismissal due to redundancy as there was no showing that it underwent painstaking selection from among its employees to be dismissed. The CA further found that petitioner failed to send DOLE a written notice of its implementation of the redundancy program one month prior to the intended date thereof since petitioner had admitted such failure in its Answer to respondents appeal to the NLRC. The CA likewise found that petitioners belated submission to the CA of the letter dated June 30, 1997 purportedly notifying DOLE of the plan to implement a redundancy program is dubious because of petitioners earlier admission that it did not send DOLE a written notice of termination; that petitioner should have submitted the evidence at the earliest opportunity; and that the letter was selfserving since it did not bear any proof of receipt by the DOLE. The CA denied petitioners Motion for Reconsideration in a Resolution dated August 21, 2003. Hence, herein petition filed by petitioner on the following grounds: THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF ITS JURISDICTION WHEN IT ISSUED THE DECISION DATED MAY 15, 2003 AND THE RESOLUTION DATED AUGUST 21, 2003 AFFIRMING THE ORDERS DATED JANUARY 30, 2001 AND MARCH 27, 2001 OF THE RESPONDENT NLRC CONSIDERING THAT THEY ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION WHEN IT AFFIRMED THE FINDING OF THE RESPONDENT NLRC THAT THE DISMISSAL OF THE PRIVATE RESPONDENT WAS WITHOUT JUST AND AUTHORIZED CAUSE. THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION WHEN IT AFFIRMED THE FINDING OF THE RESPONDENT NLRC DIRECTING THE REINSTATEMENT OF THE PRIVATE 11 RESPONDENT AND THE PAYMENT OF HIS BACKWAGES COMPUTED FROM AUGUST 1, 1997. Petitioner insists that it had already informed the DOLE Secretary through a letter-notice dated October 21, 1996 of its plan to implement a redundancy program which was received on October 24, 1996; that the CA ignored such earlier notice and concentrated on its alleged failure to send notice one month prior to private respondents termination; that the June 30, 1997 notice to DOLE was belatedly submitted since it was not easily located; that the belated submission should not be taken against petitioner; that the subsequent notice to the DOLE was only a follow up to the earlier notice dated October 21, 1996; and that there was substantial compliance with the notice requirement of the Labor Code for a valid redundancy program. Petitioner further argues that private respondents termination due to redundancy is valid considering that he consented to his termination by accepting and benefiting from the package given by petitioner in the total amount of P559,458.90; that his separation package is equivalent to 1.39 months basic pay for every year of service, way above the minimum separation pay required by law; that if private respondents termination is indeed illegal and that he should be reinstated with full backwages, he should be ordered to pay back petitioner the benefits he received on account of its redundancy program as he unjustly enriched
10

himself in the amount of P206,737.65 representing ex-gratia benefit paid only to terminated employees on account of the redundancy program. Petitioner further claims that private respondent was not retrenched but dismissed on account of petitioners redundancy program, thus, the finding that "petitioner was not able to provide proof that it truly had an extensive engineering study on account of business losses arising out of massive oil deregulation" is misplaced; that retrenchment and redundancy are two different authorized causes terminating employment relationship and the elements of one do not apply to the other; that its right to terminate respondents employment is embodied under Article 283 of the Labor Code which required employers to give notice of redundancy to the worker and the DOLE one month before the intended date of actual termination; that the twin notice requirement is the only condition precedent mandated by law before any valid redundancy may be effected which petitioner had duly complied with; that termination due to redundancy is a valid exercise of management prerogative which courts ordinarily hesitate to interfere with unless the act is marked with bad faith. The issues for resolution are (1) whether private respondents termination on the ground of redundancy was valid, and (2) whether petitioner gave a written notice to DOLE as required under Article 283 of the Labor Code. Under Rule 45 of the Rules of Court, only questions of law may be raised in this Court. However, factual issues may be considered and resolved when the findings of facts and the conclusions of the Labor Arbiter are inconsistent with those of the NLRC and the 12 CA, as obtaining in the present case. The CA correctly dismissed herein petitioners petition for certiorari. The NLRC did not commit grave abuse of discretion in finding that respondent was illegally dismissed. Private respondent was dismissed by petitioner on the ground of redundancy, one of the authorized causes for dismissal under Article 283 of the Labor Code, to wit: Article 283. Closure of establishment and reduction of personnel.- The employer may also terminate the employment of any employee due to the installment of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or reverses, the separation pay shall be equivalent to one (1) month pay or at least one half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year (emphasis supplied). In Becton Dickinson Phils., Inc. v. National Labor Relations Commission, citing the leading case, Wiltshire File Co., Inc. v. National 14 Labor Relations Commission, we explained the nature of redundancy as an authorized cause for dismissal in the following manner: x x x redundancy in an employers personnel force necessarily or even ordinarily refers to duplication of work. That no other person was holding the same position that private respondent held prior to the termination of his services, does not show that his position had not become redundant. Indeed, in any well organized business enterprise, it would be surprising to find duplication of work and two (2) or more people doing the work of one person. We believe that redundancy, for purposes of the Labor Code, exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as overhiring of workers, decrease in volume of business, or dropping of a particular product line or service activity previously 15 manufactured or undertaken by the enterprise. We are mindful of the rule that the characterization of an employees services as no longer necessary or sustainable, and therefore, properly terminable, is an exercise of business judgment on the part of the employer, and that the wisdom or soundness of such characterization or decision is not subject to discretionary review. However, such characterization may be rejected if the same is 16 found to be in violation of law or is arbitrary or malicious. We have held that the employer must comply with the following requisites to ensure the validity of the implementation of a redundancy program: 1) a written notice served on both the employees and the Department of Labor and Employment (DOLE) at least one month prior to the intended date of retrenchment; 2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; 3) good faith in abolishing the redundant positions; and 4) fair 17 and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished. In Asufrin, Jr. v. San Miguel Corporation, we ruled that it is not enough for a company to merely declare that it has become overmanned. It must produce adequate proof of such redundancy to justify the dismissal of the affected employees. In Panlilio v. National Labor Relations Commission, we held that evidence must be presented to substantiate redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring.
19 18 13

In the instant case, we find no reversible error committed by the CA in upholding the findings of the NLRC that there was no substantial evidence presented by petitioner to justify private respondent's dismissal due to redundancy. As correctly found by the CA, petitioners evidence to show redundancy merely consisted of a copy of petitioners letter to the DOLE informing the latter of its intention to implement a redundancy program and nothing more. The letter which merely stated that petitioner undertook a review, restructuring and streamlining of its organization which resulted in consolidation, abolition and outsourcing of certain functions; and which resulted in identified and redundant positions instead of simplifying its business process restructuring, does not satisfy the requirement of substantial evidence, that is, the amount of evidence which a reasonable mind might accept as adequate 20 to justify a conclusion. Petitioner failed to demonstrate the superfluity of private respondents position as there was nothing in the records that would 21 establish any concrete and real factors recognized by law and relevant jurisprudence, such as overhiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise, which were adopted by petitioner in implementing the redundancy program. Petitioner also failed to show any fair and reasonable criteria in ascertaining what positions are redundant and how the selection of employees to be dismissed was made. In Capitol Wireless, Inc. v. Confesor, we have held that in selecting the employee to be dismissed, fair and reasonable criteria must be used such as but not limited to (a) less preferred status, e.g. temporary employee; (b) efficiency; and (c) seniority. No such appraisal was done in the present case. The absence of criteria in the selection of an employee to be dismissed renders the dismissal arbitrary. Moreover, petitioner failed to refute private respondents assertion that it opened positions of accountants for hiring to which he 23 24 could have qualified rather than be dismissed. In petitioners Memorandum dated May 28, 1997 and July 4, 1997, it declared vacant the positions of Terminal Accountant and Internal Auditor, respectively, the minimum requirements of which are being accountants and having 4-5 years experience in handling accounting and supervisory functions, among others. There is no showing that private respondent could not perform the functions demanded of the vacant positions considering his experience as petitioners Senior Accounting Analyst for 13 years and to which he could be transferred instead of being dismissed. We find such hiring of accountants inconsistent with respondents termination due to redundancy. In fact, petitioner expressly stated in its Answer to private respondents Appeal Memorandum filed with the NLRC that "it may still 25 hire additional employees so long as it is not for the position previously declared and determined to be redundant." As we ruled, redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual 26 requirement of the enterprise. It is the burden of petitioner, as employer, to prove the factual and legal basis for the dismissal of 27 its employees on the ground of redundancy. The CA committed no reversible error when it found that petitioner failed to discharge the burden of proving respondents dismissal as valid. There is merit in petitioners claim that the CAs finding "that it (petitioner) failed to provide proof that it truly had an extensive reengineering study on account of business losses arising out of massive oil deregulation" is misplaced considering that Article 283 of the Labor Code does not require that the employer should be suffering financial losses before he can terminate the services of the 28 employee on the ground of redundancy. Nevertheless, the CA finding on this matter does not detract from the fact that petitioner failed to show proof of fair and reasonable criteria for the implementation of a valid redundancy program. Thus, whether it is retrenchment or redundancy, or any of the other authorized causes, no employee may be dismissed without observance of the 29 fundamentals of fair play. Petitioner committed a fatal error when it failed to give a written notice to DOLE as required under Article 283 of the Labor Code. All three, the LA, NLRC and the CA, found the absence of notice sent by petitioner to DOLE one month before the intended date of private respondents termination. While petitioner claims that it sent a notice to the DOLE through a letter dated June 30, 1997, petitioner failed to show that the same was actually received by DOLE. The purpose of the written notice to the DOLE is to give it the 30 opportunity to ascertain the verity of the alleged authorized cause of termination. Petitioners insistence that its written notice of redundancy program per its October 1996 letter addressed to DOLE is a substantial compliance with the notice requirement, is not persuasive since the said letter merely stated its plan of implementing a redundancy program but did not contain the details necessary to effect the program such as the reason for finding certain portions as redundant, the name of the employees to be terminated and the actual date of termination. In fact, petitioner in its October letter wrote that it would provide DOLE with a list of affected employees as it implements each phase of the redundancy program which it failed to do. Petitioners failure to show an authorized cause for private respondents termination is sufficient to declare the dismissal illegal. Petitioners claim that private respondent consented to his termination by accepting his separation pay deserves scant consideration. Private respondent had no other recourse but to accept his separation pay since petitioners letter made it clear that his position had been determined to be redundant and his services shall be terminated effective July 31, 1997. As private respondent was dismissed allegedly due to redundancy, he is entitled to separation pay under Article 283 of the Labor Code. And since there was no extra consideration for the private respondent to give up his employment, such undertaking cannot be allowed to bar the 31 action for illegal dismissal.
22

Petitioner asserts that private respondents reinstatement is no longer possible since his former position was already abolished 32 when it was declared redundant. Notably, this matter was only raised for the first time in petitioners motion for reconsideration of 33 the assailed CA decision dated May 15, 2003. Private respondent, in his comment to the motion, contends that petitioners claim is doubtful considering that the establishment where he is to be reinstated has not ceased operation or closed. The CA disregarded the claim of petitioner that private respondents reinstatement is no longer possible and denied the motion for reconsideration finding no cogent reason to reconsider its earlier decision. The issue of whether private respondents reinstatement to his former or substantially equivalent position is no longer possible, is a factual matter which is not a proper subject of the present petition for review on certiorarisince we are not a trier of facts. The parties conflicting claims on this matter can be best determined by the Labor Arbiter upon the execution of the judgment after our Decision shall have become final and executory. Finally, we find merit in petitioners claim that private respondent should return the amount of P206,737.65 representing ex-gratia benefit paid only to terminated employees on account of the redundancy program. While we note that this matter is raised only for the first time, we have ample authority to review and resolve it if we find the consideration and determination of the same essential 34 and indispensable in order to arrive at a just decision in the case. The ex-gratia benefit should be returned following the principle 35 against unjust enrichment which is held applicable in labor cases. WHEREFORE, the petition is DENIED. The Decision dated May 15, 2003 and the Resolution dated August 21, 2003 of the Court of Appeals in CA-G.R. SP No. 65405 are AFFIRMED. However, in the higher interest of justice, private respondent is ordered to return the amount of P206,737.65, representing the ex-gratia benefit paid to him by petitioner. No costs.

IRINEO G. CARLOS, plaintiff-appellant, vs. MINDORO SUGAR CO., ET AL., defendants-appellees. Jose Ayala for appellant. Ross, Lawrence & Selph for appellees. IMPERIAL, J.: The plaintiff brought this action to recover from the defendants the value of four bonds, Nos. 1219, 1220, 1221, and 1222, with due and unpaid interest thereon, issued by the Mindoro Sugar Company and placed in trust with the Philippine Trust Company which, in turn, guaranteed them for value received. Said plaintiff appealed from the judgment rendered by the Court of First Instance of Manila absolving the defendants from the complaint, excepting the Mindoro Sugar Company, which was sentenced to pay the value of the four bonds with interest at 8 per cent per annum, plus costs. The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country and registered on July 30, 1917. According to its articles of incorporation, Exhibit 5, one of its principal purposes was to acquire and exercise the franchise granted by Act No. 2720 to George H. Fairchild, to substitute the organized corporation, the Mindoro Company, and to acquire all the rights and obligations of the latter and of Horace Havemeyer and Charles J. Welch in the so-called San Jose Estate in the Province of Mindoro. The Philippine Trust Company is another domestic corporation, registered on October 21, 1917. In its articles of incorporation, Exhibit A, some of its purposes are expressed thus: "To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise dispose of stocks, bonds, mortgages, and other securities, or any interest in either, or any obligations or evidences of indebtedness, of any other corporation or corporations, domestic or foreign. . . . Without in any particular limiting any of the powers of the corporation, it is hereby expressly declared that the corporation shall have power to make any guaranty respecting the dividends, interest, stock, bonds, mortgages, notes, contracts or other obligations of any corporation, so far as the same may be permitted by the laws of the Philippine Islands now or hereafter in force." Its principal purpose, then, as its name indicates, is to engage in the trust business. On November 17, 1917, the board of directors of the Philippine Trust Company, composed of Phil, C. Whitaker, chairman, and James Ross, Otto Vorster, Charles D. Ayton, and William J. O'Donovan, members, adopted a resolution authorizing its president, among other things, to purchase at par and in the name and for the use of the trust corporation all or such part as he may deem expedient, of the bonds in the value of P3,000,000 that the Mindoro Sugar Company was about to issue, and to resell them, with or without the guarantee of said trust corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the indebtedness to said bank by the Mindoro Sugar Company or Charles J. Welch and Horace Havemeyer, up to P2,000,000. The relevant part of the resolution, Exhibit 3, reads as follows: Resolved that Mr. Phil. C. Whitaker, president of this company, be and he hereby is authorized to purchase at par in the name and for the use of this company all, or such part as he may deem expedient, of the said P3,000,000 of 20-year 8 per cent coupon bonds of the said Mindoro Sugar Company, and to resell or otherwise dispose of the said bonds, with or without this company's guaranty, at a price not less than par; and it was further Resolved that Mr. Phil. C. Whitaker, president of the company be and he hereby is authorized in the name of this company alone or in connection with others, by joint and several obligations, to guarantee to the Philippine National Bank the due and punctual payment of any and all indebtedness owing to the said Bank by either the Mindoro Sugar Company, the Mindoro Company, or Charles J. Welch and Horace Havemeyer, up to P2,000,000; and it was further Resolved that the said president, Mr. Phil. C. Whitaker, be and he hereby is authorized to execute in the name of this company any and all notes, mortgages, bonds, guaranties, or instruments in writing whatever necessary for the carrying into effect of the authority hereby granted. In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company executed in favor of the Philippine Trust Company the deed of trust, Exhibit 6, transferring all of its property to it in consideration of the bonds it had issued to the value of P3,000,000, the value of each bond being $1,000, which par value, with interest at 8 per cent per annum, the Philippine Trust Company had guaranteed to the holders, and in consideration, furthermore, of said trust corporation having guaranteed to the Philippine National Bank all the obligations contracted by the Mindoro Sugar Company, Charles J. Welch and Horace Havemeyer up to the aforesaid amount of P2,000,000. The aforementioned deed was approved by his Excellency, the Governor-General, upon recommendation of the Secretary of Agriculture and Natural Resources, and in accordance with the provisions of Act No. 2720 of the Philippine Legislature. Following are the clauses of said Exhibit 6 material to this decision: Whereas, for the purposes aforesaid, and in further pursuance of said resolutions of its board of directors and of its stockholders, the company, in order to secure the payment of said First Mortgage, Twenty Year, Eight Per Cent, Gold Bonds, has determined to execute and deliver to said Philippine Trust Company, as trustee, a deed of trust of its properties hereinafter described, and the board of directors of the Company has approved the form of this indenture and directed that the same be executed and delivered to said trustee; and Whereas, all things necessary to make said bonds, when certified by said trustee as in this indenture provided, valid, binding, legal and negotiable obligations of the company and this indenture a valid deed of trust to secure the payment of said bonds, have been done and performed, and the creation and issue of said bonds, and the execution, acknowledgment and delivery of this deed of trust have been duly authorized; Now, therefore, in order to secure the payment of the principal and interest of all such bonds at any time issued and outstanding under this indenture, according to their tenor, purport and effect, and to secure the performance and observance of all the covenants and conditions herein contained and to declare the terms and conditions upon which said bonds are issued, received and held, and for and in consideration of the premises, and of the purchase or acceptance of such bonds by the holders thereof, and of the sum of one dollar, United States currency, to it duly paid at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, the Mindoro Sugar Company, party of the first part, has sold and conveyed, and by these presents does sell and convey to the Philippine Trust Company, party of the second part, its successors and assigns forever; (Description of the property.) In consequence of this transaction, the bonds, with their coupons were placed on the market and sold by the Philippine Trust Company, all endorsed as follows:

This is to certify that the within bond is one of the series described in the trust deed therein mentioned. PHILIPPINE TRUST COMPANY by: (Sgd.) PHIL. C. WHITAKER President For values received, the Philippine Trust Company hereby guarantees the payment of principal and interest of the within bond. Manila, Jan.2, 1918 PHILIPPINE TRUST COMPANY by: (Sgd.) PHIL. C. WHITAKER President The Philippine Trust Company sold thirteen bonds, Nos. 1219 to 1231, to Ramon Diaz for P27,300, at a net profit of P100 per bond. The four bonds Nos. 1219, 1220, 1221, and 1222, here in litigation, are included in the thirteen sold to Diaz. The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity until the 1st of July, 1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such interest or to redeem the obligation because the guarantee given for the bonds was illegal and void. The appellant now contends that the judgment appealed from is untenable, assigning the following errors: FIRST ERROR The lower court erred in sustaining the demurrer against the amended complaint, filed by defendant J. S. Reis (Reese) and consequently in dismissing the same with regard to this defendant. SECOND ERROR The lower court, without a proof to support it or an averment in defense by the defendant Philippine Trust Company, erred in finding hypothetically that if the guarantee made by this company be held valid, the trust funds and deposits in its hands would probably be endangered. THIRD ERROR The lower court erred in holding that the Philippine Trust Company has no power to guarantee the obligation of another juridical personality, for value received. FOURTH ERROR The lower court erred in not recognizing the validity and effect of the guarantee subscribed by the Philippine Trust Company for the payment of the four bonds claimed in the complaint, endorsed upon them, and in absolving said institution from the complaint. FIFTH ERROR The lower court erred in absolving the ex-directors of the Philippine Trust Company, Phil. C. Whitaker, O. Vorster, and Charles D. Ayton, from the complaint. We shall not follow the order of the appellant's argument, deeming it unnecessary, but shall decide only the third and fourth assignments of error upon which the merits of the case depend. For the clear understanding of this decision and to avoid erroneous interpretations, however, we wish to state that in this decision we shall decide only the rights of the parties with regard to the four bonds in question and whatever we say in no wise affects or applies to the rest of the bonds. We shall begin by saying that the majority of the justices of this court who took part in the case are of opinion that the only point of law to be decided is whether the Philippine Trust Company acquired the four bonds in question, and whether as such it bound itself legally and acted within its corporate powers in guaranteeing them. This question was answered in the affirmative.1awphil.net In adopting this conclusion we have relied principally upon the following facts and circumstances: Firstly, that the Philippine Trust Company, although secondarily engaged in banking, was primarily organized as a trust corporation with full power to acquire personal property such as the bonds in question according to both section 13 (par. 5) of the Corporation Law and its duly registered by-laws and articles of incorporation; secondly, that being thus authorized to acquire the bonds, it was given implied power to guarantee them in order to place them upon the market under better, more advantageous conditions, and thereby secure the profit derived from their sale: It is not, however, ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the legitimate transaction of its business it may sell them, and in furtherance of such a sale it may, in order to make them the more readily marketable, indorse or guarantee their payment. (7 R. C. L., p. 604 and cases cited.) "Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the purpose of giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject the corporation to liabilities in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its charter to issue its own bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt due to it, and which it sells or transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding." (14-A C. J., pp. 742-743 and cases cited); thirdly, that although it does not clearly appear in the deed of trust (Exhibit 6) that the Mindoro Sugar Company transferred the bonds therein referred to, to the Philippine Trust Company, nevertheless, in the resolution of the board of directors (Exhibit 3), the president of the Philippine Trust Company was expressly authorized to purchase all or some of the bonds and to guarantee them; whence it may be inferred that subsequent purchasers of the bonds in the market relied upon the belief that they were acquiring securities of the Philippine Trust Company, guaranteed by this corporation; fourthly, that as soon as P3,000,000 worth of bonds was issued, and by the deed of trust the Mindoro, Sugar Company transferred all its real property to the Philippine Trust Company, the cause or consideration of the transfer being, (1) the guarantee given by the purchaser to the bonds, and (2) its having likewise guaranteed its obligations and those of Welch and Havemeyer in favor of the Philippine National Bank up to the amount of P2,000,000; fifthly, that in transferring its real property as aforesaid the Mindoro Sugar Company was reduced to a real state of bankruptcy, as the parties specifically agreed during the hearing of the case, to the point of having become a nominal corporation without any assets whatsoever; sixthly, that such operation or transaction cannot mean anything other than that the real intention of the parties was that the Philippine Trust Company acquired the bonds issued and at the same time guaranteed the payment of their par value with interest, because otherwise the transaction would be fraudulent, inasmuch as nobody would be

answerable to the bond-holders for their value and interest; seventhly, that the Philippine Trust Company had been paying the appellant the interest accrued upon the four bonds from the date of their issuance until July 1, 1928, such payment of interest being another proof that said corporation had really become the owner of the aforesaid bonds; and, eightly, that the Philippine Trust Company has not adduced any evidence to show any other conclusions. There are other considerations leading to the same result even in the supposition that the Philippine Trust Company did not acquire the bonds in question, but only guaranteed them. In such a case the guarantee of these bonds would at any rate, be valid and the said corporation would be bound to pay the appellant their value with the accrued interest in view of the fact that they become due on account of the lapse of sixty (60) days, without the accrued interest due having been paid; and the reason is that it is estopped from denying the validity of its guarantee. . . . On the other hand, according to the view taken by other courts, which it must be acknowledged are in the majority, a recovery directly upon the contract is permitted, on the ground that the corporation, having received money or property by virtue of a contract not immoral or illegal of itself, is estopped to deny liability; and that the only remedy is one on behalf of the state to punish the corporation for violating the law. (7 R. C. L., pp. 680-681 and cases cited.) . . . The doctrine of ultra vires has been declared to be entirely the creation of the courts and is of comparatively modern origin. The defense is by some courts regarded as an ungracious and odious one, to be sustained only where the most persuasive considerations of public policy are involved, and there are numerous decisions and dicta to the effect that the plea should not as a general rule prevail whether interposed for or against the corporation, where it will not advance justice but on the contrary will accomplish a legal wrong. (14-A C. J., pp. 314-315.) The doctrine of the Supreme Court of the United States together with the English courts and some of the state courts is that no performance upon either side can validate an ultra vires transaction or authorize an action to be maintained directly upon it. However, the great weight of authority in the state courts is to the effect that a transaction which is merely ultra vires and not malum in se or malum prohibitum although it may be made by the state a basis for the forfeiture of the corporate charter or the dissolution of the corporation, is, if performed by one party, not void as between the parties to all intents and purposes, and that an action may be brought directly upon the transaction and relief had according to its terms. ( 14-A C. J., pp. 319-320.) When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong. (Coleman vs. Hotel de France Co., 29 Phil., 323.) Guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding. (Broadway Nat. Bank vs. Baker, 57 N. E., p. 603.) It has been intimated according to section 121 of the Corporation Law, the Philippine Trust Company, as a banking institution, could not guarantee the bonds to the value of P3,000,000 because this amount far exceeds its capital of P1,000,000 of which only one-half has been subscribed and paid. Section 121 reads as follows: SEC. 212. No such bank shall at any time be indebted or in any way liable to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the following nature: (1) Moneys deposited with or collected by the bank; (2) Bills of exchange or drafts drawn against money actually on deposit to the credit of the bank or due thereto; (3) Liabilities to the stockholders of the bank for dividends and reserve profits. This difficulty is easily obviated by bearing in mind that, as we stated above, the banking operations are not the primary aim of said corporation, which is engaged essentially in the trust business, and that the prohibition of the law is not applicable to the Philippine Trust Company, for the evidence shows that Mindoro Sugar Company transferred all its real property, with the improvements, to it, and the value of both, which surely could not be less than the value of the obligation guaranteed, became a part of its capital and assets; in other words, with the value of the real property transferred to it, the Philippine Trust Company had enough capital and assets to meet the amount of the bonds guaranteed with interest thereon. Wherefore, the decision appealed from is reversed and the Philippine Trust Company is sentenced to pay to the appellant the sum of four thousand dollars ($4,000) with interest at eight per cent (8%) per annum from July 1, 1928 until fully paid, and the costs of both instances. So ordered.

CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIA ANTONIA TEMPLO and MEDICAL CENTER PARAAQUE, INC., petitioners, vs. ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO FUNTILA, TERESITA GAYANILO, RUSTICO JIMENEZ, ** ARACELI JO, ESMERALDA MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE VALDEZ, SALVACION VILLAMORA, and HUMBERTO VILLAREAL, respondents. DECISION QUISUMBING, J.: 1 For review on certiorari is the Partial Judgment dated November 26, 2001 in Civil Case No. 01-0140, of the Regional Trial Court (RTC) of Paraaque City, Branch 258. The trial court declared the February 9, 2001, election of the board of directors of the Medical Center Paraaque, Inc. (MCPI) valid. The Partial Judgment dismissed petitioners first cause of action, specifically, to annul said election for depriving petitioners their voting rights and to be voted on as members of the board. The facts, as culled from records, are as follows: Petitioners and the respondents are stockholders of MCPI, with the former holding Class "B" shares and the latter owning Class "A" shares. MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Paraaque City. It was organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. Article VII of MCPIs original Articles of Incorporation, as approved by the Securities and Exchange Commission (SEC) on October 26, 1977, reads as follows: SEVENTH. That the authorized capital stock of the corporation is TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, divided into TWO THOUSAND (2,000) SHARES at a par value of P100 each share, whereby the ONE THOUSAND SHARES issued to, and subscribed by, the incorporating stockholders shall be classified as Class A shares while the other ONE THOUSAND unissued shares shall be considered as Class B shares. Only holders of Class A shares can have the right to vote and the right to be elected as 2 directors or as corporate officers. (Stress supplied) On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus: SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION (P5,000,000.00) PESOS, divided as follows: CLASS NO. OF SHARES PAR VALUE "A" 1,000 P1,000.00 "B" 4,000 P1,000.00 3 Only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers. (Emphasis supplied) The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment granted the right to vote and to be elected as directors or corporate officers only to holders of Class "A" shares, holders of Class "B" stocks were granted the same rights and privileges as holders of Class "A" stocks with respect to the payment of dividends. On September 9, 1992, Article VII was again amended to provide as follows: SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO MILLION PESOS (P32,000,000.00) divided as follows: CLASS NO. OF SHARES PAR VALUE "A" 1,000 P1,000.00 "B" 31,000 1,000.00 Except when otherwise provided by law, only holders of Class "A" shares have the right to vote and the right to be elected as 4 directors or as corporate officers (Stress and underscoring supplied). The SEC approved the foregoing amendment on September 22, 1993. On February 9, 2001, the shareholders of MCPI held their annual stockholders meeting and election for directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as amended, and notwithstanding MCPIs history, declared over the objections of herein petitioners, that no Class "B" shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B" share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board. The petitioners protested, claiming that Article VII was null and void for depriving them, as Class "B" shareholders, of their right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68), as amended. On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for Injunction, Accounting and Damages, docketed as Civil Case No. CV-01-0140 before the RTC of Paraaque City, Branch 258. Said complaint was founded on two (2) principal causes of action, namely: a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001 Annual Stockholders Meeting, and for the conduct of an election whereat all stockholders, irrespective of the classification of the shares they hold, should be afforded their right to vote and be voted for; and b. Stockholders derivative suit challenging the validity of a contract entered into by the Board of Directors of MCPI for the operation 5 of the ultrasound unit. Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of the second cause of action. Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be voted on as directors at the annual stockholders meeting held on February 9, 2001, because respondents had erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being contrary to the Corporation Code, thus null and void. Additionally, respondents were in estoppel, because in the past, petitioners were allowed to vote and to be elected as members of the board. They further claimed that the privilege granted to the Class "A" shareholders was more in the nature of a right granted to founders shares. In their Answer, the respondents averred that the provisions of Article VII clearly and categorically state that only holders of Class "A" shares have the exclusive right to vote and be elected as directors and officers of the corporation. They denied that the exclusivity was intended only as a privilege granted to founders shares, as no such proviso is found in the Articles of Incorporation. The respondents further claimed that the exclusivity of the right granted to Class "A" holders cannot be defeated or impaired by any subsequent legislative enactment, e.g.the New Corporation Code, as the Articles of Incorporation is an intra-corporate contract between the corporation and its members; between the corporation and its stockholders; and among the stockholders. They submit

that to allow Class "B" shareholders to vote and be elected as directors would constitute a violation of MCPIs franchise or charter as granted by the State. At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause of action and required the parties to submit their respective position papers or memoranda. On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of which reads: WHEREFORE, viewed in the light of the foregoing, the election held on February 9, 2001 is VALID as the holders of CLASS "B" shares are not entitled to vote and be voted for and this case based on the First Cause of Action is DISMISSED. 6 SO ORDERED. In finding for the respondents, the trial court ruled that corporations had the power to classify their shares of stocks, such as "voting 7 and non-voting" shares, conformably with Section 6 of the Corporation Code of the Philippines. It pointed out that Article VII of both the original and amended Articles of Incorporation clearly provided that only Class "A" shareholders could vote and be voted for to the exclusion of Class "B" shareholders, the exception being in instances provided by law, such as those enumerated in Section 6, paragraph 6 of the Corporation Code. The RTC found merit in the respondents theory that the Articles of Incorporation, which defines the rights and limitations of all its shareholders, is a contract between MCPI and its shareholders. It is thus the law between the parties and should be strictly enforced as to them. It brushed aside the petitioners claim that the Class "A" shareholders were in estoppel, as the election of Class "B" shareholders to the corporate board may be deemed as a mere act of benevolence on the part of the officers. Finally, the court brushed aside the "founders shares" theory of the petitioners for lack of factual basis. Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in rendering the Partial Judgment dated November 26, 2001, has decided a question of substance in a way not in accord with law and jurisprudence considering that: 1. Under the Corporation Code, the exclusive voting right and right to be voted granted by the Articles of Incorporation of the MCPI to Class A shareholders is null and void, or already extinguished; 2. Hence, the declaration of directors made during the February 9, 2001 Annual Stockholders Meeting on the basis of the purported exclusive voting rights is null and void for having been done without the benefit of an election and in violation of the rights of plaintiffs and Class B shareholders; and 3. Perforce, another election should be conducted to elect the directors of the MCPI, this time affording the holders of Class B shares 8 full voting right and the right to be voted. The issue for our resolution is whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and be voted for as directors in MCPI. Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied them voting rights, is null and void for being contrary to Section 6 of the Corporation Code. They point out that Section 6 prohibits the deprivation of voting rights except as to preferred and redeemable shares only. Hence, under the present law on corporations, all shareholders, regardless of classification, other than holders of preferred or redeemable shares, are entitled to vote and to be elected as corporate directors or officers. Since the Class "B" shareholders are not classified as holders of either preferred or redeemable shares, then it necessarily follows that they are entitled to vote and to be voted for as directors or officers. The respondents, in turn, maintain that the grant of exclusive voting rights to Class "A" shares is clearly provided in the Articles of 9 Incorporation and is in accord with Section 5 of the Corporation Law (Act No. 1459), which was the prevailing law when MCPI was incorporated in 1977. They likewise submit that as the Articles of Incorporation of MCPI is in the nature of a contract between the corporation and its shareholders and Section 6 of the Corporation Code could not retroactively apply to it without violating the non10 impairment clause of the Constitution. We find merit in the petition. When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase "except when otherwise provided by law" was inserted in the provision governing the grant of voting powers to Class "A" shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting rights to Class "A" stockholders. Which law was the amendment referring to? The determination of which law to apply is necessary. There are two laws being cited and relied upon by the parties in this case. In this instance, the law in force at the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not the Corporation Law (Act No. 1459), which had been repealed by then. We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly provided for, such that "no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" and that "there shall always be a class or series of shares which have complete voting rights." Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred" or "redeemable" shares, the holders of said Class "B" shares may not be deprived of their voting rights. Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only possible conclusion is that Class "B" shares fall under neither category and thus, under the law, are allowed to exercise voting rights. One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the 11 legislature or by the corporation, without his consent, through amending the charter, or the by-laws. Neither do we find merit in respondents position that Section 6 of the Corporation Code cannot apply to MCPI without running 12 afoul of the non-impairment clause of the Bill of Rights. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and stockholders must have been aware of Section 6 of the Corporation Code and intended that Article VII be construed in harmony with the Code, which was then already in force and effect. Since Section 6 of the Corporation Code expressly prohibits the deprivation of voting rights, except as to "preferred" and "redeemable" shares, then Article VII of the Articles of Incorporation cannot be construed as

granting exclusive voting rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without running afoul of the letter and spirit of the Corporation Code. The respondents then take the tack that the phrase "except when otherwise provided by law" found in the amended Articles is only a handwritten insertion and could have been inserted by anybody and that no board resolution was ever passed authorizing or approving said amendment. Said contention is not for this Court to pass upon, involving as it does a factual question, which is not proper in this petition. In an 13 appeal via certiorari, only questions of law may be reviewed. Besides, respondents did not adduce persuasive evidence, but only bare allegations, to support their suspicion. The presumption that in the amendment process, the ordinary course of business has 14 15 been followed and that official duty has been regularly performed on the part of the SEC, applies in this case. WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of the Regional Trial Court of Paraaque City, Branch 258, in Civil Case No. 01-0140 is REVERSED AND SET ASIDE. No pronouncement as to costs. SO ORDERED.

CATMON SALES INTERNATIONAL CORPORATION, - versus ATTY. MANUEL D. YNGSON, JR., as Liquidator of Catmon Sales International Corporation DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) [1] [2] Decision dated April 24, 2007 and Resolution dated September 14, 2007 in CA-G.R. SP No. 95938. The assailed decision, in turn, [3] affirmed the Decision of the Securities and Exchange Commission (SEC) En Banc in SEC En Banc Case No. 05-010 (SEC Case No. 0299-6204). The facts of the case follow: On February 8, 1999, petitioner Catmon Sales International Corporation filed a Petition for Declaration in a State of Suspension of Payments with the SEC. The case was docketed as SEC Case No. 02-99-6204. On May 10, 2000, the SEC declared petitioner technically insolvent considering that there was no settlement reached with its [5] creditors and that its inability to pay its creditors had lasted for a period longer than one year from the filing of the petition. In an Order dated August 28, 2000, the SEC denied petitioners motion for reconsideration. In the same Order, the SEC appointed [6] respondent Manuel D. Yngson, Jr. of Receivers and Liquidators, Inc. as petitioners liquidator. On May 31, 2001, the SEC terminated the services of respondent. Respondent, in turn, submitted his Accomplishment Report summarizing all the activities he had undertaken and billed the SEC the total sum of P623,214.35, representing his liquidators fee and reimbursement of out-of-pocket expenses. On December 18, 2001, the SEC ordered that an audit be conducted to determine [7] the proper amount to be paid to respondent. The Corporation Finance Department noted a slight difference in the liquidators [8] computation. On September 23, 2004, respondent manifested to the SEC that he was willing to reduce his liquidators fee provided that his request for administrative expenses be settled in full. On June 23, 2005, the SEC, through its General Counsel, ordered the members of the Board of Directors of petitioner to pay respondent his claim for reimbursement of the expenses incurred in the performance of his duties as liquidator, together with his [9] [10] liquidators fee, for a total amount of P398,284.40. Petitioners motion for reconsideration was denied on October 11, 2005. On appeal, the SEC En Banc modified the June 23, 2005 and October 11, 2005 Orders in this wise: WHEREFORE, premises considered, the Order dated 11 October 2005 is accordingly modified. The members of the Board of Directors of Appellant Catmon who are constituted as Trustees are hereby ordered to pay the Liquidator, Atty. Manuel D. Yngson, the amount of TWO HUNDRED TWENTY FIVE THOUSAND PESOS (P225,000.00) from the assets of Appellant Catmon, representing his liquidators fee within fifteen (15) days from date of actual receipt of this Order. SO ORDERED.
[11] [4]

While it is true that the compensation or fees of the management committee, receivers and liquidators shall be determined by the agreement between the parties, the SEC En Banc explained that it was authorized to determine such fees and compensation in [12] the absence of an agreement. The SEC clarified that although petitioners directors, who were constituted as trustees of the corporation, were made to pay respondents fees, such obligation should not be considered as their personal liabilities but for the [13] account of petitioner. Lastly, while respondents claim for liquidators fee was sustained, his claim for reimbursement of out-of[14] pocket expenses was deleted. Unsatisfied, petitioner elevated the matter to the CA. On April 24, 2007, the CA affirmed the SEC En Banc decision. Petitioners motion for reconsideration was likewise denied on September 14, 2007. Petitioner now comes before this Court, arguing that: THE COURT OF APPEALS COMMITTED GROSS ERROR AND ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION AND/OR [15] GRAVELY ABUSED ITS DISCRETION WHEN IT AFFIRMED THE DECISION OF THE SEC EN BANC. The petition is without merit. We stress the settled rule that the findings of fact of administrative bodies, such as the SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. These factual findings carry even more weight when affirmed by the CA. They are accorded not only great respect but even finality, and are binding upon this Court, unless it is shown that the administrative body had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel a contrary conclusion had such evidence been [16] properly appreciated. By reason of the special knowledge and expertise of administrative agencies over matters falling under their [17] jurisdiction, they are in a better position to pass judgment thereon. A review of the petition does not show any reversible error committed by the appellate court; hence, the petition must be denied. Petitioner failed to present any argument that would convince the Court that the SEC and the CA made any misappreciation [18] of the facts and the applicable laws such that their decisions should be overturned.

Respondents appointment as petitioners liquidator and the formers entitlement to compensation are not disputed. The only issue in the instant case pertains to the manner in which the amount of the liquidators fee was fixed. Petitioner wants this Court to nullify the CA decision simply because respondents fee was fixed by the SEC instead of by the parties themselves. The determination of respondents fee as liquidator was initiated through a letter sent by respondent to the SEC, requesting from the latter refund his personal advances and out-of-pocket expenses, and payment of his liquidators fee. Acting on the said [20] letter, the SEC ordered that an audit be conducted to determine the proper amount to be paid to respondent. Thereafter, the SEC, through its General Counsel, ordered the members of the Board of Directors of petitioner, as trustees, to undertake the liquidation of the corporation and to pay respondent his liquidators fee and other expenses incurred in the performance of his duties. Upon receipt of the SEC Order, petitioner filed a motion for reconsideration thereof on the following grounds: (1).WITH ALL DUE RESPECTS (SIC), THE BOARD OF DIRECTORS OF CATMON SHOULD NOT BE HELD LIABLE FOR THE CLAIM OF THE LIQUIDATOR; (2).THE CLAIM FOR REIMBURSEMENT IS EXCESSIVE AND UNFOUNDED; and
[19]

(3).THERE IS STILL PENDING IN THE SUPREME COURT A PETITION FOR CERTIORARI FROM THE ORDER OF THE SEC DIRECTING THE [21] DISSOLUTION OF CATMON. Nowhere in the above motion did petitioner question the SECs authority to fix respondents liquidators fee. It was only in its Memorandum of Appeal filed with the SEC En Banc that petitioner assailed such authority, indicating that the said argument was a mere afterthought. Moreover, in support of the second ground relied upon by petitioner -- that the claim for reimbursement was excessive and unfounded -- it questioned respondents claim for reimbursement of salaries and wages, office rentals and Social Security System (SSS) and Philippine Health Insurance Corporation (PhilHealth) contributions, allegedly because they should have been absorbed in the bill for services of the liquidator. Again, no issue was raised on the amount of the liquidators fee. Even assuming that the issues were properly raised, still, we find no cogent reason to depart from the conclusions of the CA. Petitioner insists that pursuant to SEC Memorandum Circular No. 14, Series of 2001 (Circular), the liquidators fee shall be determined by the agreement between the liquidating corporation and the liquidator. Only when they fail to reach an agreement may the SEC exercise the power to fix the amount. Considering that the SEC determined the liquidators fee without requiring the parties to meet and settle the amount, petitioner contends that it was denied its right to due process. Indeed, the Circular provides: The compensation or fees of the MANCOM, receivers and liquidators shall be determined by the agreement between the parties and the MANCOM members, receiver or liquidator. This compensation/fees shall be of an amount which the corporation is willing and able to pay and the MANCOM members, receiver or liquidator is willing to accept as fee or compensation for the engagement of their/his service. In case of failure of agreement, the Commission shall determine the fees and/or compensation of MANCOM, receivers and liquidators in accordance with the guidelines set herein. However, as correctly pointed out by the CA: To countenance petitioners posturing would be to unduly delimit the broad powers granted to the SEC under Presidential Decree No. 902-A, specifically the all-encompassing provision in Section 3 that the SEC has absolute jurisdiction, supervision and control over all corporations who are the grantees of primary franchises and/or license or permit issued by the government to operate in the Philippines. There is no gainsaying, therefore, that the SEC is authorized to determine the fees of receivers and liquidators not only when there is failure of agreement between the parties but also in the absence thereof. A contrary ruling would give license to corporations under liquidation or receivership to refuse to participate in negotiations for the fixing of the [23] compensation of their liquidators or receivers so as to evade their obligation to pay the same. Petitioner may not have been given the chance to meet face to face with respondent for the purpose of determining the latters fee. But this fact alone should not invalidate the amount fixed by the SEC. What matters is the reasonableness of the fee in light of the services rendered by the liquidator. It is the policy of the SEC to provide uniform/fair and reasonable compensation or fees for the comparable services rendered by the duly designated members of the Management Committee (MANCOM), rehabilitation receivers and liquidators in corporations or partnerships placed under MANCOM/receivership or liquidation, pursuant to Section 6(d) of Presidential Decree No. 902-A, the SEC Rules on Corporate Recovery, the Corporation Code of the Philippines, the [24] Securities Regulation Code, and other related laws enforced by the SEC. The Court notes that respondent initially demanded P623,214.35, representing his liquidators fee of P450,000.00 and out-ofpocket expenses of P173,214.35. Respondent later manifested that he was amenable to reduce by one-half his liquidators fee. Before fixing the amount due the respondent, the SEC, in fact, ordered that an audit be conducted to determine the proper amount to be paid. Clearly, the fee fixed by the SEC was not without basis. Besides, as correctly held by the CA, respondent actually [25] rendered services in accordance with his oath of office as liquidator for which he is entitled to be compensated by petitioner. There is also no merit in petitioners claim that it was denied its right to due process, since the members of its Board of Directors were not summoned to answer respondents claim. As can be gleaned from the above discussion, as early as the filing of
[22]

its motion for reconsideration of the June 23, 2005 Order of the SEC, petitioner already questioned the amount awarded to respondent. It is well to reiterate that petitioner questioned only the respondents claim for reimbursement of out-of-pocket expenses, but not the liquidators fee. The SEC En Banc eventually disallowed the reimbursement of said expenses. Yet, petitioner continued to assail the award, arguing that the parties, and not the SEC, had the power and authority to determine the correct amount due the respondent. To be sure, all the issues raised by petitioner, including the amount awarded to respondent, were squarely ruled upon by both the SEC and the CA. Hence, petitioner was not only given the opportunity to be heard, but was actually heard through its pleadings. Procedural due process is the necessity for notice and an opportunity to be heard before judgment is rendered. As long as a party is given the opportunity to defend his interests in due course, he would have no reason to complain, for it is this opportunity [26] to be heard that makes up the essence of due process. For his part, respondent prayed in his Comment that, in addition to his liquidation fee already awarded in his favor, his claim for reimbursement of administrative expenses be granted. We answer in the negative. This Courts ruling in Coca-Cola Bottlers Philippines, Inc. v. Garcia
[27]

is instructive:

It is well-settled that a party who has not appealed from a decision cannot seek any relief other than what is provided in the judgment appealed from. An appellee who has himself not appealed may not obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court below. The appellee can only advance any argument that he may deem necessary to defeat the appellants claim or to uphold the decision that is being disputed, and he can assign errors in his brief if such is required to strengthen the views expressed by the court a quo. These assigned errors in turn may be considered by the appellate court solely to maintain the appealed decision on other grounds, but not for the purpose of reversing or modifying the judgment in [28] the appellees favor and giving him other reliefs. As aptly observed by the CA, respondent did not appeal the SEC decision. Thus, the decision of the CA on the amount due the respondent has become final as to him, and can no longer be reviewed, much less be reversed, by this Court. WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals Decision dated April 24, 2007 and Resolution datedSeptember 14, 2007 in CA-G.R. SP No. 95938 are AFFIRMED. SO ORDERED.

CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D. ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM, CESAR T. LIBI, * RAMONTITO E. GARCIA and JOSE B. SALA, petitioners, vs. RICARDO F. ELIZAGAQUE, respondent. DECISION SANDOVAL-GUTIERREZ, J.: For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, 1 assailing the Decision dated January 31, 2003 and Resolution dated October 2, 2003 of the Court of Appeals in CA-G.R. CV No. 71506. The facts are: Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and non-stock private membership club, having its principal place of business in Banilad, Cebu City. Petitioners herein are members of its Board of Directors. Sometime in 1987, San Miguel Corporation, a special company proprietary member of CCCI, designated respondent Ricardo F. Elizagaque, its Senior Vice President and Operations Manager for the Visayas and Mindanao, as a special non-proprietary member. The designation was thereafter approved by the CCCIs Board of Directors. In 1996, respondent filed with CCCI an application for proprietary membership. The application was indorsed by CCCIs two (2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo. As the price of a proprietary share was around the P5 million range, Benito Unchuan, then president of CCCI, offered to sell respondent a share for only P3.5 million. Respondent, however, purchased the share of a certain Dr. Butalid for only P3 million. Consequently, on September 6, 1996, CCCI issued Proprietary Ownership Certificate No. 1446 to respondent. During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on respondents application for proprietary membership was deferred. In another Board meeting held on July 30, 1997, respondents application was voted upon. Subsequently, or on August 1, 1997, respondent received a letter from Julius Z. Neri, CCCIs corporate secretary, informing him that the Board disapproved his application for proprietary membership. On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any member of the Board objected to his application. Again, CCCI did not reply. Consequently, on December 23, 1998, respondent filed with the Regional Trial Court (RTC), Branch 71, Pasig City a complaint for damages against petitioners, docketed as Civil Case No. 67190. After trial, the RTC rendered its Decision dated February 14, 2001 in favor of respondent, thus: WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. Ordering defendants to pay, jointly and severally, plaintiff the amount of P2,340,000.00 as actual or compensatory damages. 2. Ordering defendants to pay, jointly and severally, plaintiff the amount of P5,000,000.00 as moral damages. 3. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as exemplary damages. 4. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as and by way of attorneys fees and P80,000.00 as litigation expenses. 5. Costs of suit. Counterclaims are hereby DISMISSED for lack of merit. 2 SO ORDERED. On appeal by petitioners, the Court of Appeals, in its Decision dated January 31, 2003, affirmed the trial courts Decision with modification, thus: WHEREFORE, premises considered, the assailed Decision dated February 14, 2001 of the Regional Trial Court, Branch 71, Pasig City in Civil Case No. 67190 is hereby AFFIRMED with MODIFICATION as follows: 1. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the amount ofP2,000,000.00 as moral damages; 2. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the amount ofP1,000,000.00 as exemplary damages; 3. Ordering defendants-appellants to pay, jointly and severally, plaintiff-appellee the mount of P500,000.00 as attorneys fees and P50,000.00 as litigation expenses; and 4. Costs of the suit. The counterclaims are DISMISSED for lack of merit. 3 SO ORDERED. On March 3, 2003, petitioners filed a motion for reconsideration and motion for leave to set the motion for oral arguments. In its 4 Resolution dated October 2, 2003, the appellate court denied the motions for lack of merit. Hence, the present petition. The issue for our resolution is whether in disapproving respondents application for proprietary membership with CCCI, petitioners are liable to respondent for damages, and if so, whether their liability is joint and several. Petitioners contend, inter alia, that the Court of Appeals erred in awarding exorbitant damages to respondent despite the lack of evidence that they acted in bad faith in disapproving the latters application; and in disregarding their defense of damnum absque injuria. For his part, respondent maintains that the petition lacks merit, hence, should be denied. CCCIs Articles of Incorporation provide in part: SEVENTH: That this is a non-stock corporation and membership therein as well as the right of participation in its assets shall be limited to qualified persons who are duly accredited owners of Proprietary Ownership Certificates issued by the corporation in accordance with its By-Laws. Corollary, Section 3, Article 1 of CCCIs Amended By-Laws provides: SECTION 3. HOW MEMBERS ARE ELECTED The procedure for the admission of new members of the Club shall be as follows: (a) Any proprietary member, seconded by another voting proprietary member, shall submit to the Secretary a written proposal for the admission of a candidate to the "Eligible-for-Membership List"; (b) Such proposal shall be posted by the Secretary for a period of thirty (30) days on the Club bulletin board during which time any member may interpose objections to the admission of the applicant by communicating the same to the Board of Directors;

(c) After the expiration of the aforesaid thirty (30) days, if no objections have been filed or if there are, the Board considers the objections unmeritorious, the candidate shall be qualified for inclusion in the "Eligible-for-Membership List"; (d) Once included in the "Eligible-for-Membership List" and after the candidate shall have acquired in his name a valid POC duly recorded in the books of the corporation as his own, he shall become a Proprietary Member, upon a non-refundable admission fee of P1,000.00, provided that admission fees will only be collected once from any person. On March 1, 1978, Section 3(c) was amended to read as follows: (c) After the expiration of the aforesaid thirty (30) days, the Board may, by unanimous vote of all directors present at a regular or special meeting, approve the inclusion of the candidate in the "Eligible-for-Membership List". As shown by the records, the Board adopted a secret balloting known as the "black ball system" of voting wherein each member will drop a ball in the ballot box. A white ball represents conformity to the admission of an applicant, while a black ball means disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous vote of the directors is required. When respondents application for proprietary membership was voted upon during the Board meeting on July 30, 1997, the ballot box contained one (1) black ball. Thus, for lack of unanimity, his application was disapproved. Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the right to approve or disapprove an application for proprietary membership. But such right should not be exercised arbitrarily. Articles 19 and 21 of the Civil Code on the Chapter on Human Relations provide restrictions, thus: Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 5 In GF Equity, Inc. v. Valenzona, we expounded Article 19 and correlated it with Article 21, thus: This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper. (Emphasis in the original) In rejecting respondents application for proprietary membership, we find that petitioners violated the rules governing human relations, the basic principles to be observed for the rightful relationship between human beings and for the stability of social order. The trial court and the Court of Appeals aptly held that petitioners committed fraud and evident bad faith in disapproving respondents applications. This is contrary to morals, good custom or public policy. Hence, petitioners are liable for damages pursuant to Article 19 in relation to Article 21 of the same Code. It bears stressing that the amendment to Section 3(c) of CCCIs Amended By-Laws requiring the unanimous vote of the directors present at a special or regular meeting was not printed on the application form respondent filled and submitted to CCCI. What was printed thereon was the original provision of Section 3(c) which was silent on the required number of votes needed for admission of an applicant as a proprietary member. Petitioners explained that the amendment was not printed on the application form due to economic reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from being extremely significant, was introduced way back in 1978 or almost twenty (20) years before respondent filed his application. We cannot fathom why such a prestigious and exclusive golf country club, like the CCCI, whose members are all affluent, did not have enough money to cause the printing of an updated application form. It is thus clear that respondent was left groping in the dark wondering why his application was disapproved. He was not even informed that a unanimous vote of the Board members was required. When he sent a letter for reconsideration and an inquiry whether there was an objection to his application, petitioners apparently ignored him. Certainly, respondent did not deserve this kind of treatment. Having been designated by San Miguel Corporation as a special non-proprietary member of CCCI, he should have been treated by petitioners with courtesy and civility. At the very least, they should have informed him why his application was disapproved. The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm. When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which the wrongdoer must be 6 held responsible. It bears reiterating that the trial court and the Court of Appeals held that petitioners disapproval of respondents application is characterized by bad faith. As to petitioners reliance on the principle of damnum absque injuria or damage without injury, suffice it to state that the same is 7 misplaced. In Amonoy v. Gutierrez, we held that this principle does not apply when there is an abuse of a persons right, as in this case. As to the appellate courts award to respondent of moral damages, we find the same in order. Under Article 2219 of the New Civil Code, moral damages may be recovered, among others, in acts and actions referred to in Article 21. We believe respondents testimony that he suffered mental anguish, social humiliation and wounded feelings as a result of the arbitrary denial of his application. However, the amount of P2,000,000.00 is excessive. While there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, the same should not be palpably and scandalously excessive. Moral damages are 8 not intended to impose a penalty to the wrongdoer, neither to enrich the claimant at the expense of the defendant. Taking into consideration the attending circumstances here, we hold that an award to respondent of P50,000.00, instead of P2,000,000.00, as moral damages is reasonable. Anent the award of exemplary damages, Article 2229 allows it by way of example or correction for the public good. Nonetheless, since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a 9 negative incentive to curb socially deleterious actions, we reduce the amount fromP1,000,000.00 to P25,000.00 only. On the matter of attorneys fees and litigation expenses, Article 2208 of the same Code provides, among others, that attorneys fees and expenses of litigation may be recovered in cases when exemplary damages are awarded and where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered, as in this case. In any event, however, such award

must be reasonable, just and equitable. Thus, we reduce the amount of attorneys fees (P500,000.00) and litigation expenses (P50,000.00) to P50,000.00 andP25,000.00, respectively. Lastly, petitioners argument that they could not be held jointly and severally liable for damages because only one (1) voted for the disapproval of respondents application lacks merit. Section 31 of the Corporation Code provides: SEC. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faithin directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. (Emphasis ours) WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 71506 are AFFIRMED with modification in the sense that (a) the award of moral damages is reduced fromP2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced from P1,000,000.00 to P25,000.00; and (c) the award of attorneys fees and litigation expenses is reduced from P500,000.00 and P50,000.00 toP50,000.00 and P25,000.00, respectively. Costs against petitioners. SO ORDERED.

CEBU MACTAN MEMBERS vs. MASAHIRO TSUKAHARA The Case

[1] [2]

This is a petition for review of the Court of Appeals Decision dated 29 July 2003 in CA-G.R. CV No. 68321. The Court of Appeals [3] affirmed the Decision dated 24 September 1999 of the Regional Trial Court of Cebu City, Branch 58 (RTC). The Antecedent Facts In February 1994, petitioner Cebu Mactan Members Center, Inc. (CMMCI), through Mitsumasa Sugimoto (Sugimoto), the President and Chairman of the Board of Directors of CMMCI, obtained a loan amounting to P6,500,000 from respondent Masahiro Tsukahara. As payment for the loan, CMMCI issued seven postdated checks of CMMCI payable to Tsukahara, with details as [4] follows:

Check No. PNB Check No. 892657 PNB Check No. 892683 PNB Check No. 892684 PNB Check No. 892685 PNB Check No. 892686 PNB Check No. 892687 PNB Check No. 892688

Date 6 May 1994 6 September 1994 25 December 1994 31 March 1995 30 June 1995 30 September 1995 25 December 1995

Amount P4,860,000 280,000 270,000 270,000 280,000 270,000 270,000 -----------------P6,500,000

Total

On 13 April 1994, CMMCI, through Sugimoto, obtained another loan amounting to P10,000,000 from Tsukahara. Sugimoto [5] executed and signed a promissory note in his capacity as CMMCI President and Chairman, as well as in his personal capacity. The promissory note states: FOR VALUE RECEIVED, the undersigned CEBU MACTAN MEMBERS CENTER, INC., a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, through its undersigned chairman and president, MITSUMASA SUGIMOTO, hereby promise to pay MASAHIRO TSUKAHARA or order the sum of TEN MILLION PESOS (P10,000,000.00) on or before August 30, 1996, plus interest thereon at the rate of EIGHTEEN PERCENT (18%) per annum computed from the date of this instrument until fully paid CEBU MACTAN MEMBERS CENTER, INC. By: (Signed) MITSUMASA SUGIMOTO In his capacity as Chairman and President and in his personal capacity. x x x Upon maturity, the seven checks were presented for payment by Tsukahara, but the same were dishonored by PNB, the drawee bank. After several failed attempts to collect the loan amount totaling P16,500,000, Tsukahara filed the instant case for collection of sum of money against CMMCI and Sugimoto. Tsukahara alleged that the amount of P16,500,000 was used by CMMCI for the improvement of its beach resort, which included the construction of a wave fence, the purchase of airconditioners and curtains, and the provision of salaries of resort employees. He also asserted that Sugimoto, as the President of CMMCI, has the power to borrow money for said corporation by [6] any legal means whatsoever and to sign, endorse and deliver all checks and promissory notes on behalf of the corporation. CMMCI, on the other hand, denied borrowing the amount from Tsukahara, and claimed that both loans were personal loans of Sugimoto. The company also contended that if the loans were those of CMMCI, the same should have been supported by resolutions issued by CMMCIs Board of Directors.

On 24 September 1999, the RTC rendered a Decision, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants by ordering the defendants to pay jointly and severally to the plaintiff the sum of Six Millions (sic) Five Hundred Thousand Pesos (P6,500,000.00), Philippine Currency, with interest thereon at the legal rate from the filing of the amended complaint on September 13, 1996 until fully paid, the sum of Ten Million Pesos (P10,000,000.00), Philippine Currency, with interest of eighteen percent (18%) per annum from April 13, 1994 until fully paid, the sum of One Hundred Fifty Thousand Pesos (P150,000.00), Philippine Currency, as and for attorneys fees and costs of suit. As the defendant Mitsumasa Sugimoto, who was served with summons by publication, was declared in default, let this decision be served upon him by publication once in a newspaper of general circulation at the expense of the plaintiff, pursuant to Section 9, Rule 13 of the 1997 Revised Rules of Civil Procedure. SO ORDERED.
[7]

The Court of Appeals Ruling On appeal, the Court of Appeals rendered judgment, affirming the decision of the RTC, thus: WHEREFORE, the instant appeal is hereby DISMISSED and the Decision dated September 24, 1999 AFFIRMED. SO ORDERED.
[8]

Hence, this petition. The Issue The sole issue for resolution in this case is: Whether the Court of Appeals erred in holding that CMMCI is liable for the loan contracted by its President without a resolution issued by the CMMCI Board of Directors. The Courts Ruling We find the petition without merit. A corporation, being a juridical entity, may act through its board of directors, which exercises almost all corporate powers, lays [9] down all corporate business policies and is responsible for the efficiency of management. The general rule is that, in the absence [10] of authority from the board of directors, no person, not even its officers, can validly bind a corporation. Section 23 of the Corporation Code of the Philippines provides: SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x. In Peoples Aircargo and Warehousing Co., Inc. v. Court of Appeals, we held that under Section 23, the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and [12] powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the [13] general course of business. This Court has held, thus: A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as [14] the corporation has caused persons dealing with the officer or agent to believe that it has conferred. In this case, the corporate by-laws of CMMCI provide: ARTICLE III Officers xxx 2. President. The President shall be elected by the Board of Directors from their own number. He shall have the following powers and duties: xxx c. Borrow money for the company by any legal means and overdrafts with any and all banking institutions; whatsoever, including the arrangement of letters of credit
[11]

d. Execute on behalf of the company all contracts and agreements e. Sign, indorse, and deliver all checks, drafts, bill of exchange, [15] in the name and on behalf of the corporation;

which the said company may enter into;

promissory notes and orders of payment of sum of money

It is clear from the foregoing that the president of CMMCI is given the power to borrow money, execute contracts, and sign and indorse checks and promissory notes, in the name and on behalf of CMMCI. With such powers expressly conferred under the corporate by-laws, the CMMCI president, in exercising such powers, need not secure a resolution from the companys board of directors. We quote with approval the ruling of the appellate court, viz: x x x The court a quo correctly ruled that a board resolution in this case is a superfluity given the express provision of the corporate by-laws. To insist that a board resolution is still required in order to bind the corporation with respect to the obligations contracted by its president is to defeat the purpose of the by-laws. By-laws of a corporation should be construed and given effect according to the general rules governing the construction of contracts. They, as the self-imposed private laws of a corporation, have, when valid, substantially the same force and effect as laws of the corporation, as have the provisions of its charter insofar as the corporation and the persons within it are concerned. They are in effect written into the charter and in this sense, they become part of the fundamental law of the corporation. And the corporation and its directors (or trustees) and officers are bound by and must comply with them.
[16]

The corporation is now estopped from denying the authority of its president to bind the former into contractual relations. x x

Thus, given the presidents express powers under the CMMCIs by-laws, Sugimoto, as the president of CMMCI, was more than equipped to enter into loan transactions on CMMCIs behalf. Accordingly, the loans obtained by Sugimoto from Tsukahara on behalf of CMMCI are valid and binding against the latter, and CMMCI may be held liable to pay such loans. WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 29 July 2003 in CA-G.R. CV No. 68321. SO ORDERED.

CENTRAL COOPERATIVE EXCHANGE, INC., petitioner, vs. CONCORDIO TIBE, SR. and THE HONORABLE COURT OF APPEALS, respondents. Faustino, Peralta and Estacio for petitioner. Generoso Casimpan for respondents. REYES, J.B.L., J.: Review, on certiorari, of a decision of the Court of Appeals (in its Case No. 36202-R), affirming the decision of the Court of First Instance of Manila (in its Civil Case No. 44536) dismissing after trial a complaint filed by herein petitioner, Central Cooperative Exchange, Inc. (CCE for short), against herein respondent, Concordio Tibe, Sr., for the refund of certain amounts received by the latter from the corporation, while he served as a member of the board of directors of the Exchange. The petitioner is a national federation of farmers' cooperative marketing associations, or FACOMAS, scattered throughout the country; its single majority stockholder is the former Agricultural Credit and Cooperative Financing Administration (ACCFA), now Agricultural Credit Administration (ACA). As a member of the petitioner's board of directors from 23 May 1958 to 26 May 1960, representing FACOMAS in Eastern Visayas, respondent Concordio Tibe, Sr. drew and collected from petitioner CCE cash advances amounting to P5,668.00; of this sum, respondent had, admittedly, already liquidated P3,317.25, leaving the sum of P2,350.75 still to be accounted for. By admission of the petitioner the sum of P2,350.75 has been further reduced to P2,133.45 as of 31 January 1963 on account of partial payments made after suit was filed (Petitioner's Brief, page 17). Respondent Tibe had also drawn several sums, amounting to P14,436.95, representing commutable per diems for attending meetings of the Board of Directors in Manila, per diems and transportation expenses for FACOMA visitations, representation expenses and cummutable discretionary funds. All these sums were disbursed with the approval of general manager, treasurer and auditor of CCE. The main issue is whether or not the board of directors of the CCE had the power and authority to adopt various resolutions which appropriated the funds of the corporation for the above-enumerated expenses for the members of the said board. Section 8 of the By-Laws of petitioner federation provides: The compensation, if any, and the per diems for attendance at meetings of the members of the Board of Directors shall be determined by the members at any annual meeting or special meeting of the Exchange called for the purpose. In the annual meeting of the stockholders, held in Manila on 31 January 1956, it was resolved that: The members of the Board of Directors attending the CCE board meetings be entitled to actual transportation expenses plus the per diems of P30.00 and actual expenses while waiting.<re||an1w> The resolutions of the Board of Directors under which respondent Tibe drew and collected the sums of money sought to be recovered, and which petitioner claims are invalid resolutions, are the following: (a) Res. No. 55, May 5, 1957, authorizing: 1. Visitation of FACOMAS, in order to be official, must be with prior sanction or authority of the board, except when it is urgent, in which case Board confirmation is needed; 2. Per diem of P10.00 is authorized for visitations outside the place of residence of the director concerned; 3. Actual transportation expenses allowed for all visitations sanctioned or authorized by the board. (b) Res. No. 52, July 8, 1958, appropriating P10,000.00 as discretionary fund of the board of directors, disbursement from which will be made upon authorization of the board chairman and for which no supporting receipts need be presented, (c) Res. No. 49, July 10, 1958, granting monthly commutable allowance of P200.00 to each director starting from July 1, 1958, in lieu of the regular waiting time per diems and transportation expenses while in the City of Manila attending Board and committee meetings. (d) Res. No. 57, July 24, 1958, amending Res. No. 49 by adding P20.00 to the P200.00 as commutable transportation allowances while attending meetings in Manila. (e) Res. No. 35, June 11, 1959, increasing the monthly commutable allowance for each director from P300.00 to P500.00 per month effective June 1, 1959. (f) Res. No. 87, October 9, 1959, appropriating P10,000.00 as commutable discretionary fund of the board of directors. We agree with the petitioner that the questioned resolutions are contrary to the By-Laws of the federation and, therefore, are not within the power of the board of directors to enact. The By-Laws, in the aforequoted Section 8, explicitly reserved unto the stockholders the power to determine the compensation of members of the board of directors, and the stockholders did restrict such compensation to "actual transportation expenses plus the per diems of P30.00 and actual expenses while waiting." Even without the express reservation of said power, the directors are not entitled to compensation, for ... The law is well-settled that directors of corporations presumptively serve without compensation and in the absence of an express agreement or a resolution in relation thereto, no claim can be asserted therefor (Sec. 2110, 5 Fletcher 375-376). Thus it has been held that there can be no recovery of compensation, unless expressly provided for, when a director serves as president or vice president, as secretary, as treasurer or cashier, as a member of an executive committee, as chairman of a building committee, or similar offices (Sec. 2112, 5, Fletcher 381-382). (Alvendia, The Law of Private Corporations in the Philippines, pages 275-276) Thus, the directors, in assigning themselves additional duties, such as the visitation of FACOMAS, acted within their power, but, by voting for themselves compensation for such additional duties, they acted in excess of their authority, as expressed in the By-Laws. Nor may the directors rely on Section 28 of the Corporation Law, giving the exercise of corporate powers and the control of the corporation's business and property to the board of directors, or on Section 1 of Article VI of the By-Laws, empowering the board with "general supervision and control of the affairs and property of the Exchange," as justifications for the adoption of the questioned resolutions, because these provisions of the law and the By-Laws pertain to the board's general powers merely and do not extend to giving the members of the said board the compensations stated in the resolution, as the matter of providing for their compensations are specifically withheld from the board of directors, and reserved to the stockholders. It is vain for the respondent to rely on the good intentions of the board, that the board, for reasons of expediency and economy", cancelled the per diems and actual transportation and waiting expenses provided by the stockholders and substituted these by monthly commutable allowances of P200.00 (per Resolution No. 49) because the court is not concerned with the propriety or wisdom of the measure of compensation already fixed by stockholders, but which the directors wanted to correct by increase thereof (Government of P.I. vs. El Hogar Filipino, 50 Phil. 399).

As stated earlier, respondent Tibe was a director of the corporation from May, 1958 to May, 1960. During his term, he collected the sums of money appropriated in and pursuant to the board resolutions. Suit was filed against respondent on 22 October 1960. One of the grounds of the appealed decision in finding for the respondent is that the petitioner's claim is barred by laches. We do not agree. The board of directors, under the By-Laws of the corporation, had the control of the affairs of the corporation and it is not to be expected that the board would sue its members to recover the sums of money voted by and for themselves. We think that, under the circumstances, where the corporation was virtually immobilized from commencing suit against its directors, laches does not begin to attach against the corporation until the directors cease to be such (Cf. Bates Street Shirt Co. v. Waite, 156 Atl. 293, 297, and cases cited therein). From May, 1960, when respondent ceased to be a director, to October, 1960, when action was filed, is too short a time for the claim to be considered stale. The Court of Appeals plainly erred in not granting petitioner's claim on the cash advances. In the course of the trial, respondent admitted liability therefor (T.s.n., 4 March 1965, pages 7-8). Having admitted liability for the cash advances, respondent waived all defenses thereto, including laches, and there was nothing left for the court to have done but to order payment. The appellate court argued that it would not be easy for the respondent to produce the disbursement receipts covering the cash advances. This is certainly no reason for disapproving petitioner's claim; those receipts are no longer necessary, for the liability was admitted. FOR THE FOREGOING REASONS, the decision under review is hereby reversed, and another one entered ordering the respondent to pay unto the petitioner the sums of P1,730.35 and P14,436.95, with legal interests on both sums from 22 October 1960 until fully paid. Costs against the respondent.

ELTON W. CHASE, as minority Stockholder and on behalf of other Stockholders similarly situated and for the benefit of AMERICAN MACHINERY AND PARTS MANUFACTURING, INC., plaintiff-appellant, vs. DR. VICTOR BUENCAMINO, SR., VICTOR BUENCAMINO, JR., JULIO B. FRANCIA and DOLORES A. BUENCAMINO, respondents. N.J. Quisumbing & Associates for plaintiff-appellant. Belo, Gozon & Associates for private respondents. CUEVAS, J.: This is a joint appeal interposed by both plaintiffs and defendants from the decision of the then Court of First Instance of Manila in its Civil Case No. 49346, the dispositive portion of which reads IN VIEW WHEREOF, on the complaint, Dr. Buencamino is condemned to pay Amparts the sum of Pl,970,200.00 with legal interest from the date of the filing of the complaint; he is also prohibited from collecting any interest on the sum of P300,000 paid by him on the 15th July, 1955 on the initial subscription, and such interest as has already been paid to him is ordered refunded with legal interest from the date of the filing of the complaint; the lease on his Apartment is declared to terminate and be terminated after 1 year from the date this decision shall have become final; on the counterclaims, Elton Chase is condemned to pay Amparts the sum of P500.00 with legal interest from the date of the filing of the counterclaim, the other charges and countercharges are dismissed; no more pronouncement as to costs. SO ORDERED. Manila, 3 May, 1962. On August 20, 1960, Elton Chase in his capacity as director and minority stockholder of American Machinery and Parts Manufacturing, Inc. (AMPARTS) and in behalf of the other stockholders of said corporation similarly situated and for the benefit of Amparts filed Civil Case No. 49346, before the then Court of First Instance of Manila, Branch XIV against a) Dr. Victor Buencamino, Sr. in his capacity as Director, President and General Manager of Amparts; b) Victor Buencamino. Jr., in his capacity as Director, Treasurer and Liaison Officer; c) Julio B. Francia in his capacity as Director and Assistant General Manager; d) Dolores A. Buencamino in her capacity as Director; and e) Spouses William E. Cranker and Florence Cranker alias Florence Barker who together hold 1/3 of the entire subscribed and outstanding shares of stocks of Amparts. The complaint seeks a) the removal of Dr. Buencamino, Sr., Victor Buencamino, Jr. and Julio B. Francia from the offices held by them; b) to enjoin defendants from participating in the management, operation and control of Amparts; c) if necessary, order a dissolution and liquidation of Amparts; d) the appointment of a receiver pendente lite in order to prevent the continuance and aggravation of the violations of defendants and to preserve and protect the rights and interests of plaintiff-appellant and other stockholders similarly situated; and 1 e) for general relief. Defendants William E. Cranker and Florence Cranker even at the time the complaint was filed no longer resided in the Philippines and had no assets against which a judgment may be executed because as alleged by the plaintiffs, the said defendants "had already disposed of their interests in favor of defendants Buencaminos". For this reason, plaintiffs' motion to serve summons upon them 2 extraterritorially was denied by the lower court. The remaining defendants, Dr. Victor Buencamino, Sr., Victor Buencamino, Jr., Mrs. Dolores A. Buencamino and Julio B. Francia filed 3 4 their "Opposition to Preliminary Receivership" and subsequently, on September 6, 1960, their Answer with Counterclaim. On June 10, 1961, the lower court issued an Order denying plaintiffs' application for receivership but ordering defendants to file a 5 bond in the amount of P100,000.00 to answer for the damages that plaintiffs might suffer by the non-appointment of a receiver. After trial on the merits, the lower court (then presided by Judge Magno Gatmaitan) rendered judgment dated May 3, 1962, finding defendant Dr. Buencamino guilty of "breach of a legal obligation". The dispositive portion of the said decision had earlier been quoted herein. From the aforesaid decision and from the Orders denying defendants' Motion for Reconsideration, both plaintiffs and defendants appealed to this Court, plaintiffs contending that the lower court erred I In not ordering the ouster of defendants from the management of Amparts notwithstanding its finding that defendant Buencamino was "guilty of breach of a legal obligation" and its sentence that he pay back his frauds; II In not awarding at least the dissolution of Amparts and the consequent return of the investment and participation of plaintiffappellant in said business notwithstanding its finding of fraud against defendants; III In condemning defendants Buencamino to pay back Amparts only the proceeds he received from the black- market sales of Amparts dollar; and in not including the amount of excess remittances of dollars Amparts has fraudulently caused to make plus interests on loans and other bank charges Amparts paid to make those excess remittances and in failing to order said defendant to render accounting of his management; IV In not ordering the rescission and resolution of the resale of the Pasig land by defendants to themselves; V In not requiring defendants to account for the illegal overprice of the Forkner Hanger parts and for the other frauds committed by them; and VI In finding plaintiff-appellant Chase guilty of the two counts on the counterclaims and in condemning him to pay P500.00 as damages. On the other hand, defendants contend that the lower court erredI In not holding that plaintiff was a party to and/or consented to the alleged fraudulent acts committed by Cranker and Buencamino; II

In not holding that defendants and particularly defendant Dr. Buencamino were unaware of the private arrangements between plaintiff and Cranker as to the sale of plaintiff's plant; III In not holding that plaintiff is in estoppel; IV In ruling that plaintiff had proven the alleged fraudulent acts and in requiring Dr. Buencamino to pay to the corporation the alleged excess price; V In not holding that it was plaintiff who defrauded defendant Dr. Buencamino; VI In voiding the assignment of credit; VII In holding that Dr. Buencamino is guilty of breach of trust; VIII In absolving plaintiff from responsibility for alleged sale of dollars and rendering judgment against Dr. Buencamino for the alleged proceeds of dollar sales; IX In holding Dr. Buencamino liable for the entire amount including the share of Cranker, assuming arguendo, that Cranker and Dr. Buencamino profited in the alleged sale of dollars; X In charging Dr. Buencamino and Cranker twice for the same amounts assuming, arguendo, that they profited in the alleged sale of dollars; XI In requiring Cranker and Dr. Buencamino to pay for the alleged profits on the Bertoni and Cotti deal; XII In holding that the term of lease of the building constructed by Dr. Buencamino to be only for a term of seven years; XIII In ruling that Amparts was charged with interest for payment of stock; XIV In not rendering judgment against plaintiff and in favor of the defendants on the first cause of action of the counterclaim; XV In not rendering judgment against plaintiff in favor of Amparts on the second cause of action of the counterclaim; XVI In requiring plaintiff to pay only P500.00 on the third cause of action of the counterclaim; XVII In not rendering judgment against plaintiff in favor of defendants on the fourth cause of action of the counterclaim; and XVIII In not rendering judgment against plaintiff in favor of the defendants on the fifth cause of action of the counterclaim. all of which assigned errors boil down to the more important issues of a) Were the defendants, more particularly defendant Dr. Buencamino, guilty of "fraud" and/or breach of a legal obligation as would entitle plaintiff not only to a "money judgment" but also to the dissolution of Amparts and/or the removal of defendants Buencaminos from the management of the said corporation; and b) Was plaintiff Chase himself guilty of fraud as would entitle defendants to recover on their counterclaims. The evidence on record discloses that defendant Dr. Buencamino, Sr., a Filipino and William Cranker, an American, even prior to the year 1954 were already business associates. They owned two firms namely, the Philippine American Machinery and Equipment 6 Corporation (PAMEC) which was organized in 1947 and the BUCRA which means Buencamino and Cranker. Plaintiff Elton Chase, on the other hand, was the owner of Production Manufacturing Company, of Portland, Oregon, USA, a 7 corporation primarily dedicated to the operation of a machine shop and heat-treating plant for the production of tractor parts. Sometime in 1954, Chase was notified by the Highway Commission of the State of Oregon that his factory was going to be in the path of a proposed highway. He was then advised to sell or face expropriation and warned to remove his plant within a year. His distributor Craig Carrol told him of a Dr. Buencamino of Manila who he said was interested in establishing a manufacturing plant in the Philippines. Craig Carrol contacted Buencamino who told him to contact his associate William Cranker in the United 8 States. Thereafter, a series of negotiations took place both here in Manila, and in the United States, between Chase on the one hand, and Cranker and Buencamino, on the other, for the purchase of Chase's factory (Production Manufacturing Company) and the establishment of a new factory in Manila which was to be called the American Machinery Engineering Parts, Inc. (Amparts for short). These negotiations culminated in a final agreement to the effect that-Elton Chase was to be paid One Hundred Thousand Dollars ($100,000.00) and he would also be given a one-third interest in Amparts, with the other two, Dr. Buencamino and Cranker, as the owner of the other two-thirds (2/3) interest, 1/3 interest each; that in exchange for said $100,000.00 and the 1/3 interest, Chase was to transfer to Amparts his tractor plant, ship his machineries to Manila, assuming all costs of dismantling, preserving and crating for shipment to Manila, install said machineries at Amparts plant with the aid of five technicians and finally, he has to be the production manager of Amparts. Amparts was formally organized as a corporation on July 5, 1955 with an authorized capital stock of P4,000,000.00 divided into 4,000 shares with a par value of P1,000.00 each. The original subscription was P1,800,000.00. Dr. Buencamino, Cranker & Chase subscribed P600,000.00 each. But since five were necessary to organize a corporation, Buencamino and Cranker took in their respective wives. In the meanwhile, Chase had already shipped his machineries and had them installed in the Amparts plant in Pasig, Rizal. Amparts then began operation with Dr. Buencamino as President, William Cranker as Manager and Elton Chase as Production Manager. For sometime the three maintained harmonious relations but later on distrust came in until finally Chase tendered his letter of 9 resignation as Production Manager, dated March 28, 1957. which was accepted by both Dr. Buencamino and Cranker thru a letter 10 dated July 8, 1957.

On April 21, 1958, Chase thru his lawyer addressed a letter of demand to both Dr. Buencamino and Cranker which reads April 21, 1958 Dr. Victor Buencamino Mr. William E. Cranker American Machinery & Parts Manufacturing Co., Inc. 1501 A. Mabini, Manila Gentlemen: Mr. Elton W. Chase has retained our services to enforce his claim against you for breach of contract, unpaid salaries and expenses, and damages amounting to approximately P500,000.00 at the official rate of exchange between pesos and U.S. dollars. Inasmuch as you are aware of the claims of Mr. Chase, We shall not enter into details in this letter. Our purpose in writing to you is to inform you that, unless Mr. Chase's claims are satisfied within five days from receipt of this letter, we shall have no recourse but to file suit against you. If you would care to discuss this matter with me, I shall be free on Friday, April 25, 1958, from 3:00 P.M. onwards, and shall be glad to meet with you at any place convinient to you. Very truly your, DIOKNO & SISON By: (Sgd) JOSE W. DIOKNO This was answered by Dr. Buencamino the next day in the following letter April 22, 1958 Messrs. Diokno & Sison Regina Bldg. Room 332-334 Escolta, Manila Attention: Mr. Jose W. Diokno Re: Claim of Elton W. Chase Gentlemen: Your letter of April 21, 1958, wherein you make reference to a claim of Mr. Chase "for breach of contract, unpaid salaries and expenses, and damages amounting to approximately P500,00.00", was, and continues to be a surprise to us not only because you go far as to assume that we are aware of said claims. Until we receive a more definite statement from you or from Mr. Chase himself, we cannot enter in into any discussion. We might add that any claim that Mr. Chase may have should be directed to the American Machinery & Parts Manufacturing, Inc. of which he himself is a one-third owner. Your letter under reply, which was addressed to Messrs. V. Buencamino, W.E. Cranker and American Machinery & Parts Manufacturing, Inc. is obviously misdirected. Very truly yours, AMERICAN MACHINERY & PARTS MANUFACTURING, INC. By: V. BUENCAMINO President 12 On May 23, 1958, Chase filed an action against Cranker with the Superior Court of Los Angeles seeking to recover the sum of $ 150,000.00 as alleged balance of the purchase price of his plant. This case however died a natural death because Cranker I left and was never reached by process from the California Court. Then, sometime in August 1958, Cranker sold out all his interest in Amparts 13 to Dr. Buencamino. Finally, on August 20, 1960, Chase filed this case before the Court of First Instance of Manila, alleging various acts of fraud which he claimed had been committed by both Dr. Buencamino and Cranker, namely, 1. Dr. Buencamino got stock in part without paying for it and in part with proceeds of the sale of Amparts dollars in the blackmarket; 2. Dr. Buencamino purchased for Amparts certain materials from Bertoni and Cotti of Italy and inflated the invoice price from $ 122,250.00 to $ 387,933.36, sending the excess dollars abroad and selling them at the blackmarket for his private gain; 3. Dr. Buencamino purchased land from the province of Rizal for Amparts and then resold part of it to himself for private gain; 4. Dr. Buencamino and Cranker in August 1955, bought a surplus building in Guam for $ 60,000.00 C.I.F. and in the same year sold it to Amparts for $ 187,500.00 for their private gain; 5. Dr. Buencamino permitted the use of third parties for his private gain, of the Amparts dock at the Pasig River; 6. Dr. Buencamino collected and collects rentals for apartments by him constructed even though no longer used by Amparts technicians; 7. Dr. Buencamino permitted the sale abroad of Amparts manufactured tractor parts at depressed prices; 8. Dr. Buencamino collected a mark up interest on moneys borrowed by him from the banks and by him advanced unto Amparts; 9. The Board Resolutions of 13 May 1960 which also increased compensation of Buencamino's relatives and gave him an increased mark up on his evidences and authorized his and his wife's trip abroad and also authorized the conversion of his credit for unpaid interest into Amparts stocks were all void. On the other hand, defendants in their Answer set up by way of counterclaim that1. Chase sold machineries unto Amparts thru Overseas part of which consisting of 24 pieces worth of P264,000.00 were junk; 2. Chase maliciously spread false rumors against Amparts, and induced its employees to leave; and is engaged in competition with Amparts; 3. Chase spread false rumors against the integrity of defendants to embarass and humiliate them and injure their reputation; 4. Chase took into the Philippines thru the shipment of his factory, his own personal effects, machineries and materials the freight expenses for which reach P6,676.60; and 5. Chase by the unfounded action should pay defendants their attorney's fees; for all of which counterclaims, defendants claim a monetary judgment against Chase. After a careful and painstaking review of the voluminous evidences on record, We find that the lower court correctly found that Buencamino and Cranker committed the following frauds and profited from the same

11

I-A Through overpricing, Amparts remitted to U.S. $ 312,500.00 for Chase's factory. Only $ 80,000.00 was paid Chase for his machineries at this time. The excess dollars were blackmarketed and the peso proceeds thereof went to pay the stocks subscription in Amparts of Buencamino and his wife and Cranker and his wife. (Analysis and Synthesis of Evidence, par. 1-A, pp. 1-10) That these profits from overpricing and remittance of dollars went to Buencamino and Cranker was testified to by no less than Buencamino's long time accountant Maximo Penas, corroborated by the bank accounts which he kept for Buencamino and Cranker, Exhibit UU, the duplicates of the letters of Cranker to the Bank of America containing Buencamino's admitted initials, Exhibit "L", "M" and "N", the Bank of America's remittance receipts and order Exhibit "P", and Amparts own books, namely, journal entries Nos. 16, 21 and 26, Exhibit "FFF", pp. 2-3. I-B Through overpricing, Amparts remitted to U.S. $ 207,000.00 for forwarding costs, technical services and promotional expenses. But forwarding costs were already paid from the $ 312,500.00 remittances for plant purchase price and Chase was never paid his salary for one year nor his promotional expenses. Of the $ 207,000.00 remittance, only $ 15,000.00 was expended to pay Chase the balance due in the purchase of his factory totalling $ 100,000.00. The excess remittances of dollars were blackmarketed and the peso proceeds thereof totalling P434,000.00 were deposited in Buencamino's bank account at the Philippine Trust Company. (Analysis and Synthesis of Evidence. par. 1-B, pp. 10-12). I-C Through overpricing, Amparts remitted to U.S. $ 387,933.66 for the tractor parts and track press imported from Bertoni and Cotti. Only $ 212,250.00 was paid to Bertoni and Cotti of the excess remittance, $ 117,000.00 were blackmarketed realizing P391,200.00 which were deposited in the personal bank account of Buencamino at the Philippine Trust Company and People's Bank. (Analysis and Synthesis of Evidence, par. 1C, pp. 12-15). Again, this fraud committed by Buencamino and Cranker was testified to by their own accountant Maximo Penas and he testified from the very book of account he kept for them, Exhibit "UU". They were corroborated by Bertoni and Cotti's letters Exhibit "FF" and "HH", the debit notes of First National Bank of Portland, Exhibits "NN" and "NN-1" and Buencamino's initial appearing in Bertoni: and Cotti's letter, Exhibit 'ff ' plus Buencamino's admission that the address to which the Bertoni and Cotti's letter was sent, i.e., "P.O. Box 2493, Manila Filipinas", as the address of Overseas Ltd., was the postal box of Amparts. (p. 72, tsn, November 18, 1960) II. The fraudulent issue of P1,200,000.00 fully paid-up Amparts shares, without payment obviously resulted to the profits of only Buencamino and Cranker and their families in whose favor they were issued. (Analysis and Synthesis of Evidence, par. II, pp. 18-35) Aside from Ampart's borrowing of money for the initial payment on the subscription of Buencamino and Cranker and their wives and the withdrawal thereof, the charging of interest thereon, the application of the proceeds of sales at blackmarket of Amparts' dollars for the payment of their subscription totalling P570,000.00 there were the acknowledgments obtained from Amparts of an indebtedness to Overseas Investment Co., Ltd. of $ 287,500.00 for the purchase price of Chase's factory, Amparts acknowledgments of an assumption of such indebtedness by Buencamino and Cranker Company to Overseas Investment Company, Ltd. and to pay Buencamino and Cranker Company its peso equivalent or P575,000.00 through the issue of fully paid-up P330,000.00 worth of shares to Buencamino and Cranker and their wives and crediting Buencamino's account with P245,000.00. In this jurisdiction, it is a "fundamental and settled rule that conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to 14 examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case." We have reviewed the evidence on record thoroughly and We are satisfied that the lower court has not overlooked factors of substance and value which if considered, might affect the result of the case. We therefore uphold the following findings and conclusions of the lower court We go first to the Bertoni and Cotti transaction; while the defense that Dr. Buencamino only saw Exh. FF the letter of Bertoni and Cotti and did not anymore pay attention to it might be plausible, the Court considering his long relationship with Cranker, for he and Cranker had their own BUCRA and PAMEC-and the fact that the testimony of Maximo Penas is corroborated by the padded invoice of the transaction, is impelled to conclude that he was a party to it, probably not at first but surely afterwards, he willingly benefited therefrom; that was a fraud upon Amparts and on the broad principle of agency and trust, 1455, 1891, New Civil Code, he should surrender thereon, his gains of P391,200.00; and on the same reasoning as this, the Court must also hold that with respect to the blackmarketing of the excess dollars on the forwarding and promotion costs in the amount of $ 140,000.00, he once more should be made to account for P434,000.00; unless the Court as already stated a few pages back, should sustain his defenses as to all these charges, namely, a) That they took place when he was not yet the manager; b) That he is estopped by reason of his letter Exh. 10, his complaint and affidavit Exhs. 11 and 12 and the actuations of his own auditor Hendershott as revealed in the Board Meeting of 27 November 1956 Exh. 4. Now as to these, a) That he was not the manager but Cranker to the Court is not very important because as the Court sees it, since the inception of the venture and even when it had become a reality, he was one of the guiding hands if not the principal guide; he was President and Director; and he knowingly profited from the transactions which should go to Amparts otherwise; once more the Court applying 1455 and 1891 of the New Civil Code must hold that in these transactions where he had thus profited, he was guilty of breach of a legal obligation; b) The Court having seen with its own eyes the evidence proving the fraud, can not find it easy to refuse relief unto Chase because of the failure of his auditor to discover the anomalies; or because of the fact that he had filed a suit against Cranker in California and failed to mention Dr. Buencamino there as a guilty party, for this would only weaken his evidence but would not be enough to put him in estoppel for as Chase correctly says, it did not mislead Dr. Buencamino to adopt a course of action to the latter's prejudice; and as well does the Court feel bound not to bar the case of Chase by reason of his letter Exh. 10 wherein he blamed Cranker not Dr. Buencamino for his predicament, for the same reason; the Court of course must grant that there was inconsistency in the position here; for there in California and in the letter Exh. 10, he proceeded on the theory that the transaction on his plant was between him and Cranker for $ 250,000.00 while here his theory is that it was a deal between him, Cranker and Dr. Buencamino wherein these two would pay him $ 100,000.00 and they three would form Amparts with 1/3 of the shares being given to him fully paid up as part of the purchase price; but the Court while it must admit that this has weakened the case for Chase, must also admit that they have not altogether destroyed that since in the first place, the inconsistency in theory adopted in the California Court from that adopted here as an obstacle to the present action is as the Court takes it, obviated by the very evidence of Dr. Buencamino since because the theory of California was that Chase was entitled to only $ 250,000.00, and nothing more and what would if true, not grant unto Chase any personality to file this derivative suit as an Amparts stockholder, but the evidence of defendants proves very clearly that right from the start, Chase was by them recognized as a stockholder and initial incorporator with 600 paid up shares representing a 1/3 interest in Amparts, and that would be enough for Chase to have the correct personality to institute this derivative suit; the second place, it also appears apparently undenied that Chase did not win in California so that he did not recover the $150,000.00 that he had prayed for there against Overseas, which if he

had would really in the mind of the Court have put him in estoppel to intervene in any manner as incorporator or stockholder of Amparts; and in the third place and most important it should not be forgotten that Chase has filed the present case not for his personal benefit, but for the benefit of Amparts, so that to the Court the argument of estoppel as against him would appear to be out of place; the estoppel to be valid as a defense must be an estoppel against Amparts itself; the long and short of it is that the Court is impelled and constrained to discard all the other defenses set up by Dr. Buencamino on the principal complaint; the result of all these would be to sustain so far, the position of Chase that Dr. Buencamino must account for the P570,000.00 used to pay the second series of payment on the subscription, the P330,000.00 used in paying the lst series on the subscription, plus another sum of P245,000.00 entered as loan on his favor and against Amparts, for the sum of P434,000.00 earned in the blackmarketing of the excess of $140,000.00 dollars on the forwarding costs and promotional expenses, for the sum of P391,200.00 earned in the blackmarketing of the excess of $117,000.00 in the transaction with Bertoni and Cotti, and all these would reach a total of P1,970,200.00; and as the appropriation of the profits for himself was a quasi-delict, the liability therefore assuming that it had been done with the cooperation of Cranker would have to be solidary, 2194 New Civil Code, because it was a quasi-delict; but the next question is whether these findings must justify the remedy of change of management and dissolution; before going to this, the Court seeing that this is a question interrelated to the counterclaims, will proceed to examine them. xxx xxx xxx the result of the foregoing will be that the Court must find it proved on the counterclaims, that Chase had helped a competitor contrary to his position of trust as director of Amparts, and that Chase had also spread rumors against Amparts, and its management; for these acts, the Court will impose some damages which in the absence of better proof the Court will fix at five hundred (P500.00) pesos; we go to the most important point of debate, namely, the final remedy that the Court must now concede. It will above be noted that while the Court found Chase guilty on two counts, on the counterclaims the guilt referred to acts performed during the litigation; they do not show that Chase had come to Court already guilty; as the Court has found, when he came to Court on 20 August, 1960, he was an innocent party, and Amparts was the victim of fraud; on the other hand, while this really is true, the Court can not see how under the present circumstances, the correct equitable relief that the Court should grant should be to change over the management from Buencamino unto Chase; especially considering that the Court has also seen that Chase pendente lite had performed an act that has virtually helped an Amparts competitor; neither can the Court grant a dissolution because the action is a derivative one for the benefit of Amparts and not for the personal benefit of Chase, and Amparts can not be benefited by its extinction; as to the ouster of Dr. Buencamino from management, it should not be forgotten that Dr. Buencamino is not only a manager, but is in fact 2/3 owner of Amparts and to oust him from management would amount to his disenfranchisement as owner of the majority of the enterprise apart from the fact that it is also established in the proofs that Amparts is already picking up and has been a going concern after Cranker left unto him the direction of its affairs; the Court therefore having in mind all these finds that the solution most equitable and just would be to limit its decision to imposing a monetary judgment upon the guilty parties for the benefit of Amparts. The record further shows that there were other precautionary measures adopted by lower court for the protection of Chase's rights 15 and interest in Amparts. Thus, on May 12, 1962, the following Order was issued After hearing the parties and with a view to protect the interests of both and to prevent a possibility of abuse, the Court resolves that until further orders, the hereinafter while the case is pending: (1) Mr. Chase shall have free access to AMPARTS and its record personally and/or through representative duly authorized; (2) Decisions of Dr. Buencamino and/or management of AMPARTS shall be made known to Chase who shall have the right to object and if so, the matter shall be notified to the Court which shall resolve the difficulties; in the interim, pending the objection, the decision shall not be enforced or made operative; With this resolution, the Court disposes for the present of the issue of receivership. Supplementing the above-quoted Order, the lower court, then already presided by the Honorable Jesus de Veyra, issued the following, Order of August 27, 1962: As for the appointment of a receiver, Judge Gatmaitan decided on the temporary measure of giving plaintiff (petitioner herein) a veto right, appealable to this Court, on all decisions of management. Considering that up to the present, the Buencaminos own 2/3 of the stock corporation, the solution is equitable, and must be allowed to continue subject to the condition that once a decision of management is made known to plaintiff, he must make known his objection thereto to the Court within five (5) days from receipt of said decision, otherwise he shall be deemed to have waived any objection to the decision. The removal of a stockholder (in this case a majority stockholder) from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear which is not the situation in the case at bar. WHEREFORE, finding the appealed decision to be in accordance with the law and the evidence, the same is hereby AFFIRMED.

CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC), petitioner, vs. THE HONORABLE COURT OF APPEALS JAIME Y. GONZALES, as Assignee of the Bank of the Philippine Islands (BPI), RIZAL COMMERCIAL BANKING CORPORATION (RCBC), LAND BANK OF THE PHILIPPINES (LBP), PHILIPPINE COMMERCIAL & INTERNATIONAL BANK (PCIB) and THE PHILIPPINE INVESTMENT SYSTEM ORGANIZATION (PISO), respondents. G.R. No. 113394 December 12, 1995 PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS ASSIGNEE JAIME Y. GONZALES) petitioner, vs. HONORABLE COURT OR APPEALS and CHEMPHIL EXPORT AND IMPORT CORPORATION (CEIC),respondents. KAPUNAN, J.: Before us is a legal tug-of-war between the Chemphil Export and Import Corporation (hereinafter referred to as CEIC), on one side, and the PISO and Jaime Gonzales as assignee of the Bank of the Philippine Islands (BPI), Rizal Commercial Banking Corporation (RCBC), Land Bank of the Philippines (LBP) and Philippine Commercial International Bank (PCIB), on the other (hereinafter referred to as the consortium), over 1,717,678 shares of stock (hereinafter referred to as the "disputed shares") in the Chemical Industries of the Philippines (Chemphil/CIP). Our task is to determine who is the rightful owner of the disputed shares. Pursuant to our resolution dated 30 May 1994, the instant case is a consolidation of two petitions for review filed before us as follows: In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of the Court of Appeals (former Twelfth Division) promulgated on 30 June 1993 and its resolution of 29 October 1993, denying petitioner's motion for reconsideration in the consolidated cases entitled "Dynetics, Inc., et al. v. PISO, et al." (CA-G.R. No. 20467) and "Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-Appellee" (CA-G.R. CV No. 26511). The dispositive portion of the assailed decision reads, thus: WHEREFORE, this Court resolves in these consolidated cases as follows: 1. The Orders of the Regional Trial Court, dated March 25, 1988, and May 20, 1988, subject of CA-G.R. CV No. 10467, are SET ASIDE and judgment is hereby rendered in favor of the consortium and against appellee Dynetics, Inc., the amount of the judgment, to be determined by Regional Trial Court, taking into account the value of assets that the consortium may have already recovered and shall have recovered in accordance with the other portions of this decision. 2. The Orders of the Regional Trial Court dated December 19, 1989 and March 5, 1990 are hereby REVERSED and SET ASIDE and judgment is hereby rendered confirming the ownership of the consortium over the Chemphil shares of stock, subject of CA-G.R. CV No. 26511, and the Order dated September 4, 1989, is reinstated. No pronouncement as to costs. 1 SO ORDERED. In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for the annulment of the Court of Appeals' decision (former Special Ninth Division) promulgated on 26 March 1993 in "PCIB v. Hon. Job B. Madayag & CEIC" (CA-G.R. SP NO. 20474) dismissing the petition for certiorari, prohibition and mandamus filed by PCIB and of said court's resolution dated 11 January 1994 denying their 2 motion for reconsideration of its decision. The antecedent facts leading to the aforementioned controversies are as follows: On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief and/or injunction against the PISO, BPI, LBP, PCIB and RCBC or the consortium with the Regional Trial Court of Makati, Branch 45 (Civil Case No. 8527), seeking judicial declaration, construction and interpretation of the validity of the surety agreement that Dynetics and Garcia had entered into with the consortium and to perpetually enjoin the latter from claiming, collecting and enforcing any purported obligations 3 which Dynetics and Garcia might have undertaken in said agreement. The consortium filed their respective answers with counterclaims alleging that the surety agreement in question was valid and binding and that Dynetics and Garcia were liable under the terms of the said agreement. It likewise applied for the issuance of a writ 4 of preliminary attachment against Dynetics and Garcia. Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia and Matrix Management & Trading Corporation filed a complaint for declaratory relief and/or injunction against the Security Bank & Trust Co. (SBTC case) before the Regional Trial Court of Makati, 5 Branch 135 docketed as Civil Case No. 10398. On 2 July 1985, the trial court granted SBTC's prayer for the issuance of a writ of preliminary attachment and on 9 July 1985, a notice of garnishment covering Garcia's shares in CIP/Chemphil (including the disputed shares) was served on Chemphil through its then 6 President. The notice of garnishment was duly annotated in the stock and transfer books of Chemphil on the same date. 7 On 6 September 1985, the writ of attachment in favor of SBTC was lifted. However, the same was reinstated on 30 October 1985. In the meantime, on 12 July 1985, the Regional Trial Court in Civil Case No. 8527 (the consortium case) denied the application of Dynetics and Garcia for preliminary injunction and instead granted the consortium's prayer for a consolidated writ of preliminary attachment. Hence, on 19 July 1985, after the consortium had filed the required bond, a writ of attachment was issued and various 8 real and personal properties of Dynetics and Garcia were garnished, including the disputed shares. This garnishment, however, was not annotated in Chemphil's stock and transfer book. On 8 September 1987, PCIB filed a motion to dismiss the complaint of Dynetics and Garcia for lack of interest to prosecute and to submit its counterclaims for decision, adopting the evidence it had adduced at the hearing of its application for preliminary 9 attachment. On 25 March 1988, the Regional Trial Court dismissed the complaint of Dynetics and Garcia in Civil Case No. 8527, as well as the counterclaims of the consortium, thus: Resolving defendant's, Philippine Commercial International Bank, MOTION TO DISMISS WITH MOTION TO SUBMIT DEFENDANT PCIBANK's COUNTERCLAIM FOR DECISION, dated September 7, 1987: (1) The motion to dismiss is granted; and the instant case is hereby ordered dismissed pursuant to Sec. 3, Rule 17 of the Revised Rules of Court, plaintiff having failed to comply with the order dated July 16, 1987, and having not taken further steps to prosecute the case; and

(2) The motion to submit said defendant's counterclaim for decision is denied; there is no need; said counterclaim is likewise dismissed under the authority of Dalman vs. City Court of Dipolog City, L-63194, January 21, 1985, wherein the Supreme Court stated that if the civil case is dismissed, so also is the counterclaim filed therein. "A person cannot eat his cake and have it at the same 10 time" (p. 645, record, Vol. I). The motions for reconsideration filed by the consortium were, likewise, denied by the trial court in its order dated 20 May 1988: The Court could have stood pat on its order dated 25 March 1988, in regard to which the defendants-banks concerned filed motions for reconsideration. However, inasmuch as plaintiffs commented on said motions that: "3). In any event, so as not to unduly foreclose on the rights of the respective parties to refile and prosecute their respective causes of action, plaintiffs manifest their conformity to the modification of this Honorable Court's order to indicate that the dismissal of the complaint and the counterclaims is without prejudice." (p. 2, plaintiffs' COMMENT etc. dated May 20, 1988). The Court is inclined to so modify the said order. WHEREFORE , the order issued on March 25, 1988, is hereby modified in the sense that the dismissal of the complaint as well as of 11 the counterclaims of defendants RCBC, LBP, PCIB and BPI shall be considered as without prejudice (p. 675, record, Vol. I). Unsatisfied with the aforementioned order, the consortium appealed to the Court of Appeals, docketed as CA-G.R. CV No. 20467. On 17 January 1989 during the pendency of consortium's appeal in CA-G.R. CV No. 20467, Antonio Garcia and the consortium entered into a Compromise Agreement which the Court of Appeals approved on 22 May 1989 and became the basis of its judgment by compromise. Antonio Garcia was dropped as a party to the appeal leaving the consortium to proceed solely against Dynetics, 12 13 Inc. On 27 June 1989, entry of judgment was made by the Clerk of Court. Hereunder quoted are the salient portions of said compromise agreement: xxx xxx xxx 3. Defendants, in consideration of avoiding an extended litigation, having agreed to limit their claim against plaintiff Antonio M. Garcia to a principal sum of P145 Million immediately demandable and to waive all other claims to interest, penalties, attorney's fees and other charges. The aforesaid compromise amount of indebtedness of P145 Million shall earn interest of eighteen percent (18%) from the date of this Compromise. 4. Plaintiff Antonio M. Garcia and herein defendants have no further claims against each other. 5. This Compromise shall be without prejudice to such claims as the parties herein may have against plaintiff Dynetics, Inc. 6. Plaintiff Antonio M. Garcia shall have two (2) months from date of this Compromise within which to work for the entry and participation of his other creditor, Security Bank and Trust Co., into this Compromise. Upon the expiration of this period, without Security Bank and Trust Co. having joined, this Compromise shall be submitted to the Court for its information and approval (pp. 27, 14 28-31, rollo, CA-G.R. CV No. 10467). It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale transferred to Ferro Chemicals, Inc. (FCI) the disputed shares and other properties for P79,207,331.28. It was agreed upon that part of the purchase price shall be paid by FCI directly to SBTC for 15 whatever judgment credits that may be adjudged in the latter's favor and against Antonio Garcia in the aforementioned SBTC case. On 6 March 1989, FCI, through its President Antonio M. Garcia, issued a Bank of America Check No. 860114 in favor of SBTC in the 16 amount of P35,462,869.62. SBTC refused to accept the check claiming that the amount was not sufficient to discharge the debt. The check was thus consigned by Antonio Garcia and Dynetics with the Regional Trial Court as payment of their judgment debt in the 17 SBTC case. On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil, which included the disputed shares, to petitioner CEIC. The shares were registered and recorded in the corporate books of Chemphil in CEIC's name and the corresponding stock certificates were 18 issued to it. Meanwhile, Antonio Garcia, in the consortium case, failed to comply with the terms of the compromise agreement he entered into with the consortium on 17 January 1989. As a result, on 18 July 1989, the consortium filed a motion for execution which was granted by the trial court on 11 August 1989. Among Garcia's properties that were levied upon on execution were his 1,717,678 shares in 19 Chemphil (the disputed shares) previously garnished on 19 July 1985. On 22 August 1989, the consortium acquired the disputed shares of stock at the public auction sale conducted by the sheriff for 20 P85,000,000.00. On same day, a Certificate of Sale covering the disputed shares was issued to it. 21 On 30 August 1989, the consortium filed a motion (dated 29 August 1989) to order the corporate secretary of Chemphil to enter in its stock and transfer books the sheriff's certificate of sale dated 22 August 1989, and to issue new certificates of stock in the name of the banks concerned. The trial court granted said motion in its order dated 4 September 1989, thus: For being legally proper, defendant's MOTION TO ORDER THE CORPORATE SECRETARY OF CHEMICAL INDUSTRIES OF THE PHILS., INC. (CHEMPIL) TO ENTER IN THE STOCK AND TRANSFER BOOKS OF CHEMPHIL THE SHERIFF'S CERTIFICATE OF SALE DATED AUGUST 22, 1989 AND TO ISSUE NEW CERTIFICATES OF STOCK IN THE NAME OF THE DEFENDANT BANKS, dated August 29, 1989, is hereby granted. WHEREFORE, the corporate secretary of the aforesaid corporation, or whoever is acting for and in his behalf, is hereby ordered to (1) record and/or register the Certificate of Sale dated August 22, 1989 issued by Deputy Sheriff Cristobal S. Jabson of this Court; (2) to cancel the certificates of stock of plaintiff Antonio M. Garcia and all those which may have subsequently been issued in replacement and/or in substitution thereof; and (3) to issue in lieu of the said shares new shares of stock in the name of the defendant Banks, namely, PCIB, BPI, RCBC, LBP and PISO bank in such proportion as their respective claims would appear in this suit 22 (p. 82, record, Vol. II). On 26 September 1989, CEIC filed a motion to intervene (dated 25 September 1989) in the consortium case seeking the recall of the 23 abovementioned order on grounds that it is the rightful owner of the disputed shares. It further alleged that the disputed shares were previously owned by Antonio M. Garcia but subsequently sold by him on 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn assigned the same to CEIC in an agreement dated 26 June 1989. On 27 September 1989, the trial court granted CEIC's motion allowing it to intervene, but limited only to the incidents covered by the order dated 4 September 1989. In the same order, the trial court directed Chemphil's corporate secretary to temporarily refrain from implementing the 4 September 1989 24 order. On 2 October 1989, the consortium filed their opposition to CEIC's motion for intervention alleging that their attachment lien over the disputed shares of stocks must prevail over the private sale in favor of the CEIC considering that said shares of stock were 25 garnished in the consortium's favor as early as 19 July 1985.

On 4 October 1989, the consortium filed their opposition to CEIC's motion to set aside the 4 September 1989 order and moved to lift 26 the 27 September 1989 order. On 12 October 1989, the consortium filed a manifestation and motion to lift the 27 September 1989 order, to reinstate the 4 September 1989 order and to direct CEIC to surrender the disputed stock certificates of Chemphil in its possession within twentyfour (24) hours, failing in which the President, Corporate Secretary and stock and transfer agent of Chemphil be directed to register the names of the banks making up the consortium as owners of said shares, sign the new certificates of stocks evidencing their 27 ownership over said shares and to immediately deliver the stock certificates to them. Resolving the foregoing motions, the trial court rendered an order dated 19 December 1989, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the Urgent Motion dated September 25, 1989 filed by CEIC is hereby GRANTED. Accordingly, the Order of September 4, 1989, is hereby SET ASIDE, and any and all acts of the Corporate Secretary of CHEMPHIL and/or whoever is acting for and in his behalf, as may have already been done, carried out or implemented pursuant to the Order of September 4, 1989, are hereby nullified. PERFORCE, the CONSORTIUM'S Motions dated October 3, 1989 and October 11, 1989, are both hereby denied for lack of merit. The Cease and Desist Order dated September 27, 1989, is hereby AFFIRMED and made PERMANENT. 28 SO ORDERED. In so ruling, the trial court ratiocinated in this wise: xxx xxx xxx After careful and assiduous consideration of the facts and applicable law and jurisprudence, the Court holds that CEIC's Urgent Motion to Set Aside the Order of September 4, 1989 is impressed with merit. The CONSORTIUM has admitted that the writ of attachment/garnishment issued on July 19, 1985 on the shares of stock belonging to plaintiff Antonio M. Garcia was not annotated and registered in the stock and transfer books of CHEMPHIL. On the other hand, the prior attachment issued in favor of SBTC on July 2, 1985 by Branch 135 of this Court in Civil Case No. 10398, against the same CHEMPHIL shares of Antonio M. Garcia, was duly registered and annotated in the stock and transfer books of CHEMPHIL. The matter of non-recording of the Consortium's attachment in Chemphil's stock and transfer book on the shares of Antonio M. Garcia assumes significance considering CEIC's position that FCI and later CEIC acquired the CHEMPHIL shares of Antonio M. Garcia without knowledge of the attachment of the CONSORTIUM. This is also important as CEIC claims that it has been subrogated to the rights of SBTC since CEIC's predecessor-in-interest, the FCI, had paid SBTC the amount of P35,462,869.12 pursuant to the Deed of Sale and Purchase of Shares of Stock executed by Antonio M. Garcia on July 15, 1988. By reason of such payment, sale with the knowledge and consent of Antonio M. Garcia, FCI and CEIC, as party-in-interest to FCI, are subrogated by operation of law to the rights of SBTC. The Court is not unaware of the citation in CEIC's reply that "as between two (2) attaching creditors, the one whose claims was first registered on the books of the corporation enjoy priority." (Samahang Magsasaka, Inc. vs. Chua Gan, 96 Phil. 974.) The Court holds that a levy on the shares of corporate stock to be valid and binding on third persons, the notice of attachment or garnishment must be registered and annotated in the stock and transfer books of the corporation, more so when the shares of the corporation are listed and traded in the stock exchange, as in this case. As a matter of fact, in the CONSORTIUM's motion of August 30, 1989, they specifically move to "order the Corporate Secretary of CHEMPHIL to enter in the stock and transfer books of CHEMPHIL the Sheriff's Certificate of Sale dated August 22, 1989." This goes to show that, contrary to the arguments of the CONSORTIUM, in order that attachment, garnishment and/or encumbrances affecting rights and ownership on shares of a corporation to be valid and binding, the same has to be recorded in the stock and transfer books. Since neither CEIC nor FCI had notice of the CONSORTIUM's attachment of July 19, 1985, CEIC's shares of stock in CHEMPHIL, legally acquired from Antonio M. Garcia, cannot be levied upon in execution to satisfy his judgment debts. At the time of the Sheriff's levy 29 on execution, Antonio M. Garcia has no more in CHEMPHIL which could be levied upon. xxx xxx xxx On 23 January 1990, the consortium and PCIB filed separate motions for reconsideration of the aforestated order which were opposed by petitioner 30 CEIC. On 5 March 1990, the trial court denied the motions for 31 reconsideration. On 16 March 1990, the consortium appealed to the Court of Appeals (CA-G.R. No. 26511). In its Resolution dated 9 August 1990, the 32 Court of Appeals consolidated CA-G.R. No. 26511 with CA-G.R. No. 20467. The issues raised in the two cases, as formulated by the Court of Appeals, are as follows: I WHETHER OR NOT, UNDER THE PECULIAR CIRCUMSTANCES OF THE CASE, THE TRIAL COURT ERRED IN DISMISSING THE COUNTERCLAIMS OF THE CONSORTIUM IN CIVIL CASE NO. 8527; II WHETHER OR NOT THE DISMISSAL OF CIVIL CASE NO. 8527 RESULTED IN THE DISCHARGE OF THE WRIT OF ATTACHMENT ISSUED THEREIN EVEN AS THE CONSORTIUM APPEALED THE ORDER DISMISSING CIVIL CASE NO. 8527; III WHETHER OR NOT THE JUDGMENT BASED ON COMPROMISE RENDERED BY THIS COURT ON MAY 22, 1989 HAD THE EFFECT OF DISCHARGING THE ATTACHMENTS ISSUED IN CIVIL CASE NO. 8527; IV WHETHER OR NOT THE ATTACHMENT OF SHARES OF STOCK, IN ORDER TO BIND THIRD PERSONS, MUST BE RECORDED IN THE STOCK AND TRANSFER BOOK OF THE CORPORATION; AND V WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITS SUCCESSOR-IN-INTEREST, CEIC, WERE SUBROGATED TO THE RIGHTS OF SECURITY BANK & TRUST COMPANY (SBTC) IN A SEPARATE CIVIL ACTION. (This issue appears to be material as SBTC is alleged to 33 have obtained an earlier attachment over the same Chemphil shares that the consortium seeks to recover in the case at bar). On 6 April 1990, the PCIB separately filed with the Court of Appeals a petition for certiorari, prohibition andmandamus with a prayer for the issuance of a writ of preliminary injunction (CA-G.R. No. SP-20474), likewise, assailing the very same orders dated 19 34 December 1989 and 5 March 1990, subject of CA-G.R. No. 26511.

On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R. No. 26511 and CA-G.R. No. 20467 rendered a decision reversing the orders of the trial court and confirming the ownership of the consortium over the disputed shares. CEIC's motion for 35 reconsideration was denied on 29 October 1993. 36 In ruling for the consortium, the Court of Appeals made the following ratiocination: On the first issue, it ruled that the evidence offered by the consortium in support of its counterclaims, coupled with the failure of Dynetics and Garcia to prosecute their case, was sufficient basis for the RTC to pass upon and determine the consortium's counterclaims. The Court of Appeals found no application for the ruling in Dalman v. City Court of Dipolog, 134 SCRA 243 (1985) that "a person cannot eat his cake and have it at the same time. If the civil case is dismissed, so also is the counterclaim filed therein" because the factual background of the present action is different. In the instant case, both Dynetics and Garcia and the consortium presented testimonial and documentary evidence which clearly should have supported a judgment on the merits in favor of the consortium. As the consortium correctly argued, the net atrocious effect of the Regional Trial Court's ruling is that it allows a situation where a party litigant is forced to plead and prove compulsory counterclaims only to be denied those counterclaims on account of the adverse party's failure to prosecute his case. Verily, the consortium had no alternative but to present its counterclaims in Civil Case No. 8527 since its counterclaims are compulsory in nature. On the second issue, the Court of Appeals opined that unless a writ of attachment is lifted by a special order specifically providing for the discharge thereof, or unless a case has been finally dismissed against the party in whose favor the attachment has been issued, the attachment lien subsists. When the consortium, therefore, took an appeal from the Regional Trial Court's orders of March 25, 1988 and May 20, 1988, such appeal had the effect of preserving the consortium's attachment liens secured at the inception of Civil Case No. 8527, invoking the rule in Olib v. Pastoral,188 SCRA 692 (1988) that where the main action is appealed, the attachment issued in the said main case is also considered appealed. Anent the third issue, the compromise agreement between the consortium and Garcia dated 17 January 1989 did not result in the abandonment of its attachment lien over his properties. Said agreement was approved by the Court of Appeals in a Resolution dated 22 May 1989. The judgment based on the compromise agreement had the effect of preserving the said attachment lien as security for the satisfaction of said judgment (citing BF Homes, Inc. v. CA, 190 SCRA 262, [1990]). As to the fourth issue, the Court of Appeals agreed with the consortium's position that the attachment of shares of stock in a corporation need not be recorded in the corporation's stock and transfer book in order to bind third persons. Section 7(d), Rule 57 of the Rules of Court was complied with by the consortium (through the Sheriff of the trial court) when the notice of garnishment over the Chemphil shares of Garcia was served on the president of Chemphil on July 19, 1985. Indeed, to bind third persons, no law requires that an attachment of shares of stock be recorded in the stock and transfer book of a corporation. The statement attributed by the Regional Trial Court to the Supreme Court in Samahang Magsasaka, Inc.vs. Gonzalo Chua Guan, G.R. No. L-7252, February 25, 1955 (unreported), to the effect that "as between two attaching creditors, the one whose claim was registered first on the books of the corporation enjoys priority," is an obiter dictum that does not modify the procedure laid down in Section 7(d), Rule 57 of the Rules of Court. Therefore, ruled the Court of Appeals, the attachment made over the Chemphil shares in the name of Garcia on July 19, 1985 was made in accordance with law and the lien created thereby remained valid and subsisting at the time Garcia sold those shares to FCI (predecessor-in-interest of appellee CEIC) in 1988. Anent the last issue, the Court of Appeals rejected CEIC's subrogation theory based on Art. 1302 (2) of the New Civil Code stating that the obligation to SBTC was paid by Garcia himself and not by a third party (FCI). The Court of Appeals further opined that while the check used to pay SBTC was a FCI corporate check, it was funds of Garcia in FCI that was used to pay off SBTC. That the funds used to pay off SBTC were funds of Garcia has not been refuted by FCI or CEIC. It is clear, therefore, that there was an attempt on the part of Garcia to use FCI and CEIC as convenient vehicles to deny the consortium its right to make itself whole through an execution sale of the Chemphil shares attached by the consortium at the inception of Civil Case No. 8527. The consortium, therefore, is entitled to the issuance of the Chemphil shares of stock in its favor. The Regional Trial Court's order of September 4, 1989, should, therefore, be reinstated in toto. Accordingly, the question of whether or not the attachment lien in favor of SBTC in the SBTC case is superior to the attachment lien in favor of the consortium in Civil Case No. 8527 becomes immaterial with respect to the right of intervenor-appellee CEIC. The said issue would have been relevant had CEIC established its subrogation to the rights of SBTC. On 26 March 1993, the Court of Appeals (Special Ninth Division) in CA-G.R. No. SP 20474 rendered a decision denying due course to and dismissing PCIB's petition for certiorari on grounds that PCIB violated the rule against forum-shopping and that no grave abuse of discretion was committed by respondent Regional Trial Court in issuing its assailed orders dated 19 December 1989 and 5 March 37 1990. PCIB's motion for reconsideration was denied on 11 January 1994. On 7 July 1993, the consortium, with the exception of PISO, assigned without recourse all its rights and interests in the disputed 38 shares to Jaime Gonzales. On 3 January 1994, CEIC filed the instant petition for review docketed as G.R. Nos. 112438-39 and assigned the following errors: I. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE AND REVERSING THE ORDERS OF THE REGIONAL TRIAL COURT DATED DECEMBER 5, 1989 AND MARCH 5, 1990 AND IN NOT CONFIRMING PETITIONER'S OWNERSHIP OVER THE DISPUTED CHEMPHIL SHARES AGAINST THE FRIVOLOUS AND UNFOUNDED CLAIMS OF THE CONSORTIUM. II. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED: (1) In not holding that the Consortium's attachment over the disputed Chemphil shares did not vest any priority right in its favor and cannot bind third parties since admittedly its attachment on 19 July 1985 was not recorded in the stock and transfer books of Chemphil, and subordinate to the attachment of SBTC which SBTC registered and annotated in the stock and transfer books of Chemphil on 2 July 1985, and that the Consortium's attachment failed to comply with Sec. 7(d), Rule 57 of the Rules as evidenced by the notice of garnishment of the deputy sheriff of the trial court dated 19 July 1985 (annex "D") which the sheriff served on a certain Thelly Ruiz who was neither President nor managing agent of Chemphil; (2) In not applying the case law enunciated by this Honorable Supreme Court inSamahang Magsasaka, Inc. vs. Gonzalo Chua Guan, 96 Phil. 974 that as between two attaching creditors, the one whose claim was registered first in the books of the corporation enjoys priority, and which respondent Court erroneously characterized as mere obiter dictum;

(3) In not holding that the dismissal of the appeal of the Consortium from the order of the trial court dismissing its counterclaim against Antonio M. Garcia and the finality of the compromise agreement which ended the litigation between the Consortium and Antonio M. Garcia in the Dynetics case had ipso jure discharged the Consortium's purported attachment over the disputed shares. III. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT CEIC HAD BEEN SUBROGATED TO THE RIGHTS OF SBTC SINCE CEIC'S PREDECESSOR IN INTEREST HAD PAID SBTC PURSUANT TO THE DEED OF SALE AND PURCHASE OF STOCK EXECUTED BY ANTONIO M. GARCIA ON JULY 15, 1988, AND THAT BY REASON OF SUCH PAYMENT, WITH THE CONSENT AND KNOWLEDGE OF ANTONIO M. GARCIA, FCI AND CEIC, AS PARTY IN INTEREST TO FCI, WERE SUBROGATED BY OPERATION OF LAW TO THE RIGHTS OF SBTC. IV. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND MADE UNWARRANTED INFERENCES AND CONCLUSIONS, WITHOUT ANY SUPPORTING EVIDENCE, THAT THERE WAS AN ATTEMPT ON THE PART OF ANTONIO M. GARCIA TO USE FCI AND CEIC AS CONVENIENT VEHICLES TO DENY THE CONSORTIUM ITS RIGHTS TO MAKE ITSELF WHOLE THROUGH AN EXECUTION OF THE 39 CHEMPHIL SHARES PURPORTEDLY ATTACHED BY THE CONSORTIUM ON 19 JULY 1985. On 2 March 1994, PCIB filed its own petition for review docketed as G.R. No. 113394 wherein it raised the following issues: I. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN RENDERING THE DECISION AND RESOLUTION IN QUESTION (ANNEXES A AND B) IN DEFIANCE OF LAW AND JURISPRUDENCE BY FINDING RESPONDENT CEIC AS HAVING BEEN SUBROGATED TO THE RIGHTS OF SBTC BY THE PAYMENT BY FCI OF GARCIA'S DEBTS TO THE LATTER DESPITE THE FACT THAT A. FCI PAID THE SBTC DEBT BY VIRTUE OF A CONTRACT BETWEEN FCI AND GARCIA, THUS, LEGAL SUBROGATION DOES NOT ARISE; B. THE SBTC DEBT WAS PAID BY GARCIA HIMSELF AND NOT BY FCI, HENCE, SUBROGATION BY PAYMENT COULD NOT HAVE OCCURRED; C. FCI DID NOT ACQUIRE ANY RIGHT OVER THE DISPUTED SHARES AS SBTC HAD NOT YET LEVIED UPON NOR BOUGHT THOSE SHARES ON EXECUTION. ACCORDINGLY, WHAT FCI ACQUIRED FROM SBTC WAS SIMPLY A JUDGMENT CREDIT AND AN ATTACHMENT LIEN TO SECURE ITS SATISFACTION. II. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN SUSTAINING THE ORDERS OF THE TRIAL COURT DATED DECEMBER 19, 1989 AND MARCH 5, 1990 WHICH DENIED PETITIONER'S OWNERSHIP OVER THE DISPUTED SHARES NOTWITHSTANDING PROVISIONS OF LAW AND EXTANT JURISPRUDENCE ON THE MATTER THAT PETITIONER AND THE CONSORTIUM HAVE PREFERRED SENIOR RIGHTS THEREOVER. III. RESPONDENT COURT OF APPEAL COMMITTED SERIOUS ERROR IN CONCLUDING THAT THE DISMISSAL OF THE COMPLAINT AND THE COUNTERCLAIM IN CIVIL CASE NO. 8527 ALSO RESULTED IN THE DISCHARGE OF THE WRIT OF ATTACHMENT DESPITE THE RULINGS OF THIS HONORABLE COURT IN BF HOMES VS. COURT OF APPEALS, G.R. NOS. 76879 AND 77143, OCTOBER 3, 1990, 190 SCRA 262, AND IN OLIB VS. PASTORAL, G.R. NO. 81120, AUGUST 20, 1990, 188 SCRA 692 TO THE CONTRARY. IV. RESPONDENT COURT OF APPEALS EXCEEDED ITS JURISDICTION IN RULING ON THE MERITS OF THE MAIN CASE NOTWITHSTANDING THAT THOSE MATTERS WERE NOT ON APPEAL BEFORE IT. V. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT PETITIONER IS GUILTY OF FORUM SHOPPING DESPITE THE FACT THAT SC CIRCULAR NO. 28-91 WAS NOT YET IN FORCE AND EFFECT AT THE TIME THE PETITION WAS FILED BEFORE RESPONDENT APPELLATE COURT, AND THAT ITS COUNSEL AT THAT TIME HAD ADEQUATE BASIS TO BELIEVE 40 THATCERTIORARI AND NOT AN APPEAL OF THE TRIAL COURT'S ORDERS WAS THE APPROPRIATE RELIEF. As previously stated, the issue boils down to who is legally entitled to the disputed shares of Chemphil. We shall resolve this controversy by examining the validity of the claims of each party and, thus, determine whose claim has priority. CEIC's claim CEIC traces its claim over the disputed shares to the attachment lien obtained by SBTC on 2 July 1985 against Antonio Garcia in Civil Case No. 10398. It avers that when FCI, CEIC's predecessor-in-interest, paid SBTC the due obligations of Garcia to the said bank 41 pursuant to the Deed of Absolute Sale and Purchase of Shares of Stock, FCI, and later CEIC, was subrogated to the rights of SBTC, particularly to the latter's aforementioned attachment lien over the disputed shares. CEIC argues that SBTC's attachment lien is superior as it was obtained on 2 July 1985, ahead of the consortium's purported attachment on 19 July 1985. More importantly, said CEIC lien was duly recorded in the stock and transfer books of Chemphil. CEIC's subrogation theory is unavailing. By definition, subrogation is "the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts; this is the subrogation referred to in article 1302. Conventional subrogation is that which takes place by agreement 42 of the parties . . ." CEIC's theory is premised on Art. 1302 (2) of the Civil Code which states: Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. (Emphasis ours.) Despite, however, its multitudinous arguments, CEIC presents an erroneous interpretation of the concept of subrogation. An analysis of the situations involved would reveal the clear inapplicability of Art. 1302 (2). Antonio Garcia sold the disputed shares to FCI for a consideration of P79,207,331.28. FCI, however, did not pay the entire amount to Garcia as it was obligated to deliver part of the purchase price directly to SBTC pursuant to the following stipulation in the Deed of Sale: Manner of Payment Payment of the Purchase Price shall be made in accordance with the following order of preferenceprovided that in no instance shall the total amount paid by the Buyer exceed the Purchase Price: a. Buyer shall pay directly to the Security Bank and Trust Co. the amount determined by the Supreme Court as due and owing in favor of the said bank by the Seller. The foregoing amount shall be paid within fifteen (15) days from the date the decision of the Supreme Court in the case entitled 43 "Antonio M. Garcia, et al. vs. Court of Appeals, et al." G.R. Nos. 82282-83 becomes final and executory. (Emphasis ours.)

Hence, when FCI issued the BA check to SBTC in the amount of P35,462,869.62 to pay Garcia's indebtedness to the said bank, it was in effect paying with Garcia's money, no longer with its own, because said amount was part of the purchase price which FCI owed Garcia in payment for the sale of the disputed shares by the latter to the former. The money "paid" by FCI to SBTC, thus properly belonged to Garcia. It is as if Garcia himself paid his own debt to SBTC but through a third party FCI. It is, therefore, of no consequence that what was used to pay SBTC was a corporate check of FCI. As we have earlier stated, said check no longer represented FCI funds but Garcia's money, being as it was part of FCI's payment for the acquisition of the disputed shares. The FCI check should not be taken at face value, the attendant circumstances must also be considered. The aforequoted contractual stipulation in the Deed of Sale dated 15 July 1988 between Antonio Garcia and FCI is nothing more but an arrangement for the sake of convenience. Payment was to be effected in the aforesaid manner so as to prevent money from changing hands needlessly. Besides, the very purpose of Garcia in selling the disputed shares and his other properties was to "settle 44 certain civil suits filed against him." Since the money used to discharge Garcia's debt rightfully belonged to him, FCI cannot be considered a third party payor under Art. 1302 (2). It was but a conduit, or as aptly categorized by respondents, merely an agent as defined in Art. 1868 of the Civil Code: Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. FCI was merely fulfilling its obligation under the aforementioned Deed of Sale. Additionally, FCI is not a disinterested party as required by Art. 1302 (2) since the benefits of the extinguishment of the obligation 45 would redound to none other but itself. Payment of the judgment debt to SBTC resulted in the discharge of the attachment lien on the disputed shares purchased by FCI. The latter would then have a free and "clean" title to said shares. In sum, CEIC, for its failure to fulfill the requirements of Art. 1302 (2), was not subrogated to the rights of SBTC against Antonio Garcia and did not acquire SBTC's attachment lien over the disputed shares which, in turn, had already been lifted or discharged 46 upon satisfaction by Garcia, through FCI, of his debt to the said bank. 47 The rule laid down in the case of Samahang Magsasaka, Inc. v. Chua Guan, that as between two attaching creditors the one whose claim was registered ahead on the books of the corporation enjoys priority, clearly has no application in the case at bench. As we have amply discussed, since CEIC was not subrogated to SBTC's right as attaching creditor, which right in turn, had already terminated after Garcia paid his debt to SBTC, it cannot, therefore, be categorized as an attaching creditor in the present controversy. CEIC cannot resurrect and claim a right which no longer exists. The issue in the instant case, then, is priority between an attaching creditor (the consortium) and a purchaser (FCI/CEIC) of the disputed shares of stock and not between two attaching creditors the subject matter of the aforestated Samahang Magsasaka case. CEIC, likewise, argues that the consortium's attachment lien over the disputed Chemphil shares is null and void and not binding on third parties due to the latter's failure to register said lien in the stock and transfer books of Chemphil as mandated by the rule laid 48 down by the Samahang Magsasaka v. Chua Guan. The attachment lien acquired by the consortium is valid and effective. Both the Revised Rules of Court and the Corporation Code do not require annotation in the corporation's stock and transfer books for the attachment of shares of stock to be valid and binding on the corporation and third party. Section 74 of the Corporation Code which enumerates the instances where registration in the stock and transfer books of a corporation provides: Sec. 74. Books to be kept; stock transfer agent. xxx xxx xxx Stock corporations must also keep a book to be known as the stock and transfer book, in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any settlement; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days. (Emphasis ours.) xxx xxx xxx Section 63 of the same Code states: Sec. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. (Emphasis ours.) Are attachments of shares of stock included in the term "transfer" as provided in Sec. 63 of the Corporation Code? We rule in the 49 negative. As succinctly declared in the case of Monserrat v. Ceron, "chattel mortgage over shares of stock need not be registered in the corporation's stock and transfer book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of shares," and that only absolute transfers of shares of stock are required to be recorded in the corporation's stock and transfer book in order to have "force and effect as against third persons." xxx xxx xxx The word "transferencia" (transfer) is defined by the "Diccionario de la Academia de la Lengua Castellana" as "accion y efecto de transfeir" (the act and effect of transferring); and the verb "transferir", as "ceder or renunciar en otro el derecho o dominio que se tiene sobre una cosa, haciendole dueno de ella" (to assign or waive the right in, or absolute ownership of, a thing in favor of another, making him the owner thereof). In the Law Dictionary of "Words and Phrases", third series, volume 7, p. 5867, the word "transfer" is defined as follows: "Transfer" means any act by which property of one person is vested in another, and "transfer of shares", as used in Uniform Stock Transfer Act (Comp. St. Supp. 690), implies any means whereby one may be divested of and another acquire ownership of stock. (Wallach vs. Stein [N.J.], 136 A., 209, 210.)

xxx xxx xxx In the case of Noble vs. Ft. Smith Wholesale Grocery Co. (127 Pac., 14, 17; 34 Okl., 662; 46 L.R.A. [N.S.], 455), cited in Words and Phrases, second series, vol. 4, p. 978, the following appears: A "transfer" is the act by which the owner of a thing delivers it to another with the intent of passing the rights which he has in it to the latter, and a chattel mortgage is not within the meaning of such term. 50 xxx xxx xxx. Although the Monserrat case refers to a chattel mortgage over shares of stock, the same may be applied to the attachment of the disputed shares of stock in the present controversy since an attachment does not constitute an absolute conveyance of property but is primarily used as a means "to seize the debtor's property in order to secure the debt or claim of the creditor in the event that a 51 judgment is rendered." Known commentators on the Corporation Code expound, thus: xxx xxx xxx Shares of stock being personal property, may be the subject matter of pledge and chattel mortgage. Suchcollateral transfers are however not covered by the registration requirement of Section 63, since our Supreme Court has held that such provision applies only to absolute transfers thus, the registration in the corporate books of pledges and chattel mortgages of shares cannot have any 52 legal effect. (Emphasis ours.) xxx xxx xxx The requirement that the transfer shall be recorded in the books of the corporation to be valid as against third persons has reference only to absolute transfers or absolute conveyance of the ownership or title to a share. Consequently, the entry or notation on the books of the corporation of pledges and chattel mortgages on shares is not necessary to their validity (although it is advisable to do so) since they do not involve absolute alienation of ownership of stock (Monserrat vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang Magsasaka, Inc., 62 Phil. 472 [1935].) To affect third persons, it is enough that the date and description of the shares pledged appear in a public instrument. (Art. 2096, Civil Code.) With respect to a chattel mortgage constituted on shares of stock, what is necessary is its registration in the Chattel Mortgage Registry. (Act No. 1508 and Art. 53 2140, Civil Code.) CEIC's reliance on the Samahang Magsasaka case is misplaced. Nowhere in the said decision was it categorically stated that annotation of the attachment in the corporate books is mandatory for its validity and for the purpose of giving notice to third persons. The only basis, then, for petitioner CEIC's claim is the Deed of Sale under which it purchased the disputed shares. It is, however, a 54 settled rule that a purchaser of attached property acquires it subject to an attachment legally and validly levied thereon. Our corollary inquiry is whether or not the consortium has indeed a prior valid and existing attachment lien over the disputed shares. Jaime Gonzales' /Consortium's Claim Is the consortium's attachment lien over the disputed shares valid? CEIC vigorously argues that the consortium's writ of attachment over the disputed shares of Chemphil is null and void, insisting as it does, that the notice of garnishment was not validly served on the designated officers on 19 July 1985. 55 To support its contention, CEIC presented the sheriff's notice of garnishment dated 19 July 1985 which showed on its face that said notice was received by one Thelly Ruiz who was neither the president nor managing agent of Chemphil. It makes no difference, CEIC further avers, that Thelly Ruiz was the secretary of the President of Chemphil, for under the above-quoted provision she is not among the officers so authorized or designated to be served with the notice of garnishment. We cannot subscribe to such a narrow view of the rule on proper service of writs of attachment. A secretary's major function is to assist his or her superior. He/she is in effect an extension of the latter. Obviously, as such, one of her duties is to receive letters and notices for and in behalf of her superior, as in the case at bench. The notice of garnishment was addressed to and was actually received by Chemphil's president through his secretary who formally received it for him. Thus, in one 56 case, we ruled that the secretary of the president may be considered an "agent" of the corporation and held that service of summons on him is binding on the corporation. Moreover, the service and receipt of the notice of garnishment on 19 July 1985 was duly acknowledged and confirmed by the corporate secretary of Chemphil, Rolando Navarro and his successor Avelino Cruz through their respective certifications dated 15 57 58 August 1989 and 21 August 1989. We rule, therefore, that there was substantial compliance with Sec. 7(d), Rule 57 of the Rules of Court. Did the compromise agreement between Antonio Garcia and the consortium discharge the latter's attachment lien over the disputed shares? CEIC argues that a writ of attachment is a mere auxiliary remedy which, upon the dismissal of the case, dies a natural death. Thus, 59 when the consortium entered into a compromise agreement, which resulted in the termination of their case, the disputed shares were released from garnishment. We disagree. To subscribe to CEIC's contentions would be to totally disregard the concept and purpose of a preliminary attachment. A writ of preliminary attachment is a provisional remedy issued upon order of the court where an action is pending to be levied upon the property or properties of the defendant therein, the same to be held thereafter by the Sheriff as security for the 60 satisfaction of whatever judgment might be secured in said action by the attaching creditor against the defendant. (Emphasis ours.) Attachment is a juridical institution which has for its purpose to secure the outcome of the trial, that is, the satisfaction of the pecuniary obligation really contracted by a person or believed to have been contracted by him, either by virtue of a civil obligation emanating from contract or from law, or by virtue of some crime or misdemeanor that he might have committed, and the writ issued, granted it, is executed by attaching and safely keeping all the movable property of the defendant, or so much thereof may be 61 sufficient to satisfy the plaintiff's demands . . . (Emphasis ours.) The chief purpose of the remedy of attachment is to secure a contingent lien on defendant's property until plaintiff can, by appropriate proceedings, obtain a judgment and have such property applied to its satisfaction, or to make some provision for unsecured debts in cases where the means of satisfaction thereof are liable to be removed beyond the jurisdiction, or improperly 62 disposed of or concealed, or otherwise placed beyond the reach of creditors. (Emphasis ours.)

We reiterate the rule laid down in BF Homes, Inc. v. CA 63 that an attachment lien continues until the debt is paid, or sale is had under execution issued on the judgment or until judgment is satisfied, or the attachment discharged or vacated in the same manner provided by law. We expounded in said case that: The appointment of a rehabilitation receiver who took control and custody of BF has not necessarily secured the claims of Roa and Mendoza. In the event that the receivership is terminated with such claims not having been satisfied, the creditors may also find themselves without security therefor in the civil action because of the dissolution of the attachment. This should not be permitted. Having previously obtained the issuance of the writ in good faith, they should not be deprived of its protection if the rehabilitation plan does not succeed and the civil action is resumed. xxx xxx xxx As we ruled in Government of the Philippine Islands v. Mercado: Attachment is in the nature of a proceeding in rem. It is against the particular property. The attaching creditor thereby acquires specific lien upon the attached property which ripens into a judgment against the res when the order of sale is made. Such a proceeding is in effect a finding that the property attached is an indebted thing and a virtual condemnation of it to pay the owner's debt. The law does not provide the length of time an attachment lien shall continue after the rendition of judgment, and it must therefore necessarily continue until the debt is paid, or sale is had under execution issued on the judgment or until judgment is satisfied, or the attachment discharged or vacated in some manner provided by law. It has been held that the lien obtained by attachment stands upon as high equitable grounds as a mortgage lien: The lien or security obtained by an attachment even before judgment, is a fixed and positive security, a specific lien, and, although whether it will ever be made available to the creditor depends on contingencies, its existence is in no way contingent, conditioned or inchoate. It is a vested interest, an actual and substantial security, affording specific security for satisfaction of the debt put in suit, which constitutes a cloud on the legal title, and is as specific as if created by virtue of a voluntary act of the debtor and stands upon as high equitable grounds as a mortgage. (Corpus Juris Secundum, 433, and authorities therein cited.) xxx xxx xxx The case at bench admits of a peculiar character in the sense that it involves a compromise agreement. Nonetheless, the rule established in the aforequoted cases still applies, even more so since the terms of the agreement have to be complied with in full by the parties thereto. The parties to the compromise agreement should not be deprived of the protection provided by an attachment lien especially in an instance where one reneges on his obligations under the agreement, as in the case at bench, where Antonio Garcia failed to hold up his own end of the deal, so to speak. Moreover, a violation of the terms and conditions of a compromise agreement entitles the aggrieved party to a writ of execution. 64 In Abenojar & Tana v. CA, et al., we held: The non-fulfillment of the terms and conditions of a compromise agreement approved by the Court justifies execution thereof and the issuance of the writ for said purpose is the Court's ministerial duty enforceable by mandamus. 65 Likewise we ruled in Canonizado v. Benitez: A judicial compromise may be enforced by a writ of execution. If a party fails or refuses to abide by the compromise, the other party may enforce the compromise or regard it as rescinded and insist upon his original demand. If we were to rule otherwise, we would in effect create a back door by which a debtor can easily escape his creditors. Consequently, we would be faced with an anomalous situation where a debtor, in order to buy time to dispose of his properties, would enter into a compromise agreement he has no intention of honoring in the first place. The purpose of the provisional remedy of attachment would thus be lost. It would become, in analogy, a declawed and toothless tiger. From the foregoing, it is clear that the consortium and/or its assignee Jaime Gonzales have the better right over the disputed shares. When CEIC purchased the disputed shares from Antonio Garcia on 15 July 1988, it took the shares subject to the prior, valid and existing attachment lien in favor of and obtained by the consortium. Forum Shopping in G.R. No. 113394 66 We uphold the decision of the Court of Appeals finding PCIB guilty of forum-shopping. The Court of Appeals opined: True it is, that petitioner PCIB was not a party to the appeal made by the four other banks belonging to the consortium, but equally true is the rule that where the rights and liabilities of the parties appealing are so interwoven and dependent on each other as to be inseparable, a reversal of the appealed decision as to those who appealed, operates as a reversal to all and will inure to the benefit of those who did not join the appeal (Tropical Homes vs. Fortun, 169 SCRA 80, p. 90, citing Alling vs. Wenzel, 133 111. 264-278; 4 C.J. 1206). Such principal, premised upon communality of interest of the parties, is recognized in this jurisdiction (Director of Lands vs. Reyes, 69 SCRA 415). The four other banks which were part of the consortium, filed their notice of appeal under date of March 16, 1990, furnishing a copy thereof upon the lawyers of petitioner. The petition for certiorari in the present case was filed on April 10, 1990, long after the other members of the consortium had appealed from the assailed order of December 19, 1989. We view with skepticism PCIB's contention that it did not join the consortium because it "honestly believed thatcertiorari was the 67 more efficacious and speedy relief available under the circumstances." Rule 65 of the Revised Rules of Court is not difficult to understand. Certiorari is available only if there is no appeal or other plain, speedy and adequate remedy in the ordinary course of law. Hence, in instituting a separate petition for certiorari, PCIB has deliberately resorted to forum-shopping. PCIB cannot hide behind the subterfuge that Supreme Court Circular 28-91 was not yet in force when it filed 68 thecertiorari proceedings in the Court of Appeals. The rule against forum-shopping has long been established. Supreme Court Circular 28-91 merely formalized the prohibition and provided the appropriate penalties against transgressors. It alarms us to realize that we have to constantly repeat our warning against forum-shopping. We cannot over-emphasize its illeffects, one of which is aptly demonstrated in the case at bench where we are confronted with two divisions of the Court of Appeals 69 issuing contradictory decisions one in favor of CEIC and the other in favor of the consortium/Jaime Gonzales. Forum-shopping or the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another (and possibly favorable) opinion in another forum (other than by appeal or the special civil action of certiorari), or the institution of two (2) or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a 70 favorable disposition, has been characterized as an act of malpractice that is prohibited and condemned as trifling with the Courts and abusing their processes. It constitutes improper conduct which tends to degrade the administration of justice. It has also been aptly described as deplorable because it adds to the congestion of the already heavily burdened dockets of the 71 courts.

WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438-39 is hereby AFFIRMED and the appealed decision in G.R. No. 113394, insofar as it adjudged the CEIC the rightful owner of the disputed shares, is hereby REVERSED. Moreover, for wantonly resorting to forum-shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition of the same or similar acts in the future shall be dealt with more severely. SO ORDERED.

CHINA BANKING CORPORATION, petitioner, vs. DYNE-SEM ELECTRONICS CORPORATION, respondent. DECISION CORONA, J.: On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China Banking 1 Corporation. The loan was evidenced by six promissory notes. 2 The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a complaint for sum of money on June 25, 1987 against them. The complaint sought payment of the unpaid promissory notes plus interest and penalties. Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other hand, filed his answer on 3 December 15, 1987 denying that "he promised to pay [the obligations] jointly and severally to [petitioner]." On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was archived. 4 On September 23, 1988, an amended complaint was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics alter ego as established by the following circumstances: Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing, importing, exporting, buying, distributing, marketing and testing integrated circuits and semiconductor devices; [t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory site; [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired the same through foreclosure; 5 [r]espondent retained some of the officers of Dynetics, Inc. xxx xxx xxx On December 28, 1988, respondent filed its answer, alleging that: 5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter; 5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics, Inc.; 5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its business operations were legitimately and validly acquired, under arms-length transactions, from various corporations which had become absolute owners thereof at the time of said transactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent], contrary to what plaintiff falsely and maliciously alleges; 5.4 [respondent] acquired most of its present machineries and equipment as second-hand items to keep costs down; 5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and also engaged in the same or similar business have likewise established their factories; practical convenience, and nothing else, was behind *respondents+ choice of plant site; 5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the sole and absolute prerogative to authorize and assign customs bonded warehouses; again, practical convenience played its role here since the 6 warehouse in question was virtually lying idle and unused when said Bureau decided to assign it to [respondent] in June 1986. On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia and Ratinoff since summons had remained unserved. After hearing, the court a quo rendered a decision on December 27, 1991 which read: xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory notes. xxx xxx xxx WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and severally, to pay plaintiff. xxx xxx xxx Anent the complaint against Dyne-Sem and the latters counterclaim, both are hereby dismissed, without costs. 7 SO ORDERED. 8 From this adverse decision, petitioner appealed to the Court of Appeals but the appellate court dismissed the appeal and affirmed 9 the trial courts decision. It found that respondent was indeed not an alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary to petitioners claim, no merger or absorption took place between the two. What transpired was a 10 mere sale of the assets of Dynetics to respondent. The appellate court denied petitioners motion for reconsideration. 11 Hence, this petition for review with the following assigned errors: VI. Issues What is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction should be pierced? [W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial Courts decision,+ have ruled in accordance with law and/or applicable *jurisprudence+ to the extent that the Doctrine of Piercing the 12 Veil of Corporat[e] Fiction is not applicable in the case at bar? We find no merit in the petition. The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of respondents corporate entity. This Court is not a trier of facts. Findings of fact of the Court of Appeals, affirming those of the trial court, are final and conclusive. The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted

by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the 13 admissions of both parties. We have reviewed the records and found that the factual findings of the trial and appellate courts and consequently their conclusions were supported by the evidence on record. The general rule is that a corporation has a personality separate and distinct from that of its stockholders and other corporations to 14 15 which it may be connected. This is a fiction created by law for convenience and to prevent injustice. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant the disregard of its independent 16 17 being and the piercing of the corporate veil. In Martinez v. Court of Appeals, we held: The veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of the creditors. In such cases, the corporation will be considered as a mere association of persons. The liability will directly attach to the stockholders or to the other corporation. 18 To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly. In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or that it was established to defraud Dynetics creditors, including petitioner. The similarity of business of the two corporations did not warrant a conclusion that respondent was but a conduit of Dynetics. As we 19 held in Umali v. Court of Appeals, "the mere fact that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights." Likewise, respondents acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was 20 formed to defraud petitioner. As the Court of Appeals found, no merger took place between Dynetics and respondent Dyne-Sem. 21 22 What took place was a sale of the assets of the former to the latter. Merger is legally distinct from a sale of assets. Thus, where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. Petitioner itself admits that respondent acquired the machineries and equipment not directly from Dynetics but from the various corporations which successfully bidded for them in an auction sale. The contracts of sale executed between the winning bidders and 23 respondent showed that the assets were sold for considerable amounts. The Court of Appeals thus correctly ruled that the assets 24 were not "diverted" to respondent as an alter ego of Dynetics. The machineries and equipment were transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of the properties to respondent legal and not in any way in contravention of petitioners rights as Dynetics creditor. Finally, it may be true that respondent later hired Dynetics former Vice-President Luvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude that respondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and justify the 25 piercing of the veil of corporate fiction. Much more has to be proven. Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the obligations of Dynetics to petitioner. WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals decision and resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

CHINESE YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINE ISLANDS, WILLIAM GOLANGCO, in his capacity as Director and President of the said Association, and JUANITO K. TAN, in his capacity as Recording Secretary of the said Association, petitioners, vs. VICTOR CHING and THE COURT OF APPEALS, respondents. Tanada, Sanchez, Tanada & Tanada for petitioners. Poblador, Nazareno, Azada, Tomacruz & Parades for privates respondent. ESGUERRA, J: Petition to review on certiorari the decision of the Court of Appeals, dated March 27, 1973, sustaining and affirming in toto the Decision of the Court of First Instance of Manila which annulled the 1966 annual membership campaign of the Chinese Young Men's Christian Association of the Philippine Islands, without prejudice to the holding of another one in lieu thereof; declared as without legal effect the results of the membership campaign including the approval of 174 applications to constitute the active membership of the association; made permanent writ of preliminary injunction enjoining the respondents, now petitioners herein, from holding the annual election of the association, until such time as a new list of members shall have been finalized; and dismissed the counterclaim of petitioners Chinese Young Men's Christian Association of the Philippine Islands, William Golangco and Juanito K. Tan. The factual background of this case is as follows: On January 17, 1966, respondent Victor Ching filed with the Court of First Instance of Manila an action for mandamus with preliminary injunction against the herein petitioners, Chinese Young Men's Christian Association of the Philippine Islands (Chinese YMCA for short), William Golangco, in his capacity as Director and President of the Chinese YMCA, and Juanito K. Tan, in his capacity as Recording Secretary of the Chinese YMCA. Respondent Ching anchored his action in the Court of First Instance of Manila upon the claim that the Membership Campaign of the Chinese YMCA for 1966 held from September 27, 1965, up to November 26, 1965, only 175 applications for membership were submitted, canvassed and accepted on the last day of the membership campaign, which was November 26, 1965 at 5:00 p.m. The letter of the association for membership reads as follows: Dear Fellow Member: Your Board of Directors is pleased to inform you that the Annual Membership Campaign for 1966 will start on September 27, 1965, and end on November 26,1965. For our present active members, the membership may be renewed by the payment of the P100.00 annual membership fee at our office within the above-mentioned period. Failure to do so by a member will forfeit his right to active membership. Application for new members can be filed with the Office of the Association also within said period. The application must be proposed by a present active member. The application form, duly accomplished in duplicate, shall be accompanied by a P100.00 check or cash, which will be refunded should the application be not acted upon favorably. Application forms are available at our office. MANILA DOWNTOWN YMCA (Chinese YMCA of the P.I.) By: JUAN BAUTISTA LEE Chairman MEMBERSHIP COMMITTEE Not more than 240 membership applications, as reported in the November 28, 1965 issue of the Chinese Commercial News, were filed. The herein petitioners, on the other. hand, alleged that 249 membership applications, including the 106 submitted through respondent Ching, were filed during the campaign period. Further, the petitioners denied that there was any counting and/or approval of membership applications that took place on November 26, 1965, as under the Constitution and By-Laws of the Chinese YMCA membership applications had to be screened by its Membership Committee, endorsed favorably to its Board of Directors and approved by the latter body by two-thirds majority vote. For a better understanding of the matter, the pertinent provisions of the Constitution and By-Laws of the Association. are hereto quoted as follows: ARTICLE II MEMBERSHIP Sec. 1. Any young man of good moral character may become a member upon payment of the annual fee. Sec. 2. Male members in good standing in the Roman Catholic Church or in any other Christian Church who are eighteen years of age or over may become active members of this association by declaring in accordance with the Paris Basis of membership adopted by the world's Convention of Young Men's Christian Association, that regarding Jesus Christ as their God and Saviour according to the Holy Scriptures, they desire to be his Disciples in their doctrine and in their life and to associate their efforts for the extension of his Kingdom among young men. Only active members shall have the right to vote and hold office. xxx xxx xxx Sec. 4. Any member of this association may propose an applicant for membership, such proposition to be made in writing to the Membership Committee. Any applicant reported favorably may be elected at a subsequent meeting of the Board of Directors, by a two-thirds vote of the membership present. Sec. 5. The annual fees may be determined by the Board of Directors at any regular meeting, sixty days notice having been given of any contemplated change. The fees are payable at the office of the association. xxx xxx xxx ARTICLE VIII STANDING COMMITTEE Sec. 8. The Membership Committee shall devise means for maintaining the building up of the membership of the association. This committee shall also receive all propositions for membership coming to it as provided in Section 4, Article II, and, after such inquiry as may be necessary concerning the character of each person proposed, shall report in writing at a monthly meeting of the Board those recommended for election.

It is claimed by the petitioners that of the 249 applications submitted, 174 were favorably endorsed by the Membership Committee to the Board of Directors and subsequently approved by the latter. Seventy-five applications, which were among those submitted by respondent Ching were not approved for the reason that said respondent had given "stop-payment" orders on the checks submitted by him and some others to cover payment of the fees corresponding to these 75 applications. Accordingly, petitioners contend that the 1966 membership of the Chinese YMCA should be constituted as they are constituted, only by those 174 applicants whose applications were approved by the Chinese YMCA Board of Directors. It is to be noted that respondent Victor Ching is a member of the Board of Directors of the Chinese YMCA, while herein petitioners, William Golangco and Juanito K. Tan, are its president and recording secretary, respectively; that in the campaign for membership for the year 1966, a rivalry had developed between two groups in the association, one headed by respondent Ching and the other by petitioner Golangco; that on the last day of the membership campaign, November 26, 1965, respondent Ching and herein petitioner Golangco were in the office of the Chinese YMCA located at Room 336, Republic Supermarket Building, Florentino Torres, Manila; that respondent Ching, after it was agreed upon that there was going to be no extension of the membership campaign and that no application would be received after 5 o'clock that afternoon of November 26, 1965, caused to be counted the number of applications actually in the possession of the General Secretary of the association, at the close of office hours, 5:00 o'clock p.m. or thereabout, and the number of applications thus submitted was 175; and that two (2) days thereafter, it was reported in the November 28, 1965, issue of the Chinese Commercial News that some 240 applications for membership were received by the Chinese YMCA during the last day of its membership campaign, November 26,1965,5:00 o'clock p.m. After trial, the Court of First Instance of Manila rendered its decision on the case, the dispositive Portion of which is as follows WHEREFORE, judgment is hereby rendered annulling the 1966 annual membership campaign of the respondent Chinese YMCA of the Philippine Islands, without prejudice to the holding of another one in lieu thereof; declaring as without legal effect the results of the same, including the approval of 174 applications to constitute the present active membership of the association; making permanent the preliminary injunction issued in this case enjoining the respondents from holding the annual election of the respondent association, until such time that a new list of members shall have been finalized; and dismissing the counterclaim of the respondents. The Court makes no pronouncement as to costs. The aforementioned Decision of the Court of First Instance of Manila, dated September 19, 1967, was appealed to the Court of Appeals by the herein petitioners, Chinese YMCA, William Golangco and Juanito K. Tan. On March 27, 1973, respondent Court of Appeals rendered its decision affirming the decision of the Court of First Instance of Manila, pertinent portions of which decision is quoted as follows: We find no reason to disregard the findings of facts of the Trial Judge not only because of his advantage in observing the demeanors of the witnesses when they testified before him and of gauging their credibility better than an appellate court and in cases of this nature the said findings are entitled to respect, unless he failed to consider a fact or circumstance of such importance as to warrant a modification or reversal of said findings, which is not the case herebut also because said findings are in accord with the facts and the rules of probabilities. As for the 75 applications submitted by petitioner Victor Ching, they were correctly rejected by the court a quo because his personal checks covering the membership fees for the said applications were dishonored by the bank when he gave the stop-payment order. Each application should be accompanied with a P100.00 check or cash to make it valid. He did not appeal from the decision; consequently, the said finding of fact is not now open to re-examination. It is, however, evident that he gave the stop- payment order pending the resolution of his request for clarification of the newspaper item regarding the more than 240 applications supposedly received during the campaign. By and large, the appealed decision is in accord with the law and facts. IN VIEW OF THE FOREGOING, the decision is hereby affirmed with costs against the respondents-appellants. AFFIRMED. Hence, this petition for review wherein petitioners have assigned the following errors: I. RESPONDENT COURT OF APPEALS ERRED IN ANNULLING THE 1966 ANNUAL MEMBERSHIP CAMPAIGN OF YMCA AND IN DECLARING INVALID THE APPROVAL BY YMCA OF 174 APPLICATIONS FOR MEMBERSHIP. II. RESPONDENT COURT OF APPEALS LIKEWISE ERRED IN INVALIDATING THE MEMBERSHIP OF SOME 70 MEMBERS, GRANTING ARGUENDO THAT THEIR APPLICATIONS WERE NOT FILED IN THE OFFICE OF YMCA, BECAUSE SAID APPLICATIONS WERE ADMITTEDLY PROCESSED BY YMCA'S SCREENING COMMITTEE AND FAVORABLY ENDORSED BY THE LATTER TO YMCA'S BOARD OF DIRECTORS WHICH IN TURN APPROVED THEM IN CONFORMITY WITH THE CONSTITUTION AND BY-LAWS OF YMCA. III. RESPONDENT COURT OF APPEALS ERRED IN DECLARING INVALID THE MEMBERSHIPS OF 174 MEMBERS IN YMCA ON THE STRENGTH MERELY OF SPECULATION, INFERENCE OR ASSUMPTION, SUPPORTED NEITHER BY FACT NOR BY THE LAW THAT THERE WAS A POSSIBILITY THAT SOME OF THE APPLICATIONS SUPPORTING SAID MEMBERSHIPS COULD HAVE BEEN FILED AFTER THE DEADLINE IMPOSED IN THE MEMBERSHIP CAMPAIGN, THEREBY MAKING THE ADVISORY AND SUPERVISORY POWER OF THIS HONORABLE COURT APPLICABLE TO THE CASE AT BAR. For the resolution of these issues, We must begin with the rule aptly restated by former Chief Justice Querube C. Makalintal in Ramos vs. Court of Appeals, 63 SCRA 331, that ... The general rule is that the appellate court's findings are conclusive, but this rule is not without some recognized exceptions, such as: (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures (Joaquin vs. Navarro, 93 Phil. 257); (2) when the inference made is manifestly mistaken, absurd or impossible (Luna vs. Lina, 74 Phil. 15); (3) where there is grave abuse of discretion (Buyco vs. People, 51 O.G. 2929); (4) when the judgment is based on a misapprehension of facts (Cruz vs. Sosing, 94 Phil. 26); and (5) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the admission of both appellant and appellee (Evangelists vs. Alto, 103 Phil. 401). See also Garcia vs. Court of Appeals, et al., 33 SCRA 622; Roque vs. Buan, 21 SCRA 642. The trial court annulled the 1966 membership campaign of petitioner Chinese (Downtown) YMCA and the "approval of 174 applications to constitute the present active membership of the association" and issued a permanent injunction against the holding of the annual election by such active membership on the basis of its findings that Juan Bautista Lee as chairman of the membership committee had stated on the November 26, 1965 deadline that only 175 applications were received in the association's office while the newspaper reported two days later on November 28, 1965 a total of 240 applications filed and received. Consequently, it annulled all the 174 memberships as approved by petitioner association's board of directors after they had been processed and favorably endorsed by the petitioner's screening committee (174 applications remained from the 249 after respondent withdrew the

75 applications submitted by him by giving a stop-payment order on his personal check covering the payment of the membership fees) because of its conjecture (which was affirmed by the appellate court) that "It is not improbable that some of those applications were filed after said deadline or after said hour on November 26, 1965, or even on subsequent dates", as follows: It is true that, judging by what appears on the face of the 249 application forms submitted, Exhibits 9,9-A to 9-GGGGG, 10, 10- A to 10-KKK, 11, 11-A to 11-WWW, and the receipts for the payment of application fees, Exhibits 3, 3-A to 3-E, the applications were supposedly filed and the fees paid not later than November 26, 1965 the last date of the membership campaign. Nonetheless, some of said applications are undated, and those bearing dates do not show the time when they were received or filed. It is undenied that the deadline had been fixed at 5:00 p.m. on November 26, 1965. It is not improbable that some of those applications were filed after said deadline, or after said hour on November 26, 1965, or even on subsequent dates. As aforesaid, only 175 applications were in the office of the Association as of 5:00 p. m. of November 26, 1965. We find as in the above-cited Ramos case, that the position adopted by both the trial court and the Court of Appeals on the basis of the trial court's conjecture and speculation is not justified. The documentary evidence itself as cited by the trial court, consisting of the applications and the receipts for payment of the membership fees show that they were filed and paid not later than the November 26, 1965 deadline, and this was further supported by the bank statement of the petitioner YMCA deposit account with the China Banking Corporation and the checks paid by certain members to the YMCA which show that the application fees corresponding to the questioned 74 applications (that raised the total to 249 from 175) were already paid to petitioner YMCA as the time of the said deadline. (Exhibits 4, 6, 6-A, 6-B and 6-C). No evidence could be cited by the trial court to rebut this well nigh conclusive documentary evidence other than respondent's unsupported suspicion which the trial court adopted in a negative manner with its statement that it is "not improbable" that "some of those applications filed after said deadline". If there were indeed any applications filed after the deadline, they certainly should have been positively pin-pointed and specifically annulled. What is worse, 175 membership applications were undisputedly filed within the deadline (including the 75 withdrawn by respondent) and yet the 100 remaining unquestioned memberships were nullified by the questioned decision without the individuals concerned ever having been impleaded or heard (except the individual petitioners president and secretary). The appealed decision thus contravened the established principle that the courts cannot strip a member of a non-stock non-profit corporation of his membership therein without cause. Otherwise, that would be an unwarranted and undue interference with the well established right of a corporation to determine its membership, as announced by Fletcher, as follows: Compliance with provisions of charter, constitution or by-laws. In order that membership may be acquired in a non-stock corporation and valid by-laws must be complied with, except in so far as they may be and are waived. *** But provisions in the bylaws as to formal steps to be taken to acquire membership may be waived by the corporation, or it may be estopped to assert that they have not been taken. [12A Fletcher Cyclopedia Corporations, Perm. ed., pp. 583-585; emphasis supplied.] Finally, the appealed decision did not give due importance to the undisputed fact therein stated that "at the board meeting of the association held on December 7, 1965, a list of 174 applications for membership, old and new, was submitted to the board and approved by the latter, over the objection of the petitioner [therein private respondent] who was present at said meeting." Such action of the petitioner association's board of directors approving the 174 membership applications of old and new members constituting its active membership as duly processed and screened by the authorized committee just be deemed a waiver on its part of any technicality or requirement of form, since otherwise the association would be practically paralyzed and deprived of the substantial revenues from the membership dues of P17,400.00 (at P100.00 per application). WHEREFORE the respondent court's decision is hereby set aside and in lieu thereof judgment is rendered dismissing private respondent's petition in the Court of First Instance of Manila and dissolving the preliminary injunction, with costs against private respondent.

GONZALO CHUA GUAN, plaintiff-appellant, vs. SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G. SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively of the same, defendants-appellees. Buenaventura C. Lopez for appellant. Domingo L. Vergara for appellees. BUTTE, J.: This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action for a writ ofmandamus. The case is remarkable for the following reason: that the parties entered into a stipulation in which the defendants admitted all of the allegations of the complaint and the plaintiff admitted all of the special defenses in the answer of the defendants, and on this stipulation they submitted the case for decision. The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly organized under the laws of the Philippine Islands with principal office in Cabanatuan, Nueva Ecija, and that the individual defendants are the president, secretary and treasurer respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894 shares of the capital stock of the said corporation represented by nine certificates having a par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of Manila, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of P20,000 due on or before June 19, 1932. The said certificates of stock were delivered with the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the office of the register of deeds of Manila on June 23, 1931, and in the office of the said corporation on September 30, 1931. On November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage to the plaintiff and the assignment was registered in the office of the register of deeds in the City of Manila on December 28, 1931, and in the office of the said corporation on January 4, 1932. The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity, the plaintiff foreclosed said mortgage and delivered the certificates of stock and copies of the mortgage and assignment to the sheriff of the City of Manila in order to sell the said shares at public auction. The sheriff auctioned said 5,894 shares of stock on December 22, 1932, and the plaintiff having been the highest bidder for the sum of P14,390, the sheriff executed in his favor a certificate of sale of said shares. The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers of the corporation for cancellation and demanded that they issue new certificates in the name of the plaintiff. The said officers (the individual defendants) refused and still refuse to issue said new shares in the name of the plaintiff. The prayer is that a writ of mandamus be issued requiring the defendants to transfer the said 5,894 shares of stock to the plaintiff by cancelling the old certificates and issuing new ones in their stead. The special defenses set up in the answer are as follows: that the defendants refuse to cancel the said certificates standing in the name of Gonzalo H. Co Toco on the books of the corporation and to issue new ones in the name of the plaintiff because prior to the date when the plaintiff made his demand, to wit, February 4, 1933, nine attachments had been issued and served and noted on the books of the corporation against the shares of Gonzalo H. Co Toco and the plaintiff objected to having these attachments noted on the new certificates which he demanded. These attachments noted on the books of the corporation against the shares of Gonzalo H. Co Toco are as follows: MISSING PAGES: 475-477. It will be noted that the first eight of the said writs of attachment were served on the corporation and noted on its records before the corporation received notice from the mortgagee Chua Chiu of the mortgage of said shares dated June 18, 1931. No question is raised as to the validity of said mortgage or of said writs of attachment and the sole question presented for decision is whether the said mortgage takes priority over the said writs of attachment. It is not alleged that the said attaching creditors had actual notice of the said mortgage and the question therefore narrows itself down to this: Did the registration of said chattel mortgage in the registry of chattel mortgages in the office of the register of deeds of Manila, under date of July 23, 1931, give constructive notice to the said attaching creditors? In passing, let it be noted that the registration of the said chattel mortgage in the office of the corporation was not necessary and had no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) The long mooted question as to whether or not shares of a corporation could be hypothecated by placing a chattel mortgage on the certificate representing such shares we now regard as settled by the case of Monserrat vs. Ceron, supra. But that case did not deal with any question relating to the registration of such a mortgage or the effect of such registration. Nothing appears in the record of that case even tending to show that the chattel mortgage there involved was ever registered anywhere except in the office of the corporation, and there was no question involved there as to the right of priority among conflicting claims of creditors of the owner of the shares. The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496, contains the following provision: SEC. 4. A chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same, or, if he resides the Philippine Islands, in the province in which the property is situated: Provided, however, That if the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property is situated, and for the purposes of this Act the City of Manila Shall be deemed to be a province. The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents considerable difficulty and we have obtained little aid from the decisions of other jurisdictions because that form of mortgage is ill suited to the hypothecation of shares of stock and has been rarely used elsewhere. In fact, it has been doubted whether shares of stock in a corporation are chattels in the sense in which that word is used chattel mortgage statutes. This doubt is reflected in our own decision in the case of Fua Cun vs. Summers and China Banking Corporation (44 Phil., 705), in which we said: ". . . an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice to third parties. . . ."And we held that the chattel mortgage there involved: "at least operated as a conditional equitable assignment." In that case we quoted the following from Spalding vs. Paine's Adm'r. (81 Ky., 416), with regard to a chattel mortgage of shares of stock:

"These certificates of stock are in the pockets of the owner, and go with him where he may happen to locate, as choses in action, or evidence of his right, without any means on the part of those with whom he proposes to deal on the faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to others. He finds the name of the owner on the books of the company as a subscriber of paid-up stock, amounting to 180 shares, with the certificates in his possession, pays for these certificates their full value, and has the transfer to him made on the books of the company, thereby obtaining a perfect title. What other inquiry is he to make, so as to make his investment certain and secure? Where is he to look, in order to ascertain whether or not this stock has been mortgaged? The chief office of the company may be at one place today and at another tomorrow. The owner may have no fixed or permanent abode, and with his notes in one pocket and his certificates of stock in the other the one evidencing the extent of his interest in the stock of the corporation, the other his right to money owing him by his debtor, we are asked to say that the mortgage is effectual as to the one and inoperative as to the other." But the case of Fua Cun vs. Summers and China Banking Corporation, supra, did not decide the question here presented and gave no light as to the registration of a chattel mortgage of shares of stock of a corporation under the provisions of section 4 of the Chattel Mortgage Law, supra. Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage which shall be effective against third persons. First, the possession of the property mortgage must be delivered to and retained by the mortgagee; and, second, without such delivery the mortgage must be recorded in the proper office or offices of the register or registers of deeds. If a chattel mortgage of shares of stock of a corporation may validly be made without the delivery of possession of the property to the mortgagee and the mere registration of the mortgage is sufficient to constructive notice to third parties, we are confronted with the question as to the proper place of registration of such a mortgage. Section 4 provides that in such a case the mortgage resides at the time of making the same or, if he is a non-resident, in the province in which the property is situated; and it also provides that if the property is situated in a different province from that in which the mortgagor resides the mortgage shall be recorded both in the province of the mortgagor's residence and in the province where the property is situated. If with respect to a chattel mortgage of shares of stock of a corporation, registration in the province of the owner's domicile should be sufficient, those who lend on such security would be confronted with the practical difficulty of being compelled not only to search the records of every province in which the mortgagor might have been domiciled but also every province in which a chattel mortgage by any former owner of such shares might be registered. We cannot think that it was the intention of the legislature to put this almost prohibitive impediment upon the hypothecation of shares of stock in view of the great volume of business that is done on the faith of the pledge of shares of stock as collateral. It is a common but not accurate generalization that the situs of shares of stock is at the domicile of the owner. The term situs is not one of fixed of invariable meaning or usage. Nor should we lose sight of the difference between the situs of the shares and the situs of the certificates of shares. The situs of shares of stock for some purposes may be at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. (Cf. Vidal vs. South American Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy, 94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7 Fed. [2d]. 158.) It is a general rule that for purposes of execution, attachment and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation which is decisive. (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11, paragraph 5106. Cf. sections 430 and 450, Code of Civil Procedure.) By analogy with the foregoing and considering the ownership of shares in a corporation as property distinct from the certificates which are merely the evidence of such ownership, it seems to us a reasonable construction of section 4 of Act No. 1508 to hold that the property in the shares may be deemed to be situated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owner's domicile, a single registration sufficient. If not, the chattel mortgage should be registered both at the owner's domicile and in the province where the corporation has its principal office or place of business. In this sense the property mortgaged is not the certificate but the participation and share of the owner in the assets of the corporation. Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage, it appears that in the present state of our law, the only safe way to accomplish the hypothecation of share of stock of a Philippine corporation is for the creditor to insist on the assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the books of the corporation by the cancellation of the certificate and the issuance of a new one to him. From the standpoint of the debtor this may be unsatisfactory because it leaves the creditor as the ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency of the creditor. Of course, the mere possession and retention of the debtor's certificate by the creditor gives some security to the creditor against an attempted voluntary transfer by the debtor, provided the by-laws of the corporation expressly enact that transfers may be made only upon the surrender of the certificate. It is to be noted, however, that section 35 of the Corporation Law (Act No. 1459) enacts that shares of stock "may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer." The use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus leaving the creditor in an insecure position even though he has the certificate in his possession. Moreover, the shares still standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on execution at the instance of other creditors. (Cf. Uy Piaoco vs.McMicking, 10 Phil., 286, and Uson vs. Diosomito, 61 Phil., 535.) This unsatisfactory state of our law is well known to the bench and bar. (Cf. Fisher, The Philippine Law of Stock Corporations, pages 163-168.) Loans upon stock securities should be facilitated in order to foster economic development. The transfer by endorsement and delivery of a certificate with intention to pledge the shares covered thereby should be sufficient to give legal effect to that intention and to consummate the juristic act without necessity for registration.lawphil.net We are fully conscious of the fact that our decisions in the case of Monserrat vs. Ceron, supra, and in the present case have done little perhaps to ameliorate the present uncertain and unsatisfactory state of our law applicable to pledges and chattel mortgages of shares of stock of Philippine corporations. The remedy lies with the legislature. In view of the premises, the attaching creditors are entitled to priority over the defectively registered mortgage of the 1 appellant and the judgment appealed from must be affirmed without special pronouncement as to costs in this instance.

CHUA VS NLRC GUTIERREZ, JR., J.: The instant petition questions the jurisdiction of the National Labor Relations Commission (NLRC) in issuing three (3) resolutions dated October 6, 1988, November 3, 1988 and January 3, 1990 in NLRC Injunction Case No. 1793. The October 6, 1988 resolution denied for lack of merit the petitioners' petition for writ of prohibition to stay further proceedings in the five (5) consolidated labor cases involving the former employees of Stanford Microsystems, Inc. pending with respondent Labor Arbiter Dominador M. Cruz. The November 3, 1988 resolution ordered petitioners' Liquidation Committee of Stanford Microsystems, Inc. to defer the payment of SIX MILLION PESOS (P6,000,000.00) to the former employees of Stanford Microsystems, Inc. The January 3, 1990 resolution, among others directed petitioner Liquidation Committee to deposit with the NLRC the deducted attorney's fees representing ten percent (10%) of the amount due and/or to be paid to the former employees of Stanford Microsystems Inc. In December, 1985, Stanford Microsystems, Inc. (Stanford) a service conductor corporation filed a petition for suspension of payments and appointment of rehabilitation receiver (Annex "A", Petition) with the Securities and Exchange Commission (SEC). The petition was docketed as SEC Case No. 2930. At that time, Stanford had seven (7) secured creditor banks and more or less seven thousand one hundred twenty-four (7,124) employees. On February 5, 1986, the SEC declared Stanford to be in a state of suspension of payments. It issued an order (Annex "B", Petition) appointing Sycip Gorres & Velayo & Co. (SGV) as the rehabilitation receiver. In view of these developments, the former employees of Stanford filed with the Department of Labor and Employment (DOLE) cases for money claims, to wit: (a) STANFORD TECHNICAL AND OFFICE STAFF EMPLOYEES ASSOCIATION (STOSEA)-FFW, THROUGH ITS PRESIDENT, NOEL VILLENA AND FOR AND IN BEHALF OF ITS EIGHT HUNDRED SIXTY SUM (860) MEMBERS, Complainants, v. STANFORD MICROSYSTEMS, INC. AND CRISTINO CONCEPCION, JR., IN HIS CAPACITY AS PRESIDENT AND GENERAL MANAGER, Respondents, NLRC-NCR CASE NOS. 1106-86 AND 1-117-86, filed by herein Petitioners Mario A. Mentil, Noel Villena, and Remigio F. Santos, acting for themselves and as the duly appointed Attorneys-In-Fact of Five Hundred Ninety Nine (599) Monthly-Paid Employees for Stanford, and assigned to Labor Arbiter Ceferina Diosana-for illegal lockout and payment of thirteenth month pay, vacation leave and sick leave benefits and subsidiary seminar fund and recreational activities fund. This case has been decided but execution was suspended upon motion of the complainants; (b) RODOLFO FERNANDEZ, ET AL., Petitioners, v. STANFORD MICROSYSTEMS, INC., Respondent, NCR CASE NO. 1-294-86, filed by herein Petitioners Rodolfo Fernandez, for himself, Maximo E. Daquil George T. Bartolome and Ernesto L. Concepcion, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Hundred (300) Confidential and Non-Unionized employees of Stanford, and assigned to Labor Arbiter Raymundo R. Valenzuela which case have been archived at the instance of the complainants; (c) STANFORD MICROSYSTEMS, INC. LABOR UNION-FFW Petitioners, v. STANFORD MICROSYSTEMS, INC., Respondent, CASE NO. 1039-86, filed by herein Petitioners Celia B. Chua, Araceli A. Elardo and Marites P. Martinez, acting for themselves and as the duly appointed Attorneys-In-Fact of Two Thousand Three Hundred Forty Five (2,345) Daily-Paid employees of Stanford, and formerly assigned to Labor Arbiter Benigno C. Villarente, now assigned to Labor Arbiter Alex Arcadio Lopez which case has been decided but the execution of the decision and the case archived at the instance of the complainants; (d) LUDIVINA L. SABALZA, ADELIZA E. CANTILLO, REMIGIO P. PESTAO, ET AL., Complainants v. STANFORD MICROSYSTEMS, INC. ET AL., Respondents, CASE NO. 12-4882-86, filed by herein Petitioners Ludivina L. Ssbalza, Adelina E. Cantillo, and Remegio P. Pestao, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and formerly assigned to Labor Arbiter Evangeline Lubaton for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985, cash conversion of vacation leave and sick leave and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings; (e) SMI LABOR UNION-FFW ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC. Respondent, NCR-NS-3-124-85, CASE NO. 3-75386, filed by herein Petitioners Ludivina L. Sabalza, Adelina E. Cantillo, and Remigio P. Pestao, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and assigned to Labor Arbiter Dominador M. Cruz for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985, cash conversion of vacation leave and sick leave, and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings; (f) LUDIVINA SABALZA, ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC., Respondent, CASE NO. 2-628-86, filed by herein Petitioners Ludivina L. Sabalza, Adeliza E. Cantillo, and Remigio P. Pestao, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and assigned to Labor Arbiter Dominador M. Cruz for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985, cash conversion of vacation leave and sick leave, and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings; (g) LUDIVINA SABALZA, ET AL., FERNANDO R. GUMABON ET AL., Complainants v. Stanford Microsystems, Inc., Respondent, CASE NO. 11-4543-86, filed by herein Petitioners Ludivina L. Sabalza, Adeliza E. Cantillo, and Remigio P. Pestao, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and formerly assigned to Labor Arbiter Armando Polintan for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985, cash conversion of vacation and sick leave, and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings; and (h) FERNANDO R. GUMABON ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC., Respondent, CASE NO. 3-803-86, filed by herein Petitioners Mario A. Mentil, Noel Villena, and Remigio F. Santos, acting for themselves and as the duly appointed Attorneys-In-Fact of Five Hundred Ninety Nine (599) Monthly-Paid employees of Stanford, and formerly assigned to Labor Arbiter Martinez

 for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985, cash conversion of vacation leave and sick leave, and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings. (Petition, pp. 40-43) Except for cases (a), (b) and (c) which were assigned to different labor arbiters, cases (d) to (h) were consolidated and as signed to respondent Labor Arbiter Dominador M. Cruz. The petitioners in case (d) comprise the former daily paid employees of Stanford who were members of the Stanford Microsystems, Inc., Labor Union ("SMILU"). They formed a "Caretaker Committee", and the individual members appointed Ludivina L. Sabalza, Adeliza E. Cantillo and Remigio P. Pestano as Attorneys-In-Fact for the purpose of prosecuting and settling their claims against Stanford, both before the SEC and the DOLE. The Attorneys-In-Fact engaged the services of private respondent, Atty. Vicente Ocampo, to act as their legal counsel. In January, 1987, the SEC disapproved the Rehabilitation Plan submitted by SGV and dismissed Stanford's Petition for Suspension of Payments and Appointment of a Rehabilitation Receiver. (Annex "C', Petition) Subsequently, the SEC ordered Stanford's liquidation. The seven (7) secured creditor banks of Stanford, namely: (a) Philippine Commercial International Bank; (b) Far East Bank and Trust Company; (c) Private Development Corporation of the Philippines; (d) Equitable Banking Corporation; (e) Union Bank of the Philippines; (f) Philippine National Bank; and (g) City Trust Banking Corporation which have an aggregate principal exposure of Two Hundred Thirty One Million Six Hundred Thousand Pesos (P231,600,000.00), and the twelve (12) duly authorized Attorneys-In-Fact of six thousand three hundred forty one (6,341) former employees of Stanford (89% of the total employees) with employees' claims of approximately One Hundred Twenty Five Million Seven Hundred Ten thousand Pesos (P125,710,000.00) reached a mutually acceptable plan for the speedy and orderly liquidation of Stanford. Hence, representatives of the seven (7) secured banks and the employees' Attorneys-In- Fact assisted by their respective counsel held marathon meetings and negotiations in the Office of Director Luna C. Piezas of the DOLE, National Capital Region resulting in the execution of a Memorandum of Agreement dated March 13, 1987 ("MOA", Annex "D", Petition). The MOA was signed by all the parties and duly attested by Director Luna C. Piezas. The principal terms of the MOA are as follows: (a) The Secured Creditor Banks will foreclose their real estate and chattel mortgages; (b) The Secured Creditor Banks will consolidate and retain title to the foreclosed properties in their respective names and contribute the same to a 'Pool of assets' under the control and administration of a Liquidation Committee composed of eleven (11) members, representing the Secured Creditor Banks, and the Six Thousand Three Hundred Forty One (6,341) former employees of Stanford who authorized the MOA; (c) The MOA Liquidation Committee will sell all the foreclosed properties and distribute the proceeds among the Secured Creditor Banks and the Six Thousand Three Hundred Forty One (6,341) employees. The share of the remaining Seven Hundred Eighty Three (783) employees shall be placed in escrow for their benefit until they claim their share; (d) The sharing formula for the distribution of the sales proceeds principally took into account the principal claims of the claimants; and (e) All suits inconsistent with the MOA shall be withdrawn. (Petition, p. 30) The eleven (11) members of the MOA Liquidation Committee are the following: (a) Philippine Commercial International Bank; (b) Far East Bank and Trust Company; (c) Private Development Corporation of the Philippines; (d) Equitable Banking Corporation; (e) Union Bank of the Philippines; (f) Philippine National Bank; (g) Citytrust Banking Corporation; (h) Celia B. Chua, Araceli A. Elardo and Marites P. Martinez, acting for themselves and as the duly appointed Attorneys-In-Fact of Two Thousand Three Hundred Forty Five (2,345) former daily Paid employees of Stanford; (i) Ludivina L. Sabalza, Adeliza E. Cantillo, and Remigio P. Pestao, acting for themselves and as the duly appointed Attorneys In-Fact of Three Thousand Two Hundred Forty Four (3,244) former Daily-Paid employees of Stanford; (j) Mario A. Mentil, Noel Villena, and Remigio F. Santos, acting for themselves and as the duly appointed Attorneys-In-Fact of Five Hundred Ninety Nine (599) former Monthly-Paid employees of Stanford; and (k) Rodolfo Fernandez, for himself, Maximo E. Daquil, George T. Bartolome and Ernesto L. Concepcion, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Hundred (300) former confidential and Non-Unionized employees of Stanford. (Petition, pp. 30-31) Pursuant to the MOA, the secured creditor banks foreclosed their mortgages, consolidated title over the real properties and contributed the same to the "Pool of Assets." The MOA Liquidation Committee then proceeded with the sale of the foreclosed properties. It is to be noted that the group of employees whose attorneys-in-fact are Ludivina L. Sabalza, Adeliza E. Cantillo and Remigio P. Pestao were represented in the negotiations leading to the execution of the MOA by new counsel, the Bacungan Larcia Bacungan Law Office. Respondent Atty. Vicente Ocampo's legal services were terminated by the attorneys-in-fact as early as October and November 1986 in view of his refusal to represent the group in the negotiations with the other former Stanford employees and Stanford creditors towards an out-of-court settlement of their claims against Stanford. This termination was confirmed in a letter dated March 9, 1987 (Annex "K", Petition) which was received by Atty. Ocampo on March 11, 1987. The pertinent portion of the termination letter reads: It is with deep regret that we, the regular daily-paid rank-and-file employees of Stanford Microsystems, Inc. (SMI), accept your decision not to represent us in our negotiations, with various creditors of SMI, including former fellow employees, towards an outof-court settlement of our claims against the company. . . . We, therefore, have no recourse but to engage the services of another

counsel in connection with the case now pending before the Ministry of Labor, the Securities and Exchange Commission and other courts or tribunals including the negotiations for an out-of- court settlement of our claims. ... (Petition, p. 44) On October 2, 1987, the SEC en banc issued an order (Annex "E", Petition) appointing the same eleven (11) members of the MOA Liquidation Committee as the permanent SEC Liquidator of Stanford pursuant to Presidential Decree No. 902-A, as amended. Atty. Ocampo claiming to be still the counsel for the group represented by Ludivina L. Sabalza, Adeliza E. Cantillo and Remigio P. Pestao and other former Stanford employees filed a "class suit" for the reconsideration of the October 2, 1987 order. In the hearing en banc held on December 17, 1987, the SEC directed the Stanford Liquidation Committee and Atty. Ocampo to submit the number and names of the former Stanford employees represented by them. On January 22, 1988, the Stanford Liquidation Committee, filed a compliance with the directive (Annex "F", Petition) together with the following documents: (a) Copies of all the Special Powers of Attorney executed by the Six Thousand Three Hundred Forty One (6,341) former employees of Stanford [Eighty Nine Percent (89%) of the total employees] in favor of their Attorneys-In-Fact who signed the MOA; (b) List of the names of all the Six Thousand Three Hundred Forty One (6,341) former employees of Stanford who executed Special Powers of Attorney, which list was prepared by Carlos J. Valdes & Co. on the basis of the special powers of attorney executed (Annex "F-l", but refer to Annex "C-l" of Annex "Q"); (c) Letters-certifications dated 21 January 1988 and 27 January 1988 of Carlos J. Valdes & Co. that based on their verification, Six Thousand Three Hundred Forty One (6,341) former Stanford employees actually executed Special Powers of Attorney in favor of the workers' representatives in the MOA Liquidation Committee and the Stanford Liquidation Committee (Annexes "F-2" and "F-2-A"). (Petition, p. 32) On the other hand, Atty. Ocampo failed to comply with the directive. On October 12, 1988, the SEC en banc denied Atty. Ocampo's motion for reconsideration of the October 2, 1987 order (Annex "E", Petition) and various other motions. It issued an Omnibus Order (Annex "H") approving the MOA and confirming the appointment of the members of the MOA Liquidation Committee as members of the Stanford Liquidation Committee. In the same order, the SEC clarified that Atty. Ocampo represents only thirty four (34) employees. Actually, Atty. Ocampo represents only twenty five (25) former Stanford employees who are now the private respondents in the instant petition. As regards the money claims filed by the former employees of Stanford, the following events meanwhile transpired: On June 30, 1988, the Stanford Liquidation Committee filed a Manifestation (Annex "L", Petition) with the labor arbiters, including Labor Arbiter Cruz, before whom the labor cases filed against Stanford were pending, advising said labor arbiters of the October 2, 1987 SEC order appointing the Stanford Liquidation Committee as the permanent liquidator of Stanford and of the execution of the MOA among the secured creditor banks and six thousand three hundred forty one (6,341) former employees of Stanford. On September 19, 1988, the petitioners, including the complainants in the consolidated labor cases except the twenty five (25) private respondents represented by Atty. Ocampo, filed a Joint Motion to Stay Proceedings (Annex "M", Petition) praying that the Labor Arbiters stay proceedings in the labor cases pending before them. On the other hand, Atty. Ocampo on behalf of the twenty five (25) private respondents filed an Urgent Petition for Injunction with Prayer for Issuance of a Temporary Restraining Order in the consolidated labor cases pending before respondent Labor Arbiter Cruz. In response to these motions, the Labor Arbiters except respondent Labor Arbiter Cruz issued orders staying proceedings in the cases pending before them. (Annexes, "N", "N-1" and "N-2", Petition). For his part, respondent Labor Arbiter Cruz issued an order dated September 2, 1988 (Annex "O", Petition) the dispositive portion of which reads: WHEREFORE, pursuant to the provisions of Article 218 (e) of the Labor Code, as amended, in relation to Rule XIV, Section 1, paragraph 2, of the Revised Rules of the National Labor Relations Commission, in order to preserve the rights of the parties during the pendency of the cases, the intervenor liquidation Committee of Stanford Microsystems, Inc., its Chairman, Vice-Chairman, members, agents and/or representatives should be, as they are hereby: (1) RESTRAINED from implementing the Memorandum of Agreement dated March 13, 1987 marked as Annex "A" and attached to the record, or from delivering/paying the Six Million Pesos (P6,000,000.00) to the alleged employees/workers representatives, Ludivina Sabalza, Celia Chua, Mario Mentil, and Maximo Daquil, for distribution and payment to the employees and workers concerned in the defunct SMI; and (2) DIRECTED to deposit the amount of SIX MILLION PESOS (P6,000,000.00) with the Cashier of the NLRC Main Office at the Phoenix Building, Intramuros, Manila, immediately upon receipt of this Order, subject to further disposition of the undersigned Labor Arbiter. In view of this restraining order, the petitioners, on October 6, 1988, filed with the National Labor Relations Commission (NLRC) a petition for prohibition/injunction with preliminary injunction and/or temporary restraining order (NLRC Injunction Case No. 1793; Annex "Q", Petition). Attached to the petition was the manifestation of the attorneys-in-fact for the 3,097 former Stanford employees who were not parties to the consolidated labor cases pending before respondent Labor Arbiter Cruz asserting the lack of jurisdiction of Labor Arbiter Cruz. On this same day, October 6, 1988, the NLRC en banc issued the first questioned resolution (Annex "R", Petition) the pertinent portion of which reads: INJUNCTION CASE NO. 1793 ... Enjoining respondent Labor Arbiter Dominador M. Cruz, private respondents, their attorneys, representatives, agents and any other person acting for and in their behalf from implementing the questioned Order dated September 20, 1988, in NLRC NCR Case No. NS-3-124-85 Case No. 3-753-86, entitled SMI Labor Union-FFW, LUDIVINA SABALZA, et al. Fernando Gumabon, et al. Complainants v. Stanford Microsystems, Inc. Respondent, Liquidation Committee of Stanford Microsystems, Inc., Intervenor, NLRC NCR Case No. 11-4543-86, entitledLudivina Sabalza, et al., Fernando R. Gumabon, et al., Complainants v. Stanford Microsystems, Inc., Respondent, Liquidation Committee of Stanford Microsystems, Inc., Intervenor, which restrained herein SEC Appointed liquidation Committee of Stanford Microsystems Inc., from implementing the Memorandum of Agreement dated March 13, 1987 in the matter of liquidating the property of the said company and distributing the amount of P6,000,000.00 to the former employees of the same company pursuant to the provisions of the Agreement and, the said amount to be deposited to the Cashier of the Commission, said Order being a patent nullity; and 2) to deny, for lack of merit, the petition for Writ of Prohibition to stay further proceedings in the five (5) cited labor cases involving the former employees of the company pending before the respondent Labor Arbiter. On October 21, 1988, Atty. Ocampo, on behalf of his twenty five (25) clients filed a "Motion For Partial Reconsideration of Resolution of the Respondent NLRC dated October 6, 1988, etc." (Annex "S", Petition) On November 3, 1988, the NLRC issued the second questioned resolution (Annex "T", Petition) the relevant portion of which reads:

INJUNCTION CASE NO. 1793 ... However, Petitioner Liquidation Committee of Stanford Microsystems, Inc. its attorneys, representatives, agents and any other person acting for and in its behalf is ordered to hold in abeyance and/or defer the payment of the P6,000,000.00 to the former employees of the said company after the Commission rules on the said Partial Motion for Reconsideration. On November 8, 1988, the petitioners filed a joint opposition/motion for reconsideration (Annex "V", Petition) of the two (2) NLRC resolutions. On November 28, 1988, Atty. Ocampo filed an "Amended Motion for Partial Reconsideration of Resolution dated October 6, 1988 with Memorandum of Agreement ...". (Annex "X", Petition) On December 21, 1988, petitioner Stanford Liquidation Committee filed an "Urgent Motion for Early Resolution with Opposition to Atty. Vicente T. Ocampo's Amended Motion for Partial Reconsideration of Resolution dated October 6, 1988 ...". Atty. Ocampo, in turn filed a "Motion to Cite For Contempt and Urgent Motion To Stop Delivery of Deducted Attorney's Fees To Any Lawyers and To Deposit The Same With the NLRC." (Annex "Z", Petition) On January 3, 1989, the NLRC issued the third questioned resolution (Annex "AA", Petition), to wit: INJUNCTION CASE NO. 1793 ... After deliberation, the Commission sitting en banc, RESOLVED: 1) to require the petitioner SEC Liquidation Committee of Stanford Microsystems, Inc., its Chairman Helen Osias; Co-petitioners Mario A. Mentil; Noel Villena, Remegio (sic) F. Santos, Rodolfo Fernandez; Maximo F. Daquil, George T. Bartolome, Ernesto C. Concepcion, Celia B. Chua, Araceli A. Elardo, Marites P. Martinez, Ludivina L. Sabalza, Adelina E. Cantillo and Remegio (sic) F. Pestao, as well as their respective counsel of record, to answer the respondents' Motion to Cite For Contempt and Urgent Motion To Stop Delivery of Deducted Attorney's Fees To Any Lawyer And To Deposit The Same With The NLRC and to show cause why they should not be cited in contempt by this Commission within five (5) days from receipt hereof; 2) to direct, as it hereby directs, the said petitioners to strictly comply with the Resolution of this Commission dated November 3, 1988 and, 3) to direct said petitioner SEC Appointed Liquidation Committee and its agents or any person acting in its behalf to deposit to this Committee within five (5) days from receipt of this Resolution, the deducted attorney's fees representing 10% of the amount due and/or to be paid to the former employees of Stanford Microsystems, Inc. (Rollo, p. 54) On January 18 and 24, 1989, the petitioners filed their respective motions for reconsideration (Annex "BB", "BB-1", and "BB-3", Petition) of the aforementioned NLRC resolution. Also on February 10, 1989, petitioner Stanford Liquidation Committee filed a Second Urgent Motion for Early Resolution (Annex "CC", Petition) of the motion and amended motion for partial reconsideration filed by Atty. Ocampo and the motion for reconsideration filed by petitioner Stanford Liquidation Committee. On July 11, 1989, petitioner Stanford Liquidation Committee filed a motion to lift restraining order and/or third urgent motion for early resolution (Annex "DD", Petition). These motions notwithstanding, the NLRC had not acted upon them nor had it resolved the injunction case despite the parties' submission of their respective memoranda prompting the petitioners to file the instant petition. At the time the three questioned NLRC resolutions were issued, the MOA Liquidation Committee was already in the process of distributing money claims to the former employees of Stanford. The petitioners state: xxx xxx xxx 8. As of June 1989, the MOA Liquidation Committee has realized the amount of approximately Forty One Million Four Hundred Twenty Eight Thousand Five Hundred Seventy One and 42/100 Pesos (P41,428,571.42) from net sales proceeds of the properties in the 'Pool of Assets' out of which Fourteen Million Five Hundred Thousand Pesos (P14,500,000.00) should have already been distributed to all the employees of Stanford, whether or not signatories of the MOA. xxx xxx xxx 11. Out of the Fourteen Million Five Hundred Thousand Pesos (P14,500,000.00) which is available and approved for distribution to the former Stanford employees, only Five billion Two Hundred Seventy Two Thousand One Hundred Eighty Six and 17/100 Pesos (P5,272,186.17) has been distributed in the first distribution. 12. The amounts of Seven Hundred Twenty Seven thousand Eight Hundred Thirteen and 83/100 Pesos (P727,813.83) (balance of first distribution), and Eight billion Five Hundred thousand Pesos (P8,500,000.00) (amount for second distribution), for a total of Nine Million Two Hundred Twenty Seven Thousand Eight Hundred Thirteen and 83/100 Pesos (P9,227,813.83) remain undistributed to all the Stanford employees due to respondent NLRC's restraining order issued on 03 November 1988 or more than Ten (10) months ago. 13. There is extreme urgency in allowing the distribution of the foregoing amount to the former Stanford employees considering that: (a) The former Stanford employees, especially the Six thousand Three Hundred Forty One (6,341) employees who signed the MOA in an amicable settlement of their claims, are unjustly prevented from getting the amounts due them under the MOA, having awaited such distribution since 1985 when Stanford closed; (b) A great number of said employees are jobless and/or underemployed with insufficient incomes; and (c) The highly probable danger of an outbreak of violent unrest due to the unjust and unconscionable delay in distribution brought about by the machinations of Atty. Ocampo. 14. Hence, the instant Petition for certiorari and Prohibition With Prayer for Preliminary Injunction and/or Temporary Restraining Order under Rule 65 of the Rules of Court. (Petition, pp. 25-27) In a resolution dated June 25, 1990 we gave due course to the instant petition. The petitioners aver that the NLRC acted with grave abuse of discretion amounting to lack of jurisdiction and/or without or in excess of its jurisdiction in issuing the three (3) questioned resolutions considering that: I THE SECURITIES AND EXCHANGE COMMISSION HAS ORIGINAL AND EXCLUSIVE JURISDICTION OVER THE LIQUIDATION OF STANFORD MICROSYSTEMS, INC., INCLUDING THE PROCEDURES FOR SETTLING THE MONEY CLAIMS OF FORMER WORKERS AND EMPLOYEES. xxx xxx xxx II THE MEMORANDUM OF AGREEMENT DATED 13 MARCH 1987 IS VALID, FAIR AND REASONABLE AND IS IN ACCORD WITH LAW, MORALS, PUBLIC POLICY AND ESTABLISHED JURISPRUDENCE. xxx xxx xxx III

REPUBLIC ACT NO. 6715 ONLY TOOK EFFECT ON 21 MARCH 1989 AND HAS NO RETROACTIVE APPLICATION TO THE INSTANT CASE, SPECIALLY WHERE SUCH APPLICATION WILL ADVERSELY AFFECT VESTED RIGHTS OF REPUBLIC ACT NO. 6715. xxx xxx xxx IV INDUBITABLY, ATTY. VICENTE T. OCAMPO DOES NOT HAVE THE INTEREST OF LABOR AT HEART AS HE HAS CONSISTENTLY AND PERSISTENTLY ATTACKED, DELAYED AND IMPEDED THE LIQUIDATION OF STANFORD MICROSYSTEMS, INC. AND THE DISTRIBUTION OF THE 'LIQUIDATION' PROCEEDS THEREOF TO THE FORMER EMPLOYEES OF STANFORD MlCROSYSTEMS, INC. (Petition, pp. 66, 6869) xxx xxx xxx Jurisdiction over liquidation proceedings of insolvent corporations is vested in the Securities and Exchange Commission (SEC) pursuant to Presidential Decree No. 902-A, as amended. On the other hand, jurisdiction over money claims of employees against their employers is vested in the Labor Arbiter whose decision may be appealed to the National Labor Relations Commission (NLRC) pursuant to Article 217 of the Labor Code. Following these allocations of jurisdiction, the Solicitor General states that the jurisdiction problems between the NLRC and the SEC can be reconciled with neither one depriving the other of its jurisdiction. Thus, the Solicitor General opines that this can be achieved by simply allowing the Labor Arbiter and the NLRC to continue with their adjudication of the employees' money claims, subject to the condition that any award they may obtain against Stanford must be filed with the Liquidation Committee as one of the established claims against the debtor-company." (Rollo, Vol. II, p. 1630) The petitioners, however, maintain that the SEC jurisdiction over the liquidation of Stanford should include the money claims, now pending before respondent Labor Arbiter Dominador Cruz because they refer to claims to be submitted in the course of the liquidation proceedings. An insolvency proceeding is similar to the settlement of a decedent's estate in that it is a proceeding in rem and is binding against the whole world. Therefore, all persons which have interest in the subject matter involved, whether or not they are given notice are equally bound. Thus, "a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that all other interested persons whether known to the parties or not may be bound by such proceedings." (Philippine Savings Bank v. Lantin, 124 SCRA 476 [1983]; Emphasis supplied) The rule is that a declaration of bankruptcy or a judicial liquidation must be present before preferences over various money claims may be enforced. Since a liquidation proceeding is a proceeding in rem, all claims of creditors whether preferred or non-preferred, the Identification of the preferred ones and the totality of the employer's asset should be brought into the picture. There can then be an authoritative, fair and binding adjudication. (See Development Bank of the Philippines v. Santos, 171 SCRA 138 [1989]). The money claims of workers pose a special problem of jurisdiction when liquidation proceedings are on-going because of the highly preferred nature given by law to said claims. In these cases, however, the problem poses no particular difficulty because the workers themselves have voluntarily opted to participate in the liquidation proceedings. Their representatives in the MOA Liquidation Committee participated in the discussions and proceedings which led to the orders to distribute payments to the various claimants. The workers themselves oppose the orders of the NLRC which have denied them to speedy receipt of funds they urgently need. It is a grave abuse of discretion on the part of NLRC to raise a technical question of its own jurisdiction when the workers over whom it is raised reject the assertion of that jurisdiction. The NLRC has allowed only 25 out of 7,124 employees and a former counsel trying to claim alleged unpaid fees to delay the immediate payment of the worker's claims. Consequently, the Solicitor General's submission that the money claims of Stanford's former employees pending with respondent Labor Arbiter Dominador M. Cruz should be allowed to continue and that the money awards be later presented to the Stanford Liquidation Committee is not the correct solution. It would only spawn needless controversy, delays, and confusion. Significantly, the money claims were presented after Stanford filed a petition for suspension of payments and appointment of a rehabilitation receiver with the SEC. In other words, the money claims were filed when Stanford was already experiencing financial difficulties. Apparently, the employees filed the cases to enforce money claims which they might not collect in view of Stanford's financial crisis and impending closure. Under these circumstances, and bearing in mind the welfare of the workers and their voluntary choices as to how their claims may be equitably settled to their satisfaction, we rule that such money claims were correctly submitted in the course of the liquidation proceedings at the SEC. The petitioners themselves (the former employees who were complainants in the money claims cases pending with the different labor arbiters including those with respondent Labor Arbiter Cruz except for the twenty-five private respondents represented by Atty. Ocampo) filed the motion to stay proceedings in the money claim cases with DOLE on the ground that" ... the proceedings in the instant labor cases which refer to the claims of the Stanford employees against Stanford should be stayed and the subject claims be submitted in the course of the liquidation proceedings under the jurisdiction of the SEC." (Petition, p. 77) Significantly, the petitioners point out that all the other labor arbiters except for the respondent Labor Arbiter granted the motion to stay proceedings in the money claims pending before them. Respondent Labor Arbiter Cruz was assigned to handle five (5) consolidated money claims affecting 3,244 former Stanford employees. With this group, were former employees represented by Ludivina L. Sabalza, Adeliza E. Cantillo and Remigio P. Pestao who initially hired the services of Atty. Ocampo. However, because of the questioned NLRC resolution, all the other workers, or around 3,097 former employees who were never covered by the jurisdiction of respondent Labor Arbiter Cruz have also been adversely affected. This brings us to the other issue regarding the effect of the Memorandum of Agreement dated March 13, 1987 (MOA) executed by the seven (7) secured creditor banks of Stanford and the 6,341 former Stanford employees. As earlier stated, at the time Stanford filed a petition for suspension of payments and appointment of rehabilitation receiver with SEC, Stanford had seven (7) secured creditor banks and approximately 7,124 employees. On March 13, 1987, the seven secured creditor banks of Stanford and 6,341 former employees executed a Memorandum of Agreement to speed up the orderly liquidation of Stanford. All the creditor banks and the said employees were represented by their respective counsel in the negotiations which were supervised by Regional Director Luna C. Piezas of the DOLE, National Capital Region. The SEC approved the MOA. In its en banc omnibus order dated October 12, 1988 (Annex "H") the SEC said: The Memorandum of Agreement having been entered into voluntarily and freely by the parties after taking into consideration all existing conditions appears fair and reasonable. This is the only available solution to labor's sharing in the proceeds it appearing that all properties of Stanford had been encumbered by creditor-banks.

xxx xxx xxx The Memorandum of Agreement (MOA) was executed by the representatives of the secured creditor-banks and labor on March 13, 1987, prior to the order of dissolution of SMI by this Commission. The MOA was conceived to pursue extrajudicially money claims of the Parties thereto to avoid lengthy litigations. xxx xxx xxx The purpose of the Commission's directive requiring submission of the special powers of attorney is precisely to, see for itself if the laborers are given maximum protection and security in the memorandum of agreement. A reading of its features shows that the agreement is fair and reasonable and to the best interest of labor considering that almost all the properties of SMI were mortgaged to and foreclosed by the secured-creditor banks. Yet under this agreement, the secured-creditor-banks are willing to share to labor 35% of whatever proceeds can be generated from the disposition of the foreclosed properties. xxx xxx xxx In opposing intervenos's manifesatation opposing submission of alleged updated lists and special powers of attorney, the liquadation committee denies the allegation of fraud employed in securing the consent of six thousand three hundred forty (6,340) employees to represent them in the Memorandum of Agreement. Verily, it is incredible for so many employees to have consented to their misrepresentation; if at all, perhaps a few number can be misled in so doing. Anyway, as correctly pointed out by the liquidation committee, nobody complained to the Commission regarding such fraud and misrepresentation. (Annex "H", pp. 332-341) It is precisely because of the execution of the MOA that the petitioners filed the motion to stay proceedings in the money claims pending before the labor arbiters. Under the scheme of the MOA the following events transpired: xxx xxx xxx 13. Petitioner Stanford Liquidation Committee regularly files report on its activities, as well as those of the MOA Liquidation Committee, with the SEC. For the distribution of the sales proceeds (realized out of the properties contributed to the Pool in accordance with the MOA) to the former Stanford employees, petitioner Stanford Liquidation Committee formulated the following guidelines: (a) The amounts available for distribution under the MOA shall be distributed to: (i) All Six Thousand Three Hundred Forty One (6,341) former employees of Stanford who executed Special Powers of Attorney in favor of the employees' Attorneys-In-Fact who signed the MOA; and (ii) All former employees of Stanford willing to be bound by the MOA by signing the Affidavit of Acceptance/Affirmation [Annex "B" of the Trust Agreement (Annex "I")] upon receipt of his/her 'crossed' cashier's check. (b) The share of the other Seven Hundred Eighty Three (783) Stanford employees (who have not yet signed special powers of attorney) shall be held in escrow for their benefit until they claim the same. (c) Distribution shall be pro rata on the basis of the General List of Employees and their claims, duly audited by Carlos J. Valdes & Co. (d) Authorized deductions for attorney's fees and other expenses shall be deducted and delivered to the appropriate Attorneys-InFact. (e) Distribution shall be via 'crossed' cashier's checks issused by Philippine Commercial International Bank, Far East Bank & Trust Company, Equitable Banking Corporation, Citytrust, and Philippine National Bank, payable directly to the individual Stanford employees themselves. (f) The physical distribution of the aforementioned cashier's checks (which shall be on a uniform but staggered basis) shall be the responsibility of the respective Attorneys-In-Fact (Trustees). Accordingly, the respective Attorneys-In-Fact (Trustees) shall announce the venue/s and date/s of actual physical distribution, in coordination with the appropriate banks. (g) Any two (2) of the following Identification documents shall be required to be presented: (i) Stanford Id (ii) Present Employer's Id (iii) Driver's License (iv) SSS/GSIS Id (v) Passport (vi) Current NBI Id/Certificate (vii) Other acceptable Ids (h) A representative from Carlos J. Valdes & Co. will be present at each distribution center to witness the receipt of the individual 'crossed' cashier's checks and the signing of the Affidavits/Affirmation, by each Stanford employee. (i) Any Stanford employee who is not able to claim his/her cashier's check on his/her designated date may claim the same on the succeeding dates of distribution. Checks which remain unclaimed for three (3) months shall be returned and kept for safekeeping by the Stanford Liquidation Committee. (j) The Attorneys-In-Fact (Trustees) shall submit regular written reports to the Stanford Liquidation Committee relating to the distribution. (k) The Notice of Distribution will be published in the Bulletin Today and the People's Journal, and will be announced over radio and television (DZRH, DZME and DZXL). (14) Further, the duly appointed Attorneys-In-Fact of the Six Thousand Three Hundred Forty One (6,341) former Stanford employees [Eighty Nine Percent (89%) of all Stanford employees], petitioners herein, who authorized the MOA, executed a Trust Agreement dated 12 October 1988 (Annex "I"), as Trustees for the distribution of the individual 'crossed' cashier's checks to the former Stanford employees. 15. In September 1988, petitioner Stanford Liquidation Committee approved an initial distribution of Six Million Pesos (P6,000,000.00) in sales proceeds via 'crossed' cashier's checks payable directly to the former Stanford employees. The share in the sales proceeds of each Stanford employees was based on computation audited by Carlos J. Valdez & Co. (Petition, pp. 36-39) Considering these circumstances, we rule that NLRC committed grave abuse of discretion in refusing to stay the proceedings in the money claims pending before respondent Labor Arbiter Cruz and when it deferred the payment of P6,000,000.00 to the former Stanford employees. We agree with the petitioners that the Memorandum of Agreement dated March 13, 1987 is valid, fair and reasonable, and is in accord with law, morals, public policy and established jurisprudence.

Article XIII of the Constitution (paragraph 3, section 3) provides for voluntary modes of settling labor disputes, to wit: xxx xxx xxx The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation and shall enforce their mutual compliance therewith to foster industrial peace. This policy is echoed under Article 227 of the Labor Code which provides: Compromise Agreement.-Any compromise settlement, including those involving labor standard laws, voluntarily agreed upon by the parties with the assistance of the Bureau or the regional office of the Department of Labor, shall be final and binding upon the parties. The National Labor Relations Commission or any court shall not assume jurisdiction over issues involved therein except in case of non-compliance thereof or if there is prima facie evidence that the settlement was obtained through fraud, misrepresentation, or coercion. Recently, in Republic Act 6715, the promotion of the preferential use of voluntary modes of settling labor disputes was again reiterated. In fact, as early as 1963, under the Industrial Peace Act, we have ruled that compromise agreements executed by workers or employees and their employer to settle their differences if done in good faith are Valid and binding among the parties. (Dionela v. Court of Industrial Relations, 8 SCRA 832 [1963]; Pampanga Sugar Development Co., Inc. v. Court of Industrial Relations, 114 SCRA 725 [1982]). Undoubtedly, the MOA was executed in good faith and the employees were duly represented during the negotiations which were supervised by a Regional Director of the DOLE. More important, the rights of the employees were safeguarded and protected not only during the negotiations but also at the implementation of the compromise agreement. However, may a minority of the employees which is equivalent to less than 1% of the total employees (25) represented by Atty. Ocampo prevent the enforcement of the Memorandum of Agreement executed by employees representing about 89% of the total number of employees (6,341 out of a total 7,124 employees; 783 not represented in the negotiations but their shares placed in escrow for their benefit under the MOA)? The answer is in the negative. In the case of Dionela vs. Court of Industrial Relations supra, we ruled: The main question for determination in this case is whether the compromise agreement pursuant to which the complaint in Case No. 598-ULP had, inter alia, been withdrawn and then dismissed is binding upon petitioners herein. The latter maintains that it is not, but the lower court held otherwise, upon the ground that it is an accepted rule under our laws that the will of the majority should prevail over the minority' citing Betting Ushers Union (PLUM) v. Jai-alai, L-9330, June 29, 1957 and Jesalva et al. v. Bautista, L11928 to L-11930, March 24, 1959-and that the action taken by petitioners herein as minority members of the Union 'is contrary to the policy of the Magna Carta of Labor, which promotes the settlement of differences between management and labor by mutual agreement,' and that if said action were tolerated, 'no employer would ever enter into any compromise agreement for the minority members of the Union will always dishonor the terms of the agreement and demand for better terms.' The view thus taken by the lower court is correct. Indeed, otherwise, even collective bargaining agreements would cease to promote industrial peace and the purpose of Republic Act No. 875 would thus be defeated. As regards the January 3, 1989 NLRC resolution which directed petitioner Stanford Liquidation Committee to deposit with the NLRC the deducted attorney's fees representing 10% of the amount due and/or to be paid to the former employees of Stanford Microsystems, Inc. we agree with the petitioners that such directive was jurisdictionally defective and premature. Such directive is premature because the NLRC, in effect, prematurely and unduly disposed of, resolved and prejudged the contentious issues raised in the Stanford Employees' Injunction case, based on the bare assertions of Atty. Ocampo and his twenty five (25) clients the private respondents herein. The Solicitor General, who agrees with the petitioners that the NLRC resolution is premature aptly observed: ... [A]ny attorney's fee that may be awarded in the aforesaid cases would be assessed from whatever money award is made in favor of the employees. In other words, the attorney's fee is not a Stanford obligation but a lien on the employees' money award. By requiring the Liquidation Committee to make deposit, the NLRC in effect would shift the obligation from the employees to Stanford. (Public respondent's Memorandum, p. 1638) Obviously, the NLRC directive was for the benefit of respondent Atty. Vicente Ocampo who is claiming attorney's fees as counsel of the group of former Stanford employees headed by Ludivina L. Sabalza, Adeliza Cantillo and Remigio P. Pestao. But as stated earlier in this decision, the group terminated the services of Atty. Ocampo when he refused to represent them in the negotiations with the creditors and other former employees of Stanford. This, notwithstanding, Atty. Ocampo insisted on acting as counsel of the group by filing pleadings on their behalf with SEC and NLRC. He opposed the appearance dated June 30, 1988 (Annex "NN", Petition) filed by the Bacungan Larcia Bacungan law offices in the case pending before the SEC and the respondents Labor Arbiter Cruz and NLRC, in substitution of Atty. Ocampo, which appearance bears the conformity of the group. Eventually, however, the SEC found that Atty. Ocampo represented only thirty four (34) employees which is less than 1% of the total Stanford employees. The record shows that Atty. Ocampo filed with the SEC a Notice of Attorney's Lien dated November 11, 1987, to wit: The undersigned counsel, Atty. VICENTE T. OCAMPO LAW OFFICES, hereby file their Notice of Attorney's Lien in the above entitled case and its incidents on their claim for attorney's fees on the contingent basis, in the amount equivalent to twenty five percent (25%) of the back (strike duration) pay or similar benefit, and ten percent (10%) of the cash conversion of the unused vacation and sick leave with pay and 13th month's pay for 1985, separation pay, and other money pay claims or benefits which may be due and payable to the workers and employees of SMI involved herein, and recipients thereof, as a result of the filing and/or prosecution of such actions as are deemed necessary under the premises and/or judgements which may be rendered in their favor, pursuant to the constract of legal services by and between the said attorneys and the said worker and employees represented by the Caretaker Committee, composed of Ludivina L. Sabalza, Adeliza Cantillo, Remegio Pestao, Merian Ocampo, and Leticia Tabora, and Fernando Gumabon. A xerox copy of said contract of legal services is hereby attached as Annex "A" hereof. (Emphasis supplied). (Petition, p. 129) Since the contract for legal services was on. a contingent basis, Atty. Ocampo as counsel can be paid only if he wins the case for the group. As it turned out, however, Atty. Ocampo's services were terminated by the group as early as October and November 1986 when he refused to represent the group in the negotiations with the other creditors of Stanford for an out of court settlement of their claims resulting in the execution of the Memorandum of Agreement. In an earlier case involving Atty. Ocampo, entitled Ocampo v. Lerum (162 SCRA 498 [1988]), we ruled:

The record of the case clearly discloses that The private respondent Atty. Lerum was primarily responsible for negotiating for the PALEA the retroactive wage increases mentioned earlier, to the exclusion of petitioner Atty. Ocampo. PAL could validly deal with the Biangco Faction represented by Atty. Lerum because no court order had been issued restraining PAL from doing so. The record of the case also reveals that Atty. Ocampo tried his best to enjoin the negotiations initiated by Atty. Lerum by questioning the same before the Court of Industrial Relations and even this Court. On the basis of the foregoing observations, We cannot see how Atty. Ocampo could be entitled to any part of the said attorney's fees. The attorney's fees emanated from the retroactive wage increases negotiated by Atty. Lerum. Accordingly, and under the circumstances obtaining in this case, the said attomey's fees should belong to Atty. Lerum to the exclusion of Atty. Ocampo. We, therefore, find no grave abuse of discretion on the part of the public respondents in reaching this conclusion. (at p. 502) Considering that Atty. Ocampo took no part in the negotiations leading to the execution of the Memorandum of Agreement, a compromise agreement among the creditors and former employees of Stanford to liquidate Stanford which we rule as valid, we find no plausible reason for Atty. Ocampo to interfere with its implementation by filing complaints and/or pleadings with the SEC, the Labor Arbiter and the NLRC in his effort to collect attorney's fees not due him. With the foregoing findings, we find no need to discuss the other arguments posed by the petitioners. WHEREFORE, the instant petition is GRANTED. The questioned resolutions dated October 6, 1988, November 3, 1988 and January 3, 1989 of the National Labor Relations Commission are declared NULL and VOID and are hereby SET ASIDE. The Court Orders: 1) Respondent Labor Arbiter Dominador M. Cruz to desist from conducting further proceedings in Case No. 12-4882-86, Case No. 3753-86; Case No. 2-6280-86; Case No. 11-4543-86 and Case No. 3-803-86; 2) Respondent National Labor Relations Commission and Labor Arbiter Dominador M. Cruz to desist from interfering in the implementation of the Memorandum of Agreement dated March 13, 1987 in the matter of the liquidation Committee under the jurisdiction of the Securities and Exchange Commission; and 3) Private respondents and Atty. Vicente T. Ocampo and associates, their representatives, agents and any other person assisting them or acting for them and on their behalf to desist from interfering with the implementation of the Memorandum of Agreement, the liquidation of the Stanford Microsystems, Inc., and the exercise by the Stanford Liquidation Committee duly appointed by the Securities and Exchange Commission of its functions. No costs. SO ORDERED.

CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG, and MANUEL CHUNG TONG OH, petitioners, vs. INTERMEDIATE APPELLATE COURT respondents. CRUZ, J.: The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, for a term of 25 years which expired on January 1 19,1977. On May 14, 1977, the members of its board of directors executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in 2 the process of reincorporation. On June 14, 1977, the new PMB was issued a certificate of incorporation by the Securities and 3 Exchange Commission. On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new PBM. The allegation was that the former had become legally non-existent for failure to extend its corporate life and that the latter had likewise beenipso facto dissolved for non-use of the 4 charter and continuous failure to operate within 2 years from incorporation. Dismissed for lack of a cause of action, the case, docketed as AC No. 055, was reinstated on appeal to the SECen banc and remanded to a new panel of hearing officers for further proceedings, including the proper accounting of the assets and liabilities of the old PBM. This order was appealed to the Intermediate Appellate Court in a petition for partial review, docketed as AC GR SP No. 00843, questioning the authority of the SEC in Case No. 055 to adjudicate a matter not properly raised on appeal or resolved in the order 5 appealed from. In a related development, Alfredo Ching, one of the members of the board of directors of the old PBM who executed the deed of assignment, filed with the Intermediate Appellate Court a separate petition for certiorari, docketed as AC GR No. 01099, in which he questioned the same order and the decision of the SEC in AC Case No. 055. He alleged that the SEC had gravely erred in not dismissing the petition for liquidation since the action amounted to a quo warranto proceeding which only the state could institute 6 through the Solicitor General. Earlier, on April 1, 1982, the new PBM and Alfredo Ching had filed with the SEC a petition for suspension of payment, which was opposed by Chung Ka Bio, et al., on the ground that the SEC had no jurisdiction over a petition for suspension of payments initiated by a mere individual. The opposition was rejected and the case was set for hearing. Chung Ka Bio elevated the matter to the SEC en banc on certiorari with preliminary injunction and receivership, docketed as SEC EB No. 018, praying for the annulment and setting 7 aside of the proceedings. On May 10, 1983, the case was remanded to the hearing officers for further proceedings. Chung Ka Bio came to this Court but we referred his case to the Intermediate Appellate Court where it was docketed as GR SP No. 01007. The three cases, viz., PBM Co., Inc. v. SEC, AC GR SP 00843; Chung Ka Bio, et al. v. SEC, AC GR SP No. 01007; and Alfredo Ching, et al. v. SEC, AC GR SP No. 01099 were then consolidated in the respondent court which, on February 28, 1985, issued the decision now challenged on certiorari by the petitioners in the case at bar. The decision affirmed the orders issued by the SEC in the 8 said cases except the requirement for the accounting of the assets of the old PBM, which was set aside. The petitioners now contend as follows: 1. The board of directors of an already dissolved corporation does not have the inherent power, without the express consent of the stockholders, to convey all its assets to a new corporation. 2. The new corporation is accountable for the said assets to the stockholders of the dissolved corporation who had not consented to the conveyance of the same to the new corporation. 3. The new corporation has not substantially complied with the two-year requirement of Section 22 of the new Corporation Code on non-user because its stockholders never adopted a set of by-laws. 4. A quo warranto proceeding is no longer necessary to dissolve a corporation which is already "deemed dissolved" under Section 22 of the new Corporation Code. 5. The Securities and Exchange Commission has no jurisdiction over a petition for suspension of payments filed by an individual 9 only. On the first contention, the petitioners insist that they have never given their consent to the creation of the new corporation nor have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the assets of the old corporation was not within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of such company and not in any case to continue its business. Moreover, no stockholders' meeting had been convened to discuss the deed of assignment and the 2/3 vote required by the Corporation Law to 10 authorize such conveyance had not been obtained. The pertinent provisions of the Corporation Law, which was the law then in force, are the following: SEC. 77. Every corporation whose charter expired by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when it would have been dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established." SEC. 28-1/2. A corporation may, by action taken at any meeting of its board of directors, sell, lease, exchange, or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such considerations, which may be money, stocks bonds, or other instruments for the payment of money or other property or other considerations, as its board of directors deem expedient, when and as authorized by the affirmative vote of shareholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a shareholders' meeting called for that purpose. Notice of such meeting shall be given to all of the shareholders of record of the corporation whether or not they shall be entitled to vote thereat: Provided, however, That any stockholder who did not vote to authorize the action of the board of directors, may, within forty days after the date upon which such action was authorized, object thereto in writing and demand payment for his shares. If, after such a demand by a stockholder, the corporation and the stockholder can not agree upon the value of his share or shares at the time such corporate action was authorized, such value shall be ascertained by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The finding of the appraisers shall be final and if their award is not paid by the corporation within thirty days after it is made, it may be recovered in an action by the stockholder against the corporation. Upon payment by the corporation to the

stockholder of the agreed or awarded price of his shares, the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the corporation. Unless and until such sale, lease, or exchange shall be abandoned, the stockholder making such demand in writing ceases to be a stockholder and shall have no rights with respect to such shares except the right to receive payment therefor as aforesaid. A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of the corporate assets which would remain after such payment would be at least equal to the aggregate amount of its debts and liabilities exclusive of capital stock. Nothing in this section is intended to restrict the power of any corporation, without the authorization thereof by the shareholders, to sell, lease, exchange, or otherwise dispose of, any of its property if thereby the corporate business be not substantially limited, or if the proceeds of such property be appropriated to the conduct or development of its remaining business. These are now Sections 122 and 40, respectively, with modifications, of the Corporation Code. As the first contention is based on the negative averment that no stockholders' meeting was held and the 2/3 consent vote was not obtained, there is no need for affirmative proof. Even so, there is the presumption of regularity which must operate in favor of the private respondents, who insist that the proper authorization as required by the Corporation Law was duly obtained at a meeting called for the purpose. (That authorization was embodied in a unanimous resolution dated March 19, 1977, which was 11 reproduced verbatim in the deed of assignment.) Otherwise, the new PBM would not have been issued a certificate of incorporation, which should also be presumed to have been done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did not vote to authorize the action of the board of directors may, within forty days after the date upon which such action was authorized, object thereto in writing and demand payment for his shares." The record does not show, nor have the petitioners alleged or proven, that they filed a written objection and demanded payment of their shares during the reglementary forty-day period. This circumstance should bolster the private respondents' claim that the authorization was unanimous. While we agree that the board of directors is not normally permitted to undertake any activity outside of the usual liquidation of the business of the dissolved corporation, there is nothing to prevent the stockholders from conveying their respective shareholdings toward the creation of a new corporation to continue the business of the old. Winding up is the sole activity of a dissolved corporation that does not intend to incorporate anew. If it does, however, it is not unlawful for the old board of directors to negotiate and transfer the assets of the dissolved corporation to the new corporation intended to be created as long as the stockholders have given their consent. This was not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-1/2. What the Court finds especially intriguing in this case is the fact that although the deed of assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to question its validity. All of four years had elapsed before the petitioners filed their action for liquidation of both the old and the new corporations, and during this period, the new PBM was in full operation, openly and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. The petitioners and the private 12 13 respondents are not strangers but relatives and close business associates. The PBM office is in the heart of Metro Manila. The 14 new corporation, like the old, employs as many as 2,000 persons, the same personnel who worked for the old PBM. Additionally, one of the petitioners, Chung Siong Pek was one of the directors who executed the deed of assignment in favor of the old PBM and 15 it was he also who received the deeded assets on behalf and as treasurer of the new PBM. Surely, these circumstances must operate to bar the petitioners now from questioning the deed of assignment after this long period of inaction in the protection of the rights they are now belatedly asserting. Laches has operated against them. We have said in a number of cases that laches, in a general sense, means the failure or neglect, for an unreasonable and unexplained 16 length of time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or 17 declined to assert it. Public policy requires, for the peace of society, the discouragement of claims grown stale for non18 assertion. Unlike the statute of limitations, laches does not involve mere lapse or passage of time but is principally an impediment 19 to the assertion or enforcement of a right which has become under the circumstances inequitable or unfair to permit. The essential elements of laches are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the sitution complained of; (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on 20 which he bases his suit; (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. All the requisites are present in the case at bar. To begin with, what gave rise to the situation now complained of by the petitioners was the adoption of the deed of assignment by the directors of the old PBM allegedly without the consent of its stockholders and the acceptance of the deeded assets by the new PBM. Secondly, there was delay on the petitioners' part since it took them nearly four years, i.e., from May 14, 1977 to May 5,1981, before they made their move to assail the transfer despite complete knowledge of the transaction. It is also evident that the new PBM could not have had the slightest suspicion that the petitioners would assert the right on which they now base their suit, especially Chung Siong Pek, who in fact acted not only as director of the old PBM but also as treasurer of the new PBM in the transaction. Finally, the injury or prejudice in the event relief is granted is obvious as all the transactions of the new PBM will have to be undone, including credits extended and commitments made to third parties in good faith. The second contention must also fall with the first, and for the same reasons. The third contention is likewise rejected for, as already shown, it is undeniable that the new PBM has in fact been operating all these years. The petitioners' argument that Alfredo Ching was merely continuing the business of the old PBM is self-defeating for they themselves argue that the old PBM had already been dissolved. As for the contention that the election of Wellington Chung and J.R. Blanco as directors was subject to the outcome of the petition for liquidation, this is clearly self-serving and completely without proof. Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that "every corporation formed under this Act, must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A.

Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(i) of PD 902-A, the SEC is empowered to "suspend or revoked, after proper notice and hearing, the franchise or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required period." It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may 21 be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm. It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted "within one month after receipt of official notice of the issuance of its certificate of incorporation." Distinguishing creation from defects in organization, Fletcher has the following to say: Ordinarily, want of, or defects in, the organization of a corporation, as distinguished from its creation, do not preclude the existence of a de facto corporation; and requirements in special charters or general incorporation laws relating to organization are often construed to be merely directory, or to conditions subsequent rather than conditions precedent, so that compliance therewith is not necessary to create even a dejure corporation. It has been held that there may be a de factocorporation notwithstanding a failure to give the notice required by the statute of the meeting for the of or organization; or though there would failure to fix and limit the amount of the capital stock of the company at the first meeting; or a failure to issue stock; or that there were informalities in the proceedings of such meeting, or that no certificate of organization was executed or filed. And the same has been held to be true though no board of directors has been elected, and though there were irregularities with respect to the number, term, place of residence and of meeting of the board of directors, or some of the persons chosen as directors are not qualified, even though the taking of these various steps is necessary to the proper use of the franchise. .... In any case, the deficiency claimed by the petitioners was corrected when the new PBM adopted and filed its by-laws on September 22 6, 1981, thus rendering the third issue also moot and academic. It is needless as well to dwell on the fourth contention, in view of the findings that the new PBM has not been ipso facto dissolved. On the fifth and final issue, the respondent court justifies assumption by the SEC of jurisdiction over the petition for suspension of payment filed by the individual on the general principle against multiplicity of suits. Under Section 5(d), PD 902-A, as amended by PD 1758, however, it is clearly provided that such jurisdiction may be exercised only in: d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possess sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. This section clearly does not allow a mere individual to file the petition which is limited to "corporations, partnerships or associations." Administrative agencies like the SEC are tribunals of limited jurisdiction and, as such, can exercise only those powers 23 which are specifically granted to them by their enabling statutes. Consequently, where no authority is granted to hear petitions of individuals for suspension of payments, such petitions are beyond the competence of the SEC. The analogy offered by the respondent court is clearly inappropriate for while it is true that the Sandiganbayan may assume jurisdiction over private individuals, it is because its charter expressly allows this in specified cases. No similar permission is found in PD 902-A. The circumstance that Ching is a co-signer in the corporation's promissory notes, collateral or guarantee or security agreements, does not make him a proper party. Jurisdiction over the subject matter must exist as a matter of law and cannot be fixed by agreement of the parties, acquired through, or waived, enlarged or diminished by, any act or omission; neither can it be conferred by acquiescence of the tribunal. Hence, Alfredo Ching, as a mere individual, cannot be allowed as a co-petitioner in SEC Case No. 2250. WHEREFORE, the appealed decision is AFFIRMED as above modified, with costs against the petitioners. SO ORDERED.

COLLECTOR OF INTERNAL REVENUE, petitioner, vs. ANGLO CALIFORNIA NATIONAL BANK (CROCKER-ANGLO NATIONAL BANK), as Treasurer for CALAMBA SUGAR ESTATE, INC., respondent. Assistant Solicitor General Jose P. Alejandro and Special Attorney Librada del Rosario-Natividad for petitioner. Ozaeta, Gibbs and Ozaeta for respondent. REYES, J.B.L., J.: Respondent Calamba Sugar Estate, Inc., herein represented by its trustee, the Anglo California National Bank, is a foreign corporation organized and existing under the laws of the State of California, U.S.A., duly licensed (on May 8, 1946) to do business in the Philippines. It has consistently filed its income tax returns here through its resident attorney-in-fact. On May 14, 1956, the petitioners Collector of Internal Revenue the corporation of an assessment for alleged deficiency income taxes for the years 1953, 1954 and 1955 in the respective amounts of P138,855.00, P131,759.00 and P393,459.00, supposedly based upon capital again derived from the respondent's sale to the Pasumil Planters, Inc., of P250,000 shares of the capital stock of the Pampanga Sugar Mills (a domestic corporation) and of a promissory note, dated January 1, 1950, executed by the Pampanga Sugar Mills in the sum of $500,000.00. In an appeal by the respondent from the ruling of the Collector, the Court of Tax Appeals reversed said ruling and absolved the respondent form liability. This is an appeal by the Collector from that decision. The parties stipulated that (a) the negotiations leading to the execution and conclusion of the agreement of sale, dated January 16, 1953, between the respondent corporation and the Pasumil Planters, Inc., took place in San Francico, California; (b) the payment on account of the sale were made by the Pasumil Planters, Inc., at the same foreign city; and (c) the sale was made under and in accordance with the laws of that State. From the evidence presented, it also appears that on December 16, 1955, the Securities and Exchange Commission cancelled respondent's license to transact business in the Philippines, and on December 30, 1955, the corporation was dissolved in accordance with the California law. The sole issue is whether the capital gains obtained from the sale constituted income from sources within or without the Philippines. It was the opinion of the Tax Court that they were income derived from abroad, and not subject to income tax. It is hardly disputable that although shares of stock of a corporation represent equities may consist of real as well as personal properties therein, they are considered under applicable law and jurisprudence as intangible personal properties (see Art. 417 [2], Civil Code of the Philippines; Sec. 35, Act No. 1459). Section 24 of the National Internal Revenue Codes levies income taxes on foreign corporations only on income derived from sources within the Philippines; and with respect to capital gains on the sale of personal properties, section 37 (e) of the same Tax Code deems the place of sale as also that place or source of the capital gain: ... Gains, profit, and income derived from the purchase of personal within and its sale without the Philippines or from the purchase or personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold. (Emphasis supplied) Construing the same provision of law (which is section 119 (e) of the 1934 Act, U.S.I.R.C.), Unites States courts are in accord in disallowing the imposition of income taxes by its government on capital gains where the sale takes place outside its territorial jurisdiction. It is likewise the prevailing view that in ascertaining the place of sale, the determination of when and where title to the goods passes from the seller to the buyer is decisive (East Coast Oil Co. vs. Comm., 31 B.T.A. 588, aff'd 85 F. [2d] 322, cer. den-299 U.S. 608, 81 L. Ed. 449, 57 S. Ct. 234; also Disconto-Gaesellcraft vs. U.S. Steel Corporation, 267 U.S. 22; Compania General de Tabacos de Filipinas vs. Collector, 279 U.S. 306, 73 L. Ed. 704, 49 S. Ct. 304). In this case, it is admitted that the negotiation, perfection and consummation of the contract of sale were all done in California, U.S.A. It follows that title to the shares of stock passed from the vendor to the vendee at said place, from which time the incidents of ownership vested on the buyer. The Collector argues that the sit us of shares of stock of a corporation is considered to be at the domicide of the latter, as held in some cases cited by him; but in the instant problem, we are not concerned with the imposition of taxes upon the shares themselves, but on a sale effected abroad that resulted in capital gains, for which there is a specific provision of law (Sec. 37 [e] N.I.R.C.). As stated by the Tax Court, there is a distinction between the situs of personal properties and the situs of the income derived from the sale or exchange of such properties. As to the contention that section 35 of the Corporation Law (Act No. 1459) requires the transfer to be noted and entered not invalidate the transfer between the parties nor is it essential to vest title upon the vendee. The capital gains, now sought to be taxed, arose from the severance of gain, from the investment occasioned by the transfer of title abroad and not on account of any registration that might be effected later. Wherefore, the judgment under view is hereby affirmed. No costs.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS, COURT OF TAX APPEALS and A. SORIANO CORP., respondents. MARTINEZ, J.: 1 Petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the decision of the Court of Appeals (CA) which affirmed 2 the ruling of the Court of Tax Appeals (CTA) that private respondent A. Soriano Corporation's (hereinafter ANSCOR) redemption and exchange of the stocks of its foreign stockholders cannot be considered as "essentially equivalent to a distribution of taxable 3 dividends" under, Section 83(b) of the 1939 Internal Revenue Act. The undisputed facts are as follows: Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. 4 ANSCOR is wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937, Don Andres 5 subscribed to 4,963 shares of the 5,000 shares originally issued. On September 12, 1945, ANSCOR's authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value of the additional 15,000 shares, only 10,000 was issued which were all subscribed by Don Andres, after the other 6 stockholders waived in favor of the former their pre-emptive rights to subscribe to the new issues. This increased his subscription 7 8 to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and Andres, Jr., as their 9 10 initial investments in ANSCOR. Both sons are foreigners. By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 1949 and December 20, 11 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 12 13 shares 50,495 of which are original issues and the balance of 134.659 shares as stock dividend declarations. Correspondingly, 14 one-half of that shareholdings or 92,577 shares were transferred to his wife, Doa Carmen Soriano, as her conjugal share. The 15 other half formed part of his estate. 16 17 A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. In the same 18 year (December 1966), stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and 19 20 Doa Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each. On December 28, 1967, Doa Carmen requested a ruling from the United States Internal Revenue Service (IRS), inquiring if an 21 exchange of common with preferred shares may be considered as a tax avoidance scheme under Section 367 of the 1954 U.S. 22 Revenue Act. By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares into 150,000 common and 150,000 23 preferred shares. In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization scheme and not tax 24 25 avoidance. Consequently, on March 31, 1968 Doa Carmen exchanged her whole 138,864 common shares for 138,860 of the newly reclassified preferred shares. The estate of Don Andres in turn, exchanged 11,140 of its common shares, for the remaining 26 11,140 preferred shares, thus reducing its (the estate) common shares to 127,727. On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to P75M divided into 150,000 preferred shares and 600,000 27 28 common shares. About a year later, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate, further reducing the latter's common shareholdings to 19,727. As stated in the Board Resolutions, ANSCOR's business purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to reduce the company's foreign exchange 29 remittances in case cash dividends are declared. In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that ANSCOR be 30 assessed for deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code, for the year 1968 31 and the second quarter of 1969 based on the transactions of exchange 31 and redemption of stocks. The Bureau of Internal Revenue (BIR) made the corresponding assessments despite the claim of ANSCOR that it availed of the tax amnesty under Presidential Decree 32 33 (P.D.) 23 which were amended by P.D.'s 67 and 157. However, petitioner ruled that the invoked decrees do not cover Sections 34 53 and 54 in relation to Article 83(b) of the 1939 Revenue Act under which ANSCOR was assessed. ANSCOR's subsequent protest 35 on the assessments was denied in 1983 by petitioner. Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax assessments on the redemptions and exchange of stocks. In its decision, the Tax Court reversed petitioner's ruling, after finding sufficient evidence to overcome the prima 36 facie correctness of the questioned assessments. In a petition for review the CA as mentioned, affirmed the ruling of the 37 CTA. Hence, this petition. 38 The bone of contention is the interpretation and application of Section 83(b) of the 1939 Revenue Act which provides: Sec. 83. Distribution of dividends or assets by corporations. (b) Stock dividends A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen. (Emphasis supplied) Specifically, the issue is whether ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable under the provisions of the above-quoted law. Petitioner contends that the exchange transaction a tantamount to "cancellation" under Section 83(b) making the proceeds thereof taxable. It also argues that the Section applies to stock dividends which is the bulk of stocks that ANSCOR redeemed. Further, petitioner claims that under the "net effect test," the estate of Don Andres gained from the redemption. Accordingly, it was the duty of ANSCOR to withhold the tax-at-source arising from the two transactions, pursuant to Section 53 and 54 of the 1939 Revenue 39 Act. ANSCOR, however, avers that it has no duty to withhold any tax either from the Don Andres estate or from Doa Carmen based on the two transactions, because the same were done for legitimate business purposes which are (a) to reduce its foreign exchange

remittances in the event the company would declare cash dividends, and to (b) subsequently "filipinized" ownership of ANSCOR, 41 as allegedly, envisioned by Don Andres. It likewise invoked the amnesty provisions of P.D. 67. 42 We must emphasize that the application of Sec. 83(b) depends on the special factual circumstances of each case. The findings of 43 facts of a special court (CTA) exercising particular expertise on the subject of tax, generally binds this Court, considering that it is 44 substantially similar to the findings of the CA which is the final arbiter of questions of facts. The issue in this case does not only deal with facts but whether the law applies to a particular set of facts. Moreover, this Court is not necessarily bound by the lower 45 courts' conclusions of law drawn from such facts. AMNESTY: 46 We will deal first with the issue of tax amnesty. Section 1 of P.D. 67 provides: 1. In all cases of voluntary disclosures of previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which are taxable under the National Internal Revenue Code, as amended, realized here or abroad by any taxpayer, natural or judicial; the collection of all internal revenue taxes including the increments or penalties or account of non-payment as well as all civil, criminal or administrative liabilities arising from or incident to such disclosures under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service laws and regulations, laws and regulations on Immigration and Deportation, or any other applicable law or proclamation, are hereby condoned and, in lieu thereof, a tax of ten (10%) per centum on such previously untaxed income or wealth, is hereby imposed, subject to the following conditions: (conditions omitted) [Emphasis supplied]. The decree condones "the collection of all internal revenue taxes including the increments or penalties or account of non-payment as well as all civil, criminal or administrative liable arising from or incident to" (voluntary) disclosures under the NIRC of previously untaxed income and/or wealth "realized here or abroad by any taxpayer, natural or juridical." May the withholding agent, in such capacity, be deemed a taxpayer for it to avail of the amnesty? An income taxpayer covers all 47 persons who derive taxable income. ANSCOR was assessed by petitioner for deficiency withholding tax under Section 53 and 54 of the 1939 Code. As such, it is being held liable in its capacity as a withholding agent and not its personality as a taxpayer. In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no more than an agent of 48 49 the government for the collection of the tax in order to ensure its payments; the payer is the taxpayer he is the person 50 51 subject to tax impose by law; and the payee is the taxing authority. In other words, the withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor becomes a payee by fiction of law. His (agent) 52 liability is direct and independent from the taxpayer, because the income tax is still impose on and due from the latter. The agent is not liable for the tax as no wealth flowed into him he earned no income. The Tax Code only makes the agent personally liable 53 for the tax arising from the breach of its legal duty to withhold as distinguish from its duty to pay tax since: the government's cause of action against the withholding is not for the collection of income tax, but for the enforcement of the withholding provision of Section 53 of the Tax Code, compliance with which is imposed on the withholding agent and not upon the 54 taxpayer. Not being a taxpayer, a withholding agent, like ANSCOR in this transaction is not protected by the amnesty under the decree. 55 Codal provisions on withholding tax are mandatory and must be complied with by the withholding agent. The taxpayer should not answer for the non-performance by the withholding agent of its legal duty to withhold unless there is collusion or bad faith. The former could not be deemed to have evaded the tax had the withholding agent performed its duty. This could be the situation for 56 which the amnesty decree was intended. Thus, to curtail tax evasion and give tax evaders a chance to reform, it was deemed administratively feasible to grant tax amnesty in certain instances. In addition, a "tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by a statute, the term of the amnesty like that of a tax exemption must be construed 57 58 strictly against the taxpayer and liberally in favor of the taxing authority. The rule on strictissimi juris equally applies. So that, any doubt in the application of an amnesty law/decree should be resolved in favor of the taxing authority. Furthermore, ANSCOR's claim of amnesty cannot prosper. The implementing rules of P.D. 370 which expanded amnesty on previously untaxed income under P.D. 23 is very explicit, to wit: Sec. 4. Cases not covered by amnesty. The following cases are not covered by the amnesty subject of these regulations: xxx xxx xxx (2) Tax liabilities with or without assessments, on withholding tax at source provided under Section 53 and 54 of the National 59 Internal Revenue Code, as amended; ANSCOR was assessed under Sections 53 and 54 of the 1939 Tax Code. Thus, by specific provision of law, it is not covered by the amnesty. TAX ON STOCK DIVIDENDS General Rule 60 Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of the U.S. Revenue Code of 1928. It laid down the general rule 61 known as the proportionate test wherein stock dividends once issued form part of the capital and, thus, subject to income 62 tax. Specifically, the general rule states that: A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. Having been derived from a foreign law, resort to the jurisprudence of its origin may shed light. Under the US Revenue Code, this provision originally referred to "stock dividends" only, without any exception. Stock dividends, strictly speaking, represent capital and do not constitute income to its 63 64 recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of capital 65 investment." As capital, the stock dividends postpone the realization of profits because the "fund represented by the new stock 66 has been transferred from surplus to capital and no longer available for actual distribution." Income in tax law is "an amount of 67 money coming to a person within a specified time, whether as payment for services, interest, or profit from investment." It means 68 69 70 cash or its equivalent. It is gain derived and severed from capital, from labor or from both combined so that to tax a stock 71 dividend would be to tax a capital increase rather than the income. In a loose sense, stock dividends issued by the corporation, are considered unrealized gain, and cannot be subjected to income tax until that gain has been realized. Before the realization, stock 72 dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet subject to income tax. It should be noted that capital and income are different. Capital is wealth or fund; whereas income is profit or gain or the flow of 73 74 wealth. The determining factor for the imposition of income tax is whether any gain or profit was derived from a transaction.

40

The Exception However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen. (Emphasis supplied). 75 In a response to the ruling of the American Supreme Court in the case of Eisner v. Macomber (that pro ratastock dividends are not taxable income), the exempting clause above quoted was added because provision corporation found a loophole in the original provision. They resorted to devious means to circumvent the law and evade the tax. Corporate earnings would be distributed under the guise of its initial capitalization by declaring the stock dividends previously issued and later redeem said dividends by paying cash to the stockholder. This process of issuance-redemption amounts to a distribution of taxable cash dividends which was lust delayed so as to escape the tax. It becomes a convenient technical strategy to avoid the effects of taxation. Thus, to plug the loophole the exempting clause was added. It provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits". The exception was designed to prevent the issuance and cancellation or redemption of stock dividends, which is fundamentally not taxable, from being made use of as a device for the actual 76 distribution of cash dividends, which is taxable. Thus, the provision had the obvious purpose of preventing a corporation from avoiding dividend tax treatment by distributing earnings to its shareholders in two transactions a pro rata stock dividend followed by a pro rataredemption that would have the same 77 economic consequences as a simple dividend. Although redemption and cancellation are generally considered capital transactions, as such. they are not subject to tax. However, it 78 does not necessarily mean that a shareholder may not realize a taxable gain from such transactions. Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof and can exercise the 79 80 freedom of choice. Having realized gain from that redemption, the income earner cannot escape income tax. As qualified by the phrase "such time and in such manner," the exception was not intended to characterize as taxable dividend every 81 distribution of earnings arising from the redemption of stock dividend. So that, whether the amount distributed in the redemption 82 should be treated as the equivalent of a "taxable dividend" is a question of fact, which is determinable on "the basis of the 83 particular facts of the transaction in question. No decisive test can be used to determine the application of the exemption under Section 83(b). The use of the words "such manner" and "essentially equivalent" negative any idea that a weighted formula can 84 resolve a crucial issue Should the distribution be treated as taxable dividend. On this aspect, American courts developed certain 85 recognized criteria, which includes the following: 1) the presence or absence of real business purpose, 2) the amount of earnings and profits available for the declaration of a regular dividends and the corporation's past record with respect to the declaration of dividends, 3) the effect of the distribution, as compared with the declaration of regular dividend, 86 4) the lapse of time between issuance and redemption, 87 5) the presence of a substantial surplus and a generous supply of cash which invites suspicion as does a meager policy in relation 88 both to current earnings and accumulated surplus, REDEMPTION AND CANCELLATION For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalent to a distribution of taxable dividends." Of these, the most important is the third. 89 Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock in exchange for property, whether or 90 not the acquired stock is cancelled, retired or held in the treasury. Essentially, the corporation gets back some of its stock, distributes cash or property to the shareholder in payment for the stock, and continues in business as before. The redemption of stock dividends previously issued is used as a veil for the constructive distribution of cash dividends. In the instant case, there is no dispute that ANSCOR redeemed shares of stocks from a stockholder (Don Andres) twice (28,000 and 80,000 common shares). But where did the shares redeemed come from? If its source is the original capital subscriptions upon establishment of the corporation or from initial capital investment in an existing enterprise, its redemption to the concurrent value of acquisition may not invite the application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere return of capital. On the contrary, if the redeemed shares are from stock dividend declarations other than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not merely a return of capital but a gain thereon. It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. Here, it is undisputed that 91 at the time of the last redemption, the original common shares owned by the estate were only 25,247.5 This means that from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. Besides, in the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate property, 92 in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine wherein the capital stock, property and other assets of 93 94 the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That 95 doctrine was intended for the protection of corporate creditors. With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. The time alone that lapsed from the issuance to the redemption is not a sufficient indicator to determine taxability. It is a must to consider the factual circumstances as to the manner of both the issuance and the redemption. The "time" element is a factor to show a device to evade 96 tax and the scheme of cancelling or redeeming the same shares is a method usually adopted to accomplish the end sought. Was this transaction used as a "continuing plan," "device" or "artifice" to evade payment of tax? It is necessary to determine the "net 97 effect" of the transaction between the shareholder-income taxpayer and the acquiring (redeeming) corporation. The "net effect" 98 test is not evidence or testimony to be considered; it is rather an inference to be drawn or a conclusion to be reached. It is also important to know whether the issuance of stock dividends was dictated by legitimate business reasons, the presence of which 99 might negate a tax evasion plan.

The issuance of stock dividends and its subsequent redemption must be separate, distinct, and not related, for the redemption to be 100 101 considered a legitimate tax scheme. Redemption cannot be used as a cloak to distribute corporate earnings. Otherwise, the apparent intention to avoid tax becomes doubtful as the intention to evade becomes manifest. It has been ruled that: [A]n operation with no business or corporate purpose is a mere devise which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not to reorganize a business or any part of a business, but to transfer a parcel of corporate shares to a 102 stockholder. Depending on each case, the exempting provision of Sec. 83(b) of the 1939 Code may not be applicable if the redeemed shares were 103 issued with bona fide business purpose, which is judged after each and every step of the transaction have been considered and the whole transaction does not amount to a tax evasion scheme. ANSCOR invoked two reasons to justify the redemptions (1) the alleged "filipinization" program and (2) the reduction of foreign exchange remittances in case cash dividends are declared. The Court is not concerned with the wisdom of these purposes but on their relevance to the whole transaction which can be inferred from the outcome thereof. Again, it is the "net effect rather than the 104 motives and plans of the taxpayer or his corporation" that is the fundamental guide in administering Sec. 83(b). This tax provision 105 is aimed at the result. It also applies even if at the time of the issuance of the stock dividend, there was no intention to redeem it 106 as a means of distributing profit or avoiding tax on dividends. The existence of legitimate business purposes in support of the 107 redemption of stock dividends is immaterial in income taxation. It has no relevance in determining "dividend equivalence". Such purposes may be material only upon the issuance of the stock dividends. The test of taxability under the exempting clause, when it provides "such time and manner" as would make the redemption "essentially equivalent to the distribution of a taxable dividend", is whether the redemption resulted into a flow of wealth. If no wealth is realized from the redemption, there may not be a dividend equivalence treatment. In the metaphor of Eisner v. Macomber, income is not deemed "realize" until the fruit has fallen or been plucked from the tree. The three elements in the imposition of income tax are: (1) there must be gain or and profit, (2) that the gain or profit is realized or 108 received, actually or constructively, and (3) it is not exempted by law or treaty from income tax. Any business purpose as to why or how the income was earned by the taxpayer is not a requirement. Income tax is assessed on income received from any property, activity or service that produces the income because the Tax Code stands as an indifferent neutral party on the matter of where income comes 109 from. As stated above, the test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit or gain and 110 consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. Otherwise, to rule that the said proceeds are exempt from income tax when the redemption is supported by legitimate business reasons would defeat the very purpose of imposing tax on income. Such argument would open the door for income earners not to pay tax so long as the person from whom the income was derived has legitimate business reasons. In other words, the payment of tax under the exempting clause of Section 83(b) would be made to depend not on the income of the taxpayer, but on the business purposes of a third party (the corporation herein) from whom the income was earned. This is absurd, illogical and impractical considering that the Bureau of Internal Revenue (BIR) would be pestered with instances in determining the legitimacy of business reasons that every income earner may interposed. It is not administratively feasible and cannot therefore be allowed. The ruling in the American cases cited and relied upon by ANSCOR that "the redeemed shares are the equivalent of dividend only if 111 the shares were not issued for genuine business purposes", or the "redeemed shares have been issued by a corporation bona 112 fide" bears no relevance in determining the non-taxability of the proceeds of redemption ANSCOR, relying heavily and applying said cases, argued that so long as the redemption is supported by valid corporate purposes the proceeds are not subject to 113 114 tax. The adoption by the courts below of such argument is misleading if not misplaced. A review of the cited American cases shows that the presence or absence of "genuine business purposes" may be material with respect to the issuance or declaration of stock dividends but not on its subsequent redemption. The issuance and the redemption of stocks are two different transactions. Although the existence of legitimate corporate purposes may justify a corporation's acquisition of its own shares under Section 41 of 115 the Corporation Code, such purposes cannot excuse the stockholder from the effects of taxation arising from the redemption. If the issuance of stock dividends is part of a tax evasion plan and thus, without legitimate business reasons, the redemption becomes 116 suspicious which exempting clause. The substance of the whole transaction, not its form, usually controls the tax consequences. The two purposes invoked by ANSCOR, under the facts of this case are no excuse for its tax liability. First, the alleged "filipinization" plan cannot be considered legitimate as it was not implemented until the BIR started making assessments on the proceeds of the redemption. Such corporate plan was not stated in nor supported by any Board Resolution but a mere afterthought interposed by 117 the counsel of ANSCOR. Being a separate entity, the corporation can act only through its Board of Directors. The Board Resolutions authorizing the redemptions state only one purpose reduction of foreign exchange remittances in case cash dividends are declared. Not even this purpose can be given credence. Records show that despite the existence of enormous corporate profits no cash dividend was ever declared by ANSCOR from 1945 until the BIR started making assessments in the early 1970's. Although a corporation under certain exceptions, has the prerogative when to issue dividends, yet when no cash dividends was issued for about three decades, this circumstance negates the legitimacy of ANSCOR's alleged purposes. Moreover, to issue stock dividends is to increase the shareholdings of ANSCOR's foreign stockholders contrary to its "filipinization" plan. This would also increase rather than reduce their need for foreign exchange remittances in case of cash dividend declaration, considering that ANSCOR is a family corporation where the majority shares at the time of redemptions were held by Don Andres' foreign heirs. Secondly, assuming arguendo, that those business purposes are legitimate, the same cannot be a valid excuse for the imposition of tax. Otherwise, the taxpayer's liability to pay income tax would be made to depend upon a third person who did not earn the income being taxed. Furthermore, even if the said purposes support the redemption and justify the issuance of stock dividends, the same has no bearing whatsoever on the imposition of the tax herein assessed because the proceeds of the redemption are deemed taxable dividends since it was shown that income was generated therefrom. Thirdly, ANSCOR argued that to treat as "taxable dividend" the proceeds of the redeemed stock dividends would be to impose on such stock an undisclosed lien and would be extremely unfair to intervening purchase, i.e. those who buys the stock dividends after

their issuance. Such argument, however, bears no relevance in this case as no intervening buyer is involved. And even if there is an intervening buyer, it is necessary to look into the factual milieu of the case if income was realized from the transaction. Again, we reiterate that the dividend equivalence test depends on such "time and manner" of the transaction and its net effect. The 119 undisclosed lien may be unfair to a subsequent stock buyer who has no capital interest in the company. But the unfairness may not be true to an original subscriber like Don Andres, who holds stock dividends as gains from his investments. The subsequent buyer who buys stock dividends is investing capital. It just so happen that what he bought is stock dividends. The effect of its (stock dividends) redemption from that subsequent buyer is merely to return his capital subscription, which is income if redeemed from the original subscriber. After considering the manner and the circumstances by which the issuance and redemption of stock dividends were made, there is no other conclusion but that the proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As 120 "taxable dividend" under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 of the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to income tax which is required to be withheld at source. The 1997 Tax Code may have altered the situation but it does not change this disposition. 121 EXCHANGE OF COMMON WITH PREFERRED SHARES 122 123 Exchange is an act of taking or giving one thing for another involving reciprocal transfer and is generally considered as a taxable transaction. The exchange of common stocks with preferred stocks, or preferred for common or a combination of either for both, may not produce a recognized gain or loss, so long as the provisions of Section 83(b) is not applicable. This is true in a trade between two (2) persons as well as a trade between a stockholder and a corporation. In general, this trade must be parts of merger, transfer to controlled corporation, corporate acquisitions or corporate reorganizations. No taxable gain or loss may be recognized on 124 exchange of property, stock or securities related to reorganizations. Both the Tax Court and the Court of Appeals found that ANSCOR reclassified its shares into common and preferred, and that parts of the common shares of the Don Andres estate and all of Doa Carmen's shares were exchanged for the whole 150.000 preferred shares. Thereafter, both the Don Andres estate and Doa Carmen remained as corporate subscribers except that their subscriptions now include preferred shares. There was no change in their proportional interest after the exchange. There was no cash flow. Both stocks had the same par value. Under the facts herein, any difference in their market value would be immaterial at the time of exchange because no income is yet realized it was a mere corporate paper transaction. It would have been different, if the 125 exchange transaction resulted into a flow of wealth, in which case income tax may be imposed. Reclassification of shares does not always bring any substantial alteration in the subscriber's proportional interest. But the exchange is different there would be a shifting of the balance of stock features, like priority in dividend declarations or absence of voting rights. Yet neither the reclassification nor exchange per se, yields realize income for tax purposes. A common stock represents the residual ownership interest in the corporation. It is a basic class of stock ordinarily and usually issued without extraordinary rights or 126 privileges and entitles the shareholder to apro rata division of profits. Preferred stocks are those which entitle the shareholder to 127 some priority on dividends and asset distribution. Both shares are part of the corporation's capital stock. Both stockholders are no different from ordinary investors who take on the same investment risks. Preferred and common shareholders participate in the same venture, willing to share in the profits and 128 losses of the enterprise. Moreover, under the doctrine of equality of shares all stocks issued by the corporation are presumed 129 equal with the same privileges and liabilities, provided that the Articles of Incorporation is silent on such differences. In this case, the exchange of shares, without more, produces no realized income to the subscriber. There is only a modification of the subscriber's rights and privileges which is not a flow of wealth for tax purposes. The issue of taxable dividend may arise only 130 once a subscriber disposes of his entire interest and not when there is still maintenance of proprietary interest. WHEREFORE, premises considered, the decision of the Court of Appeals is MODIFIED in that ANSCOR's redemption of 82,752.5 stock dividends is herein considered as essentially equivalent to a distribution of taxable dividends for which it is LIABLE for the withholding tax-at-source. The decision is AFFIRMED in all other respects. SO ORDERED.

118

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE CEBU, respondent. Office of the Solicitor General for petitioner. V. Jaime and L. E. Petilla for respondent. PAREDES, J.: This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant. As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.). The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club, the following sums: As percentage tax on its gross receipts during the tax years 1946 to 1951 Surcharge therein As fixed tax for the years 1946 to 1952 Compromise penalty P9,599.07 2,399.77 70.00 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the instant petition for review. The dominant issues involved in this case are twofold: 1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and 2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty. Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960). Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above). It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club

is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur. Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal. Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty. WHEREFORE, the decision appealed from is affirmed without costs.

COMMISSIONER OF INTERNAL REVENUE vs. JOHN L. MANNING et al. August 06, 1975; G.R. No. L-28398 CASTRO, J: The essence of a stock dividend was the segregation out of surplus account of a definite portionof the corporate earnings as part of the permanent capital resources of the corporation by thedevice of capitalizing the same, and the issuance to the stockholders of additional shares of stock representing the profits so capitalized."FACTS: In 1952 the MANTRASCO had an authorized capital stock of P2,500,000 divided into25,000 common shares; 24,700 of these were owned by Julius S. Reese, and the rest, at 100shares each, by the three respondents. On February 29, 1952, in view of Reese's desire that uponhis death MANTRASCO and its two subsidiaries, MANTRASCO (Guam), Inc. and the PortMotors, Inc., would continue under the management of the respondents, a trust agreement on hisand the respondents' interests in MANTRASCO was executed by and among Reese ,MANTRASCO , the law firm of Ross, Selph, Carrascoso and Janda , and the respondents.On October 19, 1954 Reese died. The projected transfer of his shares in the name of MANTRASCO could not, however, be immediately effected for lack of sufficient funds to cover initial payment on the shares. On February 2, 1955, after MANTRASCO made a partial paymentof Reese's shares, the certificate for the 24,700 shares in Reese's name was cancelled and a newcertificate was issued in the name of MANTRASCO. On the same date, and in the meantime thatReese's interest had not been fully paid, the new certificate was endorsed to the law firm of Ross,Selph, Carrascoso and Janda, as trustees for and in behalf of MANTRASCO. On November 25,1963 the entire purchase price of Reese's interest in MANTRASCO was finally paid in full bythe latter, On May 4, 1964 the trust agreement was terminated and the trustees delivered toMANTRASCO all the shares which they were holding in trust.Bureau of Internal Revenue examination disclosed that (a) as of December 31, 1958 the 24,700shares declared as dividends had been proportionately distributed to the respondents,representing a total book value or acquisition cost of P7,973,660; (b) the respondents failed todeclare the said stock dividends as part of their taxable income for the year 1958.On the basis of their examination, the BIR examiners concluded that the distribution of Reese'sshares as stock dividends was in effect a distribution of the "asset or property of the corporationas may be gleaned from the payment of cash for the redemption of said stock and distributing thesame as stock dividend." On April 14, 1965 the Commissioner of Internal Revenue issuednotices of assessment for deficiency income taxes to the respondents for the year 1958The respondents unsuccessfully challenged the assessments and, failing to secure a favorablereconsideration, appealed to the Court of Tax Appeals. On October 30, 1967 the CTA renderedjudgment absolving the respondents from any liability for receiving the questioned stock dividends on the ground that their respective one-third interest in MANTRASCO remained thesame before and after the declaration of stock dividends and only the number of shares held byeach of them had changed.Commissioner maintains that the full value (P7,973,660) of the shares redeemed from Reese byMANTRASCO which were subsequently distributed to the respondents as stock dividends in1958 should be taxed as income of the respondents for that year, the said distribution being ineffect a distribution of cash. The respondents' interests in MANTRASCO, he further argues,were only .4% prior to the declaration of the stock dividends in 1958, but rose to 33 1/3% each after the said declaration. In submitting their respective contentions, it is the assumption of bothparties that the 24,700 shares declared as stock dividends were treasury shares. ISSUE: Are the shares in question treasury shares? Discuss nature of treasury shares and stock dividends. HELD: Treasury shares are stocks issued and fully paid for and re-acquired by the corporationeither by purchase, donation, forfeiture or other means. Treasury shares are therefore issuedshares, but being in the treasury they do not have the status of outstanding shares. Consequently,although a treasury share, not having been retired by the corporation re-acquiring it, may be re-issued or sold again, such share, as long as it is held by the corporation as a treasury share,participates neither in dividends, because dividends cannot be declared by the corporation toitself, nor in the meetings of the corporation as voting stock, for otherwise equal distribution of voting powers among stockholders will be effectively lost and the directors will be able toperpetuate their control of the corporation, though it still represents a paid-for interest in theproperty of the corporation. The foregoing essential features of a treasury stock are lacking inthe questioned shares.The manifest intention of the parties to the trust agreement was, in sum and substance, to treatthe 24,700 shares of Reese as absolutely outstanding shares of Reese's estate until they were fullypaid. Such being the true nature of the 24,700 shares, their declaration as treasury stock dividendin 1958 was a complete nullity and plainly violative of public policy. A stock dividend, beingone payable in capital stock, cannot be declared out of outstanding corporate stock, but onlyfrom retained earnings:"'A stock dividend always involves a transfer of surplus (or profit) to capital stock.' Graham andKatz, Accounting in Law Practice, 2d ed. 1938, No. 70. As the court said in United States vs.Siegel, 8 Cir., 1931, 52 F 2d 63, 65, 78 ALR 672: 'A stock dividend is a conversion of surplus or undivided profits into capital stock, which is distributed to stockholders in lieu of a cashdividend.' Congress itself has defined the term 'dividend' in No. 115(a) of the Act as meaning anydistribution made by a corporation to its shareholders, whether in money or in other property, outof its earnings or profits. In Eisner v. Macomber, 1920, 252 US 189, 40 S Ct 189, 64 L Ed 521, 9ALR 1570, both the prevailing and the dissenting opinions recognized that within the meaning of the revenue acts the essence of a stock dividend was the segregation out of surplus account of adefinite portion of the corporate earnings as part of the permanent capital resources of thecorporation by the device of capitalizing the same, and the issuance to the stockholders of additional shares of stock representing the profits so capitalized."The respondents, using the trust instrument as a convenient technical device, bestowed untothemselves the full worth and value of Reese's corporate holdings with the use of the veryearnings of the companies. Such package device, obviously not designed to carry out the usualstock dividend purpose of corporate expansion reinvestment, e.g. the acquisition of additionalfacilities and other capital budget items, but exclusively for expanding the capital base of therespondents in MANTRASCO, cannot be allowed to deflect the respondents' responsibilitiestoward our income tax laws. The conclusion is thus ineluctable that whenever the companiesinvolved herein parted with a portion of their earnings "to buy" the corporate holdings of Reese,they were in ultimate effect and result making a distribution of such earnings to the respondents.All these amounts are consequently subject to income tax as being, in truth and in fact, a flow of cash benefits to the respondents.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. NORTON and HARRISON COMPANY, respondent. Office of the Solicitor General for petitioner. Pio Joven for respondent. PAREDES, J.: This is an appeal interposed by the Commissioner of Internal Revenue against the following judgment of the Court of Tax Appeals: IN VIEW OF THE FOREGOING, we find no legal basis to support the assessment in question against petitioner. If at all, the assessment should have been directed against JACKBILT, the manufacturer. Accordingly, the decision appealed from is reversed, and the surety bond filed to guarantee payment of said assessment is ordered cancelled. No pronouncement as to costs. Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. To exemplify the sales procedures adopted by the Norton and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt, the transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a management agreement between the parties was entered into. The management agreement provided that Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to P5,000.00. During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to the Public. In other words, the Commissioner considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt. The period covered by the assessment was from July 1, 1949 to May 31, 1953. As Norton and Harrison did not conform with the assessment, the matter was brought to the Court of Tax Appeals. The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from which the sales tax should be computed. The Norton & Harrison Company contended otherwise that is, the transaction subject to tax is the sale from Jackbilt to Norton. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t The majority of the Tax Court, in relieving Norton & Harrison of liability under the assessment, made the following observations: The law applicable to the case is Section 186 of the National Internal Revenue Code which imposes a percentage tax of 7% on every original sale of goods, wares or merchandise, such tax to be based on the gross selling price of such goods, wares or merchandise. The term "original sale" has been defined as the first sale by every manufacturer, producer or importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by persons other than the manufacturer, producer or importer are not subject to the sales tax. If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the distributorship or agency agreement of July 27, 1948, such sales constituted the original sales which are taxable under Section 186 of the Revenue Code, while the sales made to the public by petitioner are subsequent sales which are not taxable. But it appears to us that there was no such sale by JACKBILT to petitioner. Petitioner merely acted as agent for JACKBILT in the marketing of its products. This is shown by the fact that petitioner merely accepted orders from the public for the purchase of JACKBILT blocks. The purchase orders were transmitted to JACKBILT which delivered the blocks to the purchaser directly. There was no instance in which the blocks ordered by the purchasers were delivered to the petitioner. Petitioner never purchased concrete blocks from JACKBILT so that it never acquired ownership of such concrete blocks. This being so, petitioner could not have sold JACKBILT blocks for its own account. It did so merely as agent of JACKBILT. The distributorship agreement of July 27, 1948, is denominated by the parties themselves as an "agency for marketing" JACKBILT products. ... . xxx xxx xxx Therefore, the taxable selling price of JACKBILT blocks under the aforesaid agreement is the price charged to the public and not the amount billed by JACKBILT to petitioner. The deficiency sales tax should have been assessed against JACKBILT and not against petitioner which merely acted as the former's agent. xxx xxx xxx Presiding Judge Nable of the same Court expressed a partial dissent, stating: Upon the aforestated circumstances, which disclose Norton's control over and direction of Jackbilt's affairs, the corporate personality of Jackbilt should be disregarded, and the transactions between these two corporations relative to the concrete blocks should be ignored in determining the percentage tax for which Norton is liable. Consequently, the percentage tax should be computed on the basis of the sales of Jackbilt blocks to the public. The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue, on four (4) assigned errors, all of which pose the following propositions: (1) whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single corporation; (2) whether the basis of the computation of the deficiency sales tax should be the sale of the blocks to the public and not to Norton. It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. Among these circumstances, which we

find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's affairs by making the same officers of the board for both companies. For instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo Garcia, while they are merely employees of the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of America were used in the expansion program of Jackbilt, to pay advances for the purchase of equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees, an indication that Jackbilt employees were also Norton's employees. Furthermore service rendered in any one of the two companies were taken into account for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa. Norton and Harrison, while not denying the presence of the set up stated above, tried to explain that the control over the affairs of Jackbilt was not made in order to evade payment of taxes; that the loans obtained by it which were given to Jackbilt, were necessary for the expansion of its business in the manufacture of concrete blocks, which would ultimately benefit both corporations; that the transactions and practices just mentioned, are not unusual and extraordinary, but pursued in the regular course of business and trade; that there could be no confusion in the present set up of the two corporations, because they have separate Boards, their cash assets are entirely and strictly separate; cashiers and official receipts and bank accounts are distinct and different; they have separate income tax returns, separate balance sheets and profit and loss statements. These explanations notwithstanding an overall appraisal of the circumstances presented by the facts of the case, yields to the conclusion that the Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should be disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be made to apply. In the case of Liddell & Co. Inc. v. Coll. of Int. Rev., supra, it was held: There are quite a series of conspicuous circumstances that militates against the separate and distinct personality of Liddell Motors Inc., from Liddell & Co. We notice that the bulk of the business of Liddell & Co. was channel Red through Liddell Motors, Inc. On the other hand, Liddell Motors Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co., Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co, to Liddell Motors. Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. xxx xxx xxx Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is however, in this instant case, a peculiar sequence of the organization and activities of Liddell Motors, Inc. As opined in the case of Gregory v. Helvering "the legal right of a tax payer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted". But as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fictions". ... a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take benefits of the transactions as the person accordingly taxable. ... to allow a taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws. (and cases cited therein.) In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28, 1961, this Court made a similar ruling where the circumstances of unity of corporate identities have been shown and which are identical to those obtaining in the case under consideration. Therein, this Court said: We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail (here concrete blocks) ... . It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate entities. If the income of Norton should be considered separate from the income of Jackbilt, then each would declare such earning separately for income tax purposes and thus pay lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax. Based upon the 1954-1955 income tax return of Norton and Jackbilt (Exhs. 7 & 8), and assuming that both of them are operating on the same fiscal basis and their returns are accurate, we would have the following result: Jackbilt declared a taxable net income of P161,202.31 in which the income tax due was computed at P37,137.00 (Exh. 8); whereas Norton declared as taxable, a net income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are combined, during the same taxable year, the tax due on their total which

is P281,303.90 would be P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of Norton that the corporations should be regarded as separate entities. WHEREFORE, the decision appealed from should be as it is hereby reversed and another entered making the appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by the appellant Commissioner of Internal Revenue, plus 25% surcharge thereon. Costs against appellee Norton & Harrison.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. VICENTE A. RUFINO and REMEDIOS S. RUFINO, ERNESTO D. RUFINO and ELVIRA B. RUFINO, RAFAEL R. RUFINO and JULIETA A. RUFINO, MANUEL S. GALVEZ and ESTER R. GALVEZ, and COURT OF TAX APPEALS, respondents. Leonardo Abola for respondents. CRUZ, J.: Petition for review on certiorari of the decision of the Court of Tax Appeals absolving the private respondents from liability for capital gains tax on the stocks received by them from the Eastern Theatrical Inc. These were originally four cages involving appeals from the decision of the Commissioner of Internal Revenue dated July 11, 1966, holding the said respondents, Vicente A. Rufino and Remedies S. Rufino, Ernesto D. Rufino and Elvira B. Rufino, Rafael R. Rufino and Julieta A. Rufino, and Manuel S. Galvez and Ester R. Galvez, liable for deficiency income tax, surcharge and interest in the sums of P44,294.88, P27,229.44, P58,082.60 and P58,074.24, respectively, for the year 1959. The facts, as narrated by the Court of Tax Appeals, are as follows: The private respondents were the majority stockholders of the defunct Eastern Theatrical Co., Inc., a corporation organized in 1934, for a period of twenty-five years terminating on January 25, 1959. It had an original capital stock of P500,000.00, which was increased in 1949 to P2,000,000.00, divided into 200,000 shares at P10.00 per share, and was organized to engage in the business of operating theaters, opera houses, places of amusement and other related business enterprises, more particularly the Lyric and Capitol Theaters in Manila. The President of this corporation (hereinafter referred to as the Old Corporation) during the year in question was Ernesto D. Rufino. The private respondents are also the majority and controlling stockholders of another corporation, the Eastern Theatrical Co Inc., which was organized on December 8, 1958, for a term of 50 years, with an authorized capital stock of P200,000.00, each share having a par value of P10.00. This corporation is engaged in the same kind of business as the Old Corporation. The General-Manager of this corporation (hereinafter referred to as the New Corporation) at the time was Vicente A. Rufino. In a special meeting of stockholders of the Old Corporation on December 17, 1958, to provide for the continuation of its business after the end of its corporate life, and upon the recommendation of its board of directors, a resolution was passed authorizing the Old Corporation to merge with the New Corporation by transferring its business, assets, goodwill, and liabilities to the latter, which in exchange would issue and distribute to the shareholders of the Old Corporation one share for each share held by them in the said Corporation. It was expressly declared that the merger of the Old Corporation with the New Corporation was necessary to continue the exhibition of moving pictures at the Lyric and Capitol Theaters even after the expiration of the corporate existence of the former, in view of its pending booking contracts, not to mention its collective bargaining agreements with its employees. Pursuant to the said resolution, the Old Corporation, represented by Ernesto D. Rufino as President, and the New Corporation, represented by Vicente A. Rufino as General Manager, signed on January 9, 1959, a Deed of Assignment providing for the conveyance and transfer of all the business, property, assets and goodwill of the Old Corporation to the New Corporation in exchange for the latter's shares of stock to be distributed among the shareholders on the basis of one stock for each stock held in the Old Corporation except that no new and unissued shares would be issued to the shareholders of the Old Corporation; the delivery by the New Corporation to the Old Corporation of 125,005-3/4 shares to be distributed to the shareholders of the Old Corporation as their corresponding shares of stock in the New Corporation; the assumption by the New Corporation of all obligations and liabilities of the Old Corporation under its bargaining agreement with the Cinema Stage & Radio Entertainment Free Workers (FFW) which included the retention of all personnel in the latter's employ; and the increase of the capitalization of the New Corporation in compliance with their agreement. This agreement was made retroactive to January 1, 1959. The aforesaid transfer was eventually made by the Old Corporation to the New Corporation, which continued the operation of the Lyric and Capitol Theaters and assumed all the obligations and liabilities of the Old Corporation beginning January 1, 1959. The resolution of the Old Corporation of December 17, 1958, and the Deed of Assignment of January 9, 1959, were approved in a resolution by the stockholders of the New Corporation in their special meeting on January 12, 1959. In the same meeting, the increased capitalization of the New Corporation to P2,000,000.00 was also divided into 200,000 shares at P10.00 par value each share, and the said increase was registered on March 5, 1959, with the Securities and Exchange Commission, which approved the same on August 20,1959. As agreed, and in exchange for the properties, and other assets of the Old Corporation, the New Corporation issued to the stockholders of the former stocks in the New Corporation equal to the stocks each one held in the Old Corporation, as follows: Mr. & Mrs. Vicente A. Rufino............... 17,083 shares Mr. & Mrs. Rafael R. Rufino ................. 16,881 shares Mr. & Mrs. Ernesto D. Rufino .............. 18,347 shares Mr. & Mrs. Manuel S. Galvez ............... 16,882 shares It was this above-narrated series of transactions that the Bureau of Internal Revenue examined later, resulting in the petitioner declaring that the merger of the aforesaid corporations was not undertaken for a bona fide business purpose but merely to avoid liability for the capital gains tax on the exchange of the old for the new shares of stock. Accordingly, he imposed the deficiency assessments against the private respondents for the amounts already mentioned. The private respondents' request for reconsideration having been denied, they elevated the matter to the Court of Tax Appeals, which reversed the petitioner. We have given due course to the instant petition questioning the decision of the said court holding that there was a valid merger between the Old Corporation and the New Corporation and declaring that: It is well established that where stocks for stocks were exchanged, and distributed to the stockholders of the corporations, parties to the merger or consolidation, pursuant to a plan of reorganization, such exchange is exempt from capital gains tax . . . In view of the foregoing, we are of the opinion and so hold that no taxable gain was derived by petitioners from the exchange of their old stocks solely for stocks of the New Corporation pursuant to Section 35(c) (2), in relation to (c) (5), of the National Internal 1 Revenue Code, as amended by Republic Act 1921. The above-cited Section 35 of the Tax Code, on the proper interpretation and application of which the resolution of this case depends, provides in material part as follows:

Sec. 35. Determination of gain or loss from the sale or other disposition of property. The gain derived or loss sustained from the sale or other disposition of property, real, personal or mixed, shall be determined in accordance with the following schedule: xxx xxx xxx (c) Exchange of property(1) General Rule. Except as herein provided upon the sale or exchange of property, the entire amount of the gain or loss, as the case may be, shall be recognized. (2) Exceptions. No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation (a) a corporation which is a party to a merger or consolidation, exchanges property solely for stock in a corporation which is a party to the merger or consolidation, (b) a shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of another corporation, also a party to the merger or consolidation, or (c) a security holder of a corporation which is a party to the merger or consolidation exchanges his securities in such corporation solely for stock or securities in another corporation, a party to the merger or consolidation. xxx xxx xxx (5) Definitions.-(a) x x x (b) The term "merger" or "consolidation," when used in this section, shall be understood to mean: (1) The ordinary merger or consolidation, or (2) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock; Provided, That for a transaction to be regarded as a merger or consolidation within the purview of this section, it must be undertaken for a bona fidebusiness purpose and not solely for the purpose of escaping the burden of taxation; Provided further, That in determining whether a bona fide business purpose exists, each and every step of the transaction shall be considered and the whole transaction or series of transactions shall be treated as a single unit: ... In support of its position that the Deed of Assignment was concluded by the private respondents merely to evade the burden of taxation, the petitioner points to the fact that the New Corporation did not actually issue stocks in exchange for the properties of the Old Corporation at the time of the supposed merger on January 9, 1959. The exchange, he says, was only on paper. The increase in capitalization of the New Corporation was registered with the Securities and Exchange Commission only on March 5, 1959, or 37 days after the Old Corporation expired on January 25, 1959. Prior to such registration, it was not possible for the New Corporation to effect the exchange provided for in the said agreement because it was capitalized only at P200,000.00 as against the capitalization of the Old Corporation at P2,000,000.00. Consequently, as there was no merger, the automatic dissolution of the Old Corporation on its expiry date resulted in its liquidation, for which the respondents are now liable in taxes on their capital gains. For their part, the private respondents insist that there was a genuine merger between the Old Corporation and the New Corporation pursuant to a plan aimed at enabling the latter to continue the business of the former in the operation of places of amusement, specifically the Capitol and Lyric Theaters. The plan was evolved through the series of transactions above narrated, all of which could be treated as a single unit in accordance with the requirements of Section 35. Obviously, all these steps did not have to be completed at the time of the merger, as there were some of them, such as the increase and distribution of the stock of the New Corporation, which necessarily had to come afterwards. Moreover, the Old Corporation was dissolved on January 1, 1959, pursuant to the Deed of Assignment, and not on January 25, 1959, its original expiry date. As the properties of the Old Corporation were transferred to the New Corporation before that expiry date, there could not have been any distribution of liquidating dividends by the Old Corporation for which the private respondents should be held liable in taxes. We sustain the Court of Tax Appeals. We hold that it did not err in finding that no taxable gain was derived by the private respondents from the questioned transaction. Contrary to the claim of the petitioner, there was a valid merger although the actual transfer of the properties subject of the Deed of Assignment was not made on the date of the merger. In the nature of things, this was not possible. Obviously, it was necessary for the Old Corporation to surrender its net assets first to the New Corporation before the latter could issue its own stock to the shareholders of the Old Corporation because the New Corporation had to increase its capitalization for this purpose. This required the adoption of the resolution to this effect at the special stockholders meeting of the New Corporation on January 12, 1959, the registration of such issuance with the SEC on March 5, 1959, and its approval by that body on August 20, 1959. All these took place after the date of the merger but they were deemed part and parcel of, and indispensable to the validity and enforceability of, the Deed of Assignment. The Court finds no impediment to the exchange of property for stock between the two corporations being considered to have been effected on the date of the merger. That, in fact, was the intention, and the reason why the Deed of Assignment was made retroactive to January 1, 1959. Such retroaction provided in effect that all transactions set forth in the merger agreement shall be deemed to be taking place simultaneously on January 1, 1959, when the Deed of Assignment became operative. The certificates of stock subsequently delivered by the New Corporation to the private respondents were only evidence of the ownership of such stocks. Although these certificates could be issued to them only after the approval by the SEC of the increase in capitalization of the New Corporation, the title thereto, legally speaking, was transferred to them on the date the merger took effect, in accordance with the Deed of Assignment. The basic consideration, of course, is the purpose of the merger, as this would determine whether the exchange of properties involved therein shall be subject or not to the capital gains tax. The criterion laid down by the law is that the merger" must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation." We must therefore seek and ascertain the intention of the parties in the light of their conduct contemporaneously with, and especially after, the questioned merger pursuant to the Deed of Assignment of January 9, 1959. It has been suggested that one certain indication of a scheme to evade the capital gains tax is the subsequent dissolution of the new corporation after the transfer to it of the properties of the old corporation and the liquidation of the former soon thereafter. This highly suspect development is likely to be a mere subterfuge aimed at circumventing the requirements of Section 35 of the Tax Code while seeming to be a valid corporate combination. Speaking of such a device, Justice Sutherland declared for the United States Supreme Court in Helvering v. Gregory: When subdivision (b) speaks of a transfer of assets by one corporation to another, it means a transfer made 'in pursuance of a plan of reorganization' (Section 112[g]) of corporate business; and not a transfer of assets by one corporation to another in pursuance of a plan having no relation to the business of either, as plainly is the case here. Putting aside, then, the question of motive in respect of taxation altogether, and fixing the character of proceeding by what actually occurred, what do we find? Simply an operation having no business or corporate purpose a mere devise which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not

to reorganize a business or any part of a business, but to transfer a parcel of corporate shares to the petitioner. No doubt, a new and valid corporation was created. But that corporation was nothing more than a contrivance to the end last described. It was brought into existence for no other purpose; it performed, as it was intended from the beginning it should perform, no other function. When that limited function had been exercised, it immediately was put to death. In these circumstances, the facts speak for themselves and are susceptible of but one interpretation. The whole undertaking, though conducted according to the terms of subdivision (b), was in fact an elaborate and devious form of conveyance masquerading as a corporate reorganization and nothing else. The rule which excludes from consideration the motive of tax avoidance is not pertinent to the situation, because the transaction upon its face lies outside the plain intent of the statute. To hold otherwise would be to 2 exalt artifice above reality and to deprive the statutory provision in question of all serious purpose. We see no such furtive intention in the instant case. It is clear, in fact, that the purpose of the merger was to continue the business of the Old Corporation, whose corporate life was about to expire, through the New Corporation to which all the assets and obligations of the former had been transferred. What argues strongly, indeed, for the New Corporation is that it was not dissolved after the merger agreement in 1959. On the contrary, it continued to operate the places of amusement originally owned by the Old Corporation and transfered to the New Corporation, particularly the Capitol and Lyric Theaters, in accordance with the Deed of Assignment. The New Corporation, in fact, continues to do so today after taking over the business of the Old Corporation twentyseven years ago. It may be recalled at this point that under the original provisions of the old Corporation Law, which was in effect when the merger agreement was concluded in 1959, it was not possible for a corporation, by mere amendment of its charter, to extend its life beyond the time fixed in the original articles; in fact, this was specifically prohibited by Section 18, which provided that "any corporation may amend its articles of incorporation by a majority vote of its board of directors or trustees and the vote or written assent of twothirds of its members, if it be a non-stock corporation, or if it be a stock corporation, by the vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation ... : Provided, however, That the life of said corporation shall not be extended by said amendment beyond the fixed in the original articles ... " This prohibition, which incidentally has since been deleted, made it necessary for the Old and New Corporations to enter into the questioned merger, to enable the former to continue its unfinished business through the latter. The procedure for such merger was prescribed in Section 28 1/2 of the old Corporation Law which, although not expressly authorizing a merger by name (as the new Corporation Code now does in its Section 77), provided that "a corporation may, by action taken at any meeting of its board of directors, sell, lease, exchange, or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such considerations, which may be money, stocks, bond, or other instruments for the payment of money or other property or other considerations, as its board of directors deem expedient." The transaction contemplated in the old law covered the second type of merger defined by Section 35 of the Tax Code as "the acquisition by one corporation of all or substantially all of the properties of another corporation solely for stock," which is precisely what happened in the present case. What is also worth noting is that, as in the case of the Old Corporation when it was dissolved on December 31, 1958, there has been no distribution of the assets of the New Corporation since then and up to now, as far as the record discloses. To date, the private respondents have not derived any benefit from the merger of the Old Corporation and the New Corporation almost three decades earlier that will make them subject to the capital gains tax under Section 35. They are no more liable now than they were when the merger took effect in 1959, as the merger, being genuine, exempted them under the law from such tax. By this decision, the government is, of course, not left entirely without recourse, at least in the future. The fact is that the merger had merely deferred the claim for taxes, which may be asserted by the government later, when gains are realized and benefits are distributed among the stockholders as a result of the merger. In other words, the corresponding taxes are not forever foreclosed or forfeited but may at the proper time and without prejudice to the government still be imposed upon the private respondents, in accordance with Section 35(c) (4) of the Tax Code. Then, in assessing the tax, "the basis of the property transferred in the hands of the transferee shall be the same as it would be in the hands of the transferor, increased by the amount of gain recognized to the transferor on the transfer." The only inhibition now is that time has not yet come. The reason for this conclusion is traceable to the purpose of the legislature in adopting the provision of law in question. The basic Idea was to correct the Tax Code which, by imposing taxes on corporate combinations and expansions, discouraged the same to the detriment of economic progress, particularly the promotion of local industry. Speaking of this problem, HB No. 7233, which was subsequently enacted into R.A. No. 1921 embodying Section 35 as now worded, declared in the Explanatory Note: The exemption from the tax of the gain derived from exchanges of stock solely for stock of another corporation resulting from corporate mergers or consolidations under the above provisions, as amended, was intended to encourage corporations in pooling, 3 combining or expanding their resources conducive to the economic development of the country. Our ruling then is that the merger in question involved a pooling of resources aimed at the continuation and expansion of business and so came under the letter and intendment of the National Internal Revenue Code, as amended by the abovecited law, exempting from the capital gains tax exchanges of property effected under lawful corporate combinations. WHEREFORE, the decision of the Court of Tax Appeals is affirmed in full, without any pronouncement as to costs. SO ORDERED.

G.R. No. 102300. March 17, 1993. CITIBANK, N.A., petitioner, vs. HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR, ASSOCIATE JUSTICES OF THE HON. COURT OF APPEALS, THIRD DIVISION, MANILA, HON. LEONARDO B. CANARES, Judge of Regional, Trial Court of Cebu, Branch 10, and SPOUSES CRESENCIO AND ZENAIDA VELEZ, respondents. SYLLABUS 1. COMMERCIAL LAW; PRIVATE CORPORATIONS; LEVELS OF CONTROL IN CORPORATE HIERARCHY; BOARD OF DIRECTORS MAY VALIDLY DELEGATE SOME FUNCTIONS TO INDIVIDUAL OFFICERS OR AGENTS. In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. 2. ID.; ID.; HOW CORPORATE POWERS CONFERRED UPON CORPORATE OFFICERS OR AGENTS; EXERCISE OF POWERS INCIDENTAL TO EXPRESS POWERS CONFERRED. Corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the by-laws or by the board of directors. Such are referred to as express powers. There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pretrial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary ProTem, to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs. 3. ID.; ID.; ADOPTION OF BY-LAWS; PROVISION OF SECTION 46 OF CORPORATION CODE REFERRING TO EFFECTIVITY OF CORPORATE BY-LAWS APPLICABLE ONLY TO DOMESTIC CORPORATIONS. A corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations. 4. ID.; FOREIGN CORPORATIONS; ISSUANCE OF LICENSE TO TRANSACT BUSINESS IN THE PHILIPPINES; REQUISITES; GRANT OF LICENSE IN EFFECT APPROVAL BY SEC OF FOREIGN CORPORATION'S BY-LAWS. Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part: "SEC. 126. Issuance of a license. If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ." Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines. 5. CIVIL LAW; AGENCY; SPECIAL POWER OF ATTORNEY; WHEN POWER OF ATTORNEY COMPREHENSIVE ENOUGH TO INCLUDE AUTHORITY TO APPEAR AT PRE-TRIAL CONFERENCE. It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, the special power of attorney executed by petitioner bank therein contained the following pertinent terms "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that: "Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference." 6. ID.; ID.; ID.; LEGAL COUNSEL APPOINTED TO REPRESENT BANK IN COURT PURSUANT TO BY-LAW PROVISION CONSIDERED AN EMPLOYEE FOR A SPECIAL PURPOSE. Attorney was sufficient under the by-law provision authorizing Ferguson to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Ferguson, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal. 7. REMEDIAL LAW; CIVIL PROCEDURE; PRECIPITATE ORDERS OF DEFAULT FROWNED UPON BY SUPREME COURT; REASON THEREFOR; WHEN PARTY MAY BE PROPERLY DEFAULTED. We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law".

8. LEGAL ETHICS; AUTHORITY OF ATTORNEYS TO BIND CLIENTS. Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar. DECISION CAMPOS, JR., J p: Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu until March 14, 1986 when they filed a complaint for specific performance and damages against it in Civil Case No. CEB-4751 before the Regional Trial Court of Cebu, Branch 10. Private respondents alleged in their complaint that the petitioner bank extended to them credit lines sufficiently secured with real estate and chattel mortgages on equipment. They claim that petitioner offered them special additional accommodation of Five Million Pesos (P5,000,000.00) to be availed of in the following manner: "a. Defendant would and did purchase check or checks from the plaintiffs by exchanging it with defendant's manager's check on a regular daily basis as reflected in the defendant's own ledger furnished to plaintiffs; b. It was further agreed that on the following day, defendant CITIBANK would again purchase from the plaintiffs, check or checks, by exchanging the same with defendant's manager's check, which check, however, will be deposited by the plaintiffs with their other banks to cover the check or checks previously issued by the plaintiffs mentioned above; c. The same regular and agreed activity would be undertaken by the plaintiffs and defendant CITIBANK herein every banking day thereafter;" 1 This arrangement started on September 4, 1985 until March 11, 1986, when private respondents tried to exchange with petitioner bank six checks amounting to P3,095,000.00 but petitioner bank allegedly refused to continue with the arrangement even after repeated demands. Instead, petitioner bank suggested to private respondents that the total amount covered by the "arrangement be restructured to thirty (30) months with prevailing interest rate on the diminishing balance". 2 Private respondents agreed to such a proposal. Then as a sign of good faith, they issued and delivered a check for P75,000.00 in favor of petitioner bank which was refused by the latter demanding instead full payment of the entire amount. For the failure of petitioner bank to comply with this restructuring agreement private respondents sued for specific performance and damages. Petitioner bank has a different version of the business relationship that existed between it and private respondents. Thus: ". . . starting sometime on September 4 of 1985, he (private respondent Crescencio Velez) deposited his unfunded personal checks with his current account with the petitioner. But prior to depositing said checks, he would present his personal checks to a bank officer asking the latter to have his personal checks immediately credited as if it were a cash deposit and at the same time assuring the bank officer that his personal checks were fully funded. Having already gained the trust and confidence of the officers of the bank because of his past transactions, the bank's officer would always accommodate his request. After his requests are granted which is done by way of the bank officer affixing his signature on the personal checks, private respondent Cresencio Velez would then deposit his priorly approved personal checks to his current account and at the same time withdraw sums of money from said current account by way of petitioner bank's manager's check. Private respondent would then deposit petitioner bank's manager's check to his various current accounts in other commercial banks to cover his previously deposited unfunded personal checks with petitioner bank. Naturally, petitioner bank and its officers never discovered that his personal check deposits were unfunded. On the contrary, it gave the petitioner bank the false impression that private respondent's construction business was doing very well and that he was one big client who could be trusted. This deceptive and criminal scheme he did every banking day without fail from September 4, 1985 up to March 11, 1986. The amounts that he was depositing and withdrawing during this period (September 4, 1985 to March 11, 1986) progressively became bigger. It started at P46,000.00 on September 4, 1985 and on March 11, 1986 the amount of deposit and withdrawal already reached over P3,000,000.00. At this point in time (March 11, 1986), the private respondent Cresencio Velez presumably already feeling that sooner or later he would be caught and that he already wanted to cash in on his evil scheme, decided to run away with petitioner's money. On March 11, 1986, he deposited various unfunded personal checks totalling P3,095,000.00 and requested a bank officer that the same be credited as cash and after securing the approval of said bank officer, deposited his various personal checks in the amount of P3,095,000.00 with his current account and at the same time withdrew the sum of P3,244,000.00 in the form of petitioner's manager's check. Instead of using the proceeds of his withdrawals to cover his unfunded personal checks, he ran away with petitioner bank's money. Thus, private respondent Cresencio Velez's personal checks deposited with petitioner bank on March 11, 1986 in the total aggregate amount of P3,095,000.00 bounced. The checks bounced after said personal checks were made the substantial basis of his withdrawing the sum of P3,244,000.00 from his current account with petitioner bank." 3 Subsequently, on August 19, 1986, petitioner bank filed a criminal complaint against private respondents for violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and estafa (six counts) under Article 315 par. 2(d) of the Revised Penal Code. On April 28, 1988, the investigating fiscal recommended the filing of an information against private respondents for violations of the mentioned laws. On June 13, 1989, petitioner bank submitted its answer to the complaint filed by private respondents. In the Order dated February 20, 1990, the case was set for pre-trial on March 30, 1990 and petitioner bank was directed to submit its pre-trial brief at least 3 days before the pre-trial conference. Petitioner bank only filed its pre-trial brief on March 30, 1990. On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of the case at bar. Inspite of this special power of attorney, counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank. Petitioner bank was then required to file a written opposition to this oral motion to declare it as in default. In said opposition petitioner bank attached another special power of attorney made by William W. Ferguson, Vice President and highest ranking officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to represent and bind the BANK at the pre-trial conference and/or trial of the case of

"Cresencio Velez, et al. vs. Citibank, N.A.". 4 In an Order dated April 23, 1990, respondent judge denied private respondents' oral motion to declare petitioner bank as in default and set the continuation of the pre-trial conference for May 2, 1990. On the scheduled pre-trial conference, private respondents reiterated, by way of asking for reconsideration, their oral motion to declare petitioner bank as in default for its failure to appear through an authorized agent and that the documents presented are not in accordance with the requirements of the law. Petitioner bank again filed on May 14, 1990 its opposition thereto, stating as follows: ". . . While it has been the practice of Citibank to appoint its counsels as its attorney-in-fact in civil cases because it considers said counsels equivalent to a Citibank employee, yet, in order to avoid further arguments on the matter, the defendant Citibank will secure another power of attorney from Mr. William W. Ferguson in favor of its employee/s who will represent the defendant Citibank in the pre-trial conferences of this case. As soon as the said special power of attorney is secured, the defendant will present it before this Honorable Court and in pursuance therewith, the defendant hereby makes a reservation to present such document as soon as available." 5 In compliance with the above promise, petitioner bank filed a manifestation, dated May 23, 1990, attaching therewith a special power of attorney executed by William W. Ferguson in favor of Citibank employees to represent and bind Citibank on the pre-trial conference of the case at bar. 6 On August 15, 1990, respondent judge issued an order declaring petitioner bank as in default. This order, received by petitioner bank on September 27, 1990, cited the following as reason for the declaration of default: "Defendant-bank, although a foreign corporation, is bound by Philippine laws when doing and conducting business in the Philippines (Sec. 129, B.P. Blg. 68), and its corporate powers could only be exercised by its Board of Directors (Sec. 23, B.P. Blg. 68). The exercise by the Board of Directors of such power could only be valid if it bears the approval of the majority of the Board (Sec. 25, par. 2, Corporation Code). The records does not show the requisite document. The alleged authority (Special Power of Attorney, Annex "A") executed by Mr. William W. Ferguson in favor of the alleged Citibank employees, assuming the same to be a delegable authority, to represent the defendant in the pre-trial conference, made no mention of J.P. Garcia & Associates as one of the employees of the defendant. It stands to reason therefore, that the defendant-bank has no proper representation during the pre-trial conference on May 2, 1990 for purposes of Sec. 2, Rule 20 of the Rules of Court." 7 On October 1, 1990, petitioner bank filed a motion for reconsideration of the above order but it was denied on December 10, 1990. Petitioner bank then filed a petition for certiorari, prohibition and mandamus with preliminary injunction and/or temporary restraining order with the Court of Appeals. On June 26, 1991, the Court of Appeals dismissed the petition on the following grounds: ". . . In the first place, petitioner admitted that it did not and could not present a Board resolution from the bank's Board of Directors appointing its counsel, Atty. Julius Z. Neri, as its attorney-in-fact to represent and bind it during the pre-trial conference of this case. This admission is contained on pages 12 and 13 of the instant petition. In the second place, the "By-Laws" of petitioner which on its face authorizes (sic) the appointment of an attorney-in-fact to represent it in any litigation, has not been approved by the Securities and Exchange Commission, as required by Section 46 of the Corporation Code of the Philippines. Apparently, the "By-Laws" in question was (sic) approved under the laws of the United States, but there is no showing that the same was given the required imprimatur by the Securities and Exchange Commission. Since petitioner is a foreign corporation doing business in the Philippines, it is bound by all laws, rules and regulations applicable to domestic corporations (Sec. 129, Corporation Code). In the third place, no special power of attorney was presented authorizing petitioner's counsel of record, Atty. Julius Neri and/or J.P. Garcia Associates, to appear for and in behalf of petitioner during the pre-trial. What petitioner exhibited to the court a quo was a general power of attorney given to one William W. Ferguson who in turn executed a power of attorney in favor of five (5) (sic) Citibank employees to act as attorney-in-fact in Civil Case No. CEB-4751. Yet, during the pre-trial not one of said employees appeared, except counsel who is not even a bank employee. Furthermore, even assuming the validity of the power of attorney issued by petitioner in favor of Ferguson as well as the power of attorney he issued to five (5) (sic) Citibank employees, said power of attorney has not been shown to be a Special Power of Attorney precisely intended not only to represent the bank at the pre-trial of the case on a certain date but also to enter into any compromise as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20, Rules of Court." 8 Hence, this instant petition. Petitioner bank contends that no board resolution was necessary for its legal counsel, Atty. Julius Z. Neri, or Citibank employees to act as its attorney-in-fact in the case at bar because petitioner bank's by-laws grant to its Executing Officer and Secretary Pro-Tem the power to delegate to a Citibank officer, in this case William W. Ferguson, the authority to represent and defend the bank and its interests. Furthermore, it contends that the Court of Appeals erred in holding that the by-laws of petitioner bank cannot be given effect because it did not have the imprimatur of the Securities and Exchange Commission (SEC) as required by Section 46 of the Corporation Code of the Philippines. Private respondents refute both contentions. They assail the authority of petitioner bank's legal counsel to appear at the pre-trial conference on two grounds, namely: first, that the authority did not come from the Board of Directors which has the exclusive right to exercise corporate powers; and second, that the authority granted to the Executing Officer in the by-laws was ineffective because the same were not submitted to, nor approved by, the SEC. There are thus two issues in this case. First, whether a resolution of the board of directors of a corporation is always necessary for granting authority to an agent to represent the corporation in court cases. And second, whether the by-laws of the petitioner foreign corporation which has previously been granted a license to do business in the Philippines, are effective in this jurisdiction. If the bylaws are valid and a board resolution is not necessary as petitioner bank claims, then the declaration of default would have no basis. In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Section 23 of the Corporation Code of the Philippines in part provides:

"SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. xxx xxx xxx" (Emphasis supplied). Thus, although as a general rule, all corporate powers are to be exercised by the board of directors, exceptions are made where the Code provides otherwise. Section 25 of said Code provides that the directors of the corporation shall elect its corporate officers, and further provides as follows: "SEC. 25. Corporate officers; quorum. . . . The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and by the by-laws of the corporation . . ." Furthermore, Section 47 of the same Code enumerates what may be contained in the by-laws, among which is a provision for the "qualifications, duties and compensation of directors or trustees, officers and employees". (Emphasis supplied.) Taking all the above provisions of law together, it is clear that corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the by-laws or by the board of directors. Such are referred to as express powers. 9 There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. 10 Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, ** to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs. The relevant provision in the general power of attorney granted to him are as follows: "A. That the Executing Officer and the Secretary Pro-Tem are of full age, competent to act in the premises, to me personally known, and that they are authorized to execute this instrument by virtue of the powers granted to them pursuant to the By-Laws of the Bank and the laws of the United States of America, and that the Executing Officer said that he, on the one hand, hereby revokes and cancels any instrument of power of attorney previously executed on behalf of the Bank for use in the PHILIPPINES, in favor of WILLIAM W. FERGUSON (hereinafter referred to as the "Attorney-in-fact"), of legal age, a Banker, and now residing in the PHILIPPINES, and that he (the Executing Officer), on the other hand, does hereby authorize and empower the Attorney-in-fact, acting in the name or on behalf of the Bank, or any of its Branches, or any interest it or they may have or represent, said revocation and authorization to be effective as of this date as follows: xxx xxx xxx XVII. To represent and defend the Bank and its interest before any and all judges and courts, of all classes and jurisdictions, in any action, suit or proceeding in which the Bank may be a party or may be interested in administrative, civil, criminal, contentious or contentious-administrative matters, and in all kinds of lawsuits, recourses or proceedings of any kind or nature, with complete and absolute representation of the Bank, whether as plaintiff or defendant, or as an interested party for any reason whatsoever . . . xxx xxx xxx XXI. To substitute or delegate this Power of Attorney in whole or in part in favor of such one or more employees of the Bank, as he may deem advisable, but without divesting himself of any of the powers granted to him by this Power of Attorney; and to grant and execute in favor of any one or more such employees, powers of attorney containing all or such authorizations, as he may deem advisable. . . " 11 Since paragraph XXI above specifically allows Ferguson to delegate his powers in whole or in part, there can be no doubt that the special power of attorney in favor, first, of J.P. Garcia & Associates and later, of the bank's employees, constitutes a valid delegation of Ferguson's express power (under paragraph XVII above) to represent petitioner bank in the pre-trial conference in the lower court. This brings us to the second query: whether petitioner bank's by-laws, which constitute the basis for Ferguson's special power of attorney in favor of petitioner bank's legal counsel are effective, considering that petitioner bank has been previously granted a license to do business in the Philippines. The Court of Appeals relied on Section 46 of the Corporation Code to support its conclusion that the by-laws in question are without effect because they were not approved by the SEC. Said section reads as follows: "SEC. 46. Adoption of by-laws. Every corporation formed under this Code must, within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members in the case of non-stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours; and a copy thereof, duly certified to by a majority of the directors or trustees and countersigned by the secretary of the corporation, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code." A careful reading of the above provision would show that a corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in

the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations. On the other hand, Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part: "SEC. 126. Issuance of a license. If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ." Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines. In pursuance of the authority granted to him by petitioner bank's by-laws, its Executing Officer appointed William W. Ferguson, a resident of the Philippines, as its Attorney-in-Fact empowering the latter, among other things, to represent petitioner bank in court cases. In turn, William W. Ferguson executed a power of attorney in favor of J.P. Garcia & Associates (petitioner bank's counsel) to represent petitioner bank in the pre-trial conference before the lower court. This act of delegation is explicity authorized by paragraph XXI of his own appointment, which we have previously cited. It is also error for the Court of Appeals to insist that the special power of attorney, presented by petitioner bank authorizing its counsel, Atty. Julius Neri and/or J.P. Garcia & Associates, to appear for and in behalf of petitioner bank during the pre-trial, is not valid. The records do not sustain this finding. We quote with approval the contention of petitioner bank as it is borne by the records, to wit: ". . . The records of this case would show that at the start, the petitioner, thru counsel, presented a special power of attorney executed by then Citibank Officer Florencio (sic) J. Tarriela which was marked as Exhibit "1" in the pre-trial of this case . . . This is precisely the reason why the court denied, in an Order dated April 23, 1990 . . . the private respondent's oral motion to declare the defendant in fault. The said special power of attorney executed by Florencio (sic) J. Tarriela was granted by Mr. Rafael B. Buenaventura, who was then the Senior Vice-President of Citibank and the highest ranking office of Citibank in the Philippines. Considering that at the time of the presentation of the said special power of attorney Rafael B. Buenaventura was no longer connected with Citibank, the petitioner again presented another special power of attorney executed by William W. Ferguson in favor of J.P. Garcia & Associates, . . . Finding that the authority of William W. Ferguson to delegate his authority to act for and in behalf of the bank in any civil suit is limited to individuals who are employees of the bank the petitioner again on May 23, 1990 presented another special power of attorney dated May 16, 1990 wherein William W. Ferguson appointed as attorney-in-fact the following employees of petitioner, namely: Roberto Reyes, Nemesio Solomon, Aimee Yu and Tomas Yap. The said special power of attorney was filed and presented by the petitioner through its Manifestation filed in the Trial Court on May 23, 1990, . . ." 12 Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar. We quote the relevant provisions of the special powers of attorney showing sufficient compliance with the requirements of Section 23, Rule 138, to wit: "That the BANK further authorized the said J.P. GARCIA & ASSOCIATES to enter into an amicable settlement, stipulation of facts and/or compromise agreement with the party or parties involved under such terms and conditions which the said J.P. GARCIA & ASSOCIATES may deem reasonable (under parameters previously defined by the principal) and execute and sign said documents as may be appropriate. HEREBY GIVING AND GRANTING unto J.P. GARCIA & ASSOCIATES full power and authority whatsoever requisite necessary or proper to be done in or about the premises, as fully to all intents and purposes as the BANK might or could lawfully do or cause to be done under and by virtue of these presents." 13 It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, 14 the special power of attorney executed by petitioner bank therein contained the following pertinent terms "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that: "Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference." In the same manner, the power of attorney granted to petitioner bank's employees should be considered a special power of attorney. The relevant portion reads: "WHEREAS, the Bank is the Defendant in Civil Case No. CEB-4751, entitled "Cresencio Velez, et al. vs. Citibank, N.A.," pending before the Regional Trial Court of Cebu City, Branch X; NOW, THEREFORE, under and by virtue of Article XXI of the Power of Attorney executed by the Bank in favor of the Attorney-in-Fact (Annex "A"), which provision is quoted above, the Attorney-in-Fact has nominated, designated and appointed, as by these presents he nominates, designates and appoints, as his substitutes and delegates, with respect to the said Power of Attorney, ROBERTO REYES, Vice President and/or NEMESIO SOLOMON, JR., Manager, AIMEE YU, Assistant Vice President and/or TOMAS YAP, Assistant Manager (hereinafter referred to as the "DELEGATES"), all of legal age, citizens of the Republic of the Philippines and with business address at Citibank Center, Paseo de Roxas, Makati, Metro Manila, Philippines, the Attorney-in-Fact hereby granting, conferring and delegating such authorities and binding the Bank in the Pre-Trial Conference and/or Trial of the abovementioned case, pursuant to Rule 20 of the Revised Rules of Court, to the DELEGATES. The attorney-in-Fact furthermore hereby ratifying and confirming all that the DELEGATES shall lawfully do or cause to be done under and by virtue of these presents." 15

From the outset, petitioner bank showed a willingness, if not zeal, in pursuing and defending this case. It even acceded to private respondent's insistence on the question of proper representation during the pre-trial by presenting not just one, but three, special powers of attorney. Initially, the special power of attorney was executed by Florencia Tarriela in favor of J.P. Garcia & Associates, petitioner bank's counsel. Private respondents insisted that this was not proper authority required by law. To avoid further argument, a second special power of attorney was presented by petitioner bank, executed by William W. Fersugon, the highest ranking officer of Citibank in the Philippines, in favor of its counsel J.P. Garcia & Associates. But since the authority to delegate of William A. Fersugon in favor of an agent is limited to bank employees, another special power of attorney from Wiliam W. Fersugon in favor of the Citibank employees was presented. But the respondent trial court judge disregarded all these and issued the assailed default order. There is nothing to show that petitioner bank "miserably failed to oblige"; on the contrary, three special powers of attorney manifest prudence and diligence on petitioner bank's part. In fact, there was no need for the third power of attorney because we believe that the second power of attorney was sufficient under the by-law provision authorizing Fersugon to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Fersugon, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal. We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law". 16 Considering further that petitioner bank has a meritorious defense and that the amount in contest is substantial, the litigants should be allowed to settle their claims on the arena of the court based on a trial on the merits rather than on mere technicalities. WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals dated June 26, 1991 and its resolution denying the motion for reconsideration of petitioner bank dated September 26, 1991 are both REVERSED and SET ASIDE. The order of default issued on August 15, 1990 in Civil Case CEB-4751 of the Regional Trial Court of Cebu is ANNULLED and SET ASIDE and the case is hereby REMANDED to the court of origin for further proceedings. SO ORDERED.

EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL PLANT, petitioners, vs. COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION and/or DEMETRIO GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO, and IGNACIO QUIOYO,respondents. Ruben G. Bala for petitioners. Rolando N. Medalla for private respondents. MAKASIAR, J.: A petition for certiorari to set aside the order of respondent Court of Industrial Relations dated May 30, 1969 directing petitioners to pay back wages and bonuses to private respondents as well as its resolution of July 5, 1969 denying the motion for reconsideration of said order in Case No. 32-ULP-Iloilo entitled "Allied Workers' Association, et. al., versus Eduardo Claparols, et. al.." It appears that on August 6, 1957, a complaint for unfair labor practice was filed by herein private respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent workers against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant. On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union busting and" of having "dismissed said complainants because of their union activities," and ordering respondents "(1) To cease and desist from committing unfair labor practices against their employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as possible, with back wages from the date of their dismissal up to their actual reinstatement" (p. 12, Decision; p. 27, rec.). A motion to reconsider the above decision was filed by herein petitioners, which respondent Court, sitting en banc, denied in a resolution dated January 27, 1964. On March 30, 1964, counsel for herein respondent workers (complainants in the ULP case) filed a motion for execution of respondent Court's September 16, 1963 decision. On May 14, 1964, respondent Court, in its order of September 16, 1963, granted execution and directed herein petitioners to reinstate the above complainants to their former or equivalent jobs within five (5) days after receipt of a copy of this order. In order to implement the award of back wages, the Chief of the Examining Division or any of his assistants is hereby directed to proceed to the office of the respondents at Matab-ang, Talisay, Negros Occidental, and examine its payrolls and other pertinent records and compute the back wages of the complainants in accordance with the decision dated September 16, 1963, and, upon termination, to submit his report as soon as possible for further disposition (p. 7, Brief for Respondents, p. 113, rec.). which was reiterated by respondent Court in a subsequent order dated November 10, 1964 (pp. 7-8, Brief for Respondents, p. 113, rec.). On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay, Negros Occidental to the compound of herein petitioner company to report for reinstatement per order of the court. Respondent workers were, however, refused reinstatement by company accountant Francisco Cusi for he had no order from plant owner Eduardo Claparols nor from his lawyer Atty. Plaridel Katalbas, to reinstate respondent workers. Again, on December 15, 1964, respondent workers were accompanied by a police officer to the company compound, but then, they were again refused reinstatement by Cusi on the same ground. On January 15, 1965, the CIR Chief Examiner Submitted his report containing three computations, to wit: The first computation covers the period February 1, 1957 to October 31, 1964. The second is up to and including December 7, 1962, when the corporation stopped operations, while the third is only up to June 30, 1957 when the Claparols Steel and Nail Plant ceased to operate (Annex B, Petition for Review on Certiorari, p. 14, Brief for appellees, p. 113, rec.). with the explanation that: 6. Since the records of the Claparols Steel Corporation show that it was established on July 1, 1957 succeeding the Claparols Steel and Nail Plant which ceased operations on June 30, 1957, and that the Claparols Steel Corporation stopped operations on December 7, 1962, three (3) computations are presented herein for the consideration of this Honorable Court (p. 2, Report of Examiner, p. 29, rec.). On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that assuming the workers are entitled to back wages, the same should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74, February 20, 1964); and that since Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962. A reply to petitioner's opposition was filed by respondent workers, alleging among others, that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former. On November 28, 1966, after conducting a series of hearings on the report of the examiner, respondent Court issued an order, the dispositive portion of which reads: WHEREFORE, the Report of the. Examiner filed on January 15, 1965, is hereby approved subject to the foregoing findings and dispositions. Consequently, the Corporation Auditing Examiner is directed to recompute the back wages of complainants Demetrio Garlitos and Alfredo Ongsuco on the basis of P200.00 and P270.00 a month, respectively; to compute those of complainant Ignacio Quioyo as aforesaid; to compute the deductible earnings of complainants Ongsuco, Jorge Semillano and Garlitos, as found in the body of this order; and to compute the bonuses of each and every complainant, except Honorato Quioyo. Thereafter, as soon as possible, the Examiner should submit a report in compliance herewith of the Court's further disposition (p. 24, Brief for Respondents, p. 113, rec.). On December 7, 1966, a motion for reconsideration was filed by petitioner, assailing respondent Court's ruling that (1) the ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does not apply in the case at bar; and (2) that bonus should be included in the recoverable wages. On December 14, 1966, a counter-opposition was filed by private respondents alleging that petitioners' motion for reconsideration was pro forma, it not making express reference to the testimony or documentary evidence or to the provision of law alleged to be contrary to such findings or conclusions of respondent Court. On February 8, 1967, respondent Court of Industrial Relations dismissed petitioners' motion for reconsideration for being pro forma.

Whereupon, petitioners filed a petition for certiorari with this COURT in G.R. No. L-27272 to set aside the November 28, 1966 order of respondent Court, as well as its February 8, 1967 resolution. Petitioners assigned therein as errors of law the very same assignment of errors it raises in the present case, to wit: I THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN HOLDING IN THE ORDER UNDER REVIEW THAT BONUSES SHOULD BE PAID TO THE RESPONDENT WORKERS DESPITE THE FACT THAT THE SAME WAS NOT ADJUDICATED IN ITS ORIGINAL DECISION. II THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN NOT APPLYING THE DOCTRINE LAID DOWN BY THIS HONORABLE TRIBUNAL IN THE CASE OF "STA. CECILIA SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No. L-19273-74, PROMULGATED ON FEBRUARY 29, 1964 (pp. 10-11, rec.). On April 27, 1967, the Supreme Court denied petitioners' petition for certiorari (p. 77, rec. of L-27272), which was reiterated on May 19, 1967 (p. 27, Respondent's Brief, p. 113, rec.; p. 81, rec. of L-27272). On May 3, 1967, private respondents moved to have the workers' back wages properly recomputed. A motion to the same end was reiterated by private respondents on June 14, 1967. On July 13, 1967, respondent Court directed a recomputation of the back wages of respondent workers in accordance with its order dated November 28, 1966. The said order in part reads: WHEREFORE, the Chief Auditing Examiner of the Court or any of his assistants, is hereby directed to recompute the back wages of the workers involved in this case in accordance with the Order of November 28, 1966 within 20 days from receipt of a copy of this Order (p. 28, Brief for Respondents, p. 113, rec.). Then on March 21, 1968, the Chief Examiner came out with his report, the disputed portion of which (regarding bonuses) reads: xxx xxx xxx 4. The yearly bonuses of the employees and laborers of respondent corporation are given on the following basis: Basic Additional: a. For every dependent 1% of monthly salary b. For every dependent in elementary grade 2% of monthly salary c. For every dependent in high school 3% of monthly salary d. For every dependent in college 5% of monthly salary xxx xxx xxx 7. The computed ... bonuses after deducting the earnings elsewhere of Messrs. Ongsuco, Garlitos and Semillano are as follows: Name x x x Bonuses x x x 1. Alfredo Ongsuco P1,620.00 2. Demetrio Garlitos 1,200.00 3. Ignacio Quioyo 455.23 4. Aser Abancio 461.00 5. Ludovico Belopeos 752.05 6. Salvador Doroteo 714.70 7. Rosendo Espinosa 1,075.40 8. Gaudencio Quioyo 1,167.92 9. Jorge Semillano 1,212.08 10. Maximo Quioyo 449.41 Total P9,107.79 (Pp. 30-31, Respondent's Brief, p. 113, rec.) On April 16, 1968, petitioners filed their opposition to the report of the Examiner dated March 21, 1968 on grounds already rejected by respondent Court in its order dated November 28, 1966, and by the Supreme Court also in its ruling in G.R. No. L-27272. On May 4, 1968, a rejoinder to petitioners' opposition was filed by private respondents, alleging among others "that the grounds of petitioners' opposition were the same grounds raised by them before and passed upon by respondent Court and this Honorable Tribunal; that this order of November 28, 1966 which passed upon these issues became final and executory on June 3, 1967 from the Honorable Supreme Court. (Order of respondent Court dated July 13, 1967). [p. 32, Brief for Respondents, p. 113, rec.]. On July 26, 1968, private respondents filed their motion for approval of the Report of the Examiner submitted on March 21, 1968, alleging, among others, that petitioners, in their opposition, did not actually dispute the data elicited by the Chief Examiner but rather harped on grounds which, as already stated, had already been turned down by the Supreme Court. On October 19, 1968, herein private respondents filed their "Constancia", submitting the case for resolution of respondent Court of Industrial Relations. On May 30, 1969, respondent Court issued an order, subject of the present appeal, the dispositive portion of which reads: WHEREFORE, there being no proof offered to substantiate respondent Eduardo Claparols' opposition, the Examiner's Report should be, and it is hereby, APPROVED. Consequently, pursuant to the decision dated September 16, 1963, respondent ... (petitioners herein) are hereby directed to pay the respective back wages and bonuses of the complainants (respondents herein) ... (p. 35, Brief for Respondents; p. 113, rec.; emphasis supplied).1wph1.t On June 7, 1969, petitioners filed a motion for reconsideration on practically the same grounds previously raised by them. On June 30, 1969, respondents filed an opposition to petitioners' motion for reconsideration, with the following allegations: 1. The issues raised, namely, whether bonuses should be included in the award for back wages had already been resolved by respondent court in its orders dated November 28, 1966, and December 7, 1966, and in the Resolution of the Honorable Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, and the same is already a settled and final issue. 2. Petitioners' motion for reconsideration is merely a rehash of previous arguments, effete and unrejuvenated, pro forma, and intended merely to delay the proceedings. As correctly contended by private respondents, the present petition is barred by Our resolutions of April 26, 1967 and May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. vs. CIR, et. al.) [pp. 77-83, rec. of L- 27272], dismissing said case, wherein said petitioners invoked the applicability of the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273-74, Feb. 29, 1964, 10 SCRA

433) and impugned the illegality of the order of respondent Court dated November 28, 1966 directing the computation and payment of the bonuses, aside from back wages on the ground that these bonuses were not included in the decision of September 16, 1963, which had long become final. The aforesaid resolutions in G.R. No. L-27272 constitute the law of the instant case, wherein herein petitioners raised again practically the same issues invoked in the abovementioned case. The denial of the petition in G.R. No. L-27272 suffices to warrant the denial of the present petition; and We need not go any further. However, without lending a sympathetic ear to the obvious desire of herein petitioners of this Court to re-examine which would be an exercise in futility the final ruling in G.R. No. L-27272, which as above-stated is the law of the instant case, but solely to remind herein petitioners, We reiterate the governing principles. WE uniformly held that "a bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation" (Philippine Education Co. vs. CIR and the Union of Philippine Co. Employees [NLU], 92 Phil. 381; Ansay, et. al. vs. National Development Co., et. al., 107 Phil. 998, 999; Emphasis supplied). In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association (92 Phil. 754), this Court, thru Justice Labrador, held: Whether or not bonus forms part of wages depends upon the condition or circumstance for its payment. If it is an additional compensation WHICH THE EMPLOYER PROMISED AND AGREED to give without any condition imposed for its payment ... then it is part of the wage. (Emphasis supplied).1wph1.t In Altomonte vs. Philippine American Drug Co. (106 Phil. 137), the Supreme Court held that an employee is not entitled to bonus where there is no showing that it had been granted by the employer to its employees periodically or regularly as to become part of their wages or salaries. The clear implication is that bonus is recoverable as part of the wage or salary where the employer regularly or periodically gives it to employees. American jurisprudence equally regards bonuses as part of compensation or recoverable wages. Thus, it was held that "... it follows that in determining the regular rate of pay, a bonus which in fact constitutes PART OF AN EMPLOYEE'S compensation, rather than a true gift or gratuity, has to be taken into consideration." (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the cases of Triple "AAA" Co. vs. Wirtz and Haber vs. Americana Corporation; Emphasis supplied). It was further held that "... the regular rate includes incentive bonuses paid to the employees in addition to the guaranteed base rates regardless of any contract provision to the contrary and even though such bonuses could not be determined or paid until such time after the pay day" (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the case of Walling vs. Harnischfeger Corp., 325 US 427, 89 L Ed 1711, 65 S Ct. 1246; Emphasis supplied).1wph1.t Petitioners in the present case do not dispute that as a matter of tradition, the company has been doling out bonuses to employees. In fact, the company balance sheets for the years 1956 to 1962 contained bonus and pension computations which were never repudiated or questioned by petitioners. As such, bonus for a given year earmarked as a matter of tradition for distribution to employees has formed part of their recoverable wages from the company. Moreover, with greater reason, should recovery of bonuses as part of back wages be observed in the present case since the company, in the light of the very admission of company accountant Francisco Cusi, distributes bonuses to its employees even if the company has suffered losses. Specifically, petitioner company has done this in 1962 (t.s.n., p. 149, Sept. 20, 1965). Since bonuses are part of back wages of private respondents, the order of May 30, 1969, directing the payment of their bonuses, did not amend the decision of September 16, 1963 of respondent Court directing payment of their wages, which has long become final and executory, in the same way that the previous order of May 14, 1964 granting execution of said decision of September 16, 1963 also directed the computation of the wages to be paid to private respondents as decreed by the decision of September 16, 1963. All the orders of May 30, 1969, November 28, 1966 and May 14, 1964 merely implement the already final and executory decision of September 16, 1963. Petitioners insist that We adopt the ruling in the Sta. Cecilia Sawmills case wherein the recoverable back wages were limited to only three (3) months; because as in the Sta. Cecilia Sawmills case, the Claparols Steel and Nail Plant ceased operations due to enormous business reverses. Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioners. It is very clear that the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203, Jan. 28, 1961, 1 SCRA 160), We held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one. In Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30, 1961, 2 SCRA 632), this Court likewise held that where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored. In Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618, Aug. 31, 1964, 11 SCRA 714), We ruled that where a corporation is merely an adjunct, business conduit or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded. To the same uniform effect are the decisions in the cases of Republic vs. Razon (L-17462, May 29, 1967, 20 SCRA 234) and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, 22 SCRA 1156). WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages recoverable by respondent workers from petitioners should be the amount accruing up to December 7, 1962 when the Claparols Steel Corporation ceased operations. WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE COSTS AGAINST PETITIONERS TO BE PAID BY THEIR COUNSEL.

LUIS C. CLEMENTE, LEONOR CLEMENTE DE ELEPAO, HEIRS OF ARCADIO C. OCHOA, represented by FE O. OCHOA-BAYBAY, CONCEPCION, MARIANO, ARTEMIO, VICENTE, ANGELITA, ROBERTO, HERNANDO AND LOURDES, all surnamed ELEPAO, petitioners, vs. THE HON. COURT OF APPEALS, ELVIRA PANDINCO-CASTRO AND VICTOR CASTRO, respondents. VITUG, J.: In an action (Civil Case No. 467-83-C), entitled "Declaration of Ownership with Receivership," instituted before the Regional Trial Court, Fourth Judicial Region, Branch XXXIV, Calamba, Laguna the plaintiffs (herein petitioners) sought to be declared the owners of a piece of land so described as A PARCEL OF LAND (Lot No. 148-New of the subdivision plan Pls-502-D being a portion of Lot No. 148 of the cadastral survey of Calamba G.L.RO. Records No. 8418), situated in the Barrio of Lecheria, Municipality o Calamba, Province of Laguna, island of Luzon. Bounded on the Northeast by the Provincial Road; on the Southeast by Irrigation Ditch and Lot No. 1651 of Calamba Cadastre; on the Southwest by Lot No. 148-8 of Plan Pls-502-D; and on the Northwest by Calle Burgos. Beginning at the point marked "I" on the plan being North 71 degrees 88'm; 110.23 meters from BBML's Calamba Cadastre, . . . containing an area of FIVE THOUSAND THREE 1 HUNDRED FORTY NINE (5,349) SQUARE METERS; more or less. Specifically, the complaint prayed that judgment be rendered (a) declaring the plaintiffs to be owners of the property described in paragraph 8 of the complaint in the proportion of their respective stockholdings: (b) ordering the distribution of the rentals and other fruits of the property to the plaintiffs also in the proportion of their ownership; and 2 (c) (for) such other reliefs which this Honorable Court may deem just and equitable under the premises. The defendants (herein private respondents), in their answer; likewise claimed ownership of the property by virtue of acquisitive prescription. During the hearing, only the plaintiffs came forward to prove their allegations, the defendants did not present any evidence despite the several opportunities accorded to them by the trial court. Predicating itself on the averments of the complaint and assessing solely the evidence that had been submitted to it by the plaintiffs, the trial court stated its findings thusly: The "Sociedad Popular Calambea" organization conceived by the parties as a "Sociedad Anonima," was organized on or about the advent of the early American occupation of the Philippines. Plaintiff says it was at "the beginning of the 20th Century," but the defendant claim it was in 1907. The "sociedad" actually did business and held itself out as a corporation from November, 1909, up to September 24, 1932. Its principal business was cockfighting or the operation and management of a cockpit. On June 8, 1911, or during its existence, the "Sociedad" acquired by installments the parcel of land above described from the Friar Lands Estate of Calamba, Laguna at the total cost of P2,676.00 (Exh. "A"). Installments for the sale started on June 3, 1911 to June 16, 1931. Patent No. 38994 was issued in the name of the 'Sociedad Popular Calambea' on August 5, 1936 (ibid). The Real Property Tax Register of the Office of the Treasurer of Calamba, Laguna showed: "That Lot No. 148-New-A, situated at Burgos Street, Calamba, Laguna, is declared and assessed for taxation purpose in the name of SOCIEDAD POPULAR CALAMBEA (Exh. "C")." Plaintiffs evidence also shows that Mariano Elepao and Pablo Clemente, now both deceased, were original stockholders of the aforesaid "sociedad." Mariano Elepao subscribed and paid on November, 1909 for FORTY (40) shares of stocks worth TWO HUNDRED (P200.00) PESOS (Exh. "F"). While Pablo Clemente subscribed and paid FOUR HUNDRED EIGHTEEN (418) shares of stocksworth TWO THOUSAND (P2,000.00) PESOS. Pablo Clemente's shares of stocks were however later distributed and apportioned to his heirs, in accordance with a Project of Partition (Exh. "K") and heirs, in accordance with a Project of Partition (Exh. "K").and the Inventory of Property (Exh. "J"), in Civil Case No. 6127, Court of First Instance , entitled Intestate Estate of the late Pablo Clemente namely: to Luis Clemente, shares worth P510; to Ricardo Clemente, shares worth P510; to Leonor Clemente de Elepao, shares also worth P510, and to Placida Clemente de Belarmino shares worth P510. On September 24, 1932, in accordance with the aforesaid project of .partition, the "sociedad" issued stock certificates to the aforesaid heirs of Pablo Clemente. Thus, Luis Clemente was issued Stock Certificate No. 38 (Exh. "G"); Ricardo Clemente, No. 39 (Exh. "H") and Leonor Clemente de Elepao No. 44 (Exh. "I"). On the basis of their respective stocks certificates, present plaintiffs Luis, Ricardo, Leonor and Placida, all surnamed Clemente, heirs of Pablo Clemente, and, the heirs of Mariano Elepao, namely Concepcion, Mariano, Artemio, Vicente, Angelita, Roberto, Hernando and Lourdes all surnamed Elepao, jointly claim ownership over the above described property, asserting that their fathers being the only known stockholders of the "sociedad" known as the "Sociedad Popular Calamba," they, to the exclusion of all others, are 3 entitled to be declared owners of Lot No. 148-New. The trial court dismissed the complaint not merely on what it apparently perceived to be an insufficiency of the evidence that firmly could establish plaintiffs' claim of ownership over the property in dispute but also on its thesis that, absent a corporate liquidation, it is the corporation, not the stockholders, which can assert, if at all, any title to the corporate assets. The court, even then, expressed some reservations on the corporation's being able to still validly pursue such a claim. It said: The evidence presented so far, indicates that Lot No. 148-New although purchased on installment on June 8, 1911, was finally acquired by the "sociedad" on August 5, 1936 (Exh. "A"). It was declared for tax purposes in the name of the "sociedad" (Exh. "C"). Strangely however, no proof was offered showing that taxes were paid on its (sic) by the "sociedad," and neither were there efforts exerted by the latter to consolidate title over the property. In fact, no explanation was offered as to how and when the property came to the possession of the defendants. This simply means that the "sociedad" never asserted ownership over Lot No. 148-New. Basic is the rule that one asserting a right has the burden of proving it and the fact is, no proof was introduced demonstrating that the "sociedad" ever asserted its-right of ownership over the property during the period of its existence. The presumption is, "that a 4 person takes ordinary care of his concern." (Rule 131, Sec. 5(a), Rules of Court). In sustaining the dismissal of the complaint, as well' as the counterclaim, the Court of Appeals, in part, said: With the above views that We take, Sociedad is the legal owner of the land in dispute, in light of Exhibit "A" (pp. 97-98, RTC Rollo, Vol. 1). While a copy of Patent No. 38994, issued on August 5, 1936, has not-been presented during the trial, there is also no evidence of its cancellation or monument of title presented by. plaintiffs-appellant supportive of their claim of ownership of the

property. Even assuming that their parents were the only stockholders of Sociedad, and assuming further that Sociedad has ceased to exist, these do not ipso facto vest ownership over the property in the hands of plaintiffs-appellants. Again, assuming that sociedad is a duly-organized entity, under the laws of the Philippines, its corporate existence is separate and distinct from its stockholders and from other corporations to which it may be connected (Yutive Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 161, 165). If it was not organized and registered under Philippine laws as a private corporation, it is a de facto corporation, as found by the court below, with the right to exercise corporate powers, and thus it is imperative that any of the modes of transferring ownership from said entity must be shown. In a reinvindicatory action, the, plaintiff has the burden of establishing his case by more than more (sic) preponderance of evidence (Vegas vs. Vegas, 56 Phil. 299; Villaruz vs. Delfin, CA-G.R. No. 15918-R, Jan. 18, 1961; Perante vs. Malinao, CA-G.R. No. 29314-R, Feb. 5 16, 1962). This the plaintiff has not satisfactorily done in this case. Petitioners have assigned several "errors;" the focal issue, nevertheless, is still whether or not petitioners can be held, given their submissions, to have succeeded in establishing for themselves a firm title to the property in question. Like the courts below, we find petitioners' evidence to be direly wanting; all that appear to be certain are that the "Sociedad Popular Calambea," believed to be a "sociedad anonima" and for a while engaged in the operation and management of a cockpit, has existed some time in the past; that it has acquired the parcel of land here involved; and that the plaintiffs' predecessors, Mariano Elepao and Pablo Clemente, had been original stockholders of the sociedad. Except in showing that they are the successors-in-interest of Elepao and Clemente, petitioners have been unable to come up with any evidence to substantiate their claim of ownership of the corporate asset. If, indeed, the sociedad has long become defunct, it should behoove petitioners, or anyone else who may have any interest in the corporation, to take appropriate measures before a proper forum for a peremptory settlement of its affairs. We might invite attention to the various modes provided by the Corporation Code (see Sees. 117-122) for dissolving, liquidating or winding up, and terminating the life of the corporation. Among the causes for such dissolution are when the corporate term has expired or when, upon a verified complaint and after notice and hearing, the Securities and Exchange Commission orders the dissolution of a corporation for its continuous inactivity for at least five (5) years. The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity (see Gonzales vs. Sugar Regulatory Administration, 174 SCRA 377) nor those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver. having been expressly designated by the corporation within that period, the board of directors (or trustees) itself, following the rationale of the Supreme Court's decision in Gelano vs. Court of Appeals (103 SCRA 90) may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representations with the Securities and Exchange commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns. WHEREFORE, the decision appealed from is AFFIRMED. No costs.

PHILIPPINE COCONUT PRODUCERS FEDERATION, INC. (COCOFED), MANUEL V. DEL ROSARIO, DOMINGO P. ESPINA, SALVADOR P. BALLARES, JOSELITO A. MORALEDA, PAZ M. YASON, VICENTE A. CADIZ, CESARIA DE LUNA TITULAR, and RAYMUNDO C. DE VILLA, Petitioners, vs. REPUBLIC OF THE PHILIPPINES, Respondent. JOVITO R. SALONGA, WIGBERTO E. TAADA, OSCAR F. SANTOS, ANA THERESIA HONTIVEROS, and TEOFISTO L. GUINGONA III, Oppositors-Intervenors. WIGBERTO E. TAADA, OSCAR F. SANTOS, SURIGAO DEL SUR FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC) and MORO FARMERS ASSOCIATION OF ZAMBOANGA DEL SUR (MOFAZS), represented by ROMEO C. ROYANDOYAN; and PAMBANSANG KILUSAN NG MGA SAMAHAN NG MAGSASAKA (PAKISAMA), represented by VICENTE FABE, Movants-Intervenors. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 178193 DANILO B. URUSA, Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 180705 EDUARDO M. COJUANGCO, JR., Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Respondent. RESOLUTION VELASCO, JR., J.: 1 Before us is the motion for reconsideration of the Resolution of the Court dated September 17, 2009, interposed by oppositorsintervenors Jovito R. Salonga, Wigberto E. Taada, Oscar F. Santos, Ana Theresa Hontiveros, and Teofisto L. Guingona III. As may be recalled, the Court, in its resolution adverted to, approved, upon motion of petitioner Philippine Coconut Producers Federation, Inc. (COCOFED), the conversion of the sequestered 753,848,312 Class "A" and "B" common shares of San Miguel Corporation (SMC), registered in the name of Coconut Industry Investment Fund (CIIF) Holding Companies (hereunder referred to as SMC Common Shares), into 753,848,312 SMC Series 1 Preferred Shares. Oppositors-intervenors Salonga, et al. anchor their plea for reconsideration on the following submission or issues: 1 The conversion of the shares is patently disadvantageous to the government and the coconut farmers, given that SMCs option to redeem ensures that the shares will be bought at less than their market value. 2 The honorable court overlooks the value of the fact that the government, as opposed to the current administration, is the winning 2 party in the case below and thus has no incentive to convert. The Court is not inclined to reconsider. The two (2) issues and the arguments and citations in support thereof are, for the most part and with slight variations, clearly replications of oppositors-intervenors previous position presented in opposition to COCOFEDs motion for approval of the conversion in question. They have been amply considered, discussed at length, and found to be bereft of merit. Oppositors-intervenors harp on the perceived economic disadvantages and harm that the government would likely suffer by the approval of the proposed conversion. Pursuing this point, it is argued that the Court missed the fact that the current value of the 3 shares in question is increasing and the "perceived advantages of pegging the issue price at PhP 75 are dwindling on a daily basis." Oppositors-intervenors concerns, encapsulated above, have been adequately addressed in some detail in the resolution subject of this motion. For reference we reproduce what we wrote: Salonga, et al. also argue that the proposed redemption is a right to buy the preferred shares at less than the market value. That the market value of the preferred shares may be higher than the issue price of PhP 75 per share at the time of redemption is possible. But then the opposite scenario is also possible. Again, the Court need not delve into policy decisions of government agencies because of their expertise and special knowledge of these matters. Suffice it to say that all indications show that SMC will redeem said preferred shares in the third year and not later because the dividend rate of 8% it has to pay on said shares is higher than the interest it will pay to the banks in case it simply obtains a loan. When market prices of shares are low, it is possible that interest rate on loans will likewise be low. On the other hand, if SMC has available cash, it would be prudent for it to use such cash to redeem the shares than place it in a regular bank deposit which will earn lower interests. It is plainly expensive and costly for SMC to keep on paying the 8% dividend rate annually in the hope that the market value of the shares will go up before it redeems the shares. Likewise, the conclusion that respondent Republic will suffer a loss corresponding to the difference between a high market value and the issue price does not take into account the dividends to be earned by the preferred shares for the three years prior to redemption. The guaranteed PhP 6 per share dividend multiplied by three years will amount to PhP 18. If one adds PhP 18 to the issue price of PhP 75, then the holders of the preferred shares will have actually attained a price of PhP 93 which hews closely to the 4 speculative PhP 100 per share price indicated by movants-intervenors. (Emphasis added.) Elaborating on how the value of the sequestered shares will be preserved and conserved, we said: Moreover, the conversion may be viewed as a sound business strategy to preserve and conserve the value of the governments interests in CIIF SMC shares. Preservation is attained by fixing the value today at a significant premium over the market price and ensuring that such value is not going to decline despite negative market conditions. Conservation is realized thru an improvement in the earnings value via the 8% per annum dividends versus the uncertain and most likely lower dividends on common shares. In this recourse, it would appear that oppositors-intervenors seem unable to accept, in particular, the soundness angle of the conversion. But as we have explained, the conversion of the shares along with the safeguards attached thereto will ensure that the value of the shares will be preserved. In effect, due to the nature of stocks in general and the prevailing business conditions, the government, through the Presidential Commission on Good Government (PCGG), chose not to speculate with the CIIF SMC shares, as prima facie public property, in the hope that there would be a brighter economy in the future, and that the value of the shares would increase. We must respect the decision of the executive department, absent a clear showing of grave abuse of discretion. Next, oppositors-intervenors argue that:

The very reason why the PCGG and the OSG [Office of Solicitor General] are before this Honorable Court is precisely because, on their own, they have no authority to alter the nature of the sequestered shares. This fact ought not to be novel to this Honorable Court because it is the Court itself that established such jurisprudence. Thus, the reference to separation of powers is rather 5 gratuitous. The Court to be sure agrees with the thesis that, under present state of things, the PCGG and the Office of the Solicitor General have no power, by themselves, to convert the sequestered shares of stock. That portion, however, about the reference to the separation of powers being gratuitous does not commend itself for concurrence. As may be noted, the reference to the separation of powers concept was made in the context that the ownership of the subject sequestered shares is the subject of a case before this Court; hence, the need of the Courts approval for the desired conversion is effected. Apropos the separation of powers doctrine and its relevance to this case, it may well be appropriate to again quote the following 6 excerpts from our decision in JG Summit Holdings, Inc. v. Court of Appeals, to wit: The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making. 7 and our complementary holding in Ledesma v. Court of Appeals, thus: x x x [A] court is without power to directly decide matters over which full discretionary authority has been delegated to the legislative or executive branch of the government. It is not empowered to substitute its judgment for that of Congress or of the President. It may, however, look into the question of whether such exercise has been made in grave abuse of discretion. The point, in fine, is: while it may, in appropriate cases, look into the question of whether or not the PCGG acted in grave abuse of discretion, the Court is not empowered to review and go into the wisdom of the policy decision or choices of PCGG and other executive agencies of the government. This is the limited mandate of this Court. And as we have determined in our Resolution, the PCGG thoroughly studied and considered the effects of conversion and, based upon such study, concluded that it would best serve the purpose of maintaining and preserving the value of the shares of stock to convert the same. It was proved that the PCGG had exercised proper diligence in reviewing the pros and cons of the conversion. The efforts PCGG have taken with respect to the desired stock conversion argue against the notion of grave abuse of discretion.1avvphi1 Anent the second issue that it is the government, as opposed to the current administration of President Gloria Macapagal-Arroyo, that is the winning party in the case below and has no incentive to convert, the Court finds that this argument has no merit. The current administration, or any administration for that matter, cannot be detached from the government. In the final analysis, the seat of executive powers is located in the sitting President who heads the government and/or the "administration." Under the government established under the Constitution, it is the executive branch, either pursuant to the residual power of the President or by force of her enumerated powers under the laws, that has control over all matters pertaining to the disposition of government property or, in this case, sequestered assets under the administration of the PCGG. Surely, such control is neither legislative nor 8 judicial. As the Court aptly held in Springer v. Government of the Philippine Islands, resolving the issue as to which between the Governor-General, as head of the executive branch, and the Legislature may vote the shares of stock held by the government: It is clear that they are not legislative in character, and still more clear that they are not judicial. The fact that they do not fall within the authority of either of these two constitutes legal ground for concluding that they do fall within that of the remaining one among which the powers of the government are divided. The executive branch, through the PCGG, has given its assent to the conversion and such decision may be deemed to be the decision of the government. The notion suggested by oppositors-intervenors that the current administration, thru the PCGG, is without power to decide and act on the conversion on the theory that the head of the current administration is not government, cannot be sustained for lack of legal basis. Likewise, before the Court is the Motion to Admit Motion for Reconsideration with Motion for Reconsideration [Re: Conversion of 9 SMC Shares] dated October 16, 2009 filed by movants-intervenors Wigberto E. Taada; Oscar F. Santos; Surigao del Sur Federation of Agricultural Cooperatives (SUFAC) and Moro Farmers Association of Zamboanga del Sur (MOFAZS); and Pambansang Kilusan ng mga Samahan ng Magsasaka (PAKISAMA). In filing their motion, movants-intervenors explain that: Messrs. Taada and Santos earlier joined an opposition filed by a group led by former Senate President Jovito R. Salonga, by way of solidarity and without desire or intent of trifling with judicial processes as, in fact, the instant Motion for Reconsideration is filed by herein movants-intervenors, through counsel, Atty. Taada, and also by way of supplement and support to the Opposition earlier 10 filed by Salonga, et al., and the Opposition originally intended to be filed by herein Movants-intervenors. (Emphasis supplied.) Movants-intervenors argue further that the Court allowed them to intervene in a Resolution in G.R. No. 180702, which also arose 11 from Sandiganbayan Civil Case No. 0033-F and, thus, should similarly be allowed to intervene in the instant case. This motion of Taada, et al. must fail. As it were, Atty. Taada and Oscar Santos admit having joined oppositors-intervenors Salonga, et al. in the latters October 7, 2009 motion for reconsideration. Accordingly, they should have voiced out all their arguments in the Salonga motion for reconsideration following the Omnibus Motion Rule. The filing of yet another motion for reconsideration by way of supplement to the Salonga motion for reconsideration is a clear deviation from the Omnibus Motion Rule and cannot be countenanced. Even the joinder of SUFAC, MOFAZS, and PAKISAMA with co-intervenors Taada and Santos will not cure the flawed motion. In Heirs 12 of Geronimo Restrivera v. De Guzman, the Court explained why: Indeed, the right of intervention should be accorded to any one having title to property "which is the subject of litigation, provided that his right will be substantially affected by the direct legal operation and effect of the decision, and provided also that it is reasonably necessary for him to safeguard an interest of his own which no other party on record is interested in protecting." (Emphasis supplied.) SUFAC, MOFAZS, and PAKISAMA all failed to demonstrate that none of the existing parties, that are similarly situated as they, would not defend their common interest. In the instant case, COCOFED, the federation of farmers associations recognized by the Philippine Coconut Authority, has actively participated in the instant case, vigorously defending their rights and those of all the coconut farmers who are supposedly stockholders of SMC. The Court can extend to the instant motion of Taada, et al. the benefit of the liberal application of procedural rules and entertain the motion and resolve the issues therein. Nonetheless, an examination of the issues raised in the Taada motion for reconsideration would show that the same have been more than adequately addressed in our Resolution of September 19, 2009.

Movants-intervenors contend that the challenged resolution violates the Courts holding in San Miguel Corporation v. 13 Sandiganbayan, as the conversion of the sequestered common shares into treasury shares would destroy the character of the shares of stock. The invocation of San Miguel Corporation is quite misplaced, it being inapplicable since it is not on all fours factually with the instant case. San Miguel Corporation involved the sale by the 14 CIIF Companies, through the United Coconut Planters Bank (UCPB), of 33,133,266 SMC shares, to the SMC. Before the perfection of the sale, however, the said shares were sequestered. Thus, the SMC group suspended payment of the purchase price of the shares, while the UCPB group rescinded the sale. Later, the SMC and UCPB groups entered into a Compromise Agreement and Amicable Settlement, whereby they undertook to continue with the sale of the subject shares of stock. The parties, over the opposition of both the Republic and the COCOFED, then moved for the approval of this agreement by the Sandiganbayan where the case was then pending. Later, UCPB and the SMC groups implemented their agreement extra-judicially, withdrawing, at the same time, their petition for the approval of their aforementioned compromise agreement. Thereafter, the Sandiganbayan issued an Order dated August 5, 1991, directing the SMC to deliver to the graft court the sequestered SMC shares that it bought from UCPB. This was followed by another Order dated March 18, 1992, for the delivery to the court of dividends pertaining to the subject SMC shares. It was these two delivery Orders that were submitted for the consideration of the Court. An examination of the facts of San Miguel Corporation would show the factual dissimilarities of such case to the instant controversy. First, in San Miguel Corporation, the Court did not even pass upon the validity of the Compromise Agreement, while, in the instant case, the Court approved the conversion. Second, in the instant case, court approval was sought before the execution of the conversion, while in San Miguel Corporation, no court approval was sought for the Compromise Agreement. And third, in San Miguel Corporation, both the Republic and COCOFED opposed the Compromise Agreement, while, in the instant case, they both agreed to the conversion. Clearly, San Miguel Corporation finds no application to the instant case. Moreover, our ruling in San Miguel Corporation did not per se forbid the conversion of sequestered common shares into preferred/treasury shares. As we held thereat, the changes that are unacceptable are those "of any permanent character that will alter their being sequestered shares and, therefore, in custodia legis, that is to say, under the control and disposition of this Court." Here, the SMC Series 1 Preferred Shares will also be sequestered in exchange for the common shares originally sequestered. Thus, the approval of the conversion of the subject SMC shares in the instant case does not run counter, as movants insist otherwise, to the ruling in San Miguel Corporation. Movants-intervenors also assail the conversion of the SMC shares from common to preferred on another angle, thus: Simply, there is no right to vote: There is no greater alteration of the very nature of a common share. In a very real sense, therefore, a common share with all its rights, is reduced to a mere promissory note; worse, an unsecured and conditional promissory note, the 14 returns on which is dependent on available retained earnings and the over-all viability of SMC. The assault is without merit. Again, by their very nature, shares of common stock, while giving the stockholder the right to vote, do not guarantee that the vote of the stockholder will prevail. That is non sequitur. This we explained in the Resolution subject of reconsideration: The mere presence of four (4) PCGG nominated directors in the SMC Board does not mean it can prevent board actions that are viewed to fritter away the company assets. Even under the status quo, PCGG has no controlling sway in the SMC Board, let alone a veto power at 24% of the stockholdings. In relinquishing the voting rights, the government, through the PCGG, is not in reality ceding control. Moreover, PCGG has ample powers to address alleged strategies to thwart recovery of ill-gotten wealth. Thus, the loss of voting rights has no significant effect on PCGGs function to recover ill-gotten wealth or prevent dissipation of sequestered 15 assets. 1avvphi1 Movants-intervenors likewise challenge the legality of the conversion in light of Commission on Audit (COA) Circular No. 89-296, which provides that the divestment or disposal of government property shall be undertaken primarily through public auction. The postulation has no merit, for there is, in the first place, no divestment or disposal of the SMC shares. The CIIF companies shall remain the registered owners of the SMC Series 1 Preferred Shares after conversion, although the shares are still subject of sequestration. To state the obvious, these SMC shares are not yet government assets as ownership thereof are still to be peremptorily determined. Hence, COA Circular No. 89-296, which covers only the disposition of government property, cannot plausibly be made to govern the conversion of the SMC shares in question, assuming for the nonce that the challenged conversion is equivalent to disposition. As explained in the September 17, 2009 Resolution, the sequestered assets are akin to property subject of preliminary attachment or receivership. As stated in the assailed resolution, the Court is authorized to allow the conversion of the subject shares under Rule 57, Sec. 11, in relation to Rule 59, Sec. 6 of the Rules of Court. And as may be recalled, the Court, in Palm 16 Avenue Realty Development Corporation v. PCGG, allowed the sale of sequestered properties without an auction sale given that, as here, the sequestered assets would not have fetched the correct market price. In the instant case, the same is also true. It is highly doubtful that anyone other than SMC would purchase the sequestered shares at market value. Finally, Taada, et al. posit the view that the conversion of shares needs the acquiescence of the 14 CIIF companies. The contention is untenable. It should be remembered that the SMC shares allegedly owned by the CIIF companies are sequestered assets under the control and supervision of the PCGG pursuant to Executive Order No. 1, Series of 1986. Be that as it may, it is the duty of the PCGG to preserve the sequestered assets and prevent their dissipation. In the exercise of its powers, the PCGG need not seek or obtain the consent or even the acquiescence of the sequestered assets owner with respect to any of its acts intended to preserve such assets. Otherwise, it would be well-nigh impossible for PCGG to perform its duties and exercise its powers under existing laws, for the owner of the sequestered assets will more often than not oppose or resist PCGGs actions if their consent is a condition precedent. The act of PCGG of proposing the conversion of the sequestered SMC shares to Series 1 Preferred Shares was clearly an exercise of its mandate under existing laws, where the consent of the CIIF Companies is rendered unnecessary. Additionally, the above contention has been rendered moot with the filing on October 26, 2009 of the Manifestation dated October 23, 2009. Attached to such Manifestation is the Secretarys Certificate of the 14 CIIF companies approving the conversion of the SMC 17 Common Shares into Series 1 Preferred Shares. As a final consideration, the Court also takes note of the Motion for Leave to Intervene and to File and Admit Attached Motion for Partial Reconsideration dated October 5, 2009 and the Motion for Partial Reconsideration dated October 6, 2009 filed by movant-

intervenor UCPB. UCPB claims to have direct interest in the SMC shares subject of the instant case, being the statutory administrator, pursuant to Presidential Decree No. (PD) 1468, of the Coconut Industry Investment Fund and as an investor in the CIIF companies. UCPB argues that, as the statutory administrator of the CIIF, the proceeds of the net dividend earnings of, and/or redemption proceeds from, the Series 1 Preferred Shares of SMC should be deposited in escrow with it rather than, as directed by the Court in its September 17, 2009 Resolution, with the Development Bank of the Philippines (DBP) or the Land Bank of the Philippines (LBP). Concededly, UCPB is the administrator of the CIIF, which invested in the subject Series 1 Preferred Shares of SMC. UCPBs legal authority as such administrator does not, however, include its being made the exclusive depository bank of the proceeds of dividends, interest, or income from the investments solely with UCPB. To be sure, the relevant decrees, PD Nos. 775, 961, and 1468, did not constitute UCPBthe bank acquired for the coconut farmers under PD 755to be the sole depositary of the proceeds of the returns of the investments authorized under Sec. 9, Art. III of PD 1468. Besides, since the subject sequestered SMC shares are under custodia legis, the Court has certain control over them and their fruits. Nonetheless, the PCGG, having administrative control over the subject sequestered shares pending resolution of the actual ownership thereof, possesses discretion, taking into account the greater interest of the government and the farmers, to decide on where to deposit on escrow the net dividend earnings of, and/or redemption proceeds from, the Series 1 Preferred Shares of SMC. The depository bank may be the DBP/LBP or the UCPB. WHEREFORE, the Court resolves to DENY for lack of merit the: (1) Motion for Reconsideration dated October 7, 2009 filed by oppositors-intervenors Jovito R. Salonga, Wigberto E. Taada, Oscar F. Santos, Ana Theresa Hontiveros, and Teofisto L. Guingona III; and (2) Motion to Admit Motion for Reconsideration with Motion for Reconsideration [Re: Conversion of SMC Shares] dated October 16, 2009 filed by movants-intervenors Wigberto E. Taada, Oscar F. Santos, SUFAC, MOFAZS, represented by Romeo C. Royandoyan, and PAKISAMA, represented by Vicente Fabe. The Court PARTIALLY GRANTS the Motion for Leave to Intervene and to File and Admit Attached Motion for Partial Reconsideration dated October 5, 2009, and the Motion for Partial Reconsideration dated October 6, 2009 filed by movant-intervenor UCPB. The Court AMENDS its Resolution dated September 17, 2009 to give to the PCGG the discretion in depositing on escrow the net dividend earnings on, and/or redemption proceeds from, the Series 1 Preferred Shares of SMC, either with the Development Bank of the Philippines/Land Bank of the Philippines or with the United Coconut Planters Bank, having in mind the greater interest of the government and the coconut farmers. SO ORDERED.

COJUANGCO VS REPUBLIC 12 APRIL 2011 DECISION

BERSAMIN, J.:

For over two decades, the issue of whether the sequestered sizable block of shares representing 20% of the outstanding capital stock of San Miguel Corporation (SMC) at the time of acquisition belonged to their registered owners or to the coconut farmers has remained unresolved. Through this decision, the Court aims to finally resolve the issue and terminate the uncertainty that has plagued that sizable block of shares since then. These consolidated cases were initiated on various dates by the Republic of the Philippines (Republic) via petitions for certiorari in [1] [2] [3] G.R. Nos. 166859 and 169023, and via petition for review on certiorari in 180702, the first two petitions being brought to assail the following resolutions issued in Civil Case No. 0033-F by the Sandiganbayan, and the third being brought to appeal the adverse decision promulgated on November 28, 2007 in Civil Case No. 0033-F by the Sandiganbayan. Specifically, the petitions and their particular reliefs are as follows: (a) G.R. No. 166859 (petition for certiorari), to assail the resolution promulgated on December 10, 2004 denying the Republics Motion For Partial Summary Judgment; (b) G.R. No. 169023 (petition for certiorari), to nullify and set aside, firstly, the resolution promulgated on October 8, [5] [6] 2003, and, secondly, the resolution promulgated on June 24, 2005 modifying the resolution of October 8, 2003; and (c) G.R. No. 180702 (petition for review on certiorari), to appeal the decision promulgated on November 28, 2007.
[7] [4]

ANTECEDENTS On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. On October 2, 1987, the Republic amended the complaint in Civil Case No. 0033 to include two additional individual defendants. On December 8, 1987, the Republic further amended the complaint through its Amended Complaint [Expanded per Court-Approved Plaintiffs Manifestation/Motion Dated Dec. 8, 1987] albeit dated October 2, 1987. More than three years later, on August 23, 1991, the Republic once more amended the complaint apparently to avert the nullification of the writs of sequestration issued against properties of Cojuangco. The amended complaint dated August 19, 1991, designated as Third Amended Complaint [Expanded Per Court-Approved Plaintiffs Manifestation/Motion Dated Dec. 8, [8] 1987], impleaded in addition to Cojuangco, President Marcos, and First Lady Imelda R. Marcos nine other individuals, namely: Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D. Regala, and Rogelio Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71 corporations. On March 24, 1999, the Sandiganbayan allowed the subdivision of the complaint in Civil Case No. 0033 into eight complaints, each pertaining to distinct transactions and properties and impleading as defendants only the parties alleged to have participated in the relevant transactions or to have owned the specific properties involved. The subdivision resulted into the following subdivided complaints, to wit: Subdivided Complaint 1. Civil Case No. 0033-A Subject Matter Anomalous Purchase and Use of First United Bank (now United Coconut Planters Bank) Creation of Companies Out of Coco Levy Funds Creation and Operation of Bugsuk Project and Award of P998 Million Damages to Agricultural Investors, Inc. Disadvantageous Purchases and Settlement of the Accounts of Oil Mills Out of Coco Levy Funds Unlawful Disbursement and Dissipation of CocoLevy Funds Acquisition of SMC shares of stock Acquisition of Pepsi-Cola Behest Loans and Contracts

2. 3.

Civil Case No. 0033-B Civil Case No. 0033-C

4.

Civil Case No. 0033-D

5.

Civil Case No. 0033-E

6. 7. 8.

Civil Case No. 0033-F Civil Case No. 0033-G Civil Case No. 0033-H

In Civil Case No. 0033-F, the individual defendants were Cojuangco, President Marcos and First Lady Imelda R. Marcos, the ACCRA lawyers, and Ursua. Impleaded as corporate defendants were Southern Luzon Oil Mills, Cagayan de Oro Oil Company, Incorporated, Iligan Coconut Industries, Incorporated, San Pablo Manufacturing Corporation, Granexport Manufacturing Corporation, Legaspi Oil Company, Incorporated, collectively referred to herein as the CIIF Oil Mills, and their 14 holding companies, namely: Soriano Shares, Incorporated, Roxas Shares, Incorporated, Arc Investments, Incorporated, Toda Holdings, Incorporated, ASC Investments, Incorporated, Randy Allied Ventures, Incorporated, AP Holdings, Incorporated, San Miguel Corporation Officers, Incorporated, Te Deum Resources, Incorporated, Anglo Ventures, Incorporated, Rock Steel Resources, Incorporated, Valhalla Properties, Incorporated, and First Meridian Development, Incorporated. Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares. Also impleaded as defendants in Civil Case No. 0033-F were several corporations alleged to have been under Cojuangcos control and used by him to acquire the block of shares of SMC stock totaling 16,276,879 at the time of acquisition (representing approximately 20% percent of the capital stock of SMC). These corporations are referred to as Cojuangco corporations or companies, to distinguish them from the CIIF Oil Mills. Reference hereafter to Cojuangco and the Cojuangco corporations or companies shall be as Cojuangco, et al., unless the context requires individualization. The material averments of the Republics Third Amended Complaint (Subdivided)
[10] [9]

in Civil Case No. 0033-F included the following:

12. Defendant Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration. During the period of his incumbency as a public officer, he acquired assets, funds, and other property grossly and manifestly disproportionate to his salaries, lawful income and income from legitimately acquired property. 13. Having fully established himself as the undisputed coconut king with unlimited powers to deal with the coconut levy funds, the stage was now set for Defendant Eduardo M. Cojuangco, Jr. to launch his predatory forays into almost all aspects of Philippine economic activity namely: softdrinks, agribusiness, oil mills, shipping, cement manufacturing, textile, as more fully described below. 14. Defendant Eduardo Cojuangco, Jr. taking undue advantage of his association, influence and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual defendants, embarked upon devices, schemes and stratagems, including the use of defendant corporations as fronts, to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, such as when he misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation in order to control the largest agri-business, foods and beverage company in the Philippines, more particularly described as follows: (a) Having control over the coconut levy, Defendant Eduardo M. Cojuangco invested the funds in diverse activities, such as the various businesses SMC was engaged in (e.g. large beer, food, packaging, and livestock); (b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel owned in the Company. The shares, worth $49 million, represented 20% of SMC; (c) Later that year, Cojuangco also acquired the Soriano stocks through a series of complicated and secret agreements, a key feature of which was a voting trust agreement that stipulated that Andres, Jr. or his heir would proxy over the vote of the shares owned by Soriano and Cojuangco. This agreement, which accounted for 30% of the outstanding shares of SMC and which lasted for five (5) years, enabled the Sorianos to retain management control of SMC for the same period; (d) Furthermore, in exchange for an SMC investment of $45 million in non-voting preferred shares in UCPB, Soriano served as the vice-chairman of the supposed bank of the coconut farmers, UCPB, and in return, Cojuangco, for investing funds from the coconut levy, was named vice-chairman of SMC; (e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC Board, to which he appointed key members of the ACCRA Law Firm (herein Defendants) instead of coconut farmers whose money really funded the sale; (f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document which he signed on 19 February 1983 entitled Principles and Framework of Mutual Cooperation and Assistance which governed the rules for the conduct of management of SMC and the disposition of the shares which he bought. (g) All together, Cojuangco purchased 33 million shares of the SMC through the following 14 holding companies: a) b) c) d) e) f) g) h) i) Soriano Shares, Inc. ASC Investors, Inc. Roxas Shares, Inc. ARC Investors, Inc. Toda Holdings, Inc. AP Holdings, Inc. Fernandez Holdings, Inc. SMC Officers Corps., Inc. Te Deum Resources, Inc. 1,249,163 1,562,449 2,190,860 4,431,798 3,424,618 1,580,997 838,837 2,385,987 2,674,899

j) k) l) m) n)

Anglo Ventures Corp. 1,000.000 Randy Allied Ventures, Inc. 1,000,000 Rock Steel Resources, Inc. 2,432,625 Valhalla Properties Ltd., Inc. 1,361,033 First Meridian Development, Inc. 1,000,000 ___________ 33,133,266

3.1. The same fourteen companies were in turn owned by the following six (6) so-called CIIF Companies which were: a) b) c) d) e) f) San Pablo Manufacturing Corp. 19% Southern Luzon Coconut Oil Mills, Inc. 11% Granexport Manufacturing Corporation 19% Legaspi Oil Company, Inc. 18% Cagayan de Oro Oil Company, Inc. 18% Iligan Coconut Industries, Inc. 15% _____ 100%

(h) Defendant Corporations are but shell corporations owned by interlocking shareholders who have previously admitted that they are just nominee stockholders who do not have any proprietary interest over the shares in their names. The respective affidavits of the following, namely: Jose C. Concepcion, Florentino M. Herrera III, Teresita J. Herbosa, Teodoro D. Regala, Victoria C. de los Reyes, Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U. Escuete and Franklin M. Drilon, who were all, at the time they became such stockholders, lawyers of the Angara Abello Concepcion Regala & Cruz (ACCRA) Law Offices, the previous counsel who incorporated said corporations, prove that they were merely nominee stockholders thereof. (i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of 16,276,879 shares of San Miguel Corporation from the Ayala group: of said shares, a total of 8,138,440 (broken into 7,128,227 Class A and 1,010,213 Class B shares) were placed in the names of Meadowlark Plantations, Inc. (2,034,610) and Primavera Farms, Inc. (4,069,220). The Articles of Incorporation of these three companies show that Atty. Jose C. Concepcion of ACCRA owns 99.6% of the entire outstanding stock. The same shareholder executed three (3) separate Declaration of Trust and Assignment of Subscription: in favor of a BLANK assignee pertaining to his shareholdings in Primavera Farms, Inc., Silver Leaf Plantations, Inc. and Meadowlark Plantations, Inc. (k) The other respondent Corporations are owned by interlocking shareholders who are likewise lawyers in the ACCRA Law Offices and had admitted their status as nominee stockholders only. (k-1) The corporations: Agricultural Consultancy Services, Inc., Archipelago Realty Corporation, Balete Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty Corporation, First United Transport, Inc., Kaunlaran Agricultural Corporation, LandAir International Marketing Corporation, Misty Mountains Agricultural Corporation, Pastoral Farms, Inc., Oro Verde Services, Inc. Radyo Filipino Corporation, Reddee Developers, Inc., Verdant Plantations, Inc. and Vesta Agricultural Corporation, were incorporated by lawyers of ACCRA Law Offices. (k-2) With respect to PCY Oil Manufacturing Corporation and Metroplex Commodities, Inc., they are controlled respectively by HYCO, Inc. and Ventures Securities, Inc., both of which were incorporated likewise by lawyers of ACCRA Law Offices. (k-3) The stockholders who appear as incorporators in most of the other Respondents corporations are also lawyers of the ACCRA Law Offices, who as early as 1987 had admitted under oath that they were acting only as nominee stockholders. (l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able to control more than 60% of SMC shares, were funded by institutions which depended upon the coconut levy such as the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE), among others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills and 10 copra trading companies to borrow money from the UCPB and purchase these holding companies and the SMC stocks. Cojuangco used $150 million from the coconut levy, broken down as follows: Amount (in million) $22.26 Source Purpose

Oil Mills

equity in holding companies loan to holding companies

$65.6

Oil Mills

$61.2

UCPB

loan to holding companies [164]

The entire amount, therefore, came from the coconut levy, some passing through the Unicom Oil mills, others directly from the UCPB.

(m) With his entry into the said Company, it began to get favors from the Marcos government, significantly the lowering of the excise taxes (sales and specific taxes) on beer, one of the main products of SMC. (n) Defendant Cojuangco controlled SMC from 1983 until his co-defendant Marcos was deposed in 1986. (o) Along with Cojuangco, Defendant Enrile and ACCRA also had interests in SMC, broken down as follows: % of SMC Cojuangco 31.3% 18% 5.2% 5.2% Enrile & ACCRA 1.8% 1.8% 1.8% Enrile Jaka Investment Corporation ACCRA Investment Corporation Owner

coconut levy money companies linked to Cojuangco government SMC employee retirement fund

15. Defendants Eduardo Cojuangco, Jr., Edgardo J. Angara, Jose C. Concepcion, Teodoro Regala, Avelino Cruz, Rogelio Vinluan, Eduardo U. Escueta and Paraja G. Hayudini of the Angara Concepcion Cruz Regala and Abello law offices (ACCRA) plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the acquisition of San Miguel Corporation shares and its institutionalization through presidential directives of the coconut monopoly. Through insidious means and machinations, ACCRA, being the wholly-owned investment arm, ACCRA Investments Corporation, became the holder of approximately fifteen million shares representing roughly 3.3% of the total outstanding capital stock of UCPB as of 31 March 1987. This ranks ACCRA Investments Corporation number 44 among the top 100 biggest stockholders of UCPB which has approximately 1,400,000 shareholders. On the other hand, the corporate books show the name Edgardo J. Angara as holding approximately 3,744 shares as of February, 1984. 16. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the [11] Filipino people.

On June 17, 1999, Ursua and Enrile each filed his separate Answer with Compulsory Counterclaims. Before filing their answer, the ACCRA lawyers sought their exclusion as defendants in Civil Case No. 0033, averring that even as they admitted having assisted in the organization and acquisition of the companies included in Civil Case No. 0033, they had acted as mere nominees-stockholders of corporations involved in the sequestration proceedings pursuant to office practice. After the Sandiganbayan denied their motion, they elevated their cause to this Court, which ultimately ruled in their favor in the related cases [12] [13] of Regala, et al. v. Sandiganbayan, et al. and Hayudini v. Sandiganbayan, et al., as follows: WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of respondent Sandiganbayan (First Division) promulgated on March 18, 1992 and May 21, 1992 are hereby ANNULLED and SET ASIDE. Respondent Sandiganbayan is further ordered to exclude petitioners Teodoro D. Regala, Edgardo J. Angara, Avelino V. Cruz, Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta and Paraja G. Hayudini as parties-defendants in SB Civil Case No. 0033 entitled Republic of the Philippines v. Eduardo Cojuangco, Jr., et al. SO ORDERED. Conformably with the ruling, the Sandiganbayan excluded the ACCRA lawyers from the case on May 24, 2000. On June 23, 1999, Cojuangco filed his Answer to the Third Amended Complaint,
[15] [14]

averring the following affirmative defenses, to wit:

7.00. The Presidential Commission on Good Government (PCGG) is without authority to act in the name and in behalf of the Republic of the Philippines. 7.01. As constituted in E.O. No. 1, the PCGG was composed of Minister Jovito R. Salonga, as Chairman, Mr. Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and Ms. Mary Concepcion Bautista, as Commissioners. When the complaint in the instant case was filed, Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza had already left the PCGG. By then the PCGG had become functus officio.

7.02. The Sandiganbayan has no jurisdiction over the complaint or over the transaction alleged in the complaint. 7.03. The complaint does not allege any cause of action. 7.04. The complaint is not brought in the name of the real parties in interest, assuming any cause of action exists. 7.05. Indispensable and necessary parties have not been impleaded. 7.06. There is improper joinder of causes of action (Sec. 6, Rule 2, Rules of Civil Procedure). The causes of action alleged, if any, do not arise out of the same contract, transaction or relation between the parties, nor are they simply for money, or are of the same nature and character. 7.07. There is improper joinder of parties defendants (Sec. 11, Rule 3, Rules of Civil Procedure).The causes of action alleged as to defendants, if any, do not involve a single transaction or a related series of transactions. Defendant is thus compelled to litigate in a suit regarding matters as to which he has no involvement. The questions of fact and law involved are not common to all defendants. 7.08. In so far as the complaint seeks the forfeiture of assets allegedly acquired by defendant manifestly out of proportion to their salaries, to their other lawful income and income from legitimately acquired property, under R.A. 1379, the previous inquiry similar to preliminary investigation in criminal cases required to be conducted under Sec. 2 of that law before any suit for forfeiture may be instituted, was not conducted; as a consequence, the Court may not acquire and exercise jurisdiction over such a suit. 7.09. The complaint in the instant suit was filed July 31, 1987, or within one year before the local election held on January 18, 1988. If this suit involves an action under R.A. 1379, its institution was also in direct violation of Sec. 2, R.A. No. 1379. 7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are unconstitutional. They violate due process, equal protection, ex post facto and bill of attainder provisions of the Constitution. 7.11. Acts imputed to defendant which he had committed were done pursuant to law and in good faith. The Cojuangco corporations Answer
[16]

had the same tenor as the Answer of Cojuangco.

[17]

In his own Answer with Compulsory Counterclaims, In his own Answer with Compulsory Counterclaims, Complaint and asserted affirmative defenses. The CIIF Oil Mills Answer
[19]

Ursua averred affirmative and special defenses. Enrile specifically denied the material averments of the Third Amended

[18]

also contained affirmative defenses.

On December 20, 1999, the Sandiganbayan scheduled the pre-trial in Civil Case No. 0033-F on March 8, 2000, giving the parties sufficient time to file their Pre-Trial Briefs prior to that date. Subsequently, the parties filed their respective Pre-Trial Briefs, as follows: Cojuangco and the Cojuangco corporations, jointly onFebruary 14, 2000; Enrile, on March 1, 2000; the CIIF Oil Mills, on March 3, 2000; and Ursua, on March 6, 2000. However, the Republic sought several extensions to file its own Pre-Trial Brief, and eventually did so on May 9, 2000. In the meanwhile, some non-parties sought to intervene. On November 22, 1999, GABAY Foundation, Inc. (GABAY) filed its complaint-in-intervention. On February 24, 2000, the Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat, Jose R. Eleazar, Jr., Domingo Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., and Eladio Chato (collectively referred to as COCOFED, considering that the co-intervenors were its officers) also sought to intervene, citing the October 2, 1989 ruling in G.R. No. 75713 entitled COCOFED v. PCGG whereby the Court recognized COCOFED as the private national association of coconut producers certified in 1971 by the PHILCOA as having the largest membership among such producers and as such entrusted it with the task of maintaining continuing liaison with the different sectors of the industry, the government and its mass base. Pending resolution of its motion for intervention, COCOFED filed a Pre-Trial Brief on March 2, 2000. On May 24, 2000, the Sandiganbayan denied GABAYs intervention without prejudice because it found that the allowance of GABAY to enter under the special character in which it presents itself would be to open the doors to other groups of coconut farmers whether of the same kind or of any other kind which could be considered a sub-class or a sub-classification of the coconut [20] planters or the coconut industry of this country. COCOFEDs intervention as defendant was allowed on May 24, 2000, however, because the position taken by the COCOFED is relevant to the proceedings herein, if only to state that there is a special function which the COCOFED and the coconut planters [21] have in the matter of the coconut levy funds and the utilization of those funds, part of which is in dispute in the instant matter. The pre-trial was actually held on May 24, 2000, during which the Sandiganbayan sought clarification from the parties, particularly the Republic, on their respective positions, but at the end it found the clarifications inadequately enlightening. Nonetheless, the Sandiganbayan, not disposed to reset, terminated the pre-trial: xxx primarily because the Court is given a very clear impression that the plaintiff does not know what documents will be or whether they are even available to prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry
[22]

to see if there is a way by which the plaintiff could explain in any significant particularity the acts and the evidence which will [23] support its claim of wrong-doing by the defendants. The plaintiff has failed to do so. The following material portions of the pre-trial order pre-trial, to wit:
[24]

are quoted to provide a proper perspective of what transpired during the

Upon oral inquiry from the Court, the issues which were being raised by plaintiff appear to have been made on a very generic character. Considering that any claim for violation or breach of trust or deception cannot be made on generic statements but rather by specific acts which would demonstrate fraud or breach of trust or deception, together with the evidence in support thereof, the same was not acceptable to the Court. The plaintiff through its designated counsel for this morning, Atty. Dennis Taningco, has represented to this Court that the annexes to its pre-trial brief, more particularly the findings of the COA in its various examinations, copies of which COA reports are attached to the pre-trial brief, would demonstrate the wrong, the act or omission attributed to the defendants or to several of them and the basis, therefore, for the relief that plaintiff seeks in its complaint. It would appear, however, that the plaintiff through its counsel at this time is not prepared to go into the specifics of the identification of these wrongs or omissions attributed to plaintiff. The Court has reminded the plaintiff that a COA report proves itself only in proceedings where the issue arises from a review of the accountability of particular officers and, therefore, to show the existence of shortages or deficiencies in an examination conducted for that purpose, provided that such a report is accompanied by its own working papers and other supporting documents. In civil cases such as this, a COA report would not have the same independent probative value since it is not a review of the accountability of public officers for public property in their custody as accountable officers. It has been the stated view of this Court that a COA report, to be of significant evidence, may itself stand only on the basis of the supporting documents that upon which it is based and upon an analysis made by those who are competent to do so. The Court, therefore, sought a more specific statement from plaintiff as to what these documents were and which of them would prove a particular act or omission or a series of acts or omissions purportedly committed by any, by several or by all of the defendants in any particular stage of the chain of alleged wrongdoing in this case. The plaintiff was not in a position to do so. The Court has remonstrated with the plaintiff, insofar as its inadequacy is concerned, primarily because this case was set for pre-trial as far back as December and has been reset from its original setting, with the undertaking by the plaintiff to prepare itself for these proceedings. It appears to this Court at this time that the failure of the plaintiff to have available responses and specific data and documents at this stage is not because the matter has been the product of oversight or notes and papers left elsewhere; rather, the agitation of this Court arises from the fact that at this very stage, the plaintiff through its counsel does not know what these documents are, where these documents will be and is still anticipating a submission or a delivery thereof by COA at an undetermined time. The justification made by counsel for this stance is that this is only pre-trial and this information and the documents are not needed yet. The Court is not prepared to postpone the pre-trial anew primarily because the Court is given a very clear impression that the plaintiff does not know what documents will be or whether they are even available to prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in any significant particularity the acts and the evidence which will support its claim of wrong-doing by the defendants. The plaintiff has failed to do so. Defendants Cojuangco have come back and reiterated their previous inquiry as to the statement of the cause of action and the description thereof. While the Court acknowledges that logically, that statement along that line would be primary, the Court also recognizes that sometimes the phrasing of the issue may be determined or may arise after a statement of the evidence is determined by this Court because the Court can put itself in a position of more clearly and perhaps more accurately stating what the issues are. The Pre-Trial Order, after all, is not so much a reflection of merely separate submissions by all of the parties involved, witnesses by the Court, as to what the subject matter of litigation will be, including the determination of what matters of fact remain unresolved. At this time, the plaintiff has not taken the position on any factual statement or any piece of evidence which can be subject of admission or denial, nor any specifics of any act which could be disputed by the defendants; what plaintiff through counsel has stated are general conclusions, general statements of abuse and misuse and opportunism. After an extended break requested by some of the parties, the sessions were resumed and nothing anew arose from the plaintiff. The plaintiff sought fifteen (15) days to file a reply to the comments and observations made by defendant Cojuangco to the pre-trial brief of the plaintiff. This Court denied this Request since the submissions in preparation for pre-trial are not litigious or contentious matters. They are mere assertions or positions which may or may not be meritorious depending upon the view of the Court of the entire case and if useful at the pre-trial. At this stage, the plaintiff then reiterated its earlier request to consider the pretrial terminated. The Court sought the positions of the other parties, whether or not they too were prepared to submit their respective positions on the basis of what was before the Court at pre-trial. All of the parties, in the end, have come to an agreement that they were submitting their own respective positions for purpose of pre-trial on the basis of the submissions made of record. With all of the above, the pre-trial is now deemed terminated. This Order has been overly extended simply because there has been a need to put on record all of the events that have taken place leading to the conclusions which were drawn herein.

The parties have indicated a desire to make their submissions outside of trial as a consequence of this terminated pre-trial, with the plea that the transcript of the proceedings this morning be made available to them, so that they may have the basis for whatever assertions they will have to make either before this Court or elsewhere. The Court deems the same reasonable and the Court now gives the parties fifteen (15) days after notice to them that the transcript of stenographic notes of the proceedings herein are complete and ready for them to be retrieved. Settings for trial or for any other proceeding hereafter will be fixed by this Court either upon request of the parties or when the Court itself shall have determined that nothing else has to be done. The Court has sought confirmation from the parties present as to the accuracy of the recapitulation herein of the proceedings this morning and the Court has gotten assent from all of the parties. xxx SO ORDERED.
[25]

In the meanwhile, the Sandiganbayan, in order to conform with the ruling in Presidential Commission on Good Government v. [26] Cojuangco, et al., resolved COCOFEDs Omnibus Motion (with prayer for preliminary injunction) relative to who should vote the [27] UCPB shares under sequestration, holding as follows: In the light of all of the above, the Court submits itself to jurisprudence and with the statements of the Supreme Court in G.R. No. 115352 entitled Enrique Cojuangco, Jr., et al. vs. Jaime Calpo, et al. dated January 27, 1997, as well as the resolution of the Supreme Court promulgated on January 27, 1999 in the case of PCGG vs. Eduardo Cojuangco, Jr., et al.,G.R. No. 13319 which included the Sandiganbayan as one of the respondents. In these two cases, the Supreme Court ruled that the voting of sequestered shares of stock is governed by two considerations, namely: 1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and 2. whether there is an imminent danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan. xxx xxx xxx. In view hereof, the movants COCOFED, et al and Ballares, et al. as well as Eduardo Cojuangco, et al. who were acknowledged to be registered stockholders of the UCPB are authorized, as are all other registered stockholders of the United Coconut Planters Bank, until further orders from this Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on March 6, 2001 or on any subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the exercise of these rights as registered stockholders. xxx xxx xxx.

Consequently, on March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction to enjoin the PCGG from voting the sequestered shares of stock of the UCPB. On July 25, 2002, before Civil Case No. 0033-F could be set for trial, the Republic filed a Motion for Judgment on the Pleadings [28] and/or for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.). Cojuangco, Enrile, and COCOFED separately opposed the motion. Ursua adopted COCOFEDs opposition. Thereafter, the Republic likewise filed a Motion for Partial Summary Judgment [Re: Shares in San Miguel Corporation [29] Registered in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies]. Cojuangco, et al. opposed the motion,
[30]

after which the Republic submitted its reply.

[32]

[31]

On February 23, 2004, the Sandiganbayan issued an order, in which it enumerated the admitted facts or facts that appeared to be without substantial controversy in relation to the Republics Motion for Judgment on the Pleadings and/or for Partial Summary Judgment [Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.]. Commenting on the order of February 23, 2004, Cojuangco, et al. specified the items they considered as inaccurate, but particularly interposed no objection to item no. 17 (to the extent that item no. 17 stated that Cojuangco had disclaimed any interest in the CIIF [33] block SMC shares of stock registered in the names of the 14 corporations listed in item no. 1 of the order). The Republic also filed its Comment,
[36] [34]

but COCOFED denied the admitted facts summarized in the order of February 23, 2004.

[35]

Earlier, on October 8, 2003, the Sandiganbayan resolved the various pending motions and pleadings relative to the writs of sequestration issued against the defendants, disposing: IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a) 86-0042 issued on April 8, 1986, (b) 86-0062 issued on April 21, 1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085 issued on May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f) 86-0096 dated May 16, 1986, (g) 86-0097 issued on May 16, 1986, (h) 86-0098 issued on May 16, 1986 and (i) 87-0218 issued on May 27, 1987 are hereby declared automatically lifted for being null and void.

Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation: (1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be subject to the outcome of this case; (2) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares; (3) in the event of sale, mortgage or other disposition of the shares, by the Defendants Cojuangco, et al., the consideration therefore, whether in cash or in kind, shall be placed in escrow with Land Bank of the Philippines, subject to disposition only upon further orders of this Court; and (4) any cash dividends that are declared on the shares shall be placed in escrow with the Land Bank of the Philippines, subject to disposition only upon further orders of this Court. If in case stock dividends are declared, the conditions on the sale, pledge, mortgage and other disposition of any of the shares as above-mentioned in conditions 1, 2 and 3, shall likewise apply. In so far as the matters raised by Defendants Eduardo Cojuangco, et al. in their Omnibus Motion dated September 23, 1996 and Reply to PCGGs Comment/Opposition with Motion to Order PCGG to Complete Inventory, to Nullify Writs of Sequestration and to Enjoin PCGG from Voting Sequestered Shares of Stock dated January 3, 1997, considering the above conclusion, this Court rules that it is no longer necessary to delve into the matters raised in the said Motions. SO ORDERED.
[37]

Cojuangco, et al. moved for the modification of the resolution, praying for the deletion of the conditions for allegedly [39] restricting their rights. The Republic also sought reconsideration of the resolution. Eventually, on June 24, 2005, the Sandiganbayan denied both motions, but reduced the restrictions thuswise: WHEREFORE, the Motion for Reconsideration (Re: Resolution dated September 17, 2003 Promulgated on October 8, 2003) dated October 24, 2003 of Plaintiff Republic is hereby DENIED for lack of merit. As to the Motion for Modification (Re: Resolution Promulgated on October 8, 2003) dated October 22, 2003, the same is hereby DENIED for lack of merit. However, the restrictions imposed by this Court in its Resolution dated September 17, 2003 and promulgated on October 8, 2003 shall now read as follows: Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation: a) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be subject to the outcome of this case. b) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares. SO ORDERED.
[40]

[38]

Pending resolution of the motions relative to the lifting of the writs of sequestration, SMC filed a Motion for Intervention with [41] attached Complaint-in-Intervention, alleging, among other things, that it had an interest in the matter in dispute between the Republic and defendants CIIF Companies for being the owner by purchase of a portion (i.e., 25,450,000 SMC shares covered by Stock Certificate Nos. A0004129 and B0015556 of the so-called CIIF block of SMC shares of stock sought to be recovered as alleged illgotten wealth). Although Cojuangco, et al. interposed no objection to SMCs intervention, the Republic opposed, averring that the intervention would be improper and was a mere attempt to litigate anew issues already raised and passed upon by the Supreme Court. COCOFED [43] similarly opposed SMCs intervention, and Ursua adopted its opposition. On May 6, 2004, the Sandiganbayan denied SMCs motion to intervene. that effect was opposed by COCOFED and the Republic.
[44] [42]

SMC sought reconsideration,

[45]

and its motion to

On May 7, 2004, the Sandiganbyan granted the Republics Motion for Judgment on the Pleadings and/or Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.) and rendered a Partial Summary [46] Judgment, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing, we hold that: The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY: 1. Southern Luzon Coconut Oil Mills (SOLCOM);

2. 3. 4. 5. 6.

Cagayan de Oro Oil Co., Inc. (CAGOIL); Iligan Coconut Industries, Inc. (ILICOCO); San Pablo Manufacturing Corp. (SPMC); Granexport Manufacturing Corp. (GRANEX); and Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY: 1. Soriano Shares, Inc.; 2. ACS Investors, Inc.; 3. Roxas Shares, Inc.; 4. Arc Investors, Inc.; 5. Toda Holdings, Inc.; 6. AP. Holdings, Inc.; 7. Fernandez Holdings, Inc.; 8. SMC Officers Corps. Inc.; 9. Te Deum Resources, Inc.; 10. Anglo Ventures, Inc.; 11. Randy Allied Ventures, Inc.; 12. Rock Steel Resources, Inc.; 13. Valhalla Properties Ltd., Inc.; and 14. First Meridian Development, Inc. AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN-TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT. Let the trial of this Civil Case proceed with respect to the issues which have not been disposed of in this partial Summary Judgment, including the determination of whether the CIIF Block of SMC Shares adjudged to be owned by the Government represents 27% of the issued and outstanding capital stock of SMC according to plaintiff or 31.3% of said capital stock according to COCOFED, et al. and Ballares, et al. SO ORDERED.
[47]

In the same resolution of May 7, 2004, the Sandiganbayan considered the Motions to Dismiss filed by Cojuangco, et al. on August 2, 2000 and by Enrile onSeptember 4, 2000 as overtaken by the Republics Motion for Judgment on the Pleadings and/or [48] Partial Summary Judgment. On May 25, 2004, Cojuangco, et al. filed their Motion for Reconsideration.
[49]

COCOFED filed its so-called Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and [50] Alternatively, (b) Motion for Reconsideration dated May 26, 2004. The Republic submitted its Consolidated Comment.
[51]

Relative to the resolution of May 7, 2004, the Sandiganbayan issued its resolution of December 10, 2004, denying the Republics Motion for Partial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies) upon the following reasons: In the instant case, a circumspect review of the records show that while there are facts which appear to be undisputed, there are also genuine factual issues raised by the defendants which need to be threshed out in a full-blown trial. Foremost among these issues are the following: 1) What are the various sources of funds, which the defendant Cojuangco and his companies claim they utilized to acquire the disputed SMC shares? 2) Whether or not such funds acquired from alleged various sources can be considered coconut levy funds;

[52]

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PC, UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to these entities as well as to the coconut farmers; 4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable concessions or exemptions?

Answers to these issues are not evident from the submissions of the plaintiff and must therefore be proven through the presentation of relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from the defendants statements in their previous pleadings although such conclusions were not supported by categorical facts but only mere inferences. In the Reply dated October 2, 2003, the plaintiff construed the supposed meaning of the phrase various sources (referring to the source of defendant Cojuangcos funds which were used to acquire the subject SMC shares), which plaintiff said was quite obvious from the defendants admission in his Pre-Trial Brief, which we quote: According to Cojuangcos own Pre-Trial Brief, these so-called various sources, i.e., the sources from which he obtained the funds he claimed to have used in buying the 20% SMC shares are not in fact various as he claims them to be. He says he obtained loans from UCPB and advances from the CIIF Oil Mills. He even goes as far as to admit that his only evidence in this case would have been records of UCPB and a representative of the CIIF Oil Mills obviously the records of UCPB relate to the loans that Cojuangco claims to have obtained from UCPB of which he was President and CEO while the representative of the CIIF Oil Mills will obviously testify on the advances Cojuangco obtained from CIIF Oil Mills of which he was also the President and CEO. From the foregoing premises, plaintiff went on to conclude that: These admissions of defendant Cojuangco are outright admissions that he (1) took money from the bank entrusted by law with the administration of coconut levy funds and (2) took more money from the very corporations/oil mills in which part of those coconut levy funds (the CIIF) was placed treating the funds of UCPB and the CIIF as his own personal capital to buy his SMC shares. We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendants exclusive use and misuse of coconut levy funds to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions to acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court should take that view of the evidence most favorable to the party against whom it is directed, giving such party the benefit of all inferences. Inasmuch as this issue cannot be resolved merely from an interpretation of the defendants statements in his brief, the UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid. WHEREFORE, in view of the forgoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of merit. SO ORDERED. Thereafter, on December 28, 2004, the Sandiganbayan resolved the other pending motions,
[53]

viz:

WHEREFORE, in view of the foregoing, the Motion for Reconsideration dated May 25, 2004 filed by defendant Eduardo M. Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and Alternatively, (b) Motion for Reconsideration dated May 26, 2004 filed by COCOFED, et al. and Ballares, et al. are hereby DENIED for lack of merit. SO ORDERED.
[54]

COCOFED moved to set the case for trial, but the Republic opposed the motion. [57] [58] moved to set the trial, with the Republic similarly opposing the motion.

[55]

[56]

On their part, Cojuangco, et al. also

[59]

On March 23, 2006, the Sandiganbayan granted the motions to set for trial and set the trial on August 8, 10, and 11, 2006.

In the meanwhile, on August 9, 2005, the Republic filed a Motion for Execution of Partial Summary Judgment (re: CIIF block of [60] SMC Shares of Stock), contending that an execution pending appeal was justified because any appeal by the defendants of the Partial Summary Judgment would be merely dilatory. Cojuangco, et al. opposed the motion.
[61]

The Sandiganbayan denied the Republics Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC Shares of [62] Stock), to wit: WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC SHARES OF STOCK) dated August 8, 2005 of the plaintiff is hereby denied for lack of merit. However, this Court orders the severance of this particular claim of Plaintiff. The Partial Summary Judgment dated May 7, 2004 is now considered a separate final and appealable judgment with respect to the said CIIF Block of SMC shares of stock. The Partial Summary Judgment rendered on May 7, 2004 is modified by deleting the last paragraph of the dispositive portion which will now read, as follows: WHEREFORE, in view of the foregoing, we hold that: The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:

1. 2. 3. 4. 5. 6.

Southern Coconut Oil Mills (SOLCOM); Cagayan de Oro Oil Co., Inc. (CAGOIL); Iligan Coconut Industries, Inc. (ILICOCO); San Pablo Manufacturing Corp. (SPMC); Granexport Manufacturing Corp. (GRANEX); and Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY: 1. Soriano Shares, Inc.; 2. ACS Investors, Inc.; 3. Roxas Shares, Inc.; 4. Arc Investors, Inc.; 5. Toda Holdings, Inc.; 6. AP Holdings, Inc.; 7. Fernandez Holdings, Inc.; 8. SMC Officers Corps, Inc.; 9. Te Deum Resources, Inc.; 10. Anglo Ventures, Inc.; 11. Randy Allied Ventures, Inc.; 12. Rock Steel Resources, Inc.; 13. Valhalla Properties Ltd., Inc.; and 14. First Meridian Development, Inc. AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT. The aforementioned Partial Summary Judgment is now deemed a separate appealable judgment which finally disposes of the ownership of the CIIF Block of SMC Shares, without prejudice to the continuation of proceedings with respect to the remaining claims particularly those pertaining to the Cojuangco, et al. block of SMC shares. SO ORDERED.
[63]

During the pendency of the Republics motion for execution, Cojuangco, et al. filed a Motion for Authority to Sell San Miguel Corporation (SMC) shares, praying for leave to allow the sale of SMC shares to proceed, exempted from the conditions set forth in [64] the resolutions promulgated on October 3, 2003 and June 24, 2005. The Republic opposed, contending that the requested leave [65] to sell would be tantamount to removing jurisdiction over the res or the subject of litigation. However, the Sandiganbayan eventually granted the Motion for Authority to Sell San Miguel Corporation (SMC) shares. Thereafter, Cojuangco, et al. manifested to the Sandiganbayan that the shares would be sold to the San Miguel Corporation [67] Retirement Plan. Ruling on the manifestations of Cojuangco, et al., the Sandiganbayan issued its resolution of July 30, 2007 allowing the sale of the shares, to wit: This notwithstanding however, while the Court exempts the sale from the express condition that it shall be subject to the outcome of the case, defendants Cojuangco, et al. may well be reminded that despite the deletion of the said condition, they cannot transfer to any buyer any interest higher than what they have. No one can transfer a right to another greater than what he himself has. Hence, in the event that the Republic prevails in the instant case, defendants Cojuangco, et al. hold themselves liable to their transferees-buyers, especially if they are buyers in good faith and for value. In such eventuality, defendants Cojuangco, et al. cannot be shielded by the cloak of principle of caveat emptor because case law has it that this rule only requires the purchaser to exercise such care and attention as is usually exercised by ordinarily prudent men in like business affairs, and only applies to defects which are open and patent to the service of one exercising such care. Moreover, said defendants Eduardo M. Cojuangco, et al. are hereby ordered to render their report on the sale within ten (10) days from completion of the payment by the San Miguel Corporation Retirement Plan. SO ORDERED.
[68] [66]

Cojuangco, et al. later rendered a complete accounting of the proceeds from the sale of the Cojuangco block of shares of SMC stock, [69] informing that a total amount of P 4,786,107,428.34 had been paid to the UCPB as loan repayment. It appears that the trial concerning the disputed block of shares was not scheduled because the consideration and resolution of the aforecited motions for summary judgment occupied much of the ensuing proceedings. At the hearing of August 8, 2006, the Republic manifested that it did not intend to present any testimonial evidence and asked for the marking of certain exhibits that it would have the Sandiganbayan take judicial notice of. The Republic was then allowed to mark
[70]

certain documents as its Exhibits A to I, inclusive, following which it sought and was granted time within which to formally offer the exhibits. On August 31, 2006, the Republic filed its Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San Miguel Corporation Registered in the Respective Names of defendant Eduardo M. Cojuangco, Jr. and the defendant Cojuangco [71] Companies). On September 18, 2006, the Sandiganbayan issued the following resolution,
[72]

to wit:

Acting on the Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San Miguel Corporation Registered in the Respective names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies) dated 28 August 2006 filed by the plaintiff, which has been considered its formal offer of evidence, and the Comment of Defendants Eduardo M. Cojuangco, Jr., et al. on Plaintiffs Manifestation of Purposes Dated August 30, 2006 dated September 15, 2006, the court resolves to ADMIT all the exhibits offered, i.e.: Exhibit A the Answer of defendant Eduardo M. Cojuangco, Jr. to the Third Amended Complaint (Subdivided) dated June 23, 1999, as well as the sub-markings (Exhibit A-1 to A-4; Exhibit B the Pre-Trial Brief dated January 11, 2000 of defendant CIIF Oil Mills and fourteen (14) CIIF Holding Companies, as well as the sub-markings Exhibits B-1 and B-2 Exhibit C the Pre-Trial Brief dated January 11, 2000 of defendant Eduardo M. Cojuangco, Jr. as well as the sub-markings Exhibits C-1, C-1-a and C-1-b; Exhibit D the Plaintiffs Motion for Summary Judgment *Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies] dated July 11, 2003, as well as the submarkings Exhibits D-1 to D-4 the said exhibits being part of the record of the case, as well as Exhibit E Exhibit F Exhibit G Exhibit H SCRA 462 Presidential Decree No. 961 dated July 11, 1976; Presidential Decree No. 755 dated July 29, 1975; Presidential Decree No. 1468 dated June 11, 1978; Decision of the Supreme Court in Republic vs. COCOFED, et al., G.R. Nos. 147062-64, December 14, 2001, 372

the aforementioned exhibits being matters of public record. The admission of these exhibits is being made over the objection of the defendants Cojuangco, et al. as to the relevance thereof and as to the purposes for which they were offered in evidence, which matters shall be taken into consideration by the Court in deciding the case on the merits. The trial hereon shall proceed on November 21, 2006, at 8:30 in the morning as previously scheduled.
[73]

During the hearing on November 24, 2006, Cojuangco, et al. filed their Submission and Offer of Evidence of [74] Defendants, formally offering in evidence certain documents to substantiate their counterclaims, and informing that they found no need to present countervailing evidence because the Republics evidence did not prove the allegations of the Complaint. [75] On December 5, 2006, after the Republic submitted its Comment, the Sandiganbayan admitted the exhibits offered by Cojuangco, et al., and granted the parties a non-extendible period within which to file their respective memoranda and replymemoranda. Thereafter, on February 23, 2007, the Sandiganbayan considered the case submitted for decision. ISSUES The various issues submitted for consideration by the Court are summarized hereunder. G.R. No. 166859 The Republic came to the Court via petition for certiorari to assail the denial of its Motion for Partial Summary Judgment through the resolution promulgated on December 10, 2004, insisting that the Sandiganbayan thereby committed grave abuse of discretion: (a) in holding that the various sources of funds used in acquiring the SMC shares of stock remained disputed; (b) in holding that it was disputed whether or not Cojuangco had served in the governing bodies of PCA, UCPB, and/or the CIIF Oil Mills; and (c) in not finding that Cojuangco had taken advantage of his position and had violated his fiduciary obligations in acquiring the SMC shares of stock in issue. The Court will consider and resolve the issues thereby raised alongside the issues presented in G.R. No. 180702. G.R. No. 169203 In the resolution promulgated on October 8, 2003, the Sandiganbayan declared as automatically lifted for being null and void nine writs of sequestration (WOS) issued against properties of Cojuangco and Cojuangco companies, considering that: (a) eight of
[77] [76]

them (i.e., WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; WOS No. 860098 dated May 16, 1986; and WOS No. 87-0218 dated May 27, 1987) had been issued by only one PCGG Commissioner, contrary to the requirement of Section 3 of the Rules of the PCGG for at least two Commissioners to issue the WOS; and (b) the ninth (i.e., WOS No. 86-0042 dated April 8, 1986), although issued prior to the promulgation of the Rules of the PCGG requiring at least two Commissioners to issue the WOS, was void for being issuedwithout prior determination by the PCGG of a prima facie basis for sequestration. Nonetheless, despite its lifting of the nine WOS, the Sandiganbayan prescribed four conditions to be still annotated in the relevant corporate books of San Miguel Corporation considering that the Republic continues to hold a claim on the shares which is yet to [78] be resolved. In its resolution promulgated on June 24, 2005, the Sandiganbayan denied the Republics Motion for Reconsideration filed vis-a[79] vis the resolution promulgated on October 8, 2003, but reduced the conditions earlier imposed to only two. On September 1, 2005, the Republic filed a petition for certiorari to annul the resolutions promulgated on October 8, 2003 and on June 24, 2005 on the ground that the Sandiganbayan had thereby committed grave abuse of discretion: I. XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 87-0218 DESPITE EXISTENCE OF THE BASIC REQUISITES FOR THE VALIDITY OF SEQUESTRATION. II. XXX WHEN IT DENIED PETITIONERS ALTERNATIVE PRAYER IN ITS MOTION FOR RECONSIDERATION FOR THE ISSUANCE OF AN ORDER OF SEQUESTRATION AGAINST ALL THE SUBJECT SHARES OF STOCK IN ACCORDNCE WITH THE RULING IN REPUBLIC VS. SANDIGANBAYAN, 258 SCRA 685 (1996). III. XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS WHICH IT EARLIER IMPOSED ON THE SUBJECT SHARES OF [81] STOCK.
[80]

G.R. No. 180702 On November 28, 2007, the Sandiganbayan promulgated its decision,
[82]

decreeing as follows:

WHEREFORE, in view of all the foregoing, the Court is constrained to DISMISS, as it hereby DISMISSES, the Third Amended Complaint in subdivided Civil Case No. 0033-F for failure of plaintiff to prove by preponderance of evidence its causes of action against defendants with respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation registered in defendants names, denominated herein as the Cojuangco, et al. block of SMC shares. For lack of satisfactory warrant, the counterclaims in defendants Answers are likewise ordered dismissed. SO ORDERED. Hence, the Republic appeals, positing: I. COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES, WHICH WERE ACQUIRED BY RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES WITH THE USE OF COCONUT LEVY FUNDS IN VIOLATION OF RESPONDENT COJUANGCO, JR.S FIDUCIARY OBLIGATION ARE, NECESSARILY, PUBLIC IN CHARACTER AND SHOULD BE RECONVEYED TO THE GOVERNMENT. II. [83] PETITIONER HAS CLEARLY DEMONSTRATED ITS ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS PRAYED FOR. and urging the following issues to be resolved, to wit: I. WHETHER THE HONORABLE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED CIVIL CASE NO. 0033-F; AND

II. WHETHER OR NOT THE SUBJECT SHARES IN SMC, WHICH WERE ACQUIRED BY, AND ARE IN THE RESPECTIVE NAMES OF RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES, SHOULD BE RECONVEYED TO THE REPUBLIC OF THE [84] PHILIPPINES FOR HAVING BEEN ACQUIRED USING COCONUT LEVY FUNDS.
[85]

On their part, the petitioners-in-intervention I

submit the following issues, to wit:

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN RULING THAT, WHILE ADMITTEDLY THE SUBJECT SMC SHARES WERE PURCHASED FROM LOAN PROCEEDS FROM UCPB AND ADVANCES FROM THE CIIF OIL MILLS, SAID SUBJECT SMC SHARES ARE NOT PUBLIC PROPERTY II WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN FAILING TO RULE THAT, EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT LOAN PROCEEDS FROM UCPB ARE NOT PUBLIC FINDS, STILL, SINCE RESPONDENT COJUANGCO, IN THE PURCHASE OF THE SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS, VIOLATED HIS FIDUCIARY DUTIES AND TOOK A COMMERCIAL OPPORTUNITY THAT RIGHTFULLY BELONGED TO UCPB (A PUBLIC CORPORATION), THE SUBJECT SMC SHARES SHOULD REVERT BACK TO THE GOVERNMENT.

RULING We deny all the petitions of the Republic. I Lifting of nine WOS for violation of PCGG Rules did not constitute grave abuse of discretion

Through its resolution promulgated on June 24, 2005, assailed on certiorari in G.R. No. 169203, the Sandiganbayan lifted the nine WOS for the following reasons, to wit: Having studied the antecedent facts, this Court shall now resolve the pending incidents especially defendants Motion to Affirm that the Writs or Orders of Sequestration Issued on Defendants Properties Were Unauthorized, Invalid and Never Became Effective dated March 5, 1999. Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides: Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu propio (sic) the issuance thereof is warranted. In this present case, of all the questioned writs of sequestration issued after the effectivity of the PCGG Rules and Regulations or after April 11, 1986, only writ no. 87-0218 issued on May 27, 1987 complied with the requirement that it be issued by at least two Commissioners, the same having been issued by Commissioners Ramon E. Rodrigo and Quintin S. Doromal. However, even if Writ of Sequestration No. 87-0218 complied with the requirement that the same be issued by at least two Commissioners, the records fail to show that it was issued with factual basis or with factual foundation as can be seen from the Certification of the Commission Secretary of the PCGG of the excerpt of the minutes of the meeting of the PCGG held on May 26, 1987, stating therein that: The Commission approved the recommendation of Dir. Cruz to sequester all the shares of stock, assets, records, and documents of Balete Ranch, Inc. and the appointment of the Fiscal Committee with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and the Aquacor Marketing Corp. vice Atty. S. Occena. The objective is to consolidate the Fiscal Committee activities covering three associated entities of Mr. Eduardo Cojuangco.Upon recommendation of Comm. Rodrigo, the reconstitution of the Board of Directors of the three companies was deferred for further study. Nothing in the above-quoted certificate shows that there was a prior determination of a factual basis or factual foundation. It is the absence of a prima facie basis for the issuance of a writ of sequestration and not the lack of authority of two (2) Commissioners which renders the said writ void ab initio. Thus, being the case, Writ of Sequestration No. 87-0218 must be automatically lifted. As declared by the Honorable Supreme Court in two cases it has decided, The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its properties void ab initio. And The corporation or entity against which such writ is directed will not be able to visually determine its validity, unless the required signatures of at least two commissioners authorizing its issuance appear on the very document itself. The issuance of sequestration orders requires the existence of a prima facie case. The two commissioner rule is obviously intended to assure a collegial determination of such fact. In this light, a writ bearing only one signature is an obvious transgression of the PCGG Rules. Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted for not having complied with the pertinent provisions of the PCGG Rules and Regulations, all of which were issued by only one Commissioner and after April 11, 1986 when the PCGG Rules and Regulations took effect, an utter disregard of the PCGGs Rules and Regulations. The Honorable Supreme Court has stated that: Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident, reckless and needless sequestrations of private property. And since these Rules were issued by Respondent Commission, it should be the first entity to observe them.

Anent the writ of sequestration no. 86-0042 which was issued on April 8, 1986 or prior to the promulgation of the PCGG Rules and Regulations on April 11, 1986, the same cannot be declared void on the ground that it was signed by only one Commissioner because at the time it was issued, the Rules and Regulations of the PCGG were not yet in effect. However, it again appears that there was no prior determination of the existence of a prima facie basis or factual foundation for the issuance of the said writ. The PCGG, despite sufficient time afforded by this Court to show that a prima facie basis existed prior to the issuance of Writ No. 860042, failed to do so. Nothing in the records submitted by the PCGG in compliance of the Resolutions and Order of this Court would reveal that a meeting was held by the Commission for the purpose of determining the existence of a prima facie evidence prior to its issuance. In a case decided by the Honorable Supreme Court, wherein it involved a writ of sequestration issued by the PCGG on March 19, 1986 against all assets, movable and immovable, of Provident International Resources Corporation and Philippine Casino Operators Corporation, the Honorable Supreme Court enunciated: The questioned sequestration order was, however issued on March 19, 1986, prior to the promulgation of the PCGG Rules and Regulations. As a consequence, we cannot reasonably expect the commission to abide by said rules, which were nonexistent at the time the subject writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree, ordinance, rule or regulation (and even policies) shall be given retrospective effect unless explicitly stated so. We find no provision in said Rules which expressly gives them retroactive effect, or implies the abrogation of previous writs issued not in accordance with the same Rules. Rather, what said Rules provide is that they shall be effective immediately, which in legal parlance, is understood as upon promulgation. Only penal laws are given retroactive effect insofar as they favor the accused. We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort, G.R. No. 88126, July 12, 1996 where the sequestration order against Dio Island Resort, dated April 14, 1986, was prepared, issued and signed not by two commissioners of the PCGG, but by the head of its task force in Region VIII. In holding that said order was not valid since it was not issued in accordance with PCGG Rules and Regulations, we explained: (Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language, leaves no room for interpretation. On the basis thereof, it is indubitable that under no circumstances can a sequestration or freeze order be validly issued by one not a commissioner of the PCGG. xxx xxx xxx

Even assuming arguendo that Atty. Ramirez had been given prior authority by the PCGG to place Dio Island Resort under sequestration, nevertheless, the sequestration order he issued is still void since PCGG may not delegate its authority to sequester to its representatives and subordinates, and any such delegation is valid and ineffective. We further said: In the instant case, there was clearly no prior determination made by the PCGG of a prima facie basis for the sequestration of Dio Island Resort, Inc. x x x xxx xxx xxx The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its properties void ab initio. Being void ab initio, it is deemed nonexistent, as though it had never been issued, and therefore is not subject to ratification by the PCGG. What were obviously lacking in the above case were the basic requisites for the validity of a sequestration order which we laid down in BASECO vs. PCGG, 150 SCRA 181, 216, May 27, 1987, thus: Section (3) of the Commissions Rules and regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu propio (sic) when the Commission has reasonable grounds to believe that the issuance thereof is warranted. In the case at bar, there is no question as to the presence of prima facie evidence justifying the issuance of the sequestration order against respondent corporations. But the said order cannot be nullified for lack of the other requisite (authority of at least two commissioners) since, as explained earlier, such requisite was nonexistent at the time the order was issued. As to the argument of the Plaintiff Republic that Defendants Cojuangco, et al. have not shown any contrary prima facie proof that the properties subject matter of the writs of sequestration were legitimate acquisitions, the same is misplaced. It is a basic legal doctrine, as well as many times enunciated by the Honorable Supreme Court that when a prima facie proof is required in the issuance of a writ, the party seeking such extraordinary writ must establish that it is entitled to it by complying strictly with the requirements for its issuance and not the party against whom the writ is being sought for to establish that the writ should not be issued against it.

According to the Republic, the Sandiganbayan thereby gravely abused its discretion in: (a) in lifting WOS No. 86-0042 and No. 870218 despite the basic requisites for the validity of sequestration being existent; (b) in denying the Republics alternative prayer for the issuance of an order of sequestration against all the subject shares of stock in accordance with the ruling in Republic v. Sandiganbayan, 258 SCRA 685, as stated in its Motion For Reconsideration; and (c) in deleting the last two conditions the Sandiganbayan had earlier imposed on the subject shares of stock.

We sustain the lifting of the nine WOS for the reasons made extant in the assailed resolution of October 8, 2003, supra. Section 3 of the Rules of the PCGG, promulgated on April 11, 1986, provides: Section 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted.

Conformably with Section 3, supra, WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; and WOS No. 86-0098 dated May 16, 1986 were lawfully and correctly nullified considering that only one PCGG Commissioner had issued them. Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 87-0218 dated May 27, 1987 were lawfully and correctly nullified notwithstanding that WOS No. 86-0042, albeit signed by only one Commissioner (i.e., Commissioner Mary Concepcion Bautista), was not at the time of its issuance subject to the two-Commissioners rule, and WOS No. 87-0218, albeit already issued under the signatures of two Commissioners considering that both had been issued without a prior determination by the PCGG of a prima facie basis for the sequestration. Plainly enough, the irregularities infirming the issuance of the several WOS could not be ignored in favor of the Republic and resolved against the persons whose properties were subject of the WOS. Where the Rules of the PCGG instituted safeguards under Section 3, supra, by requiring the concurrent signatures of two Commissioners to every WOS issued and the existence of a prima facie case of ill gotten wealth to support the issuance, the non-compliance with either of the safeguards nullified the WOS thus issued. It is already settled that sequestration, due to its tendency to impede or limit the exercise of proprietary rights by private citizens, is construed strictly against the State, conformably with the legal maxim that statutes in derogation of common rights are [86] generally strictly construed and rigidly confined to the cases clearly within their scope and purpose. Consequently, the nullification of the nine WOS, being in implementation of the safeguards the PCGG itself had instituted, did not constitute any abuse of its discretion, least of all grave, on the part of the Sandiganbayan. Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted with the best of intentions, being all too aware that the claim of the Republic to the sequestered assets and properties might be prejudiced or harmedpendente lite unless the protective conditions were annotated in the corporate books of SMC. Moreover, the issue became academic following the Sandiganbayans promulgation of its decision dismissing the Republics Amended Complaint, which thereby removed the stated reason the Republic continues to hold a claim on the shares which is yet to be resolved underlying the need for the annotation of the conditions (whether four or two). II The Concept and Genesis of Ill-Gotten Wealth in the Philippine Setting A brief review of the Philippine law and jurisprudence pertinent to ill-gotten wealth should furnish an illuminating backdrop for further discussion. In the immediate aftermath of the peaceful 1986 EDSA Revolution, the administration of President Corazon C. Aquino saw to it, among others, that rules defining the authority of the government and its instrumentalities were promptly put in place. It is significant to point out, however, that the administration likewise defined the limitations of the authority. The first official issuance of President Aquino, which was made on February 28, 1986, or just two days after the EDSA Revolution, was Executive Order (E.O.) No. 1, which created the Presidential Commission on Good Government (PCGG). Ostensibly, E.O. No. 1 was the first issuance in light of the EDSA Revolution having come about mainly to address the pillage of the nations wealth by President Marcos, his family, and cronies.

E.O. No. 1 contained only two WHEREAS Clauses, to wit: WHEREAS, vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad; WHEREAS, there is an urgent need to recover all ill-gotten wealth;
[88] [87]

Paragraph (4) of E.O. No. 2 further required that the wealth, to be ill-gotten, must be acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines.

Although E.O. No. 1 and the other issuances dealing with ill-gotten wealth (i.e., E.O. No. 2, E.O. No. 14, and E.O. No. 14-A) only identified the subject matter of ill-gotten wealth and the persons who could amass ill-gotten wealth and did not include an explicit definition of ill-gotten wealth, we can still discern the meaning and concept of ill-gotten wealth from the WHEREAS Clauses themselves of E.O. No. 1, in that ill-gotten wealth consisted of the vast resources of the government amassed by former President Ferdinand E. Marcos, his immediate family, relatives and close associates both here and abroad. It is clear, therefore, that ill-gotten wealth would not include all the properties of President Marcos, his immediate family, relatives, and close associates but only the part that originated from the vast resources of the government. In time and unavoidably, the Supreme Court elaborated on the meaning and concept of ill-gotten wealth. In Bataan Shipyard & [89] Engineering Co., Inc. v. Presidential Commission on Good Government, or BASECO, for the sake of brevity, the Court held that: xxx until it can be determined, through appropriate judicial proceedings, whether the property was in truth ill-gotten, i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the [90] State. And this, too, is the sense in which the term is commonly understood in other jurisdictions.
[91]

The BASECO definition of ill-gotten wealth was reiterated in Presidential Commission on Good Government v. Lucio C. Tan, the Court said:

where

On this point, we find it relevant to define ill-gotten wealth. In Bataan Shipyard and Engineering Co., Inc., this Court described ill-gotten wealth as follows: Ill-gotten wealth is that acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is commonly understood in other jurisdiction. Concerning respondents shares of stock here, there is no evidence presented by petitioner that they belong to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions. Nor is there evidence that respondents, taking undue advantage of their connections or relationship with former President Marcos or his family, relatives and close associates, were able to acquire those shares of stock.
[92]

Incidentally, in its 1998 ruling in Chavez v. Presidential Commission on Good Government, definition of ill-gotten wealth, viz:

the Court rendered an identical

xxx. We may also add that ill-gotten wealth, by its very nature, assumes a public character. Based on the aforementioned Executive Orders, ill-gotten wealth refers to assets and properties purportedly acquired, directly or indirectly, by former President Marcos, his immediate family, relatives and close associates through or as a result of their improper or illegal use of government funds or properties; or their having taken undue advantage of their public office; or their use of powers, influence or relationships, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines. Clearly, the assets and properties referred to supposedly originated from the government itself. To all intents and purposes, therefore, they belong to the people. As such, upon reconveyance they will be returned to the public treasury, subject only to the satisfaction of positive claims of certain persons as may be adjudged by competent courts. Another declared overriding consideration for the expeditious recovery of ill-gotten wealth is that it may be used for national economic recovery. All these judicial pronouncements demand two concurring elements to be present before assets or properties were considered as ill-gotten wealth, namely: (a) they must have originated from the government itself, and (b) they must have been taken by former President Marcos, his immediate family, relatives, and close associates by illegal means. But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related issuances did not complete the definition of ill-gotten wealth. The further requirement was that the assets and property should have been amassed by former President Marcos, his immediate family, relatives, and close associates both here and abroad. In this regard, identifying former President Marcos, his immediate family, and relatives was not difficult, but identifying other persons who might be the close associates of former President Marcos presented an inherent difficulty, because it was not fair and just to include within the term close associates everyone who had had any association with President Marcos, his immediate family, and relatives. Again, through several rulings, the Court became the arbiter to determine who were the close associates within the coverage of E.O. No. 1. In Republic v. Migrio, the Court held that respondents Migrio, et al. were not necessarily among the persons covered by the term close subordinate orclose associate of former President Marcos by reason alone of their having served as government officials or employees during the Marcos administration, viz: It does not suffice, as in this case, that the respondent is or was a government official or employee during the administration of former Pres. Marcos. There must be aprima facie showing that the respondent unlawfully accumulated wealth by virtue of his close association or relation with former Pres. Marcos and/or his wife. This is so because otherwise the respondents case will fall under existing general laws and procedures on the matter. xxx
[93]

In Cruz, Jr. v. Sandiganbayan, the Court declared that the petitioner was not a close associate as the term was used in E.O. No. 1 just because he had served as the President and General Manager of the GSIS during the Marcos administration. In Republic v. Sandiganbayan, the Court stated that respondent Maj. Gen. Josephus Q. Ramas having been a Commanding General of the Philippine Army during the Marcos administration d*id+ not automatically make him a subordinate of former President Ferdinand Marcos as this term is used in Executive Order Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association with former President Marcos. It is well to point out, consequently, that the distinction laid down by E.O. No. 1 and its related issuances, and expounded by relevant judicial pronouncements unavoidably required competent evidentiary substantiation made in appropriate judicial proceedings to determine: (a) whether the assets or properties involved had come from the vast resources of government, and (b) whether the individuals owning or holding such assets or properties were close associates of President Marcos. The requirement of competent evidentiary substantiation made in appropriate judicial proceedings was imposed because the factual premises for the reconveyance of the assets or properties in favor of the government due to their being ill-gotten wealth could not be simply [96] assumed. Indeed, in BASECO, the Court made this clear enough by emphatically observing: 6. Governments Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Governments plan to recover all ill-gotten wealth. Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his minions of the assets and properties involved, is not only a right but a duty on the part of Government. But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim. xxx Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. xxx Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country. a. Need of Evidentiary Substantiation in Proper Suit
[95]

[94]

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact that an immense fortune, and vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad, and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof. Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed [97] explicitly laid down, in Executive Order No. 14.

Accordingly, the Republic should furnish to the Sandiganbayan in proper judicial proceedings the competent evidence proving who were the close associates of President Marcos who had amassed assets and properties that would be rightly considered as ill-gotten wealth. III. Summary Judgment was not warranted; The Republic should have adduced evidence to substantiate its allegations against the Respondents We affirm the decision of November 28, 2007, because the Republic did not discharge its burden as the plaintiff to establish by preponderance of evidence that the respondents SMC shares were illegally acquired with coconut-levy funds. The decision of November 28, 2007 fully explained why the Sandiganbayan dismissed the Republics case against Cojuangco, et al., viz: Going over the evidence, especially the laws, i.e., P.D. No. 961, P.D. No. 755, and P.D. No. 1468, over which plaintiff prayed that Court to take judicial notice of, it is worth noting that these same laws were cited by plaintiff when it filed its motion for judgment on the pleadings and/or summary judgment regarding the CIIF block of SMC shares of stock. Thus, the Court has already passed upon the same laws when it arrived at judgment determining ownership of the CIIF block of SMC shares of stock. Pertinently, in the

Partial Summary Judgment promulgated on May 7, 2004, the Court gave the following rulings finding certain provisions of the above-cited laws to be constitutionally infirmed, thus: In this case, Section 2(d) and Section 9 and 10, Article III, of P.D. Nos. 961 and 1468 mandated the UCPB to utilize the CIIF, an accumulation of a portion of the CCSF and the CIDF, for investment in the form of shares of stock in corporations organized for the purpose of engaging in the establishment and the operation of industries and commercial activities and other allied business undertakings relating to coconut and other palm oils industry in all aspects. The investments made by UCPB in CIIF companies are required by the said Decrees to be equitably distributed for free by the said bank to the coconut farmers (Sec. 10, P.D. No. 961 and Sec. 10, P.D. No. 1468). The public purpose sought to be served by the free distribution of the shares of stock acquired with the use of public funds is not evident in the laws mentioned. More specifically, it is not clear how private ownership of the shares of stock acquired with public funds can serve a public purpose. The mode of distribution of the shares of stock also left much room for the diversion of assets acquired through public funds into private uses or to serve directly private interests, contrary to the Constitution. In the said distribution, defendants COCOFED, et al. and Ballares, et al. admitted that UCPB followed the administrative issuances of PCA which we found to be constitutionally objectionable in our Partial Summary Judgment in Civil Case No. 0033-A, the pertinent portions of which are quoted hereunder: xxx xx xxx.

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-mentioned constitutional infirmities of the PCA administrative issuances. In view of the foregoing, we cannot consider the provision of P.D. No. 961 and P.D. No. 1468 and the implementing regulations issued by the PCA as valid legal basis to hold that assets acquired with public funds have legitimately become private properties. The CIIF Companies having been acquired with public funds, the 14 CIIF-owned Holding Companies and all their assets, including the CIIF Block of SMC Shares, being public in character, belong to the government. Even granting that the 14 Holding Companies acquired the SMC Shares through CIIF advances and UCPB loans, said advances and loans are still the obligations of the said companies. The incorporating equity or capital of the 14 Holding Companies, which were allegedly used also for the acquisition of the subject SMC shares, being wholly owned by the CIIF Companies, likewise form part of the coconut levy funds, and thus belong to the government in trust for the ultimate beneficiaries thereof, which are all the coconut farmers. xxx xxx xxx.

And, with the above-findings of the Court, the CIIF block of SMC shares were subsequently declared to be of public character and should be reconveyed to the government in trust for coconut farmers. The foregoing findings notwithstanding, a question now arises on whether the same laws can likewise serve as ultimate basis for a finding that the Cojuangco, et al. block of SMC shares are also imbued with public character and should rightfully be reconveyed to the government. On this point, the Court disagrees with plaintiff that reliance on said laws would suffice to prove that defendants Cojuangco, et al.s acquisition of SMC shares of stock was illegal as public funds were used. For one, plaintiffs reliance thereon has always had reference only to the CIIF block of shares, and the Court has already settled the same by going over the laws and quoting related findings in the Partial Summary judgment rendered in Civil Case No. 0033-A. For another, the allegations of plaintiff pertaining to the Cojuangco block representing twenty percent (20%) of the outstanding capital stock of SMC stress defendant Cojuangcos acquisition by virtue of his positions as Chief Executive Officer of UCPB, a member-director of the Philippine Coconut Authority (PCA) Governing Board, and a director of the CIIF Oil Mills. Thus, reference to the said laws would not settle whether [98] there was abuse on the part of defendants Cojuangco, et al. of their positions to acquire the SMC shares. Besides, in the Resolution of the Court on plaintiffs Motion for Parial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies), the Court already rejected plaintiffs reference to said laws. In fact, the Court declined to grant plaintiffs motion for partial summary judgment because it simply contended that defendant Cojuangcos statements in his pleadings, which plaintiff again offered in evidence herein, regarding the presentation of a possible CIIF witness as well as UCPB records can already be considered admissions of defendants exclusive use and misuse of coconut levy funds. In the said resolution, the Court already reminded plaintiff that the issues cannot be resolved by plaintiffs interpretation of defendant Cojuangcos statements in his brief. Thus, the substantial portion of the Resolution of the Court denying plaintiffs motion for partial summary judgment is [99] again quoted for emphasis: We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendants exclusive use and misuse of coconut levy funds to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions to acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court should take that view of the evidence most favorable to the party against whom it is directed, giving such party the benefit of all favorable inferences. Inasmuch as this issue cannot be resolved merely from an interpretation of the defendants statements in his brief, the UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are [100] thus, valid. WHEREFORE, in view of the foregoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of merit. SO ORDERED.

(Emphasis supplied) Even assuming that, as plaintiff prayed for, the Court takes judicial notice of the evidence it offered with respect to the Cojuangco block of SMC shares of stock, as contained in plaintiffs manifestation of purposes, still its evidence do not suffice to prove the material allegations in the complaint that Cojuangco took advantage of his positions in UCPB and PCA in order to acquire the said shares. As above-quoted, the Court, itself, has already ruled, and hereby stress that UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid. Besides, the Court found that there are genuine factual issues raised by defendants that need to be threshed out in a fullblown trial, and which plaintiff had the burden to substantially prove. Thus, the Court outlined these genuine factual issues as follows: 1) What are the various sources of funds, which defendant Cojuangco and his companies claim they utilized to acquire the disputed SMC shares? 2) Whether or not such funds acquired from alleged various sources can be considered coconut levy funds; 3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PCA, UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to these entities as well as to the coconut farmers; 4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable concessions or [101] exemptions? Answers to these issues are not evident from the submissions of plaintiff and must therefore be proven through the presentation of relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from the defendants statements in their previous pleadings although such conclusions were not supported by [102] categorical facts but only mere inferences. xxx xxx xxx. (Emphasis supplied) Despite the foregoing pronouncement of the Court, plaintiff did not present any other evidence during the trial of this case but instead made its manifestation of purposes, that later served as its offer of evidence in the instant case, that merely used the same evidence it had already relied upon when it moved for partial summary judgment over the Cojuangco block of SMC shares. Altogether, the Court finds the same insufficient to prove plaintiffs allegations in the complaint because more than judicial notices, the factual issues require the presentation of admissible, competent and relevant evidence in accordance with Sections 3 and 4, Rule 128 of the Rules on Evidence. Moreover, the propriety of taking judicial notice of plaintiffs exhibits is aptly questioned by defendants Cojuangco, et al. Certainly, the Court can take judicial notice of laws pertaining to the coconut levy funds as well as decisions of the Supreme Court relative thereto, but taking judicial notice does not mean that the Court would accord full probative value to these exhibits. Judicial notice is based upon convenience and expediency for it would certainly be superfluous, inconvenient, and expensive both to parties and the court to require proof, in the ordinary way, of facts which are already known to courts. However, a court cannot take judicial notice of a factual matter in controversy. Certainly, there are genuine factual matters in the instant case, as above-cited, which plaintiff ought to have proven with relevant and competent evidence other than the exhibits it offered. Referring to plaintiffs causes of action against defendants Cojuangco, et al., the Court finds its evidence insufficient to prove that the source of funds used to purchase SMC shares indeed came from coconut levy funds. In fact, there is no direct link that the loans obtained by defendant Cojuangco, Jr. were the same money used to pay for the SMC shares. The scheme alleged to have been taken by defendant Cojuangco, Jr. was not even established by any paper trail or testimonial evidence that would have identified the same. On account of his positions in the UCPB, PCA and the CIIF Oil Mills, the Court cannot conclude that he violated the fiduciary [103] obligations of the positions he held in the absence of proof that he was so actuated and that he abused his positions.

It was plain, indeed, that Cojuangco, et al. had tendered genuine issues through their responsive pleadings and did not admit that the acquisition of the Cojuangco block of SMC shares had been illegal, or had been made with public funds. As a result, the Republic needed to establish its allegations with preponderant competent evidence, because, as earlier stated, the fact that property was ill gotten could not be presumed but must be substantiated with competent proof adduced in proper judicial proceedings. That the Republic opted not to adduce competent evidence thereon despite stern reminders and warnings from the Sandiganbayan to do so revealed that the Republic did not have the competent evidence to prove its allegations against Cojuangco, et al. Still, the Republic, relying on the 2001 holding in Republic v. COCOFED,
[104]

pleads in its petition for review (G.R. No. 180702) that:

With all due respect, the Honorable Sandiganbayan failed to consider legal precepts and procedural principles vis--vis the records of the case showing that the funds or various loans or advances used in the acquisition of the disputed SMC Shares ultimately came from the coconut levy funds. As discussed hereunder, respondents own admissions in their Answers and Pre-Trial Briefs confirm that the various sources of funds utilized in the acquisition of the disputed SMC shares came from borrowings and advances from the UCPB and the CIIF [105] Oil Mills.

Thereby, the Republic would have the Sandiganbayan pronounce the block of SMC shares of stock acquired by Cojuangco, et al. as ill-gotten wealth even without the Republic first presenting preponderant evidence establishing that such block had been acquired illegally and with the use of coconut levy funds. The Court cannot heed the Republics pleas for the following reasons: To begin with, it is notable that the decision of November 28, 2007 did not rule on whether coconut levy funds were public funds or not. The silence of the Sandiganbayan on the matter was probably due to its not seeing the need for such ruling following its conclusion that the Republic had not preponderantly established the source of the funds used to pay the purchase price of the concerned SMC shares, and whether the shares had been acquired with the use of coconut levy funds. Secondly, the ruling in Republic v. COCOFED determined only whether certain stockholders of the UCPB could vote in the stockholders meeting that had been called. The issue now before the Court could not be controlled by the ruling in Republic v. COCOFED, however, for even as that ruling determined the issue of voting, the Court was forthright enough about not thereby preempting the Sandiganbayans decisions on the merits on ill-gotten wealth in the several cases then pending, including this one, viz:
[106]

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the final judgment it may promulgate in Civil Case No. 0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and should not bar the anti-graft court from making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil cases, particularly in reference to the ownership of the subject shares. We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we are not ruling in any final manner on their classification whether they are general or trust or special funds since such classification is not at issue here. Suffice it to say that the public nature of the coco levy funds is decreed by the Court only for the purpose of determining the right to vote the shares, pending the final outcome of the said civil cases. Neither are we resolving in the present case the question of whether the shares held by Respondent Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken up in the final decision in the cited cases that are pending in the court a quo. Again, suffice it to say that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the final outcome of said cases.

Thirdly, the Republics assertion that coconut levy funds had been used to source the payment for the Cojuangco block of SMC shares was premised on its allegation that the UCPB and the CIIF Oil Mills were public corporations. But the premise was grossly erroneous and overly presumptuous, because: (a) The fact of the UCPB and the CIIF Oil Mills being public corporations or government-owned or government-controlled corporations precisely remained controverted by Cojuangco, et al. in light of the lack of any competent to that effect being in the records; (b) Cojuangco explicitly averred in paragraph 2.01.(b) of his Answer that the UCPB was a private corporation; and (c) The Republic did not competently identify or establish which ones of the Cojuangco corporations had supposedly received advances from the CIIF Oil Mills. Fourthly, the Republic asserts that the contested block of shares had been paid for with borrowings from the UCPB and advances from the CIIF Oil Mills, and that such borrowings and advances had been illegal because the shares had not been purchased for the benefit of the Coconut Farmers. To buttress its assertion, the Republic relied on the admissions supposedly made in paragraph 2.01 of Cojuangcos Answer in relation to paragraph 4 of the Republics Amended Complaint. The best way to know what paragraph 2.01 of Cojuangcos Answer admitted is to refer to both paragraph 4 of the Amended Complaint and paragraph 2.01 of his Answer, which are hereunder quoted: Paragraph 4 of the Amended Complaint

4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of Tarlac, Congressman of then First District of Tarlac and Ambassador-at-Large in the Marcos Administration. He was commissioned Lieutenant Colonel in the Philippine Air Force, Reserve. Defendant Eduardo M. Cojuangco, Jr., otherwise known as the Coconut King was head of the coconut monopoly which was instituted by Defendant Ferdinand E. Marcos, by virtue of the Presidential Decrees. Defendant Eduardo E. Cojuangco, Jr., who was also one of the closest associates of the Defendant Ferdinand E. Marcos, held the positions of Director of the Philippine Coconut Authority, the United Coconut Mills, Inc., President and Board Director of the United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and United Coconut Chemicals, Inc. He was also the Chairman of the Board and Chief Executive Officer and the controlling stockholder of the San Miguel Corporation. He may be served summons at 45 Balete Drive, Quezon th City or at 136 East 9 Street, Quezon City. Paragraph 2.01 of Respondent Cojuangcos Answer

2.01. Herein defendant admits paragraph 4 only insofar as it alleges the following: (a) That herein defendant has held the following positions in government: Governor of Tarlac, Congressman of the then First District of Tarlac, Ambassador-at-Large, Lieutenant Colonel in the Philippine Air Force and Director of the Philippines Coconut Authority; (b) That he held the following positions in private corporations: Member of the Board of Directors of the United Coconut Oil Mills, Inc.; President and member of the Board of Directors of the United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and United Coconut Chemicals, Inc.; Chairman of the Board and Chief Executive of San Miguel Corporation; and (c) That he may be served with summons at 136 East 9th Street, Quezon City.

Herein defendant specifically denies the rest of the allegations of paragraph 4, including any insinuation that whatever association he may have had with the late Ferdinand Marcos or Imelda Marcos has been in connection with any of the acts or transactions alleged in the complaint or for any unlawful purpose.

It is basic in remedial law that a defendant in a civil case must apprise the trial court and the adverse party of the facts alleged by the complaint that he admits and of the facts alleged by the complaint that he wishes to place into contention. The defendant does the former either by stating in his answer that they are true or by failing to properly deny them. There are two ways of denying alleged [107] facts: one is by general denial, and the other, by specific denial. In this jurisdiction, only a specific denial shall be sufficient to place into contention an alleged fact. Under Section 10, Rule 8 of the Rules of Court, a specific denial of an allegation of the complaint may be made in any of three ways, namely: (a) a defendant specifies each material allegation of fact the truth of which he does not admit and, whenever practicable, sets forth the substance of the matters upon which he relies to support his denial; (b) a defendant who desires to deny only a part of an averment specifies so much of it as is true and material and denies only the remainder; and (c) a defendant who is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint states so, which has the effect of a denial. The express qualifications contained in paragraph 2.01 of Cojuangcos Answer constituted efficient specific denials of the averments of paragraph 2 of the Republics Amended Complaint under the first method mentioned in Section 10 of Rule 8, supra. Indeed, the aforequoted paragraphs of the Amended Complaint and of Cojuangcos Answer indicate that Cojuangco thereby expressly qualified his admission of having been the President and a Director of the UCPB with the averment that the UCPB was a private corporation; that his Answers allegation of his being a member of the Board of Directors of the United Coconut Oil Mills, Inc. did not admit that he was a member of the Board of Directors of the CIIF Oil Mills, because the United Coconut Oil Mills, Inc. was not one of the CIIF Oil Mills; and that hisAnswer nowhere contained any admission or statement that he had held the various positions in the government or in the private corporations at the same time and in 1983, the time when the contested acquisition of the SMC shares of stock took place. What the Court stated in Bitong v. Court of Appeals (Fifth Division)
[110] [108] [109]

as to admissions is illuminating:

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court.
[111]

And, lastly, the Republic cites the following portions of the joint Pre-Trial Brief of Cojuangco, et al.,

to wit:

IV. PROPOSED EVIDENCE xxx 4.01. xxx Assuming, however, that plaintiff presents evidence to support its principal contentions, defendants evidence in rebuttal would include testimonial and documentary evidence showing: a) the ownership of the shares of stock prior to their acquisition by respondents (listed in Annexes A and B); b) the consideration for the acquisition of the shares of stock by the persons or companies in whose names the shares of stock are now registered; and c) the source of the funds used to pay the purchase price. 4.02. Herein respondents intend to present the following evidence: xxx b. Proposed Exhibits ____, ____, ____

Records of the United Coconut Planters Bank which would show borrowings of the companies listed in Annexes A and B, or companies affiliated or associated with them, which were used to source payment of the shares of stock of the San Miguel Corporation subject of this case. 4.03. Witnesses. xxx (b) A representative of the United Coconut Planters Bank who will testify in regard the loans which were used to source the payment of the price of SMC shares of stock. (c) A representative from the CIIF Oil Mills who will testify in regard the loans or credit advances which were used to source the payment of the purchase price of the SMC shares of stock.

The Republic insists that the aforequoted portions of the joint Pre-Trial Brief were Cojuangco, et al.s admission that: (a) Cojuangco had received money from the UCPB, a bank entrusted by law with the administration of the coconut levy funds; and (b) Cojuangco had received more money from the CIIF Oil Mills in which part of the CIIF funds had been placed, and thereby used the [112] funds of the UCPB and the CIIF as capital to buy his SMC shares. We disagree with the Republics posture. The statements found in the joint Pre-Trial Brief of Cojuangco, et al. were noticeably written beneath the heading of Proposed Evidence. Such location indicated that the statements were only being proposed, that is, they were not yet intended or offered as admission of any fact stated therein. In other words, the matters stated or set forth therein might or might not be presented at all. Also, the text and tenor of the statements expressly conditioned the proposal on the Republic ultimately presenting its evidence in the action. After the Republic opted not to present its evidence, the condition did not transpire; hence, the proposed admissions, assuming that they were that, did not materialize. Obviously, too, the statements found under the heading of Proposed Evidence in the joint Pre-Trial Brief were incomplete and inadequate on the important details of the supposed transactions (i.e., alleged borrowings and advances). As such, they could not constitute admissions that the funds had come from borrowings by Cojuangco, et al. from the UCPB or had been credit advances from the CIIF Oil Companies. Moreover, the purpose for presenting the records of the UCPB and the representatives of the UCPB and of the still unidentified or unnamed CIIF Oil Mills as declared in the joint Pre-Trial Brief did not at all show whether the UCPB and/or the unidentified or unnamed CIIF Oil Mills were the only sources of funding, or that such institutions, assuming them to be the sources of the funding, had been theonly sources of funding. Such ambiguousness disqualified the statements from being relied upon as admissions. It is fundamental that any statement, to be considered as an admission for purposes of judicial proceedings, [113] should be definite, certain and unequivocal; otherwise, the disputed fact will not get settled. Another reason for rejecting the Republics posture is that the Sandiganbayan, as the trial court, was in no position to secondguess what the non-presented records of the UCPB would show as the borrowings made by the corporations listed in Annexes A and B, or by the companies affiliated or associated with them, that were used to source payment of the shares of stock of the San Miguel Corporation subject of this case, or what the representative of the UCPB or the representative of the CIIF Oil Mills would testify about loans or credit advances used to source the payment of the price of SMC shares of stock. Lastly, the Rules of Court has no rule that treats the statements found under the heading Proposed Evidence as admissions binding Cojuangco, et al. On the contrary, the Rules of Court has even distinguished between admitted facts and facts proposed to [114] be admitted during the stage of pre-trial. Section 6 (b), Rule 18 of the Rules of Court, requires a Pre-Trial Brief to include a summary of admitted facts and a proposed stipulation of facts. Complying with the requirement, the joint Pre-Trial Brief of Cojuangco, et al. included the summary of admitted facts in its paragraph 3.00 of its Item III, separately and distinctly from the Proposed Evidence, to wit: III. SUMMARY OF UNDISPUTED FACTS 3.00. Based on the complaint and the answer, the acquisition of the San Miguel shares by, and their registration in the names of, the companies listed in Annexes A and B may be deemed undisputed. 3.01. All other allegations in the complaint are disputed.
[115]

The burden of proof, according to Section 1, Rule 131 of the Rules of Court, is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law. Here, the Republic, being the plaintiff, was the party that carried the burden of proof. That burden required it to demonstrate through competent evidence that the respondents, as defendants, had purchased the SMC shares of stock with the use of public funds; and that the affected shares of stock constituted ill-gotten wealth. The Republic was well apprised of its burden of proof, first through the joinder of issues made by the responsive pleadings of the defendants, including Cojuangco, et al. The Republic was further reminded through the pre-trial order and the Resolution denying its Motion for Summary Judgment, supra, of the duty to prove the factual allegations on ill-gotten wealth against Cojuangco, et al., specifically the following disputed matters: (a) When the loans or advances were incurred;

(b) The amount of the loans from the UCPB and of the credit advances from the CIIF Oil Mills, including the specific CIIF Oil Mills involved; (c) The identities of the borrowers, that is, all of the respondent corporations together, or separately; and the amounts of the borrowings; (d) The conditions attendant to the loans or advances, if any; (e) The manner, form, and time of the payments made to Zobel or to the Ayala Group, whether by check, letter of credit, or some other form; and (f) Whether the loans were paid, and whether the advances were liquidated. With the Republic nonetheless choosing not to adduce evidence proving the factual allegations, particularly the aforementioned matters, and instead opting to pursue its claims by Motion for Summary Judgment, the Sandiganbayan became completely deprived of the means to know the necessary but crucial details of the transactions on the acquisition of the contested block of shares. The Republics failure to adduce evidence shifted no burden to the respondents to establish anything, for it was basic that the party who [116] asserts, not the party who denies, must prove. Indeed, in a civil action, the plaintiff has the burden of pleading every essential fact and element of the cause of action and proving them by preponderance of evidence. This means that if the defendant merely denies each of the plaintiffs allegations and neither side produces evidence on any such element, the plaintiff must necessarily fail [117] in the action. Thus, the Sandiganbayan correctly dismissed Civil Case No. 0033-F for failure of the Republic to prove its case by preponderant evidence. A summary judgment under Rule 35 of the Rules of Court is a procedural technique that is proper only when there is no genuine [118] issue as to the existence of a material fact and the moving party is entitled to a judgment as a matter of law. It is a method intended to expedite or promptly dispose of cases where the facts appear undisputed and certain from the pleadings, depositions, [119] admissions, and affidavits on record. Upon a motion for summary judgment the courts sole function is to determine whether there is an issue of fact to be tried, and all doubts as to the existence of an issue of fact must be resolved against the moving party. In other words, a party who moves for summary judgment has the burden of demonstrating clearly the absence of any genuine issue of fact, and any doubt as to the existence of such an issue is resolved against the movant. Thus, in ruling on a motion for summary judgment, the court should take that view of the evidence most favorable to the party against whom it is directed, giving that party [120] the benefit of all favorable inferences. The term genuine issue has been defined as an issue of fact that calls for the presentation of evidence as distinguished from an issue that is sham, fictitious, contrived, set up in bad faith, and patently unsubstantial so as not to constitute a genuine issue for trial. The court can determine this on the basis of the pleadings, admissions, documents, affidavits, and counter-affidavits submitted by the parties to the court. Where the facts pleaded by the parties are disputed or contested, proceedings for a summary judgment cannot [121] take the place of a trial. Well-settled is the rule that a party who moves for summary judgment has the burden of demonstrating [122] clearly the absence of any genuine issue of fact. Upon that partys shoulders rests the burden to prove the cause of action, and to show that the defense is interposed solely for the purpose of delay. After the burden has been discharged, the defendant has the [123] burden to show facts sufficient to entitle him to defend. Any doubt as to the propriety of a summary judgment shall be resolved against the moving party. We need not stress that the trial courts have limited authority to render summary judgments and may do so only in cases where no genuine issue as to any material fact clearly exists between the parties. The rule on summary judgment does not invest the trial courts with jurisdiction to try summarily the factual issues upon affidavits, but authorizes summary judgment only when it appears [124] clear that there is no genuine issue as to any material fact. IV. Republics burden to establish by preponderance of evidence that respondents SMC shares had been illegally acquired with coconut-levy funds was not discharged Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares could be inescapably treated as fruits of funds that are prima faciepublic in character, Cojuangco, et al. abstained from presenting countervailing evidence; and that with the Republic having shown that the SMC shares came into fruition from coco levy funds that are prima facie public funds, Cojuangco, et al. had to go forward with contradicting evidence, but did not. The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone of judicial pronouncements to [125] the effect that the coconut levy funds were prima facie public funds, but without any competent evidence linking the acquisition of the block of SMC shares by Cojuangco, et al. to the coconut levy funds. V. No violation of the DOSRI and Single Borrowers Limit restrictions The Republics lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting the UCPB from the DOSRI and the Single Borrowers Limit restrictions.

We reject the Republics suggestion. Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the amount, [126] the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI or issued in violation of the Single Borrowers Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of the Single Borrowers Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of [127] the DOSRI loan would be subject only to sanctions under the law. VI. Cojuangco violated no fiduciary duties The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit: Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. and the Corporation Code, as follows: Section 31. Liability of directors, trustees or officers.Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. Did Cojuangco breach his fiduciary duties as an officer and member of the Board of Directors of the UCPB? Did his acquisition and holding of the contested SMC shares come under a constructive trust in favor of the Republic? The answers to these queries are in the negative. The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable. Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and member of the Board of Directors of the UCPB. For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangcos being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his breach of fiduciary [128] duties without evidence showing so, for fraud or breach of trust is never presumed, but must be alleged and proved. The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same [129] amount of the same kind and quality shall be paid. Owing to the consumable nature of the thing loaned, the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the [130] ownership of the thing loaned is transferred to the debtor upon perfection of the contract. Ownership of the thing loaned having transferred, the debtor enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by [131] law. Evidently, the resulting relationship between a creditor and debtor in a contract of loan cannot be characterized as [132] fiduciary. To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of [133] responsibility, any dealings between a lender and borrower are not fiduciary in nature. This explains why, for example, a trust receipt transaction is not classified as a simple loan and is characterized as fiduciary, because theTrust Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of [134] whether the latter is the owner.

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose [135] of the thing borrowed and his act will not be considered misappropriation of the thing. The only liability on his part is to pay the loan together with the interest that is either stipulated or provided under existing laws. WHEREFORE, the Court dismisses the petitions for certiorari in G.R. Nos. 166859 and 169023; denies the petition for review on certiorari in G.R. No. 180702; and, accordingly, affirms the decision promulgated by the Sandiganbayan on November 28, 2007 in Civil Case No. 0033-F. The Court declares that the block of shares in San Miguel Corporation in the names of respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive property of Cojuangco, et al. as registered owners. Accordingly, the lifting and setting aside of the Writs of Sequestration affecting said block of shares (namely: Writ of Sequestration No. 86-0062 dated April 21, 1986; Writ of Sequestration No. 86-0069 dated April 22, 1986; Writ of Sequestration No. 86-0085 dated May 9, 1986; Writ of Sequestration No. 86-0095 dated May 16, 1986; Writ of Sequestration No. 86-0096 dated May 16, 1986; Writ of Sequestration No. 86-0097 dated May 16, 1986; Writ of Sequestration No. 86-0098 dated May 16, 1986; Writ of Sequestration No. 86-0042 dated April 8, 1986; and Writ of Sequestration No. 87-0218 dated May 27, 1987) are affirmed; and the annotation of the conditions prescribed in the Resolutions promulgated on October 8, 2003 and June 24, 2005 is cancelled. SO ORDERED.

MELDA O. COJUANGCO, PRIME HOLDINGS, INC., AND THE ESTATE OF RAMON U. COJUANGCO Petitioners,

G.R. No. 183278 Present: PUNO, C.J., * QUISUMBING, YNARES-SANTIAGO, CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, TINGA, CHICO-NAZARIO, VELASCO, JR., NACHURA, LEONARDO-DE CASTRO, BRION, PERALTA, and BERSAMIN, JJ. Promulgated: April 24, 2009

- versus -

SANDIGANBAYAN, REPUBLIC OF THE PHILIPPINES, AND THE SHERIFF OF SANDIGANBAYAN, Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION CARPIO MORALES, J.: The present petition is one for Certiorari. Petitioners Imelda O. Cojuangco, Prime Holdings, Inc., and the Estate of Ramon Cojuangco assail via certiorari the Resolutions [1] [2] dated November 7, 2007 and June 13, 2008 of the Sandiganbayan in Civil Case No. 0002, Republic of the Philippines v. Ferdinand Marcos, et. al. A brief recital of the antecedent facts is in order. On July 16, 1987, respondent Republic of the Philippines (Republic) filed before the Sandiganbayan a Complaint for Reconveyance, Reversion, Accounting, Restitution and Damages, docketed as Civil Case 0002, praying for the recovery of alleged ill-gotten wealth from the late President Marcos and former First Lady Imelda Marcos and their cronies, including some 2.4 million shares of stock in the Philippine Long Distance Telephone Company (PLDT). The complaint, which was later amended to implead herein petitioners Ramon and Imelda Cojuangco (the Cojuangcos), alleged that the Marcoses ill-gotten wealth included shares in the PLDT covered by shares of stock in the Philippine Telecommunications Investment Corporation (PTIC), registered in the name of Prime Holdings, Inc. (Prime Holdings). The Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares, hence, the Republic appealed to this Court, docketed as G.R. No. 153459, which appeal was later consolidated with pending cases of similar import G.R. Nos. 149802, 150320, and 150367. By Decision dated January 20, 2006, this Court, in G.R. No. 153459, ruled in favor of the Republic, declaring it to be the owner of 111,415 PTIC shares registered in the name of Prime Holdings. The dispositive portion of the Decision reads: WHEREFORE, the petition of the Republic of the Philippines in G.R. No. 153459 is GRANTED to the extent that it prays for the reconveyance to the Republic of 111,415 PTIC shares registered in the name of PHI. The petitions in G.R. Nos. 149802, 150320, 150367, and 153207 are DENIED for lack of merit. SO ORDERED.
[3]

The Decision became final and executory on October 26, 2006, hence, the Republic filed on November 20, 2006 with the Sandiganbayan a Motion for the Issuance of a Writ of Execution, praying for the cancellation of the 111,415 shares/certificates of stock registered in the name of Prime Holdings and the annotation of the change of ownership on PTICs Stock and Transfer Book. The Republic further prayed for the issuance of an order for PTIC to account for all cash and stock dividends declared and/or issued by PLDT in favor of PTIC from 1986 up to the present including compounded interests appurtenant thereto. By Resolution dated December 14, 2006, the Sandiganbayan granted the Motion for the Issuance of a Writ of Execution with respect to the reconveyance of the shares, but denied the prayer for accounting of dividends.

On Motion for Reconsideration of the Republic, the Sandiganbayan, by the first assailed Resolution dated November 7, 2007,directed PTIC to deliver the cash and stock dividends pertaining to the 111,415 shares, including compounded interests, ratiocinating that the same were covered by this Courts Decision in G.R. No. 153459, since the Republic was therein adjudged the owner of the shares and, therefore, entitled to the fruits thereof. The Cojuangcos (hereafter petitioners) moved to reconsider the November 7, 2007 Sandiganbayan Resolution, alleging that this Courts Decision in G.R. No. 153459 did not include a disposition of the dividends and interests accruing to the shares adjudicated in favor of the Republic. By the other challenged Resolution dated June 13, 2008, the Sandiganbayan partly granted petitioners Motion for Reconsideration by including legal interests, but not compounding the same, from the accounting and remittance to the Republic. [4] The Sandiganbayan thereupon issued a Writ of Execution, hence, spawned the present petition for certiorari. From the myriad assignments of error proffered by petitioners, the pivotal issues for the Courts resolution are: (1) whether the Sandiganbayan gravely abused its discretion in ordering the accounting, delivery, and remittance to the Republic of the stock, cash, and property dividends pertaining to the 111,415 PTIC shares of Prime Holdings, this Courts Decision in G.R. No. 153459 not having even discussed the same; and (2) whether the Republic, having transferred the shares to a third party, is entitled to the dividends, interests, and earnings thereof. Petitioners insist on a literal reading of the dispositive portion of this Courts Decision in G.R. No. 153459 as excluding the dividends, interests, and earnings accruing to the shares of stock from being accounted for and remitted. The term dividend in its technical sense and ordinary acceptation is that part or portion of the profits of the enterprise which [5] the corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It is a payment to [6] [7] the stockholders of a corporation as a return upon their investment, and the right thereto is an incident of ownership of stock. This Court, in directing the reconveyance to the Republic of the 111,415 shares of PLDT stock owned by PTIC in the name of Prime Holdings, declared the Republic as the owner of said shares and, necessarily, the dividends and interests accruing thereto. Ownership is a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another. Its traditional elements or attributes include jus utendi or the right [8] to receive from the thing what it produces. Contrary to petitioners contention, while the general rule is that the portion of a decision that becomes the subject of execution is that ordained or decreed in the dispositive part thereof, there are recognized exceptions to this rule, viz: (a).where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment, because the dispositive part of a decision must find support from the decisions ratio decidendi; and (b).where extensive and explicit [9] discussion and settlement of the issue is found in the body of the decision. In G.R. No. 153459, although the inclusion of the dividends, interests, and earnings of the 111,415 PTIC shares as belonging to the Republic was not mentioned in the dispositive portion of the Courts Decision, it is clear from its body that what was being adjudicated in favor of the Republic was the whole block of shares and the fruits thereof, said shares having been found to be part of the Marcoses ill-gotten wealth, and therefore, public money. It would be absurd to award the shares to the Republic as their owner and not include the dividends and interests accruing thereto. An owner who cannot exercise the juses or attributes of ownership -- the right to possess, to use and enjoy, to abuse or [10] consume, to accessories, to dispose or alienate, to recover or vindicate, and to the fruits - is a crippled owner. Respecting petitioners argument that the Republic has yielded its right to the fruits of the shares when it sold them to Metro Pacific Assets Holdings, Inc., (Metro Pacific), the same does not lie. Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a certain [11] future date, as the case may be, unless the parties have agreed otherwise. And a transfer of shares which is not recorded in the books of the corporation is valid only as between the parties, hence, the transferor has the right to dividends as against the corporation without notice of transfer but it serves as trustee of the real owner of the dividends, subject to the contract between [12] the transferor and transferee as to who is entitled to receive the dividends. It is thus clear that the Republic is entitled to the dividends accruing from the subject 111,415 shares since 1986 when they were [13] sequestered up to the time they were transferred to Metro Pacific via the Sale and Purchase Agreement of February 28, 2007; and that the Republic has since the latter date been serving as trustee of those dividends for the Metro Pacific up to the present, subject to the terms and conditions of the said agreement they entered into. WHEREFORE, the petition is DENIED. The challenged Resolutions dated November 7, 2007 and June 13, 2008 of the Sandiganbayan in Civil Case No. 0002 are, in light of the foregoing, AFFIRMED. SO ORDERED.

COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners, vs. COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO,respondents. DECISION REGALADO, J.: [1] Before us is a petition for review on certiorari of the decision of the Court of Appeals promulgated on July 22, 1992 and its [2] [3] resolution of May 10, 1993 denying petitioners motion for reconsideration, both of which sustained the order of the Regional Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for the quashal of Search Warrant No. 87-053 earlier [4] issued per its own order on September 5, 1988 for violation of Section 56 of Presidential Decree No. 49, as amended, otherwise known as the Decree on the Protection of Intellectual Property. The material facts found by respondent appellate court are as follows: Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc. (Sunshine for brevity), owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro Manila. On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described. In the hearing of the application, NBI Senior Agent Lauro C. Reyes, upon questions by the court a quo, reiterated in substance his averments in his affidavit. His testimony was corroborated by another witness, Mr. Rene C. Baltazar. Atty. Rico V. Domingos deposition was also taken. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search Warrant No 87-053 for violation of Section 56 of PD No. 49, as amended, was issued by the court a quo. The search warrant was served at about 1:45 p.m. on December 14, 1987 to Sunshine and/or their representatives. In the course of the search of the premises indicated in the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants, and machines, equipment, television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties accomplished by the raiding team. Copy of the receipt was furnished and/or tendered to Mr. Danilo A. Pelindario, registered owner-proprietor of Sunshine Home Video. On December 16, 1987, a Return of Search Warrant was filed with the Court. A Motion To Lift the Order of Search Warrant was filed but was later denied for lack of merit (p. 280, Records). A Motion for reconsideration of the Order of denial was filed. The court a quo granted the said motion for reconsideration and justified it in this manner: It is undisputed that the master tapes of the copyrighted films from which the pirated films were allegedly copies (sic), were never presented in the proceedings for the issuance of the search warrants in question. The orders of the Court granting the search warrants and denying the urgent motion to lift order of search warrants were, therefore, issued in error. Consequently, they must [5] be set aside. (p. 13, Appellants Brief) Petitioners thereafter appealed the order of the trial court granting private respondents motion for reconsideration, thus lifting the search warrant which it had therefore issued, to the Court of Appeals. As stated at the outset, said appeal was dismissed and the motion for reconsideration thereof was denied. Hence, this petition was brought to this Court particularly challenging the validity of [6] respondent courts retroactive application of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al., in dismissing petitioners appeal and upholding the quashal of the search warrant by the trial court. I Inceptively, we shall settle the procedural considerations on the matter of and the challenge to petitioners legal standing in our courts, they being foreign corporations not licensed to do business in the Philippines. Private respondents aver that being foreign corporations, petitioners should have such license to be able to maintain an action in Philippine courts. In so challenging petitioners personality to sue, private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of doing business in the Philippines under Section 1(f) (1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations doing business in the Philippines, Section 133 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines, denies them the right to maintain a suit in Philippine courts in the absence of a license to do business. Consequently, they have no right to ask for the issuance of a search [7] warrant. [8] In refutation, petitioners flatly deny that they are doing business in the Philippines, and contend that private respondents have not adduced evidence to prove that petitioners are doing such business here, as would require them to be licensed by the Securities and Exchange Commission, other than averments in the quoted portions of petitioners Opposition to Urgent Motion to Lift Order of Search Warrant dated April 28, 1988 and Atty. Rico V. Domingos affidavit of December 14, 1987. Moreover, an exclusive right to distribute a product or the ownership of such exclusive right does not conclusively prove the act of doing business nor establish the [9] presumption of doing business. The Corporation Code provides: Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain

any suit in local courts. As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but doing business in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in [11] business in the Philippines. Statutory provisions in many jurisdictions are determinative of what constitutes doing business or transacting business within that forum, in which case said provisions are controlling there. In others where no such definition or qualification is laid down regarding acts or transactions falling within its purview, the question rests primarily on facts and intent. It is thus held that all the combined acts of a foreign corporation in the State must be considered, and every circumstance is material which indicates a [12] purpose on the part of the corporation to engage in some part of its regular business in the State. No general rule or governing principles can be laid down as to what constitutes doing or engaging in or transacting [13] business. Each case must be judged in the light of its own peculiar environmental circumstances. The true tests, however, seem to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized [14] or whether it has substantially retired from it and turned it over to another. As a general proposition upon which many authorities agree in principle, subject to such modifications as may be necessary in view of the particular issue or of the terms of the statute involved, it is recognized that a foreign corporation is doing, transacting, engaging in, or carrying on business in the State when, and ordinarily only when, it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually [15] continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts. The Corporation Code does not itself define or categorize what acts constitute doing or transacting business in the Philippines. Jurisprudence has, however, held that the term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to or in [16] progressive prosecution of the purpose and subject of its organization. This traditional case law definition has evolved into a statutory definition, having been adopted with some qualifications in various pieces of legislation in our jurisdiction. [17] For instance, Republic Act No. 5455 provides: SECTION 1. Definitions and scope of this Act. (1) x x x; and the phrase doing business shall include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in-progressive prosecution of, commercial gain or of the purpose and object of the business organization. [18] Presidential Decree No. 1789, in Article 65 thereof, defines doing business to include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. The implementing rules and regulations of said presidential decree conclude the enumeration of acts constituting doing business with a catch-all definition, thus: Sec. 1(g). Doing Business shall be any act or combination of acts enumerated in Article 65 of the Code. In particular doing business includes: xxx xxx xxx (10) Any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and object of the business organization. [19] Finally, Republic Act No. 7042 embodies such concept in this wise: SEC. 3. Definitions. As used in this Act: xxx xxx xxx (d) the phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investors; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners are not barred from maintaining the present action. There is no showing that, under our statutory or case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. No evidence has been offered to show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines. [20] Accordingly, the certification issued by the Securities and Exchange Commission stating that its records do not show the registration of petitioner film companies either as corporations or partnerships or that they have been licensed to transact business in the Philippines, while undeniably true, is of no consequence to petitioners right to bring action in the Philippines. Verily, no

[10]

record of such registration by petitioners can be expected to be found for, as aforestated, said foreign film corporations do not transact or do business in the Philippines and, therefore, do not need to be licensed in order to take recourse to our courts. Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus Investments Code lists, among others (1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, or by an agent of such foreign firm, not acting independently of the foreign firm amounting to negotiations or fixing of the terms and conditions of sales or service contracts, regardless of where the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. The arrangements agreed upon as to manner, time and terms of delivery of the goods or the transfer of title thereto is immaterial. A foreign firm which does business through the middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines. (2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of a principal. Thus, where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm, the latter is doing business in the Philippines. as acts constitutive of doing business, the fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts. Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners, with express authority pursuant to a special power of attorney, inter alia To lay criminal complaints with the appropriate authorities and to provide evidence in support of both civil and criminal proceedings against any person or persons involved in the criminal infringement of copyright, or concerning the unauthorized importation, duplication, exhibition or distribution of any cinematographic work(s) films or video cassettes of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between x x x and the respective owners of copyright in such cinematographic work(s), to initiate and prosecute on behalf of x x x criminal or civil actions in the Philippines against any person or persons unlawfully distributing, exhibiting, selling or offering for sale any films or video cassettes of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any [21] agreement(s) between x x x and the respective owners of copyright in such works. tantamount to doing business in the Philippines. We fail to see how exercising ones legal and property rights and taking steps for the vigilant protection of said rights, particularly the appointment of an attorney-in-fact, can be deemed by and of themselves to be doing business here. As a general rule, a foreign corporation will not be regarded as doing business in the State simply because it enters into contracts [22] with residents of the State, where such contracts are consummated outside the State. In fact, a view is taken that a foreign corporation is not doing business in the state merely because sales of its product are made there or other business furthering its interests is transacted there by an alleged agent, whether a corporation or a natural person, where such activities are not under the [23] direction and control of the foreign corporation but are engaged in by the alleged agent as an independent business. It is generally held that sales made to customers in the State by an independent dealer who has purchased and obtained title from [24] the corporation to the products sold are not a doing of business by the corporation. Likewise, a foreign corporation which sells its products to persons styled distributing agents in the State, for distribution by them, is not doing business in the State so as to render it subject to service of process therein, where the contract with these purchasers is that they shall buy exclusively from the [25] foreign corporation such goods as it manufactures and shall sell them at trade prices established by it. It has moreover been held that the act of a foreign corporation in engaging an attorney to represent it in a Federal court sitting in a [26] particular State is not doing business within the scope of the minimum contact test. With much more reason should this doctrine apply to the mere retainer of Atty. Domingo for legal protection against contingent acts of intellectual piracy. In accordance with the rule that doing business imports only acts in furtherance of the purposes for which a foreign corporation was organized, it is held that the mere institution and prosecution or defense of a suit, particularly if the transaction which is the basis of the suit took place out of the State, do not amount to the doing of business in the State. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business within a constitutional provision placing foreign corporations licensed to do business in the State under the same regulations, limitations and liabilities with respect to such acts as domestic corporations. Merely engaging in litigation has been considered as not a sufficient minimum contact to warrant the [27] exercise of jurisdiction over a foreign corporation. As a consideration aside, we have perforce to comment on private respondents basis for arguing that petitioners are barred from maintaining suit in the Philippines. For allegedly being foreign corporations doing business in the Philippines without a license, private respondents repeatedly maintain in all their pleadings that petitioners have thereby no legal personality to bring an action [28] before Philippine courts. [29] Among the grounds for a motion to dismiss under the Rules of Court are lack of legal capacity to sue and that the complaint states [30] no cause of action. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have [31] the necessary qualification to appear in the case, or does not have the character or representation he claims. On the other hand, a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest, hence grounded on [32] failure to state a cause of action. The term lack of capacity to sue should not be confused with the term lack of personality to sue. While the former refers to a plaintiffs general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general disqualifications of a party, the latter refers to the fact that the plaintiff is not the real party- in-interest. Correspondingly, the first can be a ground for a motion to dismiss based on the ground of lack of legal capacity to [33] sue; whereas the second can be used as a ground for a motion to dismiss based on the fact that the complaint, on the face [34] thereof, evidently states no cause of action. Applying the above discussion to the instant petition, the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be lack of capacity to sue, not lack of personality to sue. Certainly, a corporation whose legal rights have been violated is undeniably such, if not the only, real party-ininterest to bring suit thereon although, for failure to comply with the licensing requirement, it is not capacitated to maintain any suit before our courts.

Lastly, on this point, we reiterate this Courts rejection of the common procedural tactics of erring local companies which, when sued by unlicensed foreign corporations not engaged in business in the Philippines, invoke the latters supposed lack of capacity to sue. The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of public policy. It was never intended to favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid obligations or violations of legal rights of unsuspecting foreign firms or entities simply because they are not licensed to do business [35] in the country. II We now proceed to the main issue of the retroactive application to the present controversy of the ruling in 20th Century Fox Film [36] Corporation vs. Court of Appeals, et al., promulgated on August 19, 1988, that for the determination of probable cause to support the issuance of a search warrant in copyright infringement cases involving videograms, the production of the master tape for comparison with the allegedly pirated copies is necessary. Petitioners assert that the issuance of a search warrant is addressed to the discretion of the court subject to the determination of probable cause in accordance with the procedure prescribed therefor under Sections 3 and 4 of Rule 126. As of the time of the application for the search warrant in question, the controlling criterion for the finding of probable cause was that enunciated [37] in Burgos vs. Chief of Staff stating that: Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably discrete and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched. According to petitioners, after complying with what the law then required, the lower court determined that there was probable cause for the issuance of a search warrant, and which determination in fact led to the issuance and service on December 14, 1987 of Search Warrant No. 87-053. It is further argued that any search warrant so issued in accordance with all applicable legal requirements is valid, for the lower court could not possibly have been expected to apply, as the basis for a finding of probable cause for the issuance of a search warrant in copyright infringement cases involving videograms, a pronouncement which was not existent at the time of such determination, on December 14, 1987, that is, the doctrine in the 20th Century Fox case that was promulgated only on August 19, 1988, or over eight months later. Private respondents predictably argue in support of the ruling of the Court of Appeals sustaining the quashal of the search warrant by the lower court on the strength of that 20th Century Fox ruling which, they claim, goes into the very essence of probable cause. At the time of the issuance of the search warrant involved here, although the 20th Century Foxcase had not yet been decided, Section 2, Article III of the Constitution and Section 3, Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing and governing law on the matter. The ruling in 20th Century Fox was merely an application of the law on probable cause. Hence, they posit that there was no law that was retrospectively applied, since the law had been there all along. To refrain from applying the 20th Century Fox ruling, which had supervened as a doctrine promulgated at the time of the resolution of private respondents motion for reconsideration seeking the quashal of the search warrant for failure of the trial court to require [38] presentation of the master tapes prior to the issuance of the search warrant, would have constituted grave abuse of discretion. Respondent court upheld the retroactive application of the 20th Century Fox ruling by the trial court in resolving petitioners motion for reconsideration in favor of the quashal of the search warrant, on this renovated thesis: And whether this doctrine should apply retroactively, it must be noted that in the 20th Century Fox case, the lower court quashed the earlier search warrant it issued. On certiorari, the Supreme Court affirmed the quashal on the ground among others that the master tapes or copyrighted films were not presented for comparison with the purchased evidence of the video tapes to determine whether the latter is an unauthorized reproduction of the former. If the lower court in the Century Fox case did not quash the warrant, it is Our view that the Supreme Court would have invalidated the warrant just the same considering the very strict requirement set by the Supreme Court for the determination of probable cause in copyright infringement cases as enunciated in this 20th Century Fox case. This is so because, as was stated by the Supreme Court in the said case, the master tapes and the pirated tapes must be presented for comparison to satisfy the requirement of [39] probable cause. So it goes back to the very existence of probable cause. x x x Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play, it is our considered view that the 20th Century Fox ruling cannot be retroactively applied to the instant case to justify the quashal of Search Warrant No. 87053. Herein petitioners consistent position that the order of the lower court of September 5, 1988 denying therein defendants motion to lift the order of search warrant was properly issued, there having been satisfactory compliance with the then prevailing standards under the law for determination of probable cause, is indeed well taken. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence, then existing and judicially accepted, required with respect to the finding of probable cause. Article 4 of the Civil Code provides that (l)aws shall have no retroactive effect, unless the contrary is provided. Correlatively, Article 8 of the same Code declares that (j)udicial decisions applying the laws or the Constitution shall form part of the legal system of the Philippines. [40] Jurisprudence, in our system of government, cannot be considered as an independent source of law; it cannot create law. While it is true that judicial decisions which apply or interpret the Constitution or the laws are part of the legal system of the Philippines, still they are not laws. Judicial decisions, though not laws, are nonetheless evidence of what the laws mean, and it is for this reason that [41] they are part of the legal system of the Philippines. Judicial decisions of the Supreme Court assume the same authority as the [42] statute itself. Interpreting the aforequoted correlated provisions of the Civil Code and in light of the above disquisition, this Court emphatically [43] declared in Co vs. Court of Appeals, et al. that the principle of prospectivity applies not only to original amendatory statutes and administrative rulings and circulars, but also, and properly so, to judicial decisions. Our holding in the earlier case of People vs. [44] Jubinal echoes the rationale for this judicial declaration, viz.: Decisions of this Court, although in themselves not laws, are nevertheless evidence of what the laws mean, and this is the reason why under Article 8 of the New Civil Code, Judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system. The interpretation upon a law by this Court constitutes, in a way, a part of the law as of the date that the law was originally passed, since this Courts construction merely establishes the contemporaneous legislative intent that the law thus construed intends to effectuate. The settled rule supported by numerous authorities is a restatement of the legal maxim legis interpretation legis vim obtinet the interpretation placed upon the written law by a competent court has the force of law. x x x,

but when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively, and should not apply to parties who had relied on the old doctrine and acted on the faith thereof. x x x. (Stress supplied). [45] This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et al., where the Court expounded: x x x. But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that laws shall have no retroactive effect unless the contrary is provided. This is expressed in the familiar legal maximum lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence, is unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]). The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. x x x. [46] The reasoning behind Senarillos vs. Hermosisima that judicial interpretation of a statute constitutes part of the law as of the date it was originally passed, since the Courts construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect, is all too familiar. Such judicial doctrine does not amount to the passage of a new law but consists merely of a construction or interpretation of a pre-existing one, and that is precisely the situation obtaining in this case. It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine [47] and acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no [48] recognition of what had transpired prior to such adjudication. There is merit in petitioners impassioned and well-founded argumentation: The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al., 164 SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was inexistent in December of 1987 when Search Warrant 87-053 was issued by the lower court. Hence, it boggles the imagination how the lower court could be expected to apply the formulation of 20th Century Fox in finding probable cause when the formulation was yet non-existent. xxx xxx xxx In short, the lower court was convinced at that time after conducting searching examination questions of the applicant and his witnesses that an offense had been committed and that the objects sought in connection with the offense (were) in the place sought to be searched (Burgos v. Chief of Staff, et al., 133 SCRA 800). It is indisputable, therefore, that at the time of the application, or on December 14, 1987, the lower court did not commit any error nor did it fail to comply with any legal requirement for the valid issuance of search warrant. x x x. (W)e believe that the lower court should be considered as having followed the requirements of the law in issuing Search Warrant No. 87-053. The search warrant is therefore valid and binding. It must be noted that nowhere is it found in the allegations of the Respondents that the lower court failed to apply the law as then interpreted in 1987. Hence, we find it absurd that it is (sic) should be seen otherwise, because it is simply impossible to have required the lower court to apply a formulation which will only be defined six months later. Furthermore, it is unjust and unfair to require compliance with legal and/or doctrinal requirements which are inexistent at the time they were supposed to have been complied with. xxx xxx xxx x x x. If the lower courts reversal will be sustained, what encouragement can be given to courts and litigants to respect the law and rules if they can expect with reasonable certainty that upon the passage of a new rule, their conduct can still be open to question? This certainly breeds instability in our system of dispensing justice. For Petitioners who took special effort to redress their grievances and to protect their property rights by resorting to the remedies provided by the law, it is most unfair that fealty to the [49] rules and procedures then obtaining would bear but fruits of injustice. Withal, even the proposition that the prospectivity of judicial decisions imports application thereof not only to future cases but also to cases still ongoing or not yet final when the decision was promulgated, should not be countenanced in the jural sphere on account of its inevitably unsettling repercussions. More to the point, it is felt that the reasonableness of the added requirement in 20th Century Fox calling for the production of the master tapes of the copyrighted films for determination of probable cause in copyright infringement cases needs revisiting and clarification. It will be recalled that the 20th Century Fox case arose from search warrant proceedings in anticipation of the filing of a case for the unauthorized sale or renting out of copyrighted films in videotape format in violation of Presidential Decree No. 49. It revolved around the meaning of probable cause within the context of the constitutional provision against illegal searches and seizures, as applied to copyright infringement cases involving videotapes. Therein it was ruled that The presentation of master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioners argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns. The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized sale and renting out of copyrighted films belonging to the petitioner pursuant to P.D. 49. The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant. For a closer and more perspicuous appreciation of the factual antecedents of 20th Century Fox, the pertinent portions of the decision therein are quoted hereunder, to wit: In the instant case, the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of copyright or a piracy of a particular film have been committed. Thus the lower court stated in its questioned order dated January 2, 1986:

According to the movant, all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated, so that he did not have personal knowledge of the alleged piracy. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. Domingo that has knowledge of that fact. On the part of Atty. Domingo, he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox, because, according to him it is of his personal knowledge. At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty. Albino Reyes testified that when the complaint for infringement was brought to the NBI, the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand. Again as the application and search proceedings is a prelude to the filing of criminal cases under P.D. 49, the copyright infringement law, and although what is required for the issuance thereof is merely the presence of probable cause, that probable cause must be satisfactory to the Court, for it is a time-honored precept that proceedings to put a man to task as an offender under our laws should be interpreted instrictissimi juris against the government and liberally in favor of the alleged offender. xxx xxx xxx This doctrine has never been overturned, and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution. So that lacking in persuasive effect, the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents establishments, it should be dismissed as not supported by competent evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein. But the glaring fact is that Cocoon, the first video tape mentioned in the search warrant, was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition, p. 152, record.) So that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents, there was no way to determine whether there really was piracy, or copying of the film of the complainant Twentieth Century Fox. xxx xxx xxx The lower court, therefore, lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P.D. 49. As found by the court, the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. Only the petitioners counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. However, the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application (Italics ours). The italicized passages readily expose the reason why the trial court therein required the presentation of the master tapes of the allegedly pirated films in order to convince itself of the existence of probable cause under the factual milieu peculiar to that case. In the case at bar, respondent appellate court itself observed: We feel that the rationale behind the aforequoted doctrine is that the pirated copies as well as the master tapes, unlike the other types of personal properties which may be seized, were available for presentation to the court at the time of the application for a search warrant to determine the existence of the linkage of the copyrighted films with the pirated ones. Thus, there is no reason [50] not to present them (Italics supplied for emphasis). In fine, the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement cases where there is doubt as to the true nexus between the master tape and the pirated copies. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. Judicial dicta should always be construed within the factual matrix of their parturition, otherwise a careless interpretation thereof could unfairly fault the writer with the vice of overstatement and the reader with the fallacy of undue generalization. In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for search warrant with the lower court following a [51] [52] formal complaint lodged by petitioners, judging from his affidavit and his deposition, did testify on matters within his personal knowledge based on said complaint of petitioners as well as his own investigation and surveillance of the private respondents video [53] rental shop. Likewise, Atty. Rico V. Domingo, in his capacity as attorney-in-fact, stated in his affidavit and further expounded in [54] his deposition that he personally knew of the fact that private respondents had never been authorized by his clients to reproduce, lease and possess for the purpose of selling any of the copyrighted films. Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C. Baltazar, a private researcher retained by Motion Pictures Association of America, Inc. (MPAA, Inc.), who was likewise presented as a witness during the search warrant [55] proceedings. The records clearly reflect that the testimonies of the abovenamed witnesses were straightforward and stemmed from matters within their personal knowledge. They displayed none of the ambivalence and uncertainty that the witnesses in the 20th Century Fox case exhibited. This categorical forthrightness in their statements, among others, was what initially and correctly convinced the trial court to make a finding of the existence of probable cause. There is no originality in the argument of private respondents against the validity of the search warrant, obviously borrowed from 20th Century Fox, that petitioners witnesses NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar did not have personal knowledge of the subject matter of their respective testimonies and that said witnesses claim that the video [56] tapes were pirated, without stating the manner by which these were pirated, is a conclusion of fact without basis. The difference, it must be pointed out, is that the records in the present case reveal that (1) there is no allegation of misrepresentation, much less a finding thereof by the lower court, on the part of petitioners witnesses; (2) there is no denial on the part of private respondents that the tapes seized were illegitimate copies of the copyrighted ones nor have they shown that they were given any authority by petitioners to copy, sell, lease, distribute or circulate, or at least, to offer for sale, lease, distribution or circulation the said video tapes; and (3) a discreet but extensive surveillance of the suspected area was undertaken by petitioners witnesses sufficient to

enable them to execute trustworthy affidavits and depositions regarding matters discovered in the course thereof and of which they have personal knowledge. It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to do, that in copyright infringement cases, the presentation of master tapes of the copyrighted films is always necessary to meet the requirement of probable cause and that, in the absence thereof, there can be no finding of probable cause for the issuance of a search warrant. It is true that such master tapes are object evidence, with the merit that in this class of evidence the ascertainment of the controverted fact is made through [57] demonstrations involving the direct use of the senses of the presiding magistrate. Such auxiliary procedure, however, does not rule out the use of testimonial or documentary evidence, depositions, admissions or other classes of evidence tending to prove [58] the factum probandum, especially where the production in court of object evidence would result in delay, inconvenience or [59] expenses out of proportion to its evidentiary value. Of course, as a general rule, constitutional and statutory provisions relating to search warrants prohibit their issuance except on a showing of probable cause, supported by oath or affirmation. These provisions prevent the issuance of warrants on loose, vague, or [60] doubtful bases of fact, and emphasize the purpose to protect against all general searches. Indeed, Article III of our Constitution mandates in Sec. 2 thereof that no search warrant shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized; and Sec. 3 thereof provides that any evidence obtained in violation of the preceding section shall be inadmissible for any purpose in any proceeding. These constitutional strictures are implemented by the following provisions of Rule 126 of the Rules of Court: Sec. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized. Sec. 4. Examination of complainant; record. The judge must, before issuing the warrant, personally examine in the form of searching questions and answers, in writing and under oath the complainant and any witnesses he may produce on facts personally known to them and attach to the record their sworn statements together with any affidavits submitted. Sec. 5. Issuance and form of search warrant. If the judge is thereupon satisfied of the existence of facts upon which the application is based, or that there is probable cause to believe that they exist, he must issue the warrant, which must be substantially in the form prescribed by these Rules. The constitutional and statutory provisions of various jurisdictions requiring a showing of probable cause before a search warrant can be issued are mandatory and must be complied with, and such a showing has been held to be an unqualified condition precedent to the issuance of a warrant. A search warrant not based on probable cause is a nullity, or is void, and the issuance [61] thereof is, in legal contemplation, arbitrary. It behooves us, then, to review the concept of probable cause, firstly, from representative holdings in the American jurisdiction from which we patterned our doctrines on the matter. Although the term probable cause has been said to have a well-defined meaning in the law, the term is exceedingly difficult to define, in this case, with any degree of precision; indeed, no definition of it which would justify the issuance of a search warrant can be formulated which would cover every state of facts which might arise, and no formula or standard, or hard and fast rule, may be [62] laid down which may be applied to the facts of every situation. As to what acts constitute probable cause seem incapable of [63] [64] definition. There is, of necessity, no exact test. At best, the term probable cause has been understood to mean a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person accused is guilty of the offense with which [65] he is charged; or the existence of such facts and circumstances as would excite an honest belief in a reasonable mind acting on all [66] the facts and circumstances within the knowledge of the magistrate that the charge made by the applicant for the warrant is true. Probable cause does not mean actual and positive cause, nor does it import absolute certainty. The determination of the existence of probable cause is not concerned with the question of whether the offense charged has been or is being committed in fact, or [67] whether the accused is guilty or innocent, but only whether the affiant has reasonable grounds for his belief. The requirement [68] is less than certainty or proof, but more than suspicion or possibility. In Philippine jurisprudence, probable cause has been uniformly defined as such facts and circumstances which would lead a reasonable, discreet and prudent man to believe that an offense has been committed, and that the objects sought in connection [69] with the offense are in the place sought to be searched. It being the duty of the issuing officer to issue, or refuse to issue, the [70] warrant as soon as practicable after the application therefor is filed, the facts warranting the conclusion of probable cause must be assessed at the time of such judicial determination by necessarily using legal standards then set forth in law and jurisprudence, and not those that have yet to be crafted thereafter. As already stated, the definition of probable cause enunciated in Burgos, Sr. vs. Chief of Staff, et al., supra, vis-a-vis the provisions of Sections 3 and 4 of Rule 126, were the prevailing and controlling legal standards, as they continue to be, by which a finding of probable cause is tested. Since the proprietary of the issuance of a search warrant is to be determined at the time of the application therefor, which in turn must not be too remote in time from the occurrence of the offense alleged to have been committed, the issuing judge, in determining the existence of probable cause, can and should logically look to the touchstones in the laws therefore enacted and the decisions already promulgated at the time, and not to those which had not yet even been conceived or formulated. It is worth noting that neither the Constitution nor the Rules of Court attempt to define probable cause, obviously for the purpose of leaving such matter to the courts discretion within the particular facts of each case. Although the Constitution prohibits the issuance of a search warrant in the absence of probable cause, such constitutional inhibition does not command the legislature to [71] establish a definition or formula for determining what shall constitute probable cause. Thus, Congress, despite its broad authority [72] to fashion standards of reasonableness for searches and seizures, does not venture to make such a definition or standard formulation of probable cause, nor categorize what facts and circumstances make up the same, much less limit the determination [73] thereof to and within the circumscription of a particular class of evidence, all in deference to judicial discretion and probity. Accordingly, to restrict the exercise of discretion by a judge by adding a particular requirement (the presentation of master tapes, as intimated by 20th Century Fox) not provided nor implied in the law for a finding of probable cause is beyond the realm of judicial competence or statemanship. It serves no purpose but to stultify and constrict the judicious exercise of a court's prerogatives and to denigrate the judicial duty of determining the existence of probable cause to a mere ministerial or mechanical function. There is, to repeat, no law or rule which requires that the existence of probable cause is or should be determined solely by a specific kind of

evidence. Surely, this could not have been contemplated by the framers of the Constitution, and we do not believe that the Court intended the statement in 20th Century Fox regarding master tapes as the dictum for all seasons and reasons in infringement cases. Turning now to the case at bar, it can be gleaned from the records that the lower court followed the prescribed procedure for the issuances of a search warrant: (1) the examination under oath or affirmation of the complainant and his witnesses, with them particularly describing the place to be searched and the things to be seized; (2) an examination personally conducted by the judge in the form of searching questions and answers, in writing and under oath of the complainant and witnesses on facts personally known to them; and, (3) the taking of sworn statements, together with the affidavits submitted, which were duly attached to the records. Thereafter, the court a quo made the following factual findings leading to the issuance of the search warrant now subject to this controversy: In the instant case, the following facts have been established: (1) copyrighted video tapes bearing titles enumerated in Search Warrant No. 87-053 were being sold, leased, distributed or circulated, or offered for sale, lease, distribution, or transferred or caused to be transferred by defendants at their video outlets, without the written consent of the private complainants or their assignee; (2) recovered or confiscated from defendants' possession were video tapes containing copyrighted motion picture films without the authority of the complainant; (3) the video tapes originated from spurious or unauthorized persons; and (4) said video tapes were exact reproductions of the films listed in the search warrant whose copyrights or distribution rights were owned by complainants. The basis of these facts are the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion Pictures Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V. Domingo, filed a complaint with the National Bureau of Investigation against certain video establishments one of which is defendant, for violation of PD No. 49 as amended by PD No, 1988. Atty. Lauro C. Reyes led a team to conduct discreet surveillance operations on said video establishments. Per information earlier gathered by Atty. Domingo, defendants were engaged in the illegal sale, rental, distribution, circulation or public exhibition of copyrighted films of MPAA without its written authority or its members. Knowing that defendant Sunshine Home Video and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to reproduce, lease, and possess for the purpose of selling any of its copyrighted motion pictures, he instructed his researcher, Mr. Rene Baltazar to rent two video cassettes from said defendants on October 21, 1987. Rene C. Baltazar proceeded to Sunshine Home Video and rented tapes containing Little Shop of Horror. He was issued rental slip No. 26362 dated October 21, 1987 for P10.00 with a deposit of P100.00. Again, on December 11, 1987, he returned to Sunshine Home Video and rented Robocop with a rental slip No. 25271 also for P10.00. On the basis of the complaint of MPAA thru counsel, Atty. Lauro C. Reyes personally went to Sunshine Home Video at No. 6 Mayfair Center, Magallanes Commercial Center, Makati. His last visit was on December 7, 1987. There, he found the video outlet renting, leasing, distributing video cassette tapes whose titles were copyrighted and without the authority of MPAA. [74] Given these facts, a probable cause exists. x x x. The lower court subsequently executed a volte-face, despite its prior detailed and substantiated findings, by stating in its order of November 22, 1988 denying petitioners motion for reconsideration and quashing the search warrant that x x x. The two (2) cases have a common factual milieu; both involve alleged pirated copyrighted films of private complainants which were found in the possession or control of the defendants. Hence, the necessity of the presentation of the master tapes from which [75] the pirated films were allegedly copied is necessary in the instant case, to establish the existence of probable cause. Being based solely on an unjustifiable and improper retroactive application of the master tape requirement generated by 20th Century Fox upon a factual situation completely different from that in the case at bar, and without anything more, this later order clearly defies elemental fair play and is a gross reversible error. In fact, this observation of the Court inLa Chemise Lacoste, S.A. vs. Fernandez, et al., supra, may just as easily apply to the present case: A review of the grounds invoked x x x in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. x x x As correctly pointed out by petitioners, a blind espousal of the requisite of presentation of the master tapes in copyright infringement cases, as the prime determinant of probable cause, is too exacting and impracticable a requirement to be complied with in a search warrant application which, it must not be overlooked, is only an ancillary proceeding. Further, on realistic considerations, a strict application of said requirement militates against the elements of secrecy and speed which underlie covert investigative and surveillance operations in police enforcement campaigns against all forms of criminality, considering that the master tapes of a motion picture required to be presented before the court consists of several reels contained in circular steel casings which, because of their bulk, will definitely draw attention, unlike diminutive objects like video tapes which can be easily [76] concealed. With hundreds of titles being pirated, this onerous and tedious imposition would be multiplied a hundredfold by judicial fiat, discouraging and preventing legal recourses in foreign jurisdictions. Given the present international awareness and furor over violations in large scale of intellectual property rights, calling for transnational sanctions, it bears calling to mind the Courts admonition also in La Chemise Lacoste, supra, that x x x. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties. III [77] The amendment of Section 56 of Presidential Decree No. 49 by Presidential Decree No. 1987, which should here be publicized judicially, brought about the revision of its penalty structure and enumerated additional acts considered violative of said decree on intellectual property, namely, (1) directly or indirectly transferring or causing to be transferred any sound recording or motion picture or other audio-visual works so recorded with intent to sell, lease, publicly exhibit or cause to be sold, leased or publicly exhibited, or to use or cause to be used for profit such articles on which sounds, motion pictures, or other audio-visual works are so transferred without the written consent of the owner or his assignee; (2) selling, leasing, distributing, circulating, publicly exhibiting, or offering for sale, lease, distribution, or possessing for the purpose of sale, lease, distribution, circulation or public exhibition any of the abovementioned articles, without the written consent of the owner or his assignee; and, (3) directly or indirectly offering or making available for a fee, rental, or any other form of compensation any equipment, machinery, paraphernalia or any material with the knowledge that such equipment, machinery, paraphernalia or material will be used by another to reproduce, without the consent of the owner, any phonograph record, disc, wire, tape, film or other article on which sounds, motion pictures or other audio-visual recordings may be transferred, and which provide distinct bases for criminal prosecution, being crimes independently

punishable under Presidential Decree No. 49, as amended, aside from the act of infringing or aiding or abetting such infringement under Section 29. The trial courts finding that private respondents committed acts in blatant transgression of Presidential Decree No. 49 all the more bolsters its findings of probable cause, which determination can be reached even in the absence of master tapes by the judge in the exercise of sound discretion. The executive concern and resolve expressed in the foregoing amendments to the decree for the protection of intellectual property rights should be matched by corresponding judicial vigilance and activism, instead of the apathy of submitting to technicalities in the face of ample evidence of guilt. The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is [78] conferred by statute on the owner of the copyright. A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know what works he was indirectly copying, or did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute [79] a piracy. The question of whether there has been an actionable infringement of a literary, musical, or artistic work in motion [80] pictures, radio or television being one of fact, it should properly be determined during the trial. That is the stage calling for conclusive or preponderating evidence, and not the summary proceeding for the issuance of a search warrant wherein both lower courts erroneously require the master tapes. In disregarding private respondents argument that Search Warrant No. 87-053 is a general warrant, the lower court observed that it was worded in a manner that the enumerated seizable items bear direct relation to the offense of violation of Sec. 56 of PD 49 as amended. It authorized only the seizur(e) of articles used or intended to be used in the unlawful sale, lease and other unconcerted [81] acts in violation of PD 49 as amended. x x x. [82] On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al., instructs and enlightens: A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Rubio, 57 Phil. 384); or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). x x x. If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. x x x. On private respondents averment that the search warrant was made applicable to more than one specific offense on the ground that there are as many offenses of infringement as there are rights protected and, therefore, to issue one search warrant for all the movie titles allegedly pirated violates the rule that a search warrant must be issued only in connection with one specific offense, the lower court said: x x x. As the face of the search warrant itself indicates, it was issued for violation of Section 56, PD 49 as amended only. The specifications therein (in Annex A) merely refer to the titles of the copyrighted motion pictures/films belonging to private complainants which defendants were in control/possession for sale, lease, distribution or public exhibition in contravention of Sec. [83] 56, PD 49 as amended. That there were several counts of the offense of copyright infringement and the search warrant uncovered several contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. The search warrant herein issued does not violate the one-specific-offense rule. It is pointless for private respondents to insist on compliance with the registration and deposit requirements under Presidential Decree No. 49 as prerequisites for invoking the courts protective mantle in copyright infringement cases. As explained by the court below: Defendants-movants contend that PD 49 as amended covers only producers who have complied with the requirements of deposit and notice (in other words registration) under Sections 49 and 50 thereof. Absent such registration, as in this case, there was no right created, hence, no infringement under PD 49 as amended. This is not well-taken. As correctly pointed out by private complainants-oppositors, the Department of Justice has resolved this legal question as far back as December 12, 1978 in its Opinion No. 191 of the then Secretary of Justice Vicente Abad Santos which stated that Sections 26 and 50 do not apply to cinematographic works and PD No. 49 had done away with the registration and deposit of cinematographic works and that even without prior registration and deposit of a work which may be entitled to protection under the Decree, the creator can file action for infringement of its rights. He cannot demand, however, payment of damages arising from infringement. The same opinion stressed that the requirements of registration and deposit are thus retained under the Decree, not as conditions for the acquisition of copyright and other rights, but as prerequisites to a suit for damages. The statutory interpretation of the Executive Branch being correct, is entitled (to) weight and respect. xxx xxx xxx Defendants-movants maintain that complainant and his witnesses led the Court to believe that a crime existed when in fact there was none. This is wrong. As earlier discussed, PD 49 as amended, does not require registration and deposit for a creator to be able to file an action for infringement of his rights. These conditions are merely pre-requisites to an action for damages. So, as long as [84] the proscribed acts are shown to exist, an action for infringement may be initiated. [85] Accordingly, the certifications from the Copyright Section of the National Library, presented as evidence by private respondents to show non-registration of some of the films of petitioners, assume no evidentiary weight or significance, whatsoever. Furthermore, a closer review of Presidential Decree No. 49 reveals that even with respect to works which are required under Section 26 thereof to be registered and with copies to be deposited with the National Library, such as books, including composite and cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for oral delivery; and letters, the failure to comply with said requirements does not deprive the

copyright owner of the right to sue for infringement. Such non-compliance merely limits the remedies available to him and subjects him to the corresponding sanction. The reason for this is expressed in Section 2 of the decree which prefaces its enumeration of copyrightable works with the explicit statement that the rights granted under this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works. This means that under the present state of the law, the copyright for a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit. As has been authoritatively clarified: The registration and deposit of two complete copies or reproductions of the work with the National Library within three weeks after the first public dissemination or performance of the work, as provided for in Section 26 (P.D. No. 49, as amended), is not for the purpose of securing a copyright of the work, but rather to avoid the penalty for non-compliance of the deposit of said two copies [86] and in order to recover damages in an infringement suit. One distressing observation. This case has been fought on the basis of, and its resolution long delayed by resort to, technicalities to a virtually abusive extent by private respondents, without so much as an attempt to adduce any credible evidence showing that they conduct their business legitimately and fairly. The fact that private respondents could not show proof of their authority or that there was consent from the copyright owners for them to sell, lease, distribute or circulate petitioners copyrighted films immeasurably bolsters the lower courts initial finding of probable cause. That private respondents are licensed by the Videogram Regulatory Board does not insulate them from criminal and civil liability for their unlawful business practices. What is more deplorable is that the reprehensible acts of some unscrupulous characters have stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in this part of the globe, formerly in the records of the General Agreement on Tariffs and Trade and, now, of the World Trade Organization. Such acts must not be glossed over but should be denounced and repressed lest the Philippines become an international pariah in the global intellectual community. WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals, and necessarily inclusive of the order of the lower court dated November 22, 1988, are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said court is DIRECTED to take and expeditiously proceed with such appropriate proceedings as may be called for in this case. Treble costs are further assessed against private respondents. SO ORDERED.

COMMART (PHILS.) INC., JESUS, CORAZON, ALBERTO, AND BERNARD all surnamed MAGLUTAC,petitioners, vs. SECURITIES & EXCHANGE COMMISSION and ALICE MAGLUTAC, respondents. Monsod, Tamargo & Associates for petitioners. Panganiban, Benitez, Barinaga & Bautista Law Offices for private respondent. PARAS, J.:p Petitioners, in the instant petition for review on certiorari, seek the reversal of the en banc Order of the respondent Securities & Exchange Commission dated September 12, 1988 denying the petition for certiorari (SEC-EB No. 115-117) filed by the petitioners herein and ordering that the original complaint (SEC Case No. 2673) be remanded to the Securities Investigation and Clearing Department for further proceeding, for having been rendered in grave abuse of discretion amounting to lack of or in excess of jurisdiction and in contravention of existing laws and jurisprudence. Commart (Phils.), Inc., (Command for short) is a corporation organized by two brothers, Jesus and Mariano Maglutac, to engage in the brokerage business for the importation of fertilizers and other products/commodities. Jesus T. Maglutac (Jesus for short) ran the company as president, chairman of the board, and chairman of the executive committee, while Mariano T. Maglutac (Mariano for short) served as executive vice-president and vice-chairman of the executive committee until April 1984. Sometime in June 1984, the two brothers agreed to go their separate ways, with Mariano being persuaded to sell to Jesus his shareholdings in Commart amounting to 25% of the outstanding capital stock. As part of the deal, a "Cooperative Agreement" was signed, between Commart (represented by Jesus) and Mariano, in which, among others, Commart ceded to Mariano or to an "acceptable entity" he may create, a portion of its business, with a pledge of mutual cooperation for a certain period so as to enable Mariano to get his own corporation off the ground, so to speak. Mariano's wife, Alice M. Maglutac (private respondent herein) who has been for years a stockholder and director of Commart, did not dispose of her shareholdings, and thus continued as such even after the sale of Mariano's equity. As broker and indentor, Commart's principal income came from commissions paid to it in U.S. dollars by foreign suppliers of fertilizers and other commodities imported by Planters Products, Inc. and other local importers. Shortly after the sale of his equity in Commart to Jesus, Mariano allegedly discovered that for several years, Jesus and his wife Corazon (who was herself a director) had been siphoning and diverting to their private bank accounts in the United States and in Hongkong gargantuan amounts sliced off from commissions due Commart from some foreign suppliers. Consequently, on August 22, 1989, spouses Mariano and Alice Maglutac filed a complaint (SEC Case No. 2673) with the Securities & Exchange Commission (SEC for short) against Jesus T. Maglutac, Victor Cipriano, Clemente Ramos, Carolina de los Reyes, Corazon Maglutac, Alberto Maglutac and Bernardo Maglutac (Jesus as Chairman) and the rest as members of the Board of Directors of Commart). In their Complaint, Mariano and Alice Maglutac alleged, among others, that "Jesus T. Maglutac, by means of secret arrangements with foreign suppliers, embodied in and evidenced by, correspondences and other documents discovered just recently, has been diverting into his private bank accounts and converting to his own personal benefit and advantage substantial portions of the commission income of the corporation, to the prejudice of the corporation, its stockholders and its creditors." (Petition, Annex B, p. 2; Rollo, p. 20) Thus, complainants prayed, among others, that judgment be rendered as follows (a) Ordering respondents Jesus T. Maglutac, Corazon Maglutac, and Victor Cipriano to account for and to turn over or deliver to the Corporation the sum of US$2,539,918.97, or its equivalent in Philippine currency, with legal interest thereon from the respective dates of misappropriation or, at the very least, from date of filing of this suit, together with such other and further sums as may be proved to have likewise been misappropriated by them; (b) Ordering all the respondents, as members of the Board of Directors, to take such remedial steps as would protect the corporation from further depredation of its funds and property; (c) Declaring rescinded or annulled the disposition of complainant Mariano T. Maglutac's shares of stock to respondent Jesus T. Maglutac and ordering the restoration to the former of all his executive positions with all the rights and privileges thereunto appertaining; or, in the alternative, ordering that said complainant be paid the equivalent of one-fourth of the actual market value of COMMART's present assets including goodwill, taking into consideration also the total sums misappropriated by respondents Jesus T. Maglutac, Corazon Maglutac, and Victor Cipriano which rightfully belonged to COMMART; and (d) Ordering respondents to pay complainants attorney's fees equivalent to twenty (20%) per cent of the total amounts awarded and recovered, plus such further sums as may be proved to have been incurred as and by way of litigation expenses. (pp. 24-25, Rollo) In response to the aforementioned Complaint, two Motions to Dismiss were filed. The records reveal that: (a) On October 17, 1984, Albert and Bernard Maglutac moved to dismiss on the ground that Mariano Maglutac has no capacity to sue and the complaint states no cause of action against them. (b) On October 20, 1984, Jesus & Corazon Maglutac likewise moved to dismiss on the ground that respondent Commission does not have jurisdiction over the nature of the suit. These motions were opposed by complainants Alice and Mariano Maglutac. While said incidents were pending, complainants filed an Amended Complaint hereby Commart was impleaded as party complainant and praying that Commart be placed under receivership and the properties of Jesus & Corazon Maglutac and Victor Cipriano be attached. It is alleged in the Amended Complaint that complainant Commart is the corporation in whose behalf and for whose benefit this derivative suit is brought; that complainant Alice M. Maglutac is a minority stockholder in good standing of Commart while her husband complainant Mariano T. Maglutac was, likewise, until June 25, 1984 or thereabouts, a stockholder of Commart. Motions to dismiss said Amended Complaint were also filed by present petitioners and were also duly opposed by complainants Mariano and his wife. On May 10, 1985 Commart filed a Manifestation/Notice of Dismissal, manifesting that "it withdraws and dismisses the action taken in its behalf by complainants Mariano T. Maglutac and Alice M. Maglutac against all respondents." (Petition, Annex E, p. 3; Rollo, pp. 42-44) This was opposed by complainants on the ground, among other doctrines, that in a derivative suit the corporation is not allowed to be an active participant and has no control over the suit against the real defendants; that the suing shareholder has the right of control.

On May 27, 1985, the Hearing Panel issued an Order denying all the motions to dismiss as well as the so called manifestation/notice of dismissal on the finding inter alia that Respondents maintain that the present action is basically one for annulment/rescission of sale with alternative prayer for reinstatement of employment status; that the action is not a derivative suit considering that the nature of the action is one for annulment and the fact that complainant Mariano T. Maglutac being a non-stockholder is not qualified to institute a derivative suit; that the action does not in any way make mention of an actionable wrong against respondents Albert and Bernard Maglutac, Clemente Ramos and Carolina de los Reyes. By way of opposition, complainants alleged that the instant action should be characterized as a minority stockholders' derivative suit; that complainant Alice Maglutac is not merely a nominal party but a real party in interest; that Mariano T. Maglutac's rights as a stockholder have been injured through the machinations and maneuvering of respondent Jesus Maglutac; that the prayer for rescission or annulment of contract is merely the logical consequence of the exercise of jurisdiction by this Commission. Respondents' contention that the Commission has no jurisdiction over the subject matter or the nature of the action is devoid of merit. It is a cardinal principle in legal procedure that what determined the subject matter or the nature of the action are the facts a complaint as constituting the cause of action. A perusal of the complaint, as well as, the amended complaint would show that the action is one for "mismanagement", for the complainants alleged, inter alia, that ". . . respondent Jesus T. Maglutac, by means of secret arrangements with foreign suppliers embodied in, and evidenced by, correspondences and other documents discovered just recently, has been diverting into his private bank accounts and to his own personal benefit and advantage substantial portions of the commission income of the corporation, to the prejudice of the corporation, its stockholders and its creditors and enumerated immediately thereafter the alleged specific acts of mismanagement. Viewed therefrom, the Commission has jurisdiction. (pp. 127128, Rollo) On June 18, 1985 Commart filed a motion for reconsideration and on August 29, 1985, Jesus and Corazon Maglutac also filed a similar motion to have the Order of May 27, 1985 reconsidered and set aside. These motions were duly opposed by Mariano and Alice Maglutac. Acting on the Motion for Reconsideration, the Hearing Panel issued on November 12, 1985, an Order modifying its previous order "by dismissing this case insofar as Mariano T. Maglutac is concerned" but affirming the said order "in all other respects." (Annex F to Petition, pp. 46, 49, Rollo) Not satisfied with such modification present petitioners as respondents in SEC Case No. 2673 went to the SEC en banc on a petition for certiorari, prohibition and mandamus with prayer for preliminary injunction. They contend (a) that the Hearing Panel acted with grave abuse of discretion in not dismissing the case for failure of Alice Maglutac to exhaust intra-corporate remedies, and (b) that grave abuse was likewise committed in not dismissing the case on the ground that the complaint did not show clearly that Alice Maglutac was a stockholder at the time the questioned transaction occurred. On September 12, 1988, the Commission en banc issued an Order denying the aforesaid petition and remanding the case to the Securities Investigation and Clearing Department for further proceedings. It ruled (a) that exhaustion of intra-corporate remedy before filing suit "may be dispensed with where it is clear that it is unavailable or futile" as was the case here. (p. 2, Order of Sept. 12, 1988, Annex A to Petition) citing Everett v. Asia Banking Corp., 49 Phil. 512, and Republic Bank v. Cuaderno, 19 SCRA 671, and (b) that the mere allegation in the complaint that complainant is still a stockholder of Commart "is sufficient to vest jurisdiction to this Commission" but complainant must prove at the time of reception of evidence that she was also a stockholder at the time the acts complained of occurred. (Id., p. 3) Although complainant Alice Maglutac failed to exhaust an intra-corporate remedy before filing this case, the said condition precedent may be dispensed with where it is clear that it is unavailable or futile. Thus it was held that: Where the board of directors in a corporation is under the complete control of the principal defendants in the case and it is obvious that a demand upon the board of directors to institute an action and prosecute the same effectively would be useless, the action may be brought by one or more of the stockholders without such demand (Everett v. Asia Banking Corp., 49 Phil. 512; Republic Bank v. Cuaderno, et al., No. L-22399, March 30, 1967). A stockholder can file a derivative suit provided there is an allegation in the complaint that she is such at the time the acts complained of occurred, and at the time the suit is brought (Hawes v. Oakland, 14 Otto [104 U.S.], 450,456; S.C. 5972, 13 Fletcher 345, cited in Alvendia, The Law of Private Corporations in the Philippines, First Ed., p. 361). The requirement that said facts be pleaded is merely procedural although the necessity of the existence of these facts in order to give rise to the right of action is substantive (Pascual v. Del Saz Orozco, 19 Phil. 97). And equity considerations warrant the liberal interpretation of the rules of procedure to the end that technicalities should not stand in the way of equitable relief (Vol. I, Francisco, Civil Procedure, 2nd ed., p. 157, 1973 ed.) Mere allegation therefore that complainant is still a stockholder of Commart is sufficient to vest jurisdiction to this Commission. Complainant must however prove at the time of reception of evidence that she was also a stockholder at the time the acts complained of occurred. (pp. 10-11, Memorandum by public respondent) Hence, this petition. The petitioners invoke two grounds for reversal of the Order under review thereby raising these two issues, to wit: 1. Did the Securities and Exchange Commission err and/or commit "grave abuse of discretion" in denying the petition for certiorari and remanding the case for further proceedings despite the so-called "notice of dismissal" filed by Commart? 2. Did the Securities and Exchange Commission err and/or commit "grave abuse of discretion" in its handling of the "conflict of interest issue?" (Petition, p. 6; Rollo, p. 81) We find the petition devoid of merit. The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9 under First Cause of Action, readily shows that it avers the diversion of corporate income into the private bank accounts of petitioner Jesus T. Maglutac and his wife. Likewise, the principal relief prayed for in the complaint is the recovery of a sum of money in favor of the corporation. This being the case, the complaint is definitely a derivative suit. Consequently, the SEC correctly held that the case was a minority stockholder's derivative suit and correctly sustained the hearing panel's denial insofar as Alice Maglutac was concerned of the motions to dismiss it. A derivative suit has been the principal defense of the minority shareholder against abuses by the majority. It is a remedy designed by equity for those situations where the management, through fraud, neglect of duty, or other cause, declines to take the proper and necessary steps to assert the corporation's rights. Indeed, to grant to Commart the right of withdrawing or dismissing the suit, at the instance of majority stockholders and directors who themselves are the persons alleged to have committed breaches of trust against the interest of the corporation, would be to emasculate the right of minority stockholders to seek redress for the

corporation. To consider the Notice of Dismissal filed by Commart as quashing the complaint filed by Alice Maglutac in favor of the corporation would be to defeat the very nature and function of a derivative suit and render the right to institute the action illusory. In any case, the suit is for the benefit of Commart itself, for a judgment in favor of the complainants will necessarily mean recovery by the corporation of the US$2.5 million alleged to have been diverted from its coffers to the private bank accounts of its top managers and directors. Thus, the prayer in the Amended Complaint is for judgment ordering respondents Jesus and Corazon Maglutac, as well as Victor Cipriano, "to account for and to turn over or deliver to the Corporation" the aforesaid sum, with legal interest, and "ordering all the respondent, as members of the Board of Directors to take such remedial steps as would protect the corporation from further depredation of the funds and property." (pars. [a] & [b], Annex 2, Comment) On the "conflict of interest" issue, petitioners allege that private respondent Alice Maglutac "is a majority stockholder of M.M. International Sales, a business rival/competitor of Commart and holds only less than one percent (1%) of the entire shareholdings of Commart." According to petitioners, this being the case it is easier to believe that this so called derivative suit was filed because it is to the best interest of the company where she has a bigger and substantial interest, which in this case is M.M. International Sales, Inc. In disposing of this contention respondent SEC ruled that jurisdiction cannot be made to depend upon the pleas and defenses set up by a defendant in a motion to dismiss or answer, otherwise jurisdiction should become dependent almost entirely upon the defendant (citing Cardenas v. Camus, infra.) But it left the door open to a further consideration of the issue by stating that complainant's ownership of majority stocks of a rival corporation could not at this stage of the proceedings, defeat complainant's claims: Jurisdiction of the court cannot be made to depend upon the pleas or defenses pleaded by the defendant in his motion to dismiss or answer, for were we to be governed by such rule, the question of jurisdiction would depend almost entirely upon the defendant (Cardenas v. Camus, 5 SCRA 639). Respondents' assertion in their motion to dismiss of complainant's ownership of the majority stocks of a rival corporation, could not at this stage of the proceedings, defeat complainant's claim. (pp. 83-84,Rollo) In other words, no real prejudice has been inflicted upon petitioners' right to be heard on this matter raised by them, since the same can still be looked into during the hearing of a derivative suit on the merits. There was, therefore, neither error nor grave abuse of discretion in the decision of the Securities & Exchange Commission not to dismiss the case but to remand it instead to the Hearing Panel for further proceedings. WHEREFORE, for lack of merit, this Petition is DISMISSED. Costs against petitioners. SO ORDERED.

THE COMMISSIONER OF CUSTOMS, petitioner, vs. K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX APPEALS, respondents. Armando S. Padilla for private respondent. SARMIENTO, J.: This is a review of the decision of the Court of Tax Appeals disposing as follows: WHEREFORE. the subject ten (10) cartons of articles are hereby released to the carrying airline for immediate transshipment to the country of destination under the terms of the contract of carriage. No costs. 1 SO ORDERED. The pertinent facts may be summarized thus: On September 11, 1982, two (2,) containers loaded with 103 cartons of merchandise covered by eleven (11) airway bills of several supposedly Singapore-based consignees arrived at the Manila International Airport on board Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The cargoes were consigned to these different entities: K.M.K. Gani (hereafter referred to as K.M.K.) and Indrapal and Company (hereafter referred to as INDRAPAL), the private respondents in the petition before us; and Sin Hong Lee Trading Co., Ltd., AAR TEE Enterprises, and C. Ratilal all purportedly based in Singapore. While the cargoes were at the Manila International Airport, a "reliable source" tipped off the Bureau of customs that the said cargoes were going to be unloaded in Manila. Forthwith, the Bureau's agency on such matters, the Suspected Cargo and AntiNarcotics (SCAN), dispatched an agent to verify the information. Upon arriving at the airport, the SCAN agent saw an empty PAL van parked directly alongside the plane's belly from which cargoes were being unloaded. When the SCAN agent asked the van's driver why he was at the site, the driver drove away in his vehicle. The SCAN agent then sequestered the unloaded cargoes. The seized cargoes consisted of 103 cartons "containing Mogadon and Mandrax tablets, Sony T.V. sets 1546R/176R kw, Sony Betamax SL5800, and SL5000, Cassette Stereos with Headphone (ala walkman), Casio Calculators, Pioneer Car Stereos, Yamaha Watches, Eyeglass Frames, Sunglasses, Plastic Utility Bags, Perfumes, etc." These goods were transferred to the International Cargo Terminal under Warrant of Seizure and Detention and thereafter subjected to Seizure and Forfeiture proceedings for "technical smuggling." At the hearing, Atty. Armando S. Padilla entered his appearance for the consignees K.M.K. and INDRAPAL. The records of the case do not show any appearance of the consignees in person. Atty. Padilla moved for the transshipment of the cargoes consigned to his clients. On the other hand, the Solicitor General avers that K.M.K. and INDRAPAL did not present any testimonial or documentary evidence. The, collector of Customs at the then Manila International Airport (MIA), now Ninoy Aquino International Airport (NAIA), ruled for the forfeiture of all the cargoes in the said containers (Seizure Identification No. 4993-82, dated July 14, 1983). Consequently, Atty. Padilla, ostensibly on behalf of his two clients, K.M.K. and INDRAPAL, appealed the order to the Commissioner. 2 of Customs. The Commissioner of Customs affirmed the finding of the Collector of Customs (Customs Case No. 83-85, January, 1984), of the 3 presence of the intention to import the said goods in violation of the Dangerous Drugs Act and Central Bank Circular No. 808 in 4 relation to the Tariff and Customs Code. 5 The Commissioner added the following findings of fact: 1. There is a direct flight from Hongkong to Singapore, thus making the transit through Manila more expensive, tedious, and circuitous. 2. The articles were grossly misdeclared, considering that Singapore is a free port. 3. The television sets and betamax units seized were of the American standard which is popularly used in Manila, and not of the European standard which is used in Singapore. 4. One of the shippers is a Filipino national with no business connection with her alleged consignee in Singapore. 5. The alleged consignee of the prohibited drugs confiscated has no authority to import Mogadon or Mandrax. Upon these findings, the Commissioner concluded that there was an "intent to unlade" in Manila, thus, an attempt to smuggle goods into the country. Taking exception to these findings, Atty. Armando S. Padilla, again as counsel of the consignees K.M.K. and Indrapal, appealed to the respondent Court of Tax Appeals (CTA). He argued in the CTA that K.M.K. and INDRAPAL were "entitled to the release of their cargoes for transshipment to Singapore so manifested and covered by the Airway bills as in transit, ... contending that the goods were never intended importations into the Philippines and the same suffer none of any affiliating breaches allegedly found 6 attributable to the other shipments under the Customs and related laws." The CTA reversed the decision of the Commissioner of Customs. Hence this petition. The petitioner raises the following errors: 1. THE COURT OF TAX APPEALS ERRED IN ENTERTAINING THE PETITION FOR REVIEW NOTWITHSTANDING HEREIN PRIVATE RESPONDENTS' FAILURE TO ESTABLISH THEIR PERSONALITY TO SUE IN A REPRESENTATIVE CAPACITY. 2. THE COURT OF TAX APPEALS ERRED IN RULING THAT THE SUBJECT GOODS WERE IMPORTATIONS NOT INTENDED FOR THE PHILIPPINES BUT FOR SINGAPORE, THUS, NOT VIOLATING THE LAW ON TECHNICAL SMUGGLING UNDER THE TARIFF AND CUSTOMS CODE. The issues before us are therefore: (1) whether or not the private respondents failed to establish their personality to sue in a representative capacity, hence making their action dismissable, and (2) whether or not the subject goods were importations intended for the Philippines in violation of the Tariff and Customs Code. We answer both questions in the affirmative. The law is clear: "No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action 7 recognized under Philippine laws." However, the Court in a long line of cases has held that a foreign corporation not engaged in business in the Philippines may not be 8 denied the right to file an action in the Philippine courts for an isolated transaction.

Therefore, the issue on whether or not a foreign corporation which does not have a license to engage in business in this country can seek redress in Philippine courts boils down as to whether it is doing business or merely entered into an isolated transaction in the Philippines. The fact that a foreign corporation is not doing business in the Philippines must be disclosed if it desires to sue in Philippine courts 9 under the "isolated transaction rule." Without this disclosure, the court may choose to deny it the right to sue. In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are "suing upon a singular and isolated transaction." But they failed to prove their legal existence or juridical personality as foreign corporations. Their unverified petition before the respondent Court of Tax Appeals merely stated: 1. That petitioner "K.M.K. Gani" is a single proprietorship doing business in accordance with the laws of Singapore with address at 99 Greenfield Drive, Singapore, Rep. of Singapore, while Petitioner INDRAPAL and COMPANY" is a firm doing business in accordance with the laws of Singapore with office address at 97 High Street, Singapore 0641, Republic of Singapore, and summons as well as other Court process may be served to the undersigned lawyer; 10 2. That the Petitioner's (sic) are sueing (sic) upon a singular and isolated transaction. We are cognizant of the fact that under the "isolated transaction rule," only foreign corporations and not just any business organization or entity can avail themselves of the privilege of suing before Philippine courts even without a license. Counsel Armando S. Padilla stated before the respondent Court of Tax Appeals that his clients are "suing upon a singular and isolated transaction." But there is no proof to show that K.M.K. and INDRAPAL are indeed what they are represented to be. It has been simply stated by Attorney Padilla that K.M.K. Gani is "a single proprietorship," while INDRAPAL is "a firm," and both are "doing business in accordance with the laws of Singapore ... ," with specified addresses in Singapore. In cases of this nature, these allegations are not sufficient to clothe a claimant of suspected smuggled goods of juridical personality and existence. The "isolated transaction rule" refers only to foreign corporations. Here the petitioners are not foreign corporations. They do not even pretend to be so. The first paragraph of their petition before the Court, containing the allegation of their identities, does not even aver their corporate character. On the contrary, K.M.K. alleges that it is a "single proprietorship" while INDRAPAL hides under the vague identification as a "firm," although both describe themselves with the phrase "doing business in accordance with the laws of Singapore." Absent such proof that the private respondents are corporations (foreign or not), the respondent Court of Tax Appeals should have barred their invocation of the right to sue within Philippine jurisdiction under the "isolated transaction rule" since they do not qualify for the availment of such right. As we had stated before: But merely to say that a foreign corporation not doing business in the Philippines does not need a license in order to sue in our courts does not completely resolve the issue in the present case. The proposition as stated, refers to the right to sue; the question here refers to pleading and procedure. It should be noted that insofar as the allegations in the complaint have a bearing on appellant's capacity to sue, all that is averred is that they are both foreign corporations existing under the laws of the United States. This averment conjures two alternative possibilities: either they are engaged in business in the Philippines or they are not so engaged. If the first, they must have been duly licensed in order to maintain this suit; if the second, if (sic) the transaction sued upon is singular and isolated, no such license is required. In either case, the qualifying circumstance is an essential part of the element of 11 plaintiffs capacity to sue and must be affirmatively pleaded. In this connection, we note also a fatal defect in the pleadings of the private respondents. There is no allegation as to who is the duly authorized representative or resident agent in our jurisdiction. All we have on record are the pleadings filed by Attorney Armando S. Padilla who represents himself as the counsel for the private respondents. xxx xxx xxx It is incumbent on plaintiff to allege sufficient facts to show that he is concerned with the cause of action averred, and is the party who has suffered injury by reason of the acts of defendant; in other words, it is not enough that he alleges a cause of action existing in favor of someone, but he must show that it exists in favor of himself. The burden should not be placed on defendant to show that plaintiff is not the aggrieved person and that he has sustained no damages. It is also necessary for plaintiff to allege facts showing that the causes of action alleged accrued to him in the capacity in which he sues, and for this purpose it is necessary for someone for one who sues otherwise than in his individual capacity to allege his authority. xxx xxx xxx The plaintiff must show, in his pleading, his right and interest in the subject matter of the suit; and a complaint which does not show 12 that plaintiff has the requisite interest to enable him to maintain his action should be dismissed for insufficiency ... xxx xxx xxx The appearance of Atty, Armando S. Padilla as counsel for the two claimants would not suffice. Generally, a "lawyer is presumed to be properly authorized to represent any cause in which he appears, and no written power of attorney is required to authorize him to 13 appear in court for his client." Nevertheless, although the authority of an attorney to appear for and on behalf of a party may be 14 assumed, it can still be questioned or challenged by the adverse party concerned. 15 The presumption established under the provision of Section 21, Rule 138 of the Revised Rules of Court is disputable. The requirement for the production of authority is essential because the client will be bound by his acquiescence resulting from his 16 knowledge that he was being represented by said attorney. The Solicitor General, representing the petitioner-appellant, not only questions the authority of Atty. Armando S. Padilla to represent the private respondents but also the latter's capacity to sue: ... While it is alleged that the summons and court processes may be served to herein private respondents' counsel who filed the unverified petition before the Court of Tax Appeals, the allegation would be insufficient for the purpose of binding foreign corporations as in the instant case. To be sure, the admitted absence of special power of attorney in favor of their counsel, the relationship with the latter, if at all, is merely that of a lawyer-client relationship and definitely not one of a principal agent. Such being the case, said counsel cannot bind nor compromise the interest of private respondents as it is possible that the latter may disown the former's representation to avoid civil or criminal liability. In this respect, the Court cannot assume jurisdiction over the person of private respondents, notwithstanding the filing of the unverified petition in question. Apart from the foregoing, Section 4, Rule 8, Revised Rules of Court mandates that facts showing the capacity of a party to sue or be sued; or the authority of a party to sue or be sued in a representative capacity; or the legal existence of an organized association of person (sic) that is made a party, must be averred. In like manner, the rule is settled that in case where the law denies a foreign

corporation to maintain a suit unless it has previously complied with certain requirements, then such compliance or exemption therefrom, becomes a necessary averment in the complaint (Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co., Inc. 17 SCRA 1037; vide; Sec. 4, Rule 8, Revised Rules of Court). In the case at bar, apart from merely alleging that private respondents are foreign corporation (sic) and that summons may be served to their counsel, their petition in the Court of Tax Appeals is bereft of any other 17 factual allegation to show their capacity to sue or be sued in a representative capacity in his jurisdiction. The representation and the extent of the authority of Atty. Padilla have thus been expressly challenged. But he ignored such challenge which leads us to the only conclusion that he has no authority to appear for such clients if they exist, which we even doubt. In cases like this, it is the duty of the government officials concerned to require competent proof of the representation and authority of any claimant of any goods coming from abroad and seized by our customs authorities or otherwise appearing to be illegally imported. This desired meticulousness, strictness if you may, should extend to their representatives and counsel. Our government has lost considerable sums of money due to such dubious claims or claimants. Apropos the second issue, suffice it to state that we agree with the findings, already enumerated and discussed at the outset, made by the Collector of Customs in his decision, dated July 14, 1983, which was affirmed and amplified by the decision of the Commissioner of Customs, that those constitute sufficient evidence to support the conclusion that there was an intention to unlade the seized goods in the Philippines instead of its supposed destination, Singapore. There is no need of belaboring them anymore. WHEREFORE, the petition is GRANTED; the decision of the Court of Tax Appeals is SET ASIDE, and the decision of the petitioner is hereby REINSTATED. No costs.

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC., respondents. DECISION TORRES, JR., J.: Business Corporations, according to Lord Coke, have no souls. They do business peddling goods, wares or even services across national boundaries in soulless forms in quest for profits albeit at times, unwelcomed in these strange lands venturing into uncertain markets and, the risk of dealing with wily competitors. This is one of the issues in the case at bar. Contested in this petition for review on Certiorari is the Decision of the Court of Appeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991, denying the petitioners Motion to Dismiss, and directing the issuance of a writ of preliminary injunction, and its companion Resolution of October 9, 1991, denying the petitioners Motion for Reconsideration. Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while petitioner Francisco S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and existing under the laws of the State of Alabama, United States of America. There is no dispute that ITEC is a foreign corporation not licensed to do business in the Philippines. [1] On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to as Representative Agreement. Pursuant to the contract, ITEC engaged ASPAC as its exclusive representative in the Philippines for the sale of ITECs products, in consideration of which, ASPAC was paid a stipulated commission. The agreement was signed by G.A. Clark and Francisco S. Aguirre, presidents of [2] ITEC and ASPAC respectively, for and in behalf of their companies. The said agreement was initially for a term of twenty-four months. After the lapse of the agreed period, the agreement was renewed for another twenty-four months. [3] Through a License Agreement entered into by the same parties on November 10, 1988, ASPAC was able to incorporate and use the name ITEC in its own name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines). By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity). To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT executed a document entitled PLDT-ASPAC/ITEC [4] PROTOCOL which defined the project details for the supply of ITECs Interface Equipment in connection with the Fifth Expansion Program of PLDT. One year into the second term of the parties Representative Agreement, ITEC decided to terminate the same, because petitioner [5] ASPAC allegedly violated its contractual commitment as stipulated in their agreements. ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise petitioner Aguirre, of using knowledge and information of ITECs products specifications to develop their own line of equipment and product support, which are similar, if not identical to ITECs own, and offering them to ITECs former customer. [6] On January 31, 1991, the complaint in Civil Case No. 91-294, was filed with the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to enjoin, first, preliminarily and then, after trial, permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre and their agents and business associates, to cease and desist from selling or attempting to sell to PLDT and to any other party, products which have been copied or manufactured in like manner, similar or identical to the products, wares and equipment of plaintiff, and (2) defendant ASPAC, to cease and desist from using in its corporate name, letter heads, envelopes, sign boards and business dealings, plaintiffs trademark, internationally known as ITEC; and the recovery from defendants in solidum, damages of at least P500,000.00, attorneys fees and litigation expenses. [7] In due time, defendants filed a motion to dismiss the complaint on the following grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign corporation doing business in the Philippines without the required BOI authority and SEC license, and (2) that plaintiff is simply engaged in forum shopping which justifies the application against it of the principle of forum non conveniens. On February 8, 1991, the complaint was amended by virtue of which ITEC INTERNATIONAL, INC. was substituted as plaintiff instead [8] of ITEC, INC. [9] In their Supplemental Motion to Dismiss, defendants took note of the amendment of the complaint and asked the court to consider in tototheir motion to dismiss and their supplemental motion as their answer to the amended complaint. [10] After conducting hearings on the prayer for preliminary injunction, the court a quo on February 22, 1991, issued its Order: (1) denying the motion to dismiss for being devoid of legal merit with a rejection of both grounds relied upon by the defendants in their motion to dismiss, and (2) directing the issuance of a writ of preliminary injunction on the same day. From the foregoing order, petitioners elevated the case to the respondent Court of Appeals on a Petition for Certiorari and [11] Prohibition under Rule 65 of the Revised Rules of Court, assailing and seeking the nullification and the setting aside of the Order and the Writ of Preliminary Injunction issued by the Regional Trial Court. The respondent appellate court stated, thus: We find no reason whether in law or from the facts of record, to disagree with the (lower courts) ruling. We therefore are unable to find in respondent Judges issuance of said writ the grave abuse of discretion ascribed thereto by the petitioners. In fine, We find that the petition prima facie does not show that Certiorari lies in the present case and therefore, the petition does not deserve to be given due course. WHEREFORE, the present petition should be, as it is hereby, denied due course and accordingly, is hereby dismissed. Costs against the petitioners. [12] SO ORDERED." [13] Petitioners filed a motion for reconsideration on June 7, 1991, which was likewise denied by the respondent court. WHEREFORE, the present motion for reconsideration should be, as it is hereby, denied for lack of merit. For the same reason, the motion to have the motion for reconsideration set for oral argument likewise should be and is hereby denied. [14] SO ORDERED." [15] Petitioners are now before us via Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. It is the petitioners submission that private respondents are foreign corporations actually doing business in the Philippines without the requisite authority and license from the Board of Investments and the Securities and Exchange Commission, and thus, disqualified from instituting the present action in our courts. It is their contention that the provisions of the Representative

Agreement, petitioner ASPAC executed with private respondent ITEC, are similarly highly restrictive in nature as those found in the [16] agreements which confronted the Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., as to reduce petitioner ASPAC to a mere conduit or extension of private respondents in the Philippines. In that case, we ruled that respondent foreign corporations are doing business in the Philippines because when the respondents entered into the disputed contracts with the petitioner, they were carrying out the purposes for which they were created, i.e., to manufacture and market welding products and equipment. The terms and conditions of the contracts as well as the respondents conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. The respondents could be exempted from the requirements of Republic Act 5455 if the petitioner is an independent entity which buys and distributes products not only of the petitioner, but also of other manufacturers or transacts business in its name and for its account and not in the name or for the account of the foreign principal. A reading of the agreements between the petitioner and the respondents shows that they are highly restrictive in nature, thus making the petitioner a mere conduit or extension of the respondents. It is alleged that certain provisions of the Representative Agreement executed by the parties are similar to those found in the License Agreement of the parties in the Top-Weld case which were considered as highly restrictive by this Court. The provisions in point are: 2.0 Terms and Conditions of Sales. 2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is net to ITEC and does not include any transportation charges, import charges or taxes into or within the Territory. All orders from customers are subject to formal acceptance by ITEC at its Huntsville, Alabama U.S.A. facility. xxx xxx xxx 3.0 Duties of Representative 3.1. REPRESENTATIVE SHALL: 3.1.1. Not represent or offer for sale within the Territory any product which competes with an existing ITEC product or any product which ITEC has under active development. 3.1.2. Actively solicit all potential customers within the Territory in a systematic and businesslike manner. 3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid and the like within the Territory. 3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by ITEC at the beginning of each period. These Sales Goals shall be incorporated into this Agreement and made a part hereof. xxx xxx xxx 6.0. Representative as Independent Contractor xxx xxx xxx 6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific customers and on terms and [17] conditions expressly authorized by ITEC in writing. Aside from the abovestated provisions, petitioners point out the following matters of record, which allegedly witness to the respondents' activities within the Philippines in pursuit of their business dealings: a. While petitioner ASPAC was the authorized exclusive representative for three (3) years, it solicited from and closed several sales for and on behalf of private respondents as to their products only and no other, to PLDT, worth no less than US $15 Million (p. 20, tsn, Feb. 18, 1991); b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by private respondents sole witness, Mr. Clarence Long, is not in the name of petitioner ASPAC as such representative, but in the name of private respondent ITEC, INC. (p. 20, tsn, Feb. 18, 1991); c. The document denominated as PLDT-ASPAC/ITEC PROTOCOL (Annex C of the original and amended complaints) which defined the responsibilities of the parties thereto as to the supply, installation and maintenance of the ITEC equipment sold under said Contract No. 1 is, as its very title indicates, in the names jointly of the petitioner ASPAC and private respondents; d. To evidence receipt of the purchase price of US $15 Million, private respondent ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13, 1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were identified by private respondents sole witness, Mr. Clarence [18] Long (pp. 25-27, tsn, Feb. 18, 1991). Petitioners contend that the above acts or activities belie the supposed independence of petitioner ASPAC from private respondents. The unrebutted evidence on record below for the petitioners likewise reveal the continuous character of doing business in the Philippines by private respondents based on the standards laid down by this Court in Wang Laboratories, Inc. vs. Hon. [19] Rafael T. Mendoza, et al. and again in TOP-WELD. (supra) It thus appears that as the respondent Court of Appeals and the trial courts failure to give credence on the grounds relied upon in support of their Motion to Dismiss that petitioners ascribe grave abuse of discretion amounting to an excess of jurisdiction of said courts. Petitioners likewise argue that since private respondents have no capacity to bring suit here, the Philippines is not the most convenient forum because the trial court is devoid of any power to enforce its orders issued or decisions rendered in a case that could not have been commenced to begin with, such that in insisting to assume and exercise jurisdiction over the case below, the trial court had gravely abused its discretion and even actually exceeded its jurisdiction. As against petitioners insistence that private respondent is doing business in the Philippines, the latter maintains that it is not. We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and Regulations Implementing the Omnibus Investments Code of 1987, the following: (1) A foreign firm is deemed not engaged in business in the Philippines if it transacts business through middlemen, acting in their own names, such as indebtors, commercial bookers or commercial merchants. (2) A foreign corporation is deemed not doing business if its representative domiciled in the Philippines has an independent status [20] in that it transacts business in its name and for its account. Private respondent argues that a scrutiny of its Representative Agreement with the Petitioners will show that although ASPAC was named as representative of ITEC., ASPAC actually acted in its own name and for its own account. The following provisions are particularly mentioned:

3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC, REPRESENTATIVE will pay for its own account; all customs duties and import fees imposed on any ITEC products; all import expediting or handling charges and expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC. xxx xxx xxx 4.1. As complete consideration and payment for acting as representative under this Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a percentum of the FOB value of all ITEC equipment sold to customers within the territory as a direct [21] result of REPRESENTATIVEs sales efforts. More importantly, private respondents charge ASPAC of admitting its independence from ITEC by entering and ascribing to provision No. 6 of the Representative Agreement. 6.0. Representative as Independent Contractor 6.1. When performing any of its duties under this Agreement, REPRESENTATIVE shall act as an independent contractor and not as an employee, worker, laborer, partner, joint venturer of ITEC as these terms are defined by the laws, regulations, decrees or the like of [22] any jurisdiction, including the jurisdiction of the United States, the state of Alabama and the Territory. Although it admits that the Representative Agreement contains provisions which both support and belie the independence of ASPAC, private respondents echoes the respondent courts finding that the lower court did not commit grave abuse of discretion nor acted in excess of jurisdiction when it found that the ground relied upon by the petitioners in their motion to dismiss does not [23] appear to be indubitable. The issues before us now are whether or not private respondent ITEC is an unlicensed corporation doing business in the Philippines, and if it is, whether or not this fact bars it from invoking the injunctive authority of our courts. Considering the above, it is necessary to state what is meant by doing business in the Philippines. Section 133 of the Corporation Code, provides that No foreign corporation, transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine Courts or administrative tribunals on any valid cause of [24] action recognized under Philippine laws. Generally, a foreign corporation has no legal existence within the state in which it is foreign. This proceeds from the principle that juridical existence of a corporation is confined within the territory of the state under whose laws it was incorporated and organized, and it has no legal status beyond such territory. Such foreign corporation may be excluded by any other state from doing business [25] within its limits, or conditions may be imposed on the exercise of such privileges. Before a foreign corporation can transact business in this country, it must first obtain a license to transact business in the Philippines, and a certificate from the appropriate government agency. If it transacts business in the Philippines without such a license, it shall not be permitted to maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines, but it may be sued on any valid [26] cause of action recognized under Philippine laws. In a long line of decisions, this Court has not altogether prohibited a foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine Courts. What it seeks to prevent is a foreign corporation doing business [27] in the Philippines without a license from gaining access to Philippine Courts. The purpose of the law in requiring that foreign corporations doing business in the Philippines be licensed to do so and that they appoint an agent for service of process is to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile [28] for the purpose of business without taking steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the legislature to exclude a foreign corporation which happens to obtain an isolated order for [29] business from the Philippines, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. There is no exact rule or governing principle as to what constitutes doing or engaging or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business [30] or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. Thus, a foreign corporation with a settling agent in the Philippines which issued twelve marine policies covering different shipments [31] [32] to the Philippines and a foreign corporation which had been collecting premiums on outstanding policies were regarded as doing business here. The same rule was observed relating to a foreign corporation with an exclusive distributing agent in the Philippines, and which has [33] been selling its products here since 1929, and a foreign corporation engaged in the business of manufacturing and selling computers worldwide, and had installed at least 26 different products in several corporations in the Philippines, and allowed its [34] registered logo and trademark to be used and made it known that there exists a designated distributor in the Philippines. [35] In Georg Grotjahn GMBH and Co. vs. Isnani, it was held that the uninterrupted performance by a foreign corporation of acts pursuant to its primary purposes and functions as a regional area headquarters for its home office, qualifies such corporation as one doing business in the country. These foregoing instances should be distinguished from a single or isolated transaction or occasional, incidental, or casual [36] transactions, which do not come within the meaning of the law, for in such case, the foreign corporation is deemed not engaged in business in the Philippines. Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign corporations intention to do other business in the Philippines, said single act or transaction constitutes doing or engaging in or transacting business in the [37] Philippines. In determining whether a corporation does business in the Philippines or not, aside from their activities within the forum, reference may be made to the contractual agreements entered into by it with other entities in the country. Thus, in the Top-Weld case (supra),

the foreign corporations LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT with their local contacts were made the basis of their being regarded by this Tribunal as corporations doing business in the country. Likewise, in Merill Lynch Futures, [38] Inc. vs. Court of Appeals,etc. the FUTURES CONTRACT entered into by the petitioner foreign corporation weighed heavily in the courts ruling. With the abovestated precedents in mind, we are persuaded to conclude that private respondent had been engaged in or doing business in the Philippines for some time now. This is the inevitable result after a scrutiny of the different contracts and agreements entered into by ITEC with its various business contacts in the country, particularly ASPAC and Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The latter is a local electronics firm engaged by ITEC to be its local technical representative, and to create a service center for ITEC products sold locally. Its arrangements, with these entities indicate convincingly ITECs purpose to bring about the situation among its customers and the general public that they are dealing directly with ITEC, and that ITEC is actively engaging in business in the country. [39] In its Master Service Agreement with TESSI, private respondents required its local technical representative to provide the employees of the technical and service center with ITEC identification cards and business cards, and to correspond only on ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone with ITEC Technical Assistance Center., such telephone being listed in the telephone book under the heading of ITEC Technical Assistance Center, and all calls being recorded and forwarded to ITEC on a weekly basis. What is more, TESSI was obliged to provide ITEC with a monthly report detailing the failure and repair of ITEC products, and to requisition monthly the materials and components needed to replace stock consumed in the warranty repairs of the prior month. A perusal of the agreements between petitioner ASPAC and the respondents shows that there are provisions which are highly restrictive in nature, such as to reduce petitioner ASPAC to a mere extension or instrument of the private respondent. The No Competing Product provision of the Representative Agreement between ITEC and ASPAC provides: The Representative shall not represent or offer for sale within the Territory any product which competes with an existing ITEC product or any product which ITEC has under active development. Likewise pertinent is the following provision: When acting under this Agreement, REPRESENTATIVE is authorized to solicit sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific customers and on terms and conditions expressly authorized by ITEC in writing. When ITEC entered into the disputed contracts with ASPAC and TESSI, they were carrying out the purposes for which it was created, i.e., to market electronics and communications products. The terms and conditions of the contracts as well as ITECs conduct [40] indicate that they established within our country a continuous business, and not merely one of a temporary character. Notwithstanding such finding that ITEC is doing business in the country, petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case against it. A foreign corporation doing business in the Philippines may sue in Philippine Courts although not authorized to do business here [41] against a Philippine citizen or entity who had contracted with and benefited by said corporation. To put it in another way, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with [42] it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the [43] statutes chiefly in cases where such person has received the benefits of the contract. The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non habere debet - no person ought to derive any advantage of his own wrong. This is as it should be for as mandated by law, every person must in the exercise of his rights and in [44] the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Concededly, corporations act through agents like directors and officers. Corporate dealings must be characterized by utmost good faith and fairness. Corporations cannot just feign ignorance of the legal rules as in most cases, they are manned by sophisticated officers with tried management skills and legal experts with practiced eye on legal problems. Each party to a corporate transaction is expected to act with utmost candor and fairness and, thereby allow a reasonable proportion between benefits and expected burdens. This is a norm which should be observed where one or the other is a foreign entity venturing in a global market. As observed by this Court in TOP-WELD (supra), viz: The parties are charged with knowledge of the existing law at the time they enter into a contract and at the time it is to become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the contract was executed and at all times thereafter. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore sustain the appellate courts view that it was incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements. The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case. The doctrine of lack of capacity to sue based on the failure to acquire a local license is based on considerations of sound public policy. The license requirement was imposed to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms [45] and then repudiate their obligations simply because the latter are not licensed to do business in this country. [46] In Antam Consolidated Inc. vs. Court of Appeals, et al. we expressed our chagrin over this commonly used scheme of defaulting local companies which are being sued by unlicensed foreign companies not engaged in business in the Philippines to invoke the lack of capacity to sue of such foreign companies. Obviously, the same ploy is resorted to by ASPAC to prevent the injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly acquired in violation of fiduciary arrangements between the parties. By entering into the Representative Agreement with ITEC, Petitioner is charged with knowledge that ITEC was not licensed to engage in business activities in the country, and is thus estopped from raising in defense such incapacity of ITEC, having chosen to ignore or even presumptively take advantage of the same. In Top-Weld, we ruled that a foreign corporation may be exempted from the license requirement in order to institute an action in our courts if its representative in the country maintained an independent status during the existence of the disputed

contract. Petitioner is deemed to have acceded to such independent character when it entered into the Representative Agreement with ITEC, particularly, provision 6.2 (supra). Petitioners insistence on the dismissal of this action due to the application, or non application, of the private international law rule of forumnon conveniens defies well-settled rules of fair play. According to petitioner, the Philippine Court has no venue to apply its discretion whether to give cognizance or not to the present action, because it has not acquired jurisdiction over the person of the plaintiff in the case, the latter allegedly having no personality to sue before Philippine Courts. This argument is misplaced because the court has already acquired jurisdiction over the plaintiff in the suit, by virtue of his filing the original complaint. And as we have already observed, petitioner are not at liberty to question plaintiffs standing to sue, having already acceded to the same by virtue of its entry into the Representative Agreement referred to earlier. Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the facts of the case, whether to give due course to [47] the suit or dismiss it, on the principle of forum non conveniens. Hence, the Philippine Court may refuse to assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: 1) That the Philippine Court is one to which the parties may conveniently resort to; 2) That the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, 3) That the Philippine Court has or is [48] likely to have power to enforce its decision. The aforesaid requirements having been met, and in view of the courts disposition to give due course to the questioned action, the matter of the present forum not being the most convenient as a ground for the suits dismissal, deserves scant consideration. IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding the RTC Order dated February 22, 1991, denying the petitioners Motion to Dismiss, and ordering the issuance of the Writ of Preliminary Injunction is hereby affirmed in toto. SO ORDERED.

G.R. No. 121315 July 19, 1999 COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its union president CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND SOCORRO BONCAYAO, petitioners, vs. THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS CORPORATION, IONICS CIRCUIT, INC., LAWRENCE QUA, REMEDIOS DE JESUS, MANUEL GONZAGA, ROMY DELA ROSA, TERESITA ANDINO, ARMAN CABACUNGAN, GERRY GABANA, EUSEBIA MARANAN and BERNADETH GACAD, respondents. G.R. No. 122136 July 19, 1999 COMPLEX ELECTRONICS CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA), represented by Union President, CECILIA TALAVERA, respondents. KAPUNAN, J.: These consolidated cases filed by Complex Electronics Employees Association (G.R. No. 121315) and Complex Electronics Corporation (G.R. No. 122136) assail the Decision of the NLRC dated March 10, 1995 which set aside the Decision of the Labor Arbiter dated April 30, 1993. The antecedents of the present petitions are as follows: Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic products. It was actually a subcontractor of electronic products where its customers gave their job orders, sent their own materials and consigned their equipment to it. The customers were foreign-based companies with different product lines and specifications requiring the employment of workers with specific skills for each product line. Thus, there was the AMS Line for the Adaptive Micro System, Inc., the Heril Line for Heril Co., Ltd., the Lite-On Line for the Lite-On Philippines Electronics Co., etc. The rank and file workers of Complex were organized into a union known as the Complex Electronics Employees Association, herein referred to as the Union. On March 4, 1992, Complex received a facsimile message from Lite-On Philippines Electronics Co., requiring it to lower its price by 10%. The full text reads as follows: This is to inform your office that Taiwan required you to reduce your assembly cost since it is higher by 50% and no longer competitive with that of mainland China. It is further instructed that Complex Price be patterned with that of other sources, which is 10% lower. 1 Please consider and give us your revised rates soon. Consequently, on March 9, 1992, a meeting was held between Complex and the personnel of the Lite-On Production Line. Complex informed its Lite-On personnel that such request of lowering their selling price by 10% was not feasible as they were already incurring losses at the present prices of their products. Under such circumstances, Complex regretfully informed the employees that it was left with no alternative but to close down the operations of the Lite-On Line. The company, however, promised that: 1) Complex will follow the law by giving the people to be retrenched the necessary 1 month notice. Hence, retrenchment will not take place until after 1 month from March 09, 1992. 2) The Company will try to prolong the work for as many people as possible for as long as it can by looking for job slots for them in another line if workload so allows and if their skills are compatible with the line requirement. 3) The company will give the employees to be retrenched a retrenchment pay as provided for by law i.e. half a month for every year 2 of service in accordance with Article 283 of the Labor Code of Philippines. The Union, on the other hand, pushed for a retrenchment pay equivalent to one (1) month salary for every year of service, which Complex refused. On March 13, 1992, Complex filed a notice of closure of the Lite-On Line with the Department of Labor and Employment (DOLE) and 3 the retrenchment of the ninety-seven (97) affected employees. On March 25, 1993, the Union filed a notice of strike with the National Conciliation and Mediation Board (NCMB).1wphi1.nt Two days thereafter, or on March 27, 1993, the Union conducted a strike vote which resulted in a "yes" vote. In the evening of April 6, 1992, the machinery, equipment and materials being used for production at Complex were pulled-out from the company premises and transferred to the premises of Ionics Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total closure of company operation was effected at Complex. A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th month pay, damages and attorney's fees. The Union alleged that the pull-out of the machinery, equipment and materials from the company premises, which resulted to the sudden closure of 4 the company was in violation of Section 3 and 8, Rule XIII, Book V of the Labor Code of the Philippines and the existing CBA. Ionics was impleaded as a party defendant because the officers and management personnel of Complex were also holding office at Ionics with Lawrence Qua as the President of both companies. Complex, on the other hand, averred that since the time the Union filed its notice of strike, there was a significant decline in the quantity and quality of the products in all of the production lines. The delivery schedules were not met prompting the customers to lodge complaints against them. Fearful that the machinery, equipment and materials would be rendered inoperative and unproductive due to the impending strike of the workers, the customers ordered their pull-out and transfer to Ionics. Thus, Complex was compelled to cease operations. Ionics contended that it was an entity separate and distinct from Complex and had been in existence since July 5, 1984 or eight (8) years before the labor dispute arose at Complex. Like Complex, it was also engaged in the semi-conductor business where the machinery, equipment and materials were consigned to them by their customers. While admitting that Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied having Qua as their owner since he had no recorded subscription of P1,200,00.00 in Ionics as claimed by the Union. Ionics further argued that the hiring of some displaced workers of Complex was an exercise of management prerogatives. Likewise, the transfer of the machinery, equipment and materials from Complex was the decision of the owners who were common customers of Complex and Ionics. On April 30, 1993, the Labor Arbiter rendered a decision the dispositive portion of which reads:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered ordering the respondent Complex Electronics Corporation and/or Ionics Circuit Incorporated and/or Lawrence Qua, to reinstate the 531 above-listed employees to their former position with all the rights, privileges and benefits appertaining thereto, and to pay said complainants-employees the aggregate backwages amounting P26,949,891.80 as of April 6, 1993 and to such further backwages until their actual reinstatement. In the event reinstatement is no longer feasible for reasons not attributable to the complainants, said respondents are also liable to pay complainants-employees their separation pay to be computed at the rate of one (1) month pay for every year of service, a fraction of at least six (6) months to be considered as one whole year. Further, the aforenamed three (3) respondents are hereby ordered to pay jointly and solidarily the complainants-employees an aggregate moral damages in the amount of P1,062,000.00 and exemplary damages in the aggregate sum of P531,000.00. And finally, said respondents are ordered to pay attorney's fees equivalent to ten percent (10%) of whatever has been adjudicated herein in favor of the complainants. The charge of slowdown strike filed by respondent Complex against the union is hereby dismissed for lack of merit. 5 SO ORDERED. Separate appeals were filed by Complex, Ionics and Lawrence Qua before the respondent NLRC which rendered the questioned decision on March 10, 1995, the decretal portion of which states: WHEREFORE, premises considered, the assailed decision is hereby ordered vacated and set aside, and a new one entered ordering respondent Complex Electronics Corporation to pay 531 complainants equivalent to one month pay in lieu of notice and separation pay equivalent to one month pay for every year of service and a fraction of six months considered as one whole year. Respondents Ionics Circuit Incorporated and Lawrence Qua are hereby ordered excluded as parties solidarily liable with Complex Electronics Corporation. The award of moral damages is likewise deleted for lack of merit. Respondent Complex, however, is hereby ordered to pay attorney's fees equivalent to ten (10%) percent of the total amount of award granted the complainants. 6 SO ORDERED. Complex, Ionics and the Union filed their motions for reconsideration of the above decision which were denied by the respondent 7 NLRC in an Order dated July 11, 1995. Hence these petitions. In G.R. No. 121315, petitioner Complex Electronics Employees Association asseverates that the respondent NLRC erred when it: I SET ASIDE THE DECISION DATED APRIL 30, 1993 ISSUED BY THE HON. LABOR ARBITER JOSE DE VERA. II EXCLUDED PRIVATE RESPONDENTS IONICS CIRCUITS, INCORPORATED AND LAWRENCE QUA AS PARTIES SOLIDARILY LIABLE WITH COMPLEX ELECTRONICS CORPORATION. III FOUND THAT COMPLEX ELECTRONICS CORPORATION WAS NOT GUILTY OF ILLEGAL CLOSURE AND ILLEGAL DISMISSAL OF THE PETITIONERS. IV REMOVED THE AWARD FOR BACKWAGES, REINSTATEMENT AND DAMAGES IN THE DECISION DATED APRIL 30, 1993 ISSUED BY THE 8 HON. LABOR ARBITER JOSE DE VERA. On the other hand, in G.R. No. 122136, petitioner Complex Electronics Corporation raised the following issues, to wit: I PUBLIC RESPONDENT NLRC ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN PROMULGATING ITS DECISION AND ORDER DATED 10 MARCH 1995, AND 11 JULY 1995, RESPECTIVELY, THE SAME BEING IN CONTRAVENTION OF THE EXPRESS MANDATE OF THE LAW GOVERNING THE PAYMENT OF ONE MONTH PAY IN LIEU OF NOTICE, SEPARATION PAY AND ATTORNEY'S FEES. II THERE IS NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF 9 LAW. 10 On December 23, 1996, the Union filed a motion for consolidation of G.R. No. 122136 with G.R. No. 121315. The motion was 11 granted by this Court in a Resolution dated June 23, 1997. On November 10, 1997, the Union presented additional documentary evidence which consisted of a newspaper clipping in the Manila Bulletin, dated August 18, 1997 bearing the picture of Lawrence Qua with the following inscription: RECERTIFICATION. The Cabuyao (Laguna) operation of Ionic Circuits, Inc. consisting of plants 2, 3, 4 and 5 was recertified to ISO 9002 as electronics contract manufacturer by the TUV, a rating firm with headquarters in Munich, Germany. Lawrence Qua, Ionics president and chief executive officer, holds the plaque of recertification presented by Gunther Theisz (3rd from left), regional manager of TUV Products Services Asia during ceremonies held at Sta. Elena Golf Club. This is the first of its kind in the country that 12 four plants were certified at the same time. The Union claimed that the said clipping showed that both corporations, Ionics and Complex are one and the same. In answer to this allegation, Ionics explained that the photo which appeared at the Manila Bulletin issue of August 18, 1997 pertained only to respondent Ionics' recertification of ISO 9002. There was no mention about Complex Electronics Corporation. 13 Ionics claimed that a mere photo is insufficient to conclude that Ionics and Complex are one and the same. We shall first delve on the issues raised by the petitioner Union. The Union anchors its position on the fact that Lawrence Qua is both the president of Complex and Ionics and that both companies have the same set of Board of Directors. It claims that business has not ceased at Complex but was merely transferred to Ionics, a runaway shop. To prove that Ionics was just a runaway shop, petitioner asserts that out of the 80,000 shares comprising the increased capital stock of Ionics, it was Complex that owns majority of said shares with P1,200,000.00 as its capital subscription and P448,000.00 as its paid up investment, compared to P800,000.00 subscription and P324,560.00 paid-up owing to the other stockholders, combined. Thus, according to the Union, there is a clear ground to pierce the veil of corporate fiction.

The Union further posits that there was an illegal lockout/illegal dismissal considering that as of March 11, 1992, the company had a gross sales of P61,967,559 from a capitalization of P1,500,000.00. It even ranked number thirty among the top fifty corporations in Muntinlupa. Complex, therefore, cannot claim that it was losing in its business which necessitated its closure. With regards to Lawrence Qua, petitioner maintains that he should be made personally liable to the Union since he was the principal player in the closure of the company, not to mention the clandestine and surreptitious manner in which such closure was carried out, without regard to their right to due process. The Union's contentions are untenable. A "runaway shop" is defined as an industrial plant moved by its owners from one location to another to escape union labor regulations or state laws, but the term is also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their union 14 activities. It is one wherein the employer moves its business to another location or it temporarily closes its business for anti-union 15 purposes. A "runaway shop" in this sense, is a relocation motivated by anti-union animus rather than for business reasons. In this case, however, Ionics was not set up merely for the purpose of transferring the business of Complex. At the time the labor dispute arose at Complex, Ionics was already existing as an independent company. As earlier mentioned, it has been in existence since July 5, 1984. It cannot, therefore, be said that the temporary closure in Complex and its subsequent transfer of business to Ionics was for anti-union purposes. The Union failed to show that the primary reason for the closure of the establishment was due to the union activities of the employees. The mere fact that one or more corporations are owned or controlled by the same or single stockholder is not a sufficient ground for 16 disregarding separate corporate personalities. Thus, in Indophil Textile Mill Workers Union vs. Calica, we ruled that: [I]n the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic. 17 Likewise, in Del Rosario vs. National Labor Relations Commission, the Court stated that substantial identity of the incorporators of two corporations does not necessarily imply that there was fraud committed to justify piercing the veil of corporate fiction. 18 In the recent case of Santos vs. National Labor Relations Commission, we also ruled that: The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission, thus: . . . . . Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Ionics may be engaged in the same business as that of Complex, but this fact alone is not enough reason to pierce the veil of corporate fiction of the corporation. Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. This fiction of corporate entity can only be disregarded in certain cases such as when it is used to defeat 19 public convenience, justify wrong, protect fraud, or defend crime. To disregard said separate juridical personality of a corporation, 20 the wrongdoing must be clearly and convincingly established. As to the additional documentary evidence which consisted of a newspaper clipping filed by petitioner Union, we agree with respondent Ionics that the photo/newspaper clipping itself does not prove that Ionics and Complex are one and the same entity. The photo/newspaper clipping merely showed that some plants of Ionics were recertified to ISO 9002 and does not show that there is a relation between Complex and Ionics except for the fact that Lawrence Qua was also the president of Ionics. However, as we have stated above, the mere fact that both of the corporations have the same president is not in itself sufficient to pierce the veil of corporate fiction of the two corporations. We, likewise, disagree with the Union that there was in this case an illegal lockout/illegal dismissal. Lockout is the temporary refusal 21 of employer to furnish work as a result of an industrial or labor dispute. It may be manifested by the employer's act of excluding 22 employees who are union members. In the present case, there was a complete cessation of the business operations at Complex not because of the labor dispute. It should be recalled that, before the labor dispute, Complex had already informed the employees that they would be closing the Lite-On Line. The employees, however, demanded for a separation pay equivalent to one (1) month salary for every year of service which Complex refused to give. When Complex filed a notice of closure of its Lite-On Line, the employees filed a notice of strike which greatly alarmed the customers of Complex and this led to the pull-out of their equipment, machinery and materials from Complex. Thus, without the much needed equipment, Complex was unable to continue its business. It was left with no other choice except to shut down the entire business. The closure, therefore, was not motivated by the union activities of the employees, but rather by necessity since it can no longer engage in production without the much needed materials, equipment and machinery. We quote with approval the findings of the respondent NLRC on this matter: At first glance after reading the decision a quo, it would seem that the closure of respondent's operation is not justified. However, a deeper examination of the records along with the evidence, would show that the closure, although it was done abruptly as there was no compliance with the 30-day prior notice requirement, said closure was not intended to circumvent the provisions of the Labor Code on termination of employment. The closure of operation by Complex on April 7, 1992 was not without valid reasons. Customers of respondent alarmed by the pending labor dispute and the imminent strike to be foisted by the union, as shown by their strike vote, directed respondent Complex to pull-out its equipment, machinery and materials to other safe bonded warehouse. Respondent being mere consignees of the equipment, machinery and materials were without any recourse but to oblige the customers' directive. The pull-out was effected on April 6, 1992. We can see here that Complex's action, standing alone, will not result in illegal closure that would cause the illegal dismissal of the complainant workers. Hence, the Labor Arbiter's conclusion that since there were only two (2) of respondent's customers who have expressed pull-out of business from respondent Complex while most of the customer's have not and, therefore, it is not justified to close operation cannot be upheld. The determination to cease operation is a prerogative of management that is usually not interfered with by the State as no employer can be required to continue operating at a loss simply to maintain the workers in employment. That would be taking of property without due process of law which the employer has the right to resist. (Columbia Development Corp. vs. Minister of Labor and Employment, 146 SCRA 42).

As to the claim of petitioner Union that Complex was gaining profit, the financial statements for the years 1990, 1991 and 1992 issued by the auditing and accounting firm Sycip, Gorres and Velayo readily show that Complex was indeed continuously 23 experiencing deficit and losses. Nonetheless, whether or not Complex was incurring great losses, it still one of the management's prerogative to close down its business as long as it is done in good faith. Thus, in Catatista et al., vs. NLRC and Victorias Milling 24 Co., Inc. we ruled: In any case, Article 283 of the Labor Code is clear that an employer may close or cease his business operations or undertaking even if he is not suffering from serious business losses or financial reverses, as long as he pays his employees their termination pay in the amount corresponding to their length of service. It would indeed, be stretching the intent and spirit of the law if we were to unjustly interfere in management's prerogative to close or cease its business operations just because said business operations or undertaking is not suffering from any loss. Going now to the issue of personal liability of Lawrence Qua, it is settled that in the absence of malice or bad faith, a stockholder or 25 an officer of a corporation cannot be made personally liable for corporate liabilities. In the present case, while it may be true that the equipment, materials and machinery were pulled-out of Complex and transferred to Ionics during the night, their action was sufficiently explained by Lawrence Qua in his Comment to the petition filed by the Union. We quote: The fact that the pull-out of the machinery, equipment and materials was effected during nighttime is not per se an indicia of bad faith on the part of respondent Qua since he had no other recourse, and the same was dictated by the prevailing mood of unrest as the laborers were already vandalizing the equipment, bent on picketing the company premises and threats to lock out the company officers were being made. Such acts of respondent Qua were, in fact, made pursuant to the demands of Complex's customers who were already alarmed by the pending labor dispute and imminent strike to be stage by the laborers, to have their equipment, machinery and materials pull out of Complex. As such, these acts were merely done pursuant to his official functions and were not, 26 in any way, made with evident bad faith. We perceive no intention on the part of Lawrence Qua and the other officers of Complex to defraud the employees and the Union. They were compelled to act upon the instructions of their customers who were the real owners of the equipment, materials and machinery. The prevailing labor unrest permeating within the premises of Complex left the officers with no other choice but to pull them out of Complex at night to prevent their destruction. Thus, we see no reason to declare Lawrence Qua personally liable to the Union. Anent the award of damages, we are inclined to agree with the NLRC that there is no basis for such award. We again quote the respondent NLRC with favor: By and large, we cannot hold respondents guilty of unfair labor practice as found by the Labor Arbiter since the closure of operation of Complex was not established by strong evidence that the purpose of said closure was to interfere with the employees' right to self-organization and collective bargaining. As very clearly established, the closure was triggered by the customers' pull-out of their equipment, machinery and materials, who were alarmed by the pending labor dispute and the imminent strike by the union, and as a protection to their interest pulled-out of business from Complex who had no recourse but to cease operation to prevent further losses. The indiscretion committed by the Union in filing the notice of strike, which to our mind is not the proper remedy to question the amount of benefits due the complainants who will be retrenched at the closure of the Lite-On Line, gave a wrong signal to customers of Complex, which consequently resulted in the loss of employment of not only a few but to all the of the workers. It may be worth saying that the right to strike should only be a remedy of last resort and must not be used as a show of force against the 27 employer. We shall now go to the issues raised by Complex in G.R. No. 122136. Complex claims that the respondent NLRC erred in ordering them to pay the Union one (1) month pay as indemnity for failure to give notice to its employees at least thirty (30) days before such closure since it was quite clear that the employees were notified of the impending closure of the Lite-On Line as early as March 9, 1992. Moreover, the abrupt cessation of operations was brought about by the sudden pull-out of the customers which rendered it impossible for Complex to observe the required thirty (30) days notice. Art. 283 of the Labor Code provides that: Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof . . . . (Emphasis ours.) The purpose of the notice requirement is to enable the proper authorities to determine after hearing whether such closure is being done in good faith, i.e., for bona fide business reasons, or whether, to the contrary, the closure is being resorted to as a means of 28 evading compliance with the just obligations of the employer to the employees affected. While the law acknowledges the management prerogative of closing the business, it does not, however, allow the business 29 establishment to disregard the requirements of the law. The case of Magnolia Dairy Products v. NLRC is quite emphatic about this: The law authorizes an employer, like the herein petitioners, to terminate the employment of any employee due to the installation of labor saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management, as in this case. Nonetheless, this did not excuse petitioner from complying with the required written notice to the employee and to the Department of Labor and Employment (DOLE) at least one month before the intended date of termination. This procedure enables an employee to contest the reality or good faith character of the asserted ground for the termination of his services before the DOLE. The failure of petitioner to serve the written notice to private respondent and to the DOLE, however, does not ipso facto make private respondent's termination from service illegal so as to entitle her to reinstatement and payment of backwages. If at all, her termination from service is merely defective because it was not tainted with bad faith or arbitrariness and was due to a valid cause. The well settled rule is that the employer shall be sanctioned for non-compliance with the requirements of, or for failure to observe due process in terminating from service its employee. In Wenphil Corp. v. NLRC, we sanctioned the employer for this failure by ordering it to indemnify the employee the amount of P1,000.00. Similarly, we imposed the same amount as indemnification in Rubberworld (Phils.), Inc. v. NLRC, and, Aurelio v. NLRC and Alhambra Industries,Inc. v. NLRC. Subsequently, the sum of P5,000.00 was awarded to an employee in Worldwide Papermills, Inc. v. NLRC, and P2,000.00 in Sebuguero, et al.,v. NLRC, et al. Recently, the sum of P5,000.00 was again imposed as indemnify against the employer. We see no valid and cogent reason why petitioner should

not be likewise sanctioned for its failure to serve the mandatory written notice. Under the attendant facts, we find the amount of P5,000.00, to be just and reasonable. We, therefore, find no grave abuse of discretion on the part of the NLRC in ordering Complex to pay one (1) month salary by way of indemnity. It must be borne in mind that what is at stake is the means of livelihood of the workers so they are at least entitled to be 30 formally informed of the management decisions regarding their employment. Complex, likewise, maintains that it is not liable for the payment for the payment of separation pay since Article 283 of the Labor Code awards separation pay only in cases of closure not due to serious business reversals. In this case, the closure of Complex was brought about by the losses being suffered by the corporation. We disagree. Art. 283 further provides: . . . . In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in case of cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. It is settled that in case of closures or cessation of operation of business establishments not due to serious business losses or 31 financial reverses, the employees are always given separation benefits. In the instant case, notwithstanding the financial losses suffered by Complex, such was, however, not the main reason for its closure. Complex admitted in its petition that the main reason for the cessation of the operations was the pull-out of the materials, equipment and machinery from the premises of the corporation as dictated by its customers. It was actually still capable of continuing the business but opted to close down to prevent further losses. Under the facts and circumstances of the case, we find no grave abuse of discretion on the part of the public respondent in awarding the employees one (1) month pay for every year of service as termination pay.1wphi1.nt WHEREFORE, premises considered, the assailed decision of the NLRC is AFFIRMED. SO ORDERED.

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos,respondents. DECISION HERMOSISIMA, JR., J.: The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal property found in the premises of petitioners sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective onNovember 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that at the time of the termination of private respondents employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. 1 On December 19, 1984, the Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by 2 petitioner on the ground that the said decision had already become final and executory. On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents backwages 3 amounted to P199,800.00. On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises. On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989: 1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; 2. Levy was made upon personal properties he found in the premises; 4 3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989. On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission. The General Information Sheet submitted by the petitioner1 revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed HPPI P6,999,500.00 Antonio W. Lim 2,900,000.00 Dennis S. Cuyegkeng 300.00 Elisa C. Lim 100,000.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Dennis S. Cuyegkeng Member Elisa C. Lim Member

Teodulo R. Dino Member Virgilio O. Casino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa 0. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road 5 Valenzuela, Metro Manila. On the other hand, the General Information Sheet of HPPI revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed Antonio W. Lim P400,000.00 Elisa C. Lim 57,700.00 AWL Trading 455,000.00 Dennis S. Cuyegkeng 40,100.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Elisa C. Lim Member Dennis S. Cuyegkeng Member Virgilio O. Casino Member Teodulo R. Dino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa O. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 6 355 Maysan Road, Valenzuela, Metro Manila. On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction. On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order. Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a breakopen order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present petition. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a thirdparty claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, 7 the same President and the same set of officers and subscribers. We find petitioners contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from 8 other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction 9 created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public 10 convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality 11 of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely 12 an adjunct, a business conduit or an alter ego of another corporation. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and records. 13 4. Methods of conducting the business. The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate juridical personality of corporations as follows: Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants 14 relationship to that operation. Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely 15 one of fact. In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Furthermore, the NLRC stated that: Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not 16 of respondents. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. 17 The facts in this case are analogous to Claparols v. Court of Industrial Relations where we had the occasion to rule: Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. it is very clear that the latter corporation was a continuation and successor of the first entity x x x. Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that: Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order. Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial 18 evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED. SO ORDERED.

ROSAURA P. CORDON, complainant, vs. JESUS BALICANTA, respondent. RESOLUTION PER CURIAM: On August 21, 1985, herein complainant Rosaura Cordon filed with this Court a complaint for disbarment, docketed as Administrative Case No. 2797, against Atty. Jesus Balicanta. After respondents comment to the complaint and complainants reply thereto, this Court, on March 29, 1995 referred the matter to the Integrated Bar of the Philippines (IBP, for brevity) for investigation, report and recommendation within 90 days from notice. Commissioner George Briones of the IBP Commission on Bar Discipline was initially tasked to investigate the case. Commissioner Briones was later on replaced by Commissioner Renato Cunanan. Complainant filed a supplemental complaint which was duly admitted and, as agreed upon, the parties filed their respective position papers. Based on her complaint, supplemental complaint, reply and position paper, the complainant alleged the following facts: When her husband Felixberto C. Jaldon died, herein complainant Rosaura Cordon and her daughter Rosemarie inherited the properties left by the said decedent. All in all, complainant and her daughter inherited 21 parcels of land located in Zamboanga City. The lawyer who helped her settle the estate of her late husband was respondent Jesus Balicanta. Sometime in the early part of 1981, respondent enticed complainant and her daughter to organize a corporation that would develop the said real properties into a high-scale commercial complex with a beautiful penthouse for complainant. Relying on these apparently sincere proposals, complainant and her daughter assigned 19 parcels of land to Rosaura Enterprises, Incorporated, a newly-formed and duly registered corporation in which they assumed majority ownership. The subject parcels of land were then registered in the name of the corporation. Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as Chairman of the Board, President, General Manager and Treasurer. The respondent also made complainant sign a document which turned out to be a voting trust agreement. Respondent likewise succeeded in making complainant sign a special power of attorney to sell and mortgage some of the parcels of land she inherited from her deceased husband. She later discovered that respondent transferred the titles of the properties to a certain Tion Suy Ong who became the new registered owner thereof. Respondent never accounted for the proceeds of said transfers. In 1981, respondent, using a spurious board resolution, contracted a loan from the Land Bank of the Philippines (LBP, for brevity) in the amount of Two Million Two Hundred Twenty Pesos (P2,220,000) using as collateral 9 of the real properties that the complainant and her daughter contributed to the corporation. The respondent ostensibly intended to use the money to construct the Baliwasan Commercial Center (BCC, for brevity). Complainant later on found out that the structure was made of poor materials such as sawali, coco lumber and bamboo which could not have cost the corporation anything close to the amount of the loan secured. For four years from the time the debt was contracted, respondent failed to pay even a single installment. As a result, the LBP, in a letter dated May 22, 1985, informed respondent that the past due amortizations and interest had already accumulated to Seven Hundred Twenty-nine Thousand Five Hundred Three Pesos and Twenty-five Centavos (P729,503.25). The LBP made a demand on respondent for payment for the tenth time. Meanwhile, when the BCC commenced its operations, respondent started to earn revenues from the rentals of BCCs tenants. On October 28, 1987, the LBP foreclosed on the 9 mortgaged properties due to nonpayment of the loan. Respondent did not exert any effort to redeem the foreclosed properties. Worse, he sold the corporations right to redeem the mortgaged properties to a certain Hadji Mahmud Jammang through a fake board resolution dated January 14, 1989 which clothed himself with the authority to do so. Complainant and her daughter, the majority stockholders, were never informed of the alleged meeting held on that date. Again, respondent never accounted for the proceeds of the sale of the right to redeem. Respondent also sold to Jammang a parcel of land belonging to complainant and her daughter which was contiguous to the foreclosed properties and evidenced by Transfer Certificate of Title No. 62807. He never accounted for the proceeds of the sale. Sometime in 1983, complainants daughter, Rosemarie, discovered that their ancestral home had been demolished and that her mother, herein complainant, was being detained in a small nipa shack in a place called Culianan. Through the help of Atty. Linda Lim, Rosemarie was able to locate her mother. Rosemarie later learned that respondent took complainant away from her house on the pretext that said ancestral home was going to be remodeled and painted. But respondent demolished the ancestral home and sold the lot to Tion Suy Ong, using another spurious board resolution designated as Board Resolution No. 1, series of 1992. The resolution contained the minutes of an alleged organizational meeting of the directors of the corporation and was signed by Alexander Wee, Angel Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her daughter did not know how these persons became stockholders and directors of the corporation. Respondent again did not account for the proceeds of the sale. Complainant and her daughter made several demands on respondent for the delivery of the real properties they allegedly assigned to the corporation, for an accounting of the proceeds of the LBP loan and as well as the properties sold, and for the rentals earned by BCC. But the demands remained unheeded. Hence, complainant and her daughter, in a letter dated June 4, 1985, terminated the services of respondent as their lawyer and repeated their demands for accounting and turn-over of the corporate funds, and the return of the 19 titles that respondent transferred to the corporation. They also threatened him with legal action in a letter dated August 3, 1985. Soon after, complainant found out from the Securities and Exchange Commission (SEC, for brevity) that Rosaura Enterprises, Inc., due to respondents refusal and neglect, failed to submit the corporations annual financial statements for 1981, 1982 and 1983; SEC General Information Sheets for 1982, 1983 and 1984; Minutes of Annual Meetings for 1982, 1983 and 1984; and Minutes of Annual Meetings of Directors for 1982, 1983 and 1984. Complainant also discovered that respondent collected rental payments from the tenants of BCC and issued handwritten receipts which he signed, not as an officer of the corporation but as the attorney-at-law of complainant. Respondent also used the tennis court of BCC to dry his palay and did not keep the buildings in a satisfactory state, so much so that the divisions were losing plywood and other materials to thieves. Complainant likewise accused respondent of circulating rumors among her friends and relatives that she had become insane to prevent them from believing whatever complainant said. According to complainant, respondent proposed that she legally separate from her present husband so that the latter would not inherit from her and that respondent be adopted as her son. For his defense, respondent, in his comment and position paper, denied employing deceit and machination in convincing complainant and her daughter to assign their real properties to the corporation; that they freely and voluntary executed the deeds of assignment and the voting trust agreement that they signed; that he did not single-handedly manage the corporation as evidenced by certifications of the officers and directors of the corporation; that he did not use spurious board resolutions

authorizing him to contract a loan or sell the properties assigned by the complainant and her daughter; that complainant and her daughter should be the ones who should render an accounting of the records and revenues inasmuch as, since 1984 up to the present, the part-time corporate book-keeper, with the connivance of the complainant and her daughter, had custody of the corporate records; that complainant and her daughter sabotaged the operation of BCC when they illegally took control of it in 1986; that he never pocketed any of the proceeds of the properties contributed by the complainant and her daughter; that the demolition of the ancestral home followed legal procedures; that complainant was never detained in Culianan but she freely and voluntarily lived with the family of P03 Joel Constantino as evidenced by complainants own letter denying she was kidnapped; and that the instant disbarment case should be dismissed for being premature, considering the pendency of cases before the SEC and the Regional Trial Court of Zamboanga involving him and complainant. [1] Based on the pleadings and position papers submitted by the parties, Commissioner Renato Cunanan, in his report dated July 1, 1999, recommended respondents disbarment based on the following findings: A. The complainant, Rosaura Jaldon-Cordon and her daughter, Rosemarie were stockholders of a corporation, together with respondent, named Rosaura Enterprises, Inc. Per the Articles of Incorporation marked as Annex A of Complainants Position Paper, complainants subscription consists of 55% of the outstanding capital stock while her daughters consists of 18%, giving them a total of 73%. Respondents holdings consist of 24% while three other incorporators, Rosauro L. Alvarez, Vicente T. Maalac and Darhan S. Graciano each held 1% of the capital stock of the corporation. B. On April 5, 1981, complainant and her daughter Rosemarie Jaldon executed two Deeds of Transfer and Assignment conveying and transferring to the corporation 19 parcels of land in exchange for shares of stock in the corporation. xxx xxx xxx C. Both Deeds of Assignment particularly page 3 thereof indicate that respondent accepted said assignment of properties and titles in behalf of the corporation as Treasurer. The deeds were signed on April 5, 1981. xxx xxx xxx Together, therefore, complainant and her daughter owned 1,711 shares of the 1,750 shares comprising the authorized capital stock of the corporation of 97% thereof. No increase in capitalization was applied for by the corporation. F. Respondent claims in his Comment, his Answer and his Position Paper that on April 4, 1981 he was elected as Chairman and Director and on April 5, 1981 he was elected President of the corporation. Respondents own Annexes marked as G and G-1 of his Comment show that on April 4, 1981 he was not only elected as Chairman and Director as he claims but as Director, Board Chairman and President. The purported minutes was only signed by respondent and an acting Secretary by the name of Vicente Maalac. Said Annex does not show who was elected Treasurer. Respondents Annex H and H-1 shows that in the alleged organizational meeting of the directors on April 5, 1981 a certain Farnacio Bucoy was elected Treasurer. Bucoys name does not appear as an incorporator nor a stockholder anywhere in the documents submitted. The purported minutes of the organizational meeting of the directors was signed only by respondent Balicanta and a Secretary named Verisimo Martin. G. Since respondent was elected as Director, Chairman and President on April 4, 1981 as respondents own Annexes G to G-1 would show, then complainants claim that respondent was likewise acting as Treasurer of two corporations bear truth and credence as respondent signed and accepted the titles to 19 parcels of land ceded by the complainant and her daughter, as Treasurer on April 5, 1981 after he was already purportedly elected as Chairman, President and Director. H. Respondent misleads the Commission into believing that all the directors signed the minutes marked as Exhibit H to H-1 by stating that the same was duly signed by all the Board of Directors when the document itself shows that only he and one Verisimo Martin signed the same. He also claims that all the stockholders signed the minutes of organizational meeting marked as Annexes G and G-1 of his Comment yet the same shows that only the acting Chairman and acting Secretary signed. I. Respondent claims that the Board or its representative was authorized by the stockholders comprising 2/3 of the outstanding capital stock, as required by law, to mortgage the parcels of land belonging to the corporation, which were all assigned to the corporation by complainant and her daughter, by virtue of Annex I and I-1: attached to his Comment. The subject attachment however reveals that only the following persons signed their conformity to the said resolution: respondent Balicanta who owned 109 shares, Vicente Maalac (1 share), Daihan Graciano (1 share). Complainants who collectively held a total of 1,711 shares out of the 1,750 outstanding capital stock of the corporation were not represented in the purported stockholders meeting authorizing the mortgage of the subject properties. The 2/3 vote required by law was therefore not complied with yet respondent proceeded to mortgage the subject 9 parcels of land by the corporation. J. Respondent further relies on Annex J of his Comment, purportedly the minutes of a special meeting of the Board of Directors authorizing him to obtain a loan and mortgage the properties of the corporation dated August 29, 1981. This claim is baseless. The required ratification of 2/3 by the stockholders of records was not met. Again, respondent attempts to mislead the Commission and Court. K. Further, the constitution of the Board is dubious. The alleged minutes of the organizational meeting of the stockholders electing the members of the Board, have not been duly signed by the stockholders as shown in respondents annex G which was purportedly the organizational meeting of the stockholders. L. Also, Annex J of respondents Comment which purportedly authorized him to obtain a loan and to mortgage the 9 parcels of land was only signed by himself and a secretary. M. In said Annex 'J' of respondents Comment he stated that complainant Rosaura Cordon was on leave by virtue of a voting trust agreement allegedly executed by complainant in his favor covering all her shares of stock. The claim is baseless. The voting trust referred to by respondent (annex D of his Comment), even if it were assumed to be valid, covered only 266 shares of complainants yet she owned a total of 1,039 shares after she and her daughter ceded in favor of the corporation 19 parcels of land. Being a former lawyer to complainant, respondent should have ensured that her interest was safeguarded. Yet, complainant was apparently and deliberately left our (sic) on the pretext that, she had executed a voting trust agreement in favor of respondent.

It is suspicious that complainant was made to sign a voting trust agreement on 21 August 1981 and immediately thereafter, the resolutions authorizing respondent to obtain a loan and to mortgage the 9 parcels of land were passed and approved. N. It is also highly irregular for respondent who is a lawyer, to allow a situation to happen where, with the exclusion of complainant as director the result was that there remained only 4 members of the Board,. O. Respondents own pleadings submitted to the Commission contradict each other. 1. For instance, while in his Comment respondent DENIES that he employed deceit and machination in convincing the complainant and her daughter to sign the articles of incorporation of Rosaura Enterprises and in ceding to the corporation 19 parcels of land in Zamboanga City, because they freely, intelligently and voluntarily signed the same, yet, in his Position Paper, respondent took another stance. In paragraphs 1.1 and 1.2 of his Position Paper which was submitted 12 years later, respondent claimed that it was actually the idea of Atty. Rosaura L. Alvarez that a corporation be put up to incorporate the estate of the late Felixberto D. Jaldon. 2. Likewise, respondent claimed that complainant and her daughter were not directors, hence they were not notified of meetings, in paragraph 2-6 (c) of his Comment he blamed the other stockholders and directors for the corporations inability to comply with the Land Banks demands saying that they have consistently failed since 1982 to convene (1.) for the annual stockholders meetings and (i.i) for the monthly board meeting. His own pleadings claim that he had been the Chairman/President since 1981 to the present. If (sic) so, it was his duty to convene the stockholders and the directors for meetings. Respondent appeared able to convene the stockholders and directors when he needed to make a loan of p2.2 million; when he sold the corporations right of redemption over the foreclosed properties of the corporation to Jammang, when he sold one parcel of land covered by TCT 62,807 to Jammang in addition to the 9 parcels of land which were foreclosed, and when he sold the complainants ancestral home covered by TCT No. 72,004. It is thus strange why respondent claims that the corporation could not do anything to save the corporations properties from being foreclosed because the stockholders and directors did not convene. This assertion of respondent is clearly evident of dishonest, deceitful and immoral conduct especially because, in all his acts constituting conveyances of corporate property, respondent used minutes of stockholders and directors meetings signed only by him and a secretary or signed by him and persons who were not incorporators much less stockholders. It is worthy of note that in respondents Exhibits 15, 16, 17 and 18 of his position paper, there were 7 new stockholders and complainant appeared to have only 266 shares to her name while her daughter Rosemarie had no shares at all. Respondent did not present any proof of conveyance of shares by complainant and her daughter. It is further worth noting that complainants voting trust (annex D of respondents Comment) where she allegedly entrusted 266 shares to respondent on August 21, 1981 had only a validity of 5 years. Thus, she should have had her entire holdings of 1,283 shares back in her name in August 1986. Respondents purported minutes of stockholders meeting (Exhs. 15 and 17) do not reflect this. There was no explanation whatsoever from respondent on how complainant and her daughter lost their 97% control holding in the corporation. 3. As a further contradiction in respondents pleadings, we note that in paragraph 2.7.C of his Comment he said that only recently, this year, 1985, the complainant and her aforenamed daughter examined said voluminous supporting receipts/documents which had previously been examined by the Land Bank for loan releases, during which occasion respondent suggested to them that the corporation will have to hire a full-time book-keeper to put in order said voluminous supporting receipts/documents, to which they adversely reacted due to lack of corporate money to pay for said book-keeper. But in respondents Position Paper par. 6.3 he stated that: Anyway, it is not the respondent but rather the complainant who should render a detailed accounting to the corporation of the corporate records as well as corporate revenues/income precisely because since 1994 to the present: (a). The corporate part-time book-keeper Edilberto Benedicto, with the indispensable connivance and instigation of the complainant and her daughter, among others, has custody of the corporate records, xxx 4. In other contradictory stance, respondent claims in par. 7.3 of his position paper that complainant and her daughter sabotaged the BCC operations of the corporation by illegally taking over actual control and supervision thereof sometime in 1986, xxx Yet respondents own exhibits in his position paper particularly Exhibit 15 and 16 where the subject of the foreclosed properties of the corporation comprising the Baliwasan Commercial Center (BCC) was taken up, complainant and her daughter were not even present nor were they the subject of the discussion, belying respondents claim that the complainant and her daughter illegally took actual control of BCC. 5. On the matter of the receipts issued by respondent evidencing payment to him of rentals by lessees of the corporation, attached to the complaint as Annexes H to H-17, respondent claims that the receipts are temporary in nature and that subsequently regular corporate receipts were issued. On their face however the receipts clearly appear to be official receipts, printed and numbered duly signed by the respondent bearing his printed name. It is difficult to believe that a lawyer of respondent stature would issue official receipts to lessees if he only meant to issue temporary ones. 6. With regard to respondents claim that the complainant consented to the sale of her ancestral home, covered by TCT No. T72,004 to one Tion Suy Ong for which he attached as Exhibit 22 to his Position Paper the minutes of an annual meeting of the stockholders, it behooves this Commission why complainants signature had to be accompanied by her thumb mark. Furthermore, complainants signature appears unstable and shaky. This Office is thus persuaded to believe complainants allegation in paragraph 3b of her position paper that since September 1992 up to March 1993 she was being detained by one PO# (sic) Joel Constantino and his wife under instructions from respondent Balicanta. This conclusion is supported by a letter from respondent dated March 1993, Annex H of complainants position paper, where respondent ordered Police Officer Constantino to allow Atty. Linda Lim and Rosemarie Jaldon to talk to Tita Rosing. The complainants thumb mark together with her visibly unstable shaky signature lends credence to her claim that she was detained in the far flung barrio of Culianan under instructions of respondent while her ancestral home was demolished and the lot sold to one Tion Suy Ong. It appears that respondent felt compelled to over-ensure complainants consent by getting her to affix her thumb mark in addition to her signature.

7. Respondent likewise denies that he also acted as Corporate Secretary in addition to being the Chairman, President and Treasurer of the corporation. Yet, respondent submitted to this commission documents which are supported to be in the possession of the Corporate Secretary such as the stock and transfer book and minutes of meetings. The foregoing findings of this Commission are virtual smoking guns that prove on no uncertain terms that respondent, who was the legal counsel of complainant in the latter part of the settlement of the estate of her deceased husband, committed unlawful, immoral and deceitful conduct proscribed by Rule 1.01 of the code of professional responsibility. Likewise, respondent clearly committed a violation of Canon 15 of the same code which provides that A lawyer should observe candor fairness and loyalty in all his dealings and transactions with his client. Respondents acts gravely diminish the publics respect for the integrity of the profession of law for which this Commission recommends that he be meted the penalty of disbarment. The pendency of the cases at the SEC and the Regional Trial Court of Zamboanga filed by complainant against respondent does not preclude a determination of respondents culpability as a lawyer. This Commission cannot further delay the resolution of this complaint filed in 1985 by complainant, and old widow who deserves to find hope and recover her confidence in the judicial system. The findings of this office, predominantly based on documents adduced by both parties lead to only one rather unpalatable conclusion. That respondent Atty. Jesus F. Balicanta, in his professional relations with herein complainant did in fact employ unlawful, dishonest, and immoral conduct proscribed in no uncertain terms by Rule 1.01 of the Code of Professional Responsibility. In addition, respondents actions clearly violated Canon 15 to 16 of the same Code. It is therefore our unpleasant duty to recommend that respondent, having committed acts in violation of the Canons of [2] Professional Responsibility, thereby causing a great disservice to the profession, be meted the ultimate sanction of disbarment. On September 30, 1999, while Commissioner Cunanans recommendation for respondents disbarment was pending review before Executive Vice-President and Northern Luzon Governor Teofilo Pilando, respondent filed a motion requesting for a full-blown investigation and for invalidation of the entire proceedings and/or remedial action under Section 11, Rule 139-B, Revised Rules of Court, alleging that he had evidence that Commissioner Cunanans report was drafted by the lawyers of complainant, Attys. Antonio Cope and Rita Linda Jimeno. He presented two unsigned anonymous letters allegedly coming from a disgruntled employee [3] of Attys. Cope and Jimeno. He claimed to have received these letters in his mailbox. Respondents motion alleging that Attys. Antonio Cope and Rita Linda Jimeno drafted Commissioner Cunanans report was accompanied by a complaint praying for the disbarment of said lawyers including Commissioner Cunanan. The complaint was docketed as CBD Case No. 99-658. After Attys. Cope and Jimeno and Commissioner Cunanan filed their answers, a hearing was conducted by the Investigating Committee of the IBP Board of Governors. [4] On May 26, 2001, the IBP Board of Governors issued a resolution dismissing for lack of merit the complaint for disbarment against Attys. Cope and Jimeno and Commissioner Cunanan. And in Adm. Case No. 2797, the Board adopted and approved the report and recommendation of Commissioner Cunanan, and meted against herein respondent Balicanta the penalty of suspension from the practice of law for 5 years for commission of acts of misconduct and disloyalty by taking undue and unfair advantage of his legal knowledge as a lawyer to gain material benefit for himself at the expense of complainant Rosaura P. Jaldon-Cordon and caused [5] serious damage to the complainant. To support its decision, the Board uncovered respondents fraudulent acts in the very same documents he presented to exonerate himself. It also took note of respondents contradictory and irreconcilable statements in the pleadings and position papers he submitted. However, it regarded the penalty of disbarment as too severe for respondents misdeeds, considering that the same [6] were his first offense. [7] Pursuant to Section 12 (b), Rule 139-B of the Rules of Court, the said resolution in Administrative Case No. 2797 imposing the penalty of suspension for 5 years on respondent was automatically elevated to this Court for final action. On the other hand, the dismissal of the complaint for disbarment against Attys. Cope and Jimeno and Commissioner Cunanan, docketed as CBD Case No. 99658, became final in the absence of any petition for review. This Court confirms the duly supported findings of the IBP Board that respondent committed condemnable acts of deceit against his client. The fraudulent acts he carried out against his client followed a well thought of plan to misappropriate the corporate properties and funds entrusted to him. At the very outset, he embarked on his devious scheme by making himself the President, Chairman of the Board, Director and Treasurer of the corporation, although he knew he was prohibited from assuming the position [8] of President and Treasurer at the same time. As Treasurer, he accepted in behalf of the corporation the 19 titles that complainant and her daughter co-owned. The other treasurer appointed, Farnacio Bucoy, did not appear to be a stockholder or director in the corporate records. The minutes of the meetings supposedly electing him and Bucoy as officers of the corporation actually bore the signatures of respondent and the secretary only, contrary to his claim that they were signed by the directors and stockholders. He likewise misled the IBP investigating commission in claiming that the mortgage of 9 of the properties of the corporation previously belonging to complainant and her daughter was ratified by the stockholders owning two-thirds or 67% of the outstanding capital stock when in fact only three stockholders owning 111 out of 1,750 outstanding shares or 6.3% assented thereto. The alleged authorization granting him the power to contract the LBP loan for Two Million Two Hundred Twenty Pesos (P2,220,000) was also not approved by the required minimum of two-thirds of the outstanding capital stock despite respondents claim to the contrary. In all these transactions, complainant and her daughter who both owned 1,711 out of the 1,750 outstanding shares of the corporation or 97.7% never had any participation. Neither were they informed thereof. Clearly, there was no quorum for a valid meeting for the discussion and approval of these transactions. Respondent cannot take refuge in the contested voting trust agreement supposedly executed by complainant and her daughter for the reason that it authorized respondent to represent complainant for only 266 shares. Aside from the dishonest transactions he entered into under the cloak of sham resolutions, he failed to explain several discrepancies in his version of the facts. We hereby reiterate some of these statements noted by Commissioner Cunanan in his findings. First, respondent blamed the directors and the stockholders who failed to convene for the required annual meetings since 1982. However, respondent appeared able to convene the stockholders and directors when he contracted the LBP debt, when he sold to Jammang the corporations right of redemption over the foreclosed properties of the corporation, when he sold one parcel of land covered by TCT No. 62807 to Jammang, when he mortgaged the 9 parcels of land to LBP which later foreclosed on said mortgage, and when he sold the complainants ancestral home covered by TCT No. 72004.

Second, the factual findings of the investigating commission, affirmed by the IBP Board, disclosed that complainant and her daughter own 1,711 out of 1,750 shares of the outstanding capital stock of the corporation, based on the Articles of Incorporation and deeds of transfer of the properties. But respondents evidence showed that complainant had only 266 shares of stock in the corporation while her daughter had none, notwithstanding the fact that there was nothing to indicate that complainant and her daughter ever conveyed their shares to others. Respondent likewise did not explain why he did not return the certificates representing the 266 shares after the lapse of 5 years [9] from the time the voting trust certificate was executed in 1981. The records show that up to now, the complainant and her daughter own 97% of the outstanding shares but respondent never bothered to explain why they were never asked to participate in or why they were never informed of important corporate decisions. Third, respondent, in his comment, alleged that due to the objection of complainant and her daughter to his proposal to hire an accountant, the corporation had no formal accounting of its revenues and income. However, respondents position paper maintained that there was no accounting because the part-time bookkeeper of the corporation connived with complainant and her daughter in keeping the corporate records. Fourth, respondents claim that complainant and her daughter took control of the operations of the corporation in 1986 is belied by the fact that complainant and her daughter were not even present in the alleged meeting of the board (which took place after 1986) to discuss the foreclosure of the mortgaged properties. The truth is that he never informed them of such meeting and he never gave control of the corporation to them. Fifth, Commissioner Cunanan found that: 5. on the matter of the receipts issued by respondent evidencing payment to him of rentals by lessees of the corporation, attached to the complaint as Annexes H to H-17, respondent claims that the receipts are temporary in nature and that subsequently regular corporate receipts were issued. On their face however the receipts clearly appear to be official receipts, printed and numbered duly signed by the respondent bearing his printed name. It is difficult to believe that a lawyer of respondents stature would issue official receipts to lessees if he only meant to issue [10] temporary ones. Sixth, respondent denies that he acted as Corporate Secretary aside from being the Chairman, President and Treasurer of the corporation. Yet respondent submitted to the investigating commission documents which were supposed to be in the official possession of the Corporate Secretary alone such as the stock and transfer book and minutes of meetings. Seventh, he alleged in his comment that he was the one who proposed the establishment of the corporation that would invest the properties of the complainant but, in his position paper, he said that it was a certain Atty. Rosauro Alvarez who made the proposal to put up the corporation. After a thorough review of the records, we find that respondent committed grave and serious misconduct that casts dishonor on the legal profession. His misdemeanors reveal a deceitful scheme to use the corporation as a means to convert for his own personal benefit properties left to him in trust by complainant and her daughter. Not even his deviousness could cover up the wrongdoings he committed. The documents he thought could exculpate him were the very same documents that revealed his immoral and shameless ways. These documents were extremely revealing in that they unmasked a man who knew the law and abused it for his personal gain without any qualms of conscience. They painted an intricate web of lies, deceit and opportunism beneath a carefully crafted smokescreen of corporate maneuvers. The Code of Professional Responsibility mandates upon each lawyer, as his duty to society, the obligation to obey the laws of the land and promote respect for law and legal processes. Specifically, he is forbidden to engage in unlawful, dishonest, immoral or [11] deceitful conduct. If the practice of law is to remain an honorable profession and attain its basic ideal, those enrolled in its ranks [12] should not only master its tenets and principles but should also, in their lives, accord continuing fidelity to them. Thus, the requirement of good moral character is of much greater import, as far as the general public is concerned, than the possession of [13] legal learning. Lawyers are expected to abide by the tenets of morality, not only upon admission to the Bar but also throughout [14] their legal career, in order to maintain ones good standing in that exclusive and honored fraternity. Good moral character is more than just the absence of bad character. Such character expresses itself in the will to do the unpleasant thing if it is right and the [15] resolve not to do the pleasant thing if it is wrong. This must be so because vast interests are committed to his care; he is the [16] recipient of unbounded trust and confidence; he deals with his clients property, reputation, his life, his all. Indeed, the words of former Presiding Justice of the Court of Appeals Pompeyo Diaz cannot find a more relevant application than in this case: There are men in any society who are so self-serving that they try to make law serve their selfish ends. In this group of men, the most dangerous is the man of the law who has no conscience. He has, in the arsenal of his knowledge, the very tools by which he [17] can poison and disrupt society and bring it to an ignoble end. Good moral standing is manifested in the duty of the lawyer to hold in trust all moneys and properties of his client that may come [18] [19] into his possession. He is bound to account for all money or property collected or received for or from the client. The relation between an attorney and his client is highly fiduciary in nature. Thus, lawyers are bound to promptly account for money or [20] property received by them on behalf of their clients and failure to do so constitutes professional misconduct. This Court holds that respondent cannot invoke the separate personality of the corporation to absolve him from exercising these duties over the properties turned over to him by complainant. He blatantly used the corporate veil to defeat his fiduciary obligation to his client, the complainant. Toleration of such fraudulent conduct was never the reason for the creation of said corporate fiction. The massive fraud perpetrated by respondent on the complainant leaves us no choice but to set aside the veil of corporate entity. For purposes of this action therefore, the properties registered in the name of the corporation should still be considered as properties of complainant and her daughter. The respondent merely held them in trust for complainant (now an ailing 83-year-old) and her daughter. The properties conveyed fraudulently and/or without the requisite authority should be deemed as never to have been transferred, sold or mortgaged at all. Respondent shall be liable, in his personal capacity, to third parties who may have contracted with him in good faith. Based on the aforementioned findings, this Court believes that the gravity of respondents offenses cannot be adequately matched by mere suspension as recommended by the IBP. Instead, his wrongdoings deserve the severe penalty of disbarment, without prejudice to his criminal and civil liabilities for his dishonest acts. WHEREFORE, respondent Attorney Jesus T. Balicanta is hereby DISBARRED. The Clerk of Court is directed to strike out his name from the Roll of Attorneys.SO ORDERED.

ERNESTINA CRISOLOGO-JOSE, petitioner, vs. COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover Enterprises, Inc., respondents. Melquiades P. de Leon for petitioner. Rogelio A. Ajes for private respondent. REGALADO, J.: 1 Petitioner seeks the annulment of the decision of respondent Court of Appeals, promulgated on September 8, 1987, which 2 reversed the decision of the trial Court dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos, Jr. The parties are substantially agreed on the following facts as found by both lower courts: In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the check. It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the compromise agreement was not approved within the expected period of time, the aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank cheek bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Hence, defendant through counsel was constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City. Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the complainant in that criminal case. The defendant refused to receive the cashier's check in payment of the dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check and subsequently deposited said amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z. Benares and given to the plaintiff herein to be applied in payment 3 of the dishonored check. After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil 4 Code is applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for consignation, directing the trial court to give due course thereto. Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim. 1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law and a debtor of petitioner to the extent of the amount of said check. Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely signed the check in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable thereon under the Negotiable Instruments Law. The pertinent provision of said law referred to provides: Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person. Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for 5 value as if the contract was not for accommodation in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation 6 party is in effect a surety for the latter. Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner suggests, the inevitable question is whether or not it may be held liable on the accommodation instrument, that is, the check issued in favor of herein petitioner. We hold in the negative. The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not

include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper 8 by a corporation without consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot 9 recover against the corporation thereon. By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name 10 of the corporation for the accommodation of a third person only if specifically authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith. The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her aforesaid postulation, then she is effectively barred from recovering from Mover Enterprises, Inc. the value of the check. Be that as it may, petitioner is not without recourse. The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should render personally liable, the signatories of said instrument where the facts show that the accommodation involved was for their personal account, undertaking or purpose and the creditor was aware thereof. Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued at the instance and for the personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. That it was a personal undertaking of said corporate officers was apparent to petitioner by reason of her personal involvement in the financial arrangement and the fact that, while it was the corporation's check which was issued to her for the amount involved, she actually had no transaction directly with said corporation. There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover Enterprises, Inc. 2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding that the consignation of the sum of P45,000.00, made by private respondent after his tender of payment was refused by petitioner, was proper under Article 1256 of the Civil Code. Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence consignation is not proper. Concomitantly, this argument was premised on the assumption that private respondent Santos is not an accommodation party. As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for the value of the check. The fact that he was only a co-signatory does not detract from his personal liability. A co-maker or co-drawer under the circumstances in this case is as much an accommodation party as the other co-signatory or, for that matter, as a lone signatory in an accommodation instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the accommodated party with whom he and his co-signatory, as the other co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the check, there was created a debtor-creditor relationship, as between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This circumstance enables respondent Santos to resort to an action of consignation where his tender of payment had been refused by petitioner. We interpose the caveat, however, that by holding that the remedy of consignation is proper under the given circumstances, we do not thereby rule that all the operative facts for consignation which would produce the effect of payment are present in this case. Those are factual issues that are not clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case No. Q-33160, for which reason it has advisedly been directed by respondent court to give due course to the complaint for consignation, and which would be subject to such issues or claims as may be raised by defendant and the counterclaim filed therein which is hereby ordered similarly revived. 3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of Quezon City filed against private respondent for violation of Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to private respondent when he deposited with the court the amount of P45,000.00 is the final plaint of petitioner. We sustain petitioner on this score. Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No. 05464. In its own decision therein, it declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly consign the amount of the debt due with the court after his tender of payment was refused by the creditor." Yet, from the commercial and civil law aspects determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus: Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or credit. Thus, the making, drawing and issuance of a check, payment of which is refused by the drawee because of insufficient funds in or credit with such bank is prima facie evidence of knowledge of insufficiency of funds or credit, when the check is presented within 90 days from the date of the check. It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of insufficiency of funds or credit is not present and, therefore, the crime does not exist, when the drawer pays the holder the amount due or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal rights when he consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date when plaintiff-appellant receive (sic) the notice of nonpayment, and August 14, 1981, the date when the debt due was deposited with the Clerk of Court (a Saturday and a Sunday which are not banking days) intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal liability has yet attached to 11 plaintiff-appellant when he deposited the amount of P45,000.00 with the Court a quo on August 14, 1981. That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another court are improper do not have to be belabored. In the latter case, the criminal trial court has to grapple with such factual issues as, for instance, whether or not the period of five banking days had expired, in the process determining whether notice of dishonor should be reckoned from any prior notice if any has been given or from receipt by private respondents of the subpoena therein with

supporting affidavits, if any, or from the first day of actual preliminary investigation; and whether there was a justification for not making the requisite arrangements for payment in full of such check by the drawee bank within the said period. These are matters alien to the present controversy on tender and consignation of payment, where no such period and its legal effects are involved. These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive rule, juris tantum at that, to determine whether or not there was knowledge of insufficiency of funds in or credit with the drawee bank; that payment of civil liability is not a mode for extinguishment of criminal liability; and that the requisite quantum of evidence in the two types of cases are not the same. To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the resolution of which should not be interfered with by respondent Court of Appeals at the present posture of said case, much less preempted by the inappropriate and unnecessary holdings in the aforequoted portion of the decision of said respondent court. Consequently, we modify the decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring without force and effect its pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and the liability of the accused therein are concerned. WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is AFFIRMED. SO ORDERED.

SIXTO P. CRISOSTOMO, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, SPOUSES SHOJI YAMADA and MICHIYO YAMADA and SPOUSES TOMOTADA ENATSU and EDITA ENATSU, respondents. Salma Pir T. Rasul, Rosalinda L. Santos and A.E. Dacanay for petitioner. Gonzales, Batiller Law Offices for respondents. Quisumbing, Torres and Evangelista for Spouses Tomotada and Edita Enatsu. Lino M. Patajo for Spouses Shoji and Michiyo Yamada. GRIO-AQUINO, J.: 1 In his petition for certiorari, the petitioner seeks to annul and set aside the en banc resolution dated February 14, 1989 of the Securities and Exchange Commission in SEC EB Case No. 191 and the concurring opinions thereto (Annexes F, G, and H, pp. 39-62, Rollo), as well as its orders dated June 27, 1989 and July 21, 1989 (Annexes M and 0, pp. 83-86, Rollo) directing the corporate secretary of the United Doctors Medical Center, Inc. (hereafter "UDMC") to call a special meeting of the stockholders to elect the officers and directors in the implementation of the SEC's aforementioned en banc resolution of February 14, 1989, which the Court of Appeals affirmed in its decision dated June 8, 1989 in CA-G.R. SP No. 17435, entitled "Sixto Crisostomo, petitioner vs. Securities and Exchange Commission, Spouses Dr. Shoji Yamada and Michiyo Yamada, and Spouses Dr. Tomotada Enatsu and Edita Enatsu, respondents." On August 1, 1989, the Court of Appeals denied Crisostomo's motion for reconsideration of its decision. On August 24, 1989, he filed a petition for review of said decision in this Court (G.R. No. 89555) which was originally assigned to the Third Division, but was later consolidated with G.R. No. 89095. At first blush, the petitions sound like a patriotic defense of the Constitution, but, at bottom they are only an artful scheme to defraud a group of foreign investors who had been persuaded by the officers of UDMC to invest P57 million to save the corporation (its assets as well as those of the Crisostomo's) from imminent foreclosure by the Development Bank of the Philippines (DBP) to which UDMC was indebted in the sum of P55 million. It is the kind of operation that sullies our collective image as a people and sets back our government's heroic efforts to attract foreign investments to our country. The antecedent facts, culled from the decision of the Court of Appeals, are as follows: Sixto Crisostomo, Felipe Crisostomo (deceased), Veronica Palanca, Juanito Crisostomo, Carlos Crisostomo, Ricardo Alfonso, Regino Crisostomo and Ernesto Crisostomo (known as the Crisostomo group) were the original stockholders of the United Doctors Medical Center (UDMC) which was organized in 1968 with an authorized capital stock of P1,000,000 (later increased to P15,000,000 in 1972). They owned approximately 40% of UDMC's outstanding capital stock, while the 60% majority belonged to the members of the United Medical Staff Association (UMSA), numbering approximately 150 doctors and medical personnel of UDMC. Despite their minority status, the Crisostomo group has managed UDMC from its inception, with Juanito Crisostomo as president, Ricardo Alfonso, Sr. as chairman of the board, Carlos Crisostomo as corporate secretary and Sixto Crisostomo as director and legal counsel. In 1988, UDMC defaulted in paying its loan obligation of approximately P55 million to the DBP. In the last quarter of 1987, UDMC's assets (principally its hospital) and those of the Crisostomos which had been given as collateral to the DBP, faced foreclosure by the Asset Privatization' rust (APT), which had taken over UDMC's loan obligation to the DBP. To stave off the threatened foreclosure, UDMC, through its principal officers, Ricardo Alfonso and Juanito Crisostomo, persuaded the Yamadas and Enatsu (Shoji Yamada and Tomotada Enatsu are Japanese doctors) to invest fresh capital in UDMC. The wife of Tomotada Enatsu, Edita Enatsu, is a Filipina. They invested approximately P57 million in UDMC. The investment was effected by means of: (1) a Stock Purchase Agreement; and (2) an Amended Memorandum of Agreement whereby the group subscribed to 82.09% of the outstanding shares of UDMC. Both transactions were duly authorized by the board of directors and stockholders of UDMC. They were submitted to, scrutinized by, and, finally, approved by the Board of Investments, the Central Bank of the Philippines, and the Securities and Exchange Commission. The elaborate governmental approval process was done openly and with full knowledge of all concerned, including Sixto Crisostomo, the corporate legal counsel. Upon the completion of the governmental approval process, shares of stock, duly signed by UDMC's authorized officers, were issued to the Yamadas and Enatsus. This capital infusion not only saved the assets of the UDMC (especially the hospital) from foreclosure but also freed the Crisostomos from their individual and solidary liabilities as sureties for the DBP loan. As it had been agreed in the Amended Memorandum of Agreement between UDMC and the Japanese group that upon the latter's acquisition of the controlling interest in UDMC, the corporation would be reorganized, a special stockholders' meeting and board of directors' meeting were scheduled to be held on August 20, 1988. However, on the eve of the meetings, i.e., on August 19, 1988, Sixto Crisostomo, supposedly acting for himself, filed SEC Case No. 3420 against Juanito Crisostomo, Ricardo Alfonso, Shoji Yamada, Michiyo Yamada, Tomotada Enatsu and Edita Enatsu, praying, among other things, (1) to stop the holding of the stockholder's and board of directors' meetings; (2) to disqualify the Japanese investors from holding a controlling interest in UDMC and from being elected directors or officers of UDMC; and (3) to annul the Memorandum of Agreement and Stock Purchase Agreement because they allegedly did not express the true agreement of the parties (pp. 194-203, Rollo). Two weeks later, on September 2, 1988, Crisostomo filed Civil Case No. 88-1823 in the Regional Trial Court of Makati, Metro Manila, where he also sought a preliminary injunction and the Identical reliefs prayed for by him in SEC Case No. 3420 (pp. 317-335, Rollo). It was dismissed by the trial court for lack of jurisdiction and is pending appeal in the Court of Appeals where it is docketed as CA-G.R. No. 20285-CV. On September 13, 1988, the hearing officer, Antonio Esteves, granted the application for a writ of preliminary injunction enjoining the respondents ... from holding the special meeting of the stockholders and of the Board of Directors of United Doctors Medical Center, [Inc.] (UDMC) scheduled on August 20, 1988 or any subsequent meetings; from adopting resolutions to elect new directors and appoint new officers; from approving resolutions directly or indirectly affecting the operations, organizational structure, and financial condition of the corporation, ... and from disbursing funds of the said corporation except those ordinary day-to-day expenses pending the final termination of this case. (p. 30, Rollo.)

The private respondents' motion for reconsideration of this order was denied by the hearing officer on November 16, 1988. In the same order, he created a management committee to administer UDMC (pp. 32-35, Rollo). The respondents appealed by certiorari to the SEC en banc. On February 14,1989, Commissioner Jose C. Laureta, with whom Commissioners Rosario N. Lopez and Gonzalo T. Santos separately concurred, set aside the preliminary injunction issued by Esteves and the management committee which he created. The dispositive part of the decision reads: Wherefore, premises considered, the instant petition for certiorari is GRANTED and the Commission en banc ORDERS: 1. That the questioned orders of the hearing officer in SEC Case No. 3420 of September 13, 1988 and November 16, 1988, be immediately vacated; 2. That a special stockholders' meeting of UDMC be held for the purpose of allowing the stockholders of record of the corporation to elect a new board of directors, which special meeting is hereby directed to be scheduled within 10 days from receipt of a copy of this resolution by the incumbent corporate secretary or acting corporate secretary of UDMC, and to this end, that such officer be, as he hereby is, directed: (a) to issue a call for such special meeting and serve notice thereof on all stockholders of record of the corporation, in accordance with section 6 of article VII of UDMC's by-laws; and (b) to submit to the Commission, through the Commission Secretary, a written report of his compliance with this particular order of the Commission, not later than 5 days prior to the scheduled date of the proposed UDMC special stockholders' meeting; 3. That upon the election of a new board of directors of UDMC, that such board be, as it hereby is, enjoined to meet as promptly as possible for the purpose of electing a new set of officers of the corporation in order to ensure its proper management; 4. That the hearing officer be, as he hereby is, directed to continue with the proceedings of SEC Case No. 3420, and to do so with all deliberate speed, for the purpose of resolving the alleged violation of certain rights of Sixto Crisostomo, as a stockholder of UDMC particularly, his right to inspect the corporate books and records of UDMC, his preemptive right to subscribe to the P60 million increase in the authorized capital of UDMC, and his appraisal rights; and 5. That the board of directors and officers of UDMC be, as they hereby are, ordered to submit to the Commission, through the Chairman, a written report as to its plans as regards its nursing school, such report to be submitted at least one month prior to the commencement of the school year 1989-1990. SO ORDERED. (pp. 49-50, Rollo.) Sixto Crisostomo sought a review of the SEC's en banc resolution in the Court of Appeals (CA-G.R. SP No. 17435). On June 8, 1989, the Court of Appeals dismissed his petition and lifted the temporary restraining order that it had issued against the SEC's resolution (Annex K, pp. 65-81, Rollo). Petitioner filed a motion for reconsideration (pp. 418-434, Rollo). The Court of Appeals required the private respondents to comment but it denied the petitioner's motion to reinstate the writ of preliminary injunction (Annex L, p. 82, Rollo), On motion of the private respondents (Annex K, p. 413, Rollo), the SEC en banc issued an order on June 27, 1989 directing the secretary of UDMC to call a special stockholders' meeting to elect a new board of directors and officers of the corporation (Annex F). Petitioner asked the SEC to recall that order on account of his pending motion for reconsideration in the Court of Appeals. The motion was opposed by the private respondents. On July 21, 1989, the SEC denied petitioner's motion (p. 86, Rollo). Whereupon, he filed this petition for certiorari and prohibition with a prayer for preliminary injunction alleging that the SEC en banc abused its discretion: 1. in setting aside Esteves' orders 2. in allowing the Japanese group to have control of UDMC for it will result in culpable violation of Section 7, Article XII of the 1987 Constitution which provides that no private lands shall be transferred or conveyed except to individuals or corporations qualified to acquire or hold land of the public domain, meaning corporations at least sixty per centum of whose capital is owned by Filipino citizens (Sec. 2, Article XII, 1987 Constitution); and 3. in allowing the Japanese investors to own more than 40% of the capital stock of UDMC (which operates a nursing and midwifery school) in violation of Section 4 (2) Article XIV of the 1987 Constitution which provides that educational institutions ... shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned by such citizens. The public and private respondents, in their comments on the petition, asked that the petition be dismissed and that the petitioner be cited for contempt for forum-shopping. We find no merit in the petition. The first allegation that the SEC en banc erred in reversing the orders of the hearing officer, Esteves, is the same ground raised by the petitioner in CA-G.R. No. SP 17435. The issue is frivolous for the authority of the SEC en banc to review, revise, reverse, or affirm orders of its hearing officers is too elementary to warrant any debate. Equally unmeritorious are the second and third grounds of the petition that the P57 million investment of the Japanese group in UDMC violates the constitutional provisions restricting the transfer or conveyance of private lands (Art. XIII, Sec. 7, 1987 Constitution) and the ownership of educational institutions (Art. XVI, Sec. 14[a], 1987 Constitution), to citizens of the Philippines or corporations at least 60% of the capital of which is owned by Filipino citizens. While 82% of UDMC's capital stock is indeed subscribed by the Japanese group, only 30% (equivalent to 171,721 shares or P17,172.00) is owned by the Japanese citizens, namely, the Yamada spouses and Tomotada Enatsu. 52% is owned by Edita Enatsu, who is a Filipino. Accordingly, in its application for approval/registration of the foreign equity investments of these investors, UDMC declared that 70% of its capital stock is owned by Filipino citizens, including Edita Enatsu. That application was approved by the Central Bank on August 3, 1988 (p. 249, Rollo,). The investments in UDMC of Doctors Yamada and Enatsu do not violate the Constitutional prohibition against foreigners practising a profession in the Philippines (Section 14, Article XII, 1987 Constitution) for they do not practice their profession (medicine) in the Philippines, neither have they applied for a license to do so. They only own shares of stock in a corporation that operates a hospital. No law limits the sale of hospital shares of stock to doctors only. The ownership of such shares does not amount to engaging (illegally,) in the practice of medicine, or, nursing. If it were otherwise, the petitioner's stockholding in UDMC would also be illegal. The SEC's orders dated June 27, 1989 and July 21, 1989 (directing the secretary of UDMC to call a stockholders' meeting, etc.) are not premature, despite the petitioner's then pending motion for reconsideration of the decision of the Court of Appeals. The lifting by the Court of Appeals of its writ of preliminary injunction in CA-G.R. SP No. 17435 cleared the way for the implementation by the SEC's en banc resolution in SEC EB Case No. 191. The SEC need not wait for the Court of Appeals to resolve the petitioner's motion for reconsideration for a judgment decreeing the dissolution of a preliminary injunction is immediately executory. It "shall not be stayed after its rendition and before an appeal is taken or during the pendency of an appeal." (Sec. 4, Rule 39, Rules of Court;

Marcelo Steel Corp. vs. Court of Appeals, 54 SCRA 89 [1973]; Aguilar vs. Tan, 31 SCRA 205 [1970]; Sitia Teco vs. Ventura, 1 Phil. 497 [1902]; Watson & Co., Ltd. vs. M. Enriquez, I Phil. 480 [1902]). We now address the public and private respondents' separate motions to dismiss the petition and to cite Crisostomo and his counsel for contempt of court for forum-shopping. The records show that Crisostomo had two actions pending in the Court of Appeals (CAG.R. No. SP 17435 and CA-G.R. No. 20285 CV) when he filed the petition for certiorari (G.R. No. 89095) in this Court on July 27, 1989. The case docketed as CA-G.R. No. 20285-CV, is his appeal from the decision of the Regional Trial Court of Makati, dismissing his complaint for annulment of the Memorandum of Agreement and the Stock Purchase Agreement between UDMC and the Japanese investors. CA-G.R. No. SP 17435 is his petition for certiorari to review the SEC's en banc resolution upholding those transactions and ordering the holding of a stockholders meeting to elect the directors of the UDMC, and of a board of directors meeting to elect the officers. Notwithstanding the pendency of those two cases in the Court of Appeals, Crisostomo filed this petition for certiorari 1 and prohibition on July 27, 1989 where he raises the same issues that he raised in the Court of Appeals. The prayer of his petition in CA-G.R. No. SP 17435 reads thus: 3) After hearing on the merits, judgment be rendered: 2 a) Annulling and setting aside the questioned rulings of the respondent COMMISSION for having been issued with grave abuse of discretion tantamount to lack or excess of jurisdiction; and b) Making permanent the preliminary injunction issued in this case against the respondents. (p. 241, Rollo.) In his petition for certiorari (G.R. No. 89095), he also prays that 1. Upon the filing of this petition, a temporary restraining order issue enjoining respondents, their representatives or agents from implementing or executing the SEC opinions (Annexes "F", "G" and "H") and its June 27 and July 21,1989 orders (Annexes "M" and "O") until further orders from the Honorable Court. xxx xxx xxx 3. After notice, this petition be given due course and a writ of preliminary injunction be issued for the same purpose and effect upon such terms and conditions the Honorable Court may impose; and thereafter, judgment be rendered granting the writ prayed for and annulling and setting aside the said opinions rendered by the SEC in their stead, affirming the orders of the Hearing Officer (Annexes "A" and "B"). (pp. 27-28, Rollo.) Additionally, in his petition for review (G.R. No. 89555) he prays this Court to giant "all the reliefs" prayed for by him in CA-G.R. SP No. 17435. Here is a clear case of forum-shopping. There is forum-shopping whenever as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction. (Villanueva vs. Adre, G.R. No. 8063, April 27, 1989.) (p. 303, Rollo) Forum-shopping is prohibited by the Interim Rules of Court for it trifles with the courts and abuses their processes (E. Razon, Inc. vs. Phil. Port Authority, 101 SCRA 450). Section 17 of the Interim Rules of Courts provides: 17. Petitions for writs of certiorari, etc., No petition for certiorari, mandamus, prohibition, habeas corpus or quo warranto may be filed in the Intermediate Appellate Court if another similar petition has been filed or is still pending in the Supreme Court. Nor may such petition be filed in the Supreme Court if a similar petition has been filed or is still pending in the Intermediate Appellate Court, unless it be to review the action taken by the Intermediate Appellate Court on the petition filed with it. A violation of this rule shall constitute contempt of court and shall be a cause for the summary dismissal of both petitions, without prejudice to the taking of appropriate action against the counsel or party concerned. (Interim Rules of Court.) Forum-shopping makes the petitioner subject to disciplinary action and renders his petitions in this Court and in the Court of Appeals dismissible (E. Razon, Inc. vs. Philippine Port Authority, et al., G.R. No. 75197, Resolution dated July 31, 1986; Buan vs. Lopez, Jr., 145 SCRA 34, 38-39; Collado vs. Hernando, L-43886, May 30, 1988). For this reason, if not for their lack of merit, the petitions should be, as they are hereby, dismissed. WHEREFORE, these petitions are dismissed for lack of merit. The temporary restraining order which this Court issued on August 7, 1989 in G.R. No. 89095 is hereby lifted. The Court of Appeals is ordered to immediately dismiss CA-G.R. CV No. 20285. The petitioner and his counsel are censured for engaging in forum-shopping. The petitioner is further ordered to pay double costs in this instance. SO ORDERED.

DAGUHOY ENTERPRISES, INC., plaintiff-appellee, vs. RITA L. PONCE, with whom is joined her husband, DOMINGO PONCE, defendants-appellants. Marcelino Lontok and Marcelino Lontok, Jr. for appellants. Zavalla, Bautista and Nuevas for appellee. MONTEMAYOR, J.: The Daguhoy Enterprises, Inc., a local corporation, with principal office in the City of Manila filed in the Court of First Instance of the City Civil Case No. 15923 against Rita L. Ponce and her husband Domingo Ponce, for the collection of a loan of P6,190 with interest at 12 per cent per annum from June 24, 1950, plus P2,500 as attorney's fees and P34 as expenses of litigation. Defendant filed an answer admitting practically all the allegations of the complaint, set up affirmative defenses, and a counterclaim asking for the cancellation of the mortgage which secured the payment of the loan of P6,190. They also filed a petition for the inclusion of Potenciano Gapol as a third party litigant, at the same time filing a third party complaint against him asking for damages in the amount of P25,000. The plaintiff corporation answered the counterclaim and opposed the petition for the inclusion of a third party litigant. Thereafter, plaintiff corporation filed a motion for judgment on the pleadings which petition was opposed by the defendants. Then, on October 9, 1952, the trial court rendered judgment whose dispositive part we reproduce below: EN VIRTUD DE TODO LO EXPUESTO, el Juzgado dicta sentencia de acuerdon con los escritos, condemnando a los demandados a pagar a la demandante la suma de P6,190 mas sus intereses a razon de 12 por ciento anual desde el 10 de marzo de 1951 hasta su completo pago, mas P1,000 como honorarios de abogado y P34 como gastos de la incoaccion de esta demanda. Asi se ordena. Defendants are now appealing from that decision. The above-mentioned decision was rendered on the pleadings. The facts of the case which we gathered from the said pleadings and which we find are as follows. In the year 1950, defendant-appellant Domingo Ponce was Chairman and Manager and his son Buhay M. Ponce was Secretary-Treasurer, of the plaintiff corporation Daguhoy Enterprises, Inc. on June 24th of said year Rita L. Ponce, wife of Domingo, executed in favor of plaintiff corporation a deed of mortgage over a parcel of land including the improvements thereon, situated in Manila, to secure the payment of a loan of P5,000 granted to her by said corporation, payable within six years with interest at 12 per cent per annum. On March 10, 1951, Rita L. Ponce with the consent of her husband Domingo executed another mortgage deed amending the first one, whereby the loan was increased from P5,000 to P6,190, the terms and conditions of the mortgage remaining the same. Rita and Domingo presented the two mortgage deeds for registration in the office of the register of deeds, but the said register after going over the papers noted defects and deficiencies and advised Rita and Domingo to cure the defects and furnish the necessary data. Instead of complying with the suggestion and requirements, the two withdrew the two mortgage deeds and then mortgaged the same parcel of land in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan. Potenciano Gapol was the majority stockholder in the Daguhoy Enterprises, Inc., and naturally was interested in the security of the payment of the loan aforesaid. Upon learning that the deeds of mortgage were not registered and what is more, that they were withdrawn from the office of the register of deeds and the land covered by the two deeds was again mortgaged to the RFC, he filed Civil Case No. 13753 entitle "Potenciano Gapol, for and on behalf of Daguhoy Enterprises, Inc. vs. Domingo Ponce and Buhay M. Ponce" for accounting, not only for the amount of the loan of P6,190 but apparently for other sums, possibly on the theory that the loan in question was granted by Domingo and Buhay acting as Chairman-Manager and Secretary-Treasurer, respectively of the corporation. To account for the amount of said loan, Domingo and his son Buhay filed in court in said Civil Case No. 13753 a check of the RFC in the amount of P6,190 in favor of the Daguhoy Enterprises, Inc. and interests amounting to P266.10. After the deposit of said check and interests, Potenciano Gapol in representation of the Daguhoy Enterprises, Inc. petitioned the court in said Civil Case No. 13753 for permission to withdraw the amounts, presumably to apply them to the payment of the loan. Because of the opposition of defendants therein to the withdrawal unless the mortgage by Rita was cancelled the court denied the petition. A second petition for withdrawal was filed by Gapol, agreeing to the cancellation of the mortgage as soon as the amounts were withdrawn from the Court and deposited with the Bank of America, in the name of Daguhoy Enterprises, Inc. Because of the failure of defendants therein to agree to said second petition, the same was similarly denied. Thereafter, the Daguhoy Enterprises, Inc. filed the present action against Rita and her husband Domingo, as already stated, to collect the amount of the loan, including interests. Later, plaintiff corporation filed a manifestation on September 18, 1952, saying that in the course of the pre-trial conference held that same morning in Civil Case No. 13753 the plaintiff therein waived his cause of action for accounting for said sum, which waiver was approved by the presiding Judge. Although the original loan of P5,000.00 including the increase of P1,190 was payable within six years from June 1950, and so did not become due and payable until 1956, the trial court held that under article 1198 of the new Civil Code, the debtor lost the benefit of the period by reason of her failure to give the security in the form of the two deeds of mortgage and register them, including the defendants' act in withdrawing said two deeds from the office of the register of deeds and then mortgaging the same property in favor of the RFC; and so the obligation became pure and without any condition and consequently, the loan became due and immediately demandable. On this, we agree with the trial Court. One of the affirmative defenses set up by the defendants is that the plaintiff corporation had no legal capacity to sue for the reason that as a corporation it no longer was in existence because on April 16, 1951, at a meeting held by the stockholders and attended by Potenciano Gapol, the majority stockholder, a resolution was adopted dissolving the said corporation, and that as a matter of fact, Gapol was designated Assignee. However, as contended by counsel for the appellee, a mere resolution by the stockholders or by the Board of Directors of a corporation to dissolve the same does not effect the dissolution but that some other step, administrative or judicial, is necessary. Furthermore, as stated by the trial court in its decision, under section 77 of the Corporation Law, a corporation dissolved will continue in existence as a judicial entity for a period of three years after the declaration of its dissolution, to windup its affairs and protect its interests during the period of liquidation. The point that remains for determination is the effect, if any, on the present case, of the deposit of the amount of P6,190 with part of the interest, in civil Case No. 33753. There is no question that said deposit was in favor of the Daguhoy Enterprises, Inc. and eventually would be given to it. But did the said deposit relieve the present defendants from the payment of interests from the time of deposit, on the theory that the deposit amounted to a payment of the loan? The answer must be in the negative. It should be remembered that Civil Case No. 13753 though in the same Court of First Instance of Manila, is a separate and different action, for

accounting not only for the amount of the loan but for other sums. The plaintiff in that case was Gapol in behalf of the Daguhoy Enterprises, Inc. and the defendants are Domingo Ponce and his son Buhay M. Ponce. The parties in the present case are different. Furthermore, when the plaintiff in said case 13753 petitioned the trial court for permission to withdraw the deposit, presumably to pay the loan involved in the present action, his petition was denied by the court because of the opposition of the defendants therein, one of whom is Domingo Ponce, co-defendant of Rita Ponce in the present case. The result was that the present plaintiff corporation could not take possession and dispose of said amount. In other words, the loan is not yet paid. We find no necessity for or profit in discussing and ruling on the other points raised in the appeal. In view of the foregoing, with the modification that the amount of attorney's fees be reduced from P1,000 to P300 considering that no hearing was held, judgment having been rendered on the pleadings, the decision appealed from is hereby affirmed, with costs. The sum in the form of an RFC check, and some interest, deposited in Civil Case No. 13753 may be withdrawn to satisfy the judgment in this case, especially to pay the loan of P6,190 and part of the interest due.

DATU TAGORANAO BENITO, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION and JAMIATUL PHILIPPINE-AL ISLAMIA, INC., respondents. The Solicitor General for respondent. Tacod D. Macaraya for private respondent. RELOVA, J.: On February 6, 1959, the Articles of Incorporation of respondent Jamiatul Philippine-Al Islamia, Inc. (originally Kamilol Islam Institute, Inc.) were filed with the Securities and Exchange Commission (SEC) and were approved on December 14, 1962. The corporation had an authorized capital stock of P200,000.00 divided into 20,000 shares at a par value of P10.00 each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for. Herein petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00. On October 28, 1975, the respondent corporation filed a certificate of increase of its capital stock from P200,000.00 to P1,000,000.00. It was shown in said certificate that P191,560.00 worth of shares were represented in the stockholders' meeting held on November 25, 1975 at which time the increase was approved. Thus, P110,980.00 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital stock of P200,000.00. Of the increased capital stock of P1,000,000.00, P160,000.00 worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. On November 18, 1976, petitioner Datu Tagoranao filed with respondent Securities and Exchange Commission a petition alleging that the additional issue (worth P110,980.00) of previously subscribed shares of the corporation was made in violation of his preemptive right to said additional issue and that the increase in the authorized capital stock of the corporation from P200,000.00 to P1,000,000.00 was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agenda. Petitioner prayed that the additional issue of shares of previously authorized capital stock as well as the shares issued from the increase in capital stock of respondent corporation be cancelled; that the secretary of respondent corporation be ordered to register the 2,540 shares acquired by him (petitioner) from Domocao Alonto and Moki-in Alonto; and that the corporation be ordered to render an accounting of funds to the stockholders. In their answer, respondents denied the material allegations of the petition and, by way of special defense, claimed that petitioner has no cause of action and that the stock certificates covering the shares alleged to have been sold to petitioner were only given to him as collateral for the loan of Domocao Alonto and Moki-in Alonto. On July 11, 1980, Hearing Officer Ledor E. Macalalag of the Securities and Exchange Commission, after due proceedings, rendered a decision which was affirmed by the Commission En Banc during its executive session held on March 9, 1981, as follows: RESOLVED, That the decision of the hearing Officer in SEC Case No. 1392, dated July 11, 1980, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing considerations, this Commission hereby rules: (a) That the issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders, including the petitioner, herein; (b) That there is no sufficient legal basis to set aside the certificate issued by this Commission authorizing the increase in capital stock of respondent corporation from P200,000.00 to Pl,000,000.00. Considering, however, that petitioner has not waived his pre-emptive right to subscribe to the increased capitalization, respondent corporation is hereby directed to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto; (c) To direct as it hereby directs, the respondent corporation to immediately cancel Certificates of Stock Nos. 216, 223, 302, all in the name of Domocao Alonto, and Certificate of Stock No. 217, in the name of Moki-in Alonto, upon their presentation by the petitioner and to issue new certificates corresponding thereto in the name of petitioner herein; (d) To direct, as it hereby directs, respondent corporation to religiously comply with the requirement of filing annual financial statements under pain of a more drastic action; (e) To declare, as it hereby declares, as irregular, the election of the nine (9) members of the Board of Trustees of respondent corporation on October 30, 1976, for which reason, respondent corporation is hereby ordered to call a stockholders' meeting to elect a new set of five (5) members of the Board of Trustees, unless in the meantime the said number is accordingly increased and the requirement of law to make such increase effective have been complied with. It is understood that the said stockholders' meeting be called within thirty (30) days from the time petitioner shall have subscribed to the increased capitalization.' be, as the same is hereby AFFIRMED, the same being in accordance with law and the facts of the case. (pp. 28-29, Reno) Hence, this petition for review by way of appeal from the aforementioned decision of the Securities and Exchange Commission, petitioner contending that (1) the issuance of the 11,098 shares without the consent of the stockholders or of the Board of Directors, and in the absence of consideration, is null and void; (2) the increase in the authorized capital stock from P200,000.00 to P1,000,000.00 without the consent or express waiver of the stockholders, is null and void; (3) he is entitled to attorneys' fees, damages and expenses of litigation in filing this suit against the directors of respondent corporation. We are not persuaded. As aptly stated by the Securities and Exchange Commission in its decision: xxx xxx xxx ... the questioned issuance of the unsubscribed portion of the capital stock worth P110,980.00 is ' not invalid even if assuming that it was made without notice to the stockholders as claimed by petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks does not need approval of the stockholders. The by-laws of the corporation itself states that 'the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of stock of the Institute and shall prescribe the form of the certificate of stock of the Institute. (Art. V, Sec. 1). Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of pre-emption over the unissued shares. However, the general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest. (Campos

and Lopez-Campos Selected Notes and Cases on Corporation Law, p. 855, citing Yasik V. Wachtel 25 Del. Ch. 247,17A. 2d 308 (1941). (pp. 33-34, Rollo) With respect to the claim that the increase in the authorized capital stock was without the consent, expressed or implied, of the stockholders, it was the finding of the Securities and Exchange Commission that a stockholders' meeting was held on November 25,1975, presided over by Mr. Ahmad Domocao Alonto, Chairman of the Board of Trustees and, among the many items taken up then were the change of name of the corporation from Kamilol Islam Institute Inc. to Jamiatul Philippine-Al Islamia, Inc., the increase of its capital stock from P200,000.00 to P1,000,000.00, and the increase of the number of its Board of Trustees from five to nine. "Despite the insistence of petitioner, this Commission is inclined to believe that there was a stockholders' meeting on November 25, 1975 which approved the increase. The petitioner had not sufficiently overcome the evidence of respondents that such meeting was in fact held. What petitioner successfully proved, however, was the fact that he was not notified of said meeting and that he never attended the same as he was out of the country at the time. The documentary evidence of petitioner conclusively proved that he was attending the Mecca pilgrimage when the meeting was held on November 25, 1975. (Exhs. 'Q', 'Q-14', 'R', 'S' and 'S-l'). While petitioner doubts the authenticity of the alleged minutes of the proceedings (Exh. '4'), the Commission notes with significance that said minutes contain numerous details of various items taken up therein that would negate any claim that it was not authentic. Another thing that petitioner was able to disprove was the allegation in the certificate of increase (Exh. 'E-l') that all stockholders who did not subscribe to the increase of capital stock have waived their pre-emptive right to do so. As far as the petitioner is concerned, he had not waived his pre-emptive right to subscribe as he could not have done so for the reason that he was not present at the meeting and had not executed a waiver, thereof. Not having waived such right and for reasons of equity, he may still be allowed to subscribe to the increased capital stock proportionate to his present shareholdings." (pp. 36-37, Rollo) Well-settled is the rule that the findings of facts of administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. (Gokongwei, Jr. vs. SEC, 97 SCRA 78). In a long string of cases, the Supreme Court has consistently adhered to the rule that decisions of administrative officers are not to be disturbed by the courts except when the former have acted without or in excess of their jurisdiction or with grave abuse of discretion (Sichangco vs. Board of Commissioners of Immigration, 94 SCRA 61). Thus, in the case ofDeluao vs. Casteel ( L-21906, Dec. 24, 1968, 26 SCRA 475, 496, citing Pajo vs. Ago, et al., L-15414, June 30, 1960) and Genitano vs. Secretary of Agriculture and Natural Resources, et al. (L-2ll67, March 31, 1966), the Supreme Court held that: ... Findings of fact by an administrative board or official, following a hearing, are binding upon the courts and win not be disturbed except where the board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. ... ACCORDINGLY, this petition is hereby dismissed for lack of merit. SO ORDERED.

ARMANDO DAVID, Petitioner,

G.R. Nos. 148263 and 148271-72 Present: PUNO, C.J., Chairperson, CARPIO, CORONA, LEONARDO-DE CASTRO, and BERSAMIN, JJ.

- versus -

NATIONAL FEDERATION OF LABOR UNION and MARIVELES APPAREL Promulgated: CORPORATION, Respondents. April 21, 2009 x-------------------------------------------------- x

DECISION CARPIO, J.: The Case

[1] [2] [3]

This is a petition for review on certiorari assailing the Joint Decision dated 29 February 2000 and the Resolution dated 27 March 2001 of the Court of Appeals (appellate court) in CA-G.R. SP Nos. 54404-06. The appellate court affirmed the [4] Decision dated 17 June 1994 of Labor Arbiter Isabel Panganiban-Ortiguerra (Arbiter Ortiguerra) in RAB-III-08-5198-93 where petitioner Armando David (David) was held solidarily liable, along with Mariveles Apparel Corporation (MAC) and MAC Chairman of the Board Antonio Carag (Carag), for money claims of the employees of MAC.

The Facts The present case arose from the same circumstances as Antonio C. Carag v. National Labor Relations Commission, et al.
[5]

MAC hired David as IMPEX and Treasury Manager on 16 September 1988. David began serving as MACs President in May 1990. David served as President in the nature of a nominee as he did not own any of MACs shares. David tendered his irrevocable resignation from MAC on 30 September 1993. Davids resignation was made effective on 15 October 1993. In a complaint for illegal dismissal dated 12 August 1993, National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) alleged that MAC ceased operations on 8 July 1993 without prior notice to its employees. MAC allegedly gave notice of its closure on the same day that it ceased operations. MACLU and NAFLU further alleged that, at the time of MACs closure, employees who had rendered one to two weeks work were not paid their corresponding salaries. Arbiter Ortiguerra immediately summoned the parties for settlement of the case. However, MAC failed to appear before Arbiter Ortiguerra. MACs non-appearance compelled Arbiter Ortiguerra to declare the case submitted for resolution based on the pleadings. On 3 January 1994, MACLU and NAFLU filed their position paper wherein MACLU and NAFLU also moved to implead Carag and David to guarantee satisfaction of any judgment award in MACLU and NAFLUs favor. Atty. Joshua Pastores, as MACs counsel, submitted a position paper dated 21 February 1994 and argued that Carag and David should not be held liable because MAC is owned by a consortium of banks. Carags and Davids ownership of MAC shares only served to qualify them to serve as officers in MAC. The Ruling of the Labor Arbiter

Arbiter Ortiguerra proceeded to render her Decision on 17 June 1994 without further proceedings or submissions from the parties. Arbiter Ortiguerra granted MACLU and NAFLUs motion to implead Carag and David, as well as declared Carag and David solidarily liable with MAC to complainants. Pertinent portions of Arbiter Ortiguerras decision are quoted below: The complainants claim that Atty. Antonio Carag and Mr. Armando David should be held jointly and severally liable with respondent corporation [MAC]. This bid is premised on the belief that the impleader of the aforesaid officers will guarantee payment of whatever may be adjudged in complainants favor by virtue of this case. It is a basic principle in law that corporations have personality [sic] distinct and separate from the stockholders. This concept is known as corporate fiction. Normally, officers acting for and in behalf of a corporation are not held personally liable for the obligation of the corporation. In instances where

corporate officers dismissed employees in bad faith or wantonly violate labor standard laws or when the company had already ceased operations and there is no way by which a judgment in favor of employees could be satisfied, corporate officers can be held jointly and severally liable with the company. This Office after a careful consideration of the factual backdrop of the case is inclined to grant complainants prayer for the impleader of Atty. Antonio Carag and Mr. Armando David, to assure that valid claims of employees would not be defeated by the closure of [MAC]. xxxx WHEREFORE, premises considered, judgment is hereby rendered declaring respondents jointly and severally guilty of illegal closure and they are hereby ordered as follows: 1. To pay complainants separation pay computed on the basis of one (1) month for every year of service, a fraction of six (6) months to be considered as one (1) year in the total amount of P49,101,621.00; and 2. To pay complainants attorneys fees in an amount equivalent to 10% of the judgment award. The claims for moral, actual and exemplary damages are dismissed for lack of evidence. SO ORDERED.[6] David claimed that he was not notified of Arbiter Ortiguerras decision. David alleged that it was only during a chance encounter with Carag that he learned of Arbiter Ortiguerras decision against him. Neither did David know that MAC filed an appeal on his behalf before the NLRC. David then filed a petition for certiorari under Rule 65, docketed as G.R. No. 118880, before this Court. We also consolidated Davids petition with that of MACLU and NAFLU (G.R. No. 118880) and of MAC and Carag (G.R. No. 118820). On 12 July 1999, after all the parties had filed their memoranda, we referred the consolidated cases to the appellate court in accordance with our decision in St. Martin Funeral Home v. NLRC.[7] MAC, Carag, and David filed separate petitions before the appellate court. David asked the appellate court to rule on whether the labor arbiter acquired jurisdiction over his person. David emphasized that he was impleaded as a party respondent not in a separate order prior to the promulgation of the decision, but in the decision itself. David also questioned his solidary liability with his co-respondents. The Ruling of the Appellate Court In its Joint Decision dated 29 February 2000, the appellate court affirmed the decision of Arbiter Ortiguerra and the resolution of the NLRC. The appellate court stated that petitioner DAVID cannot just evade his liability by the simple expedien*ce+ of alleging that he [8] had not affirmed nor adopted the position paper filed by petitioner MAC. Davids resignation from MAC took place only on 15 October 1993, long after MACs closure took place. According to the appellate court, this meant that David willfully and knowingly assented to the unlawful closure of the company without any notice to the employees. David was thus solidarily liable, along with MAC and Carag, for the unpaid wages of MACs employees. The dispositive portion of the appellate courts decision reads as follows: IN VIEW WHEREOF, the petitions are DISMISSED. The decision of Labor Arbiter Isabel Panganiban-Ortiguerra dated June 17, 1994, and the Resolution dated January 5, 1995, issued by the National Labor Relations Commission are hereby AFFIRMED. As a consequence of dismissal, the temporary restraining order issued on March 2, 1995, by the Third Division of the Supreme Court is LIFTED. Costs against petitioners. [9] SO ORDERED. The appellate court denied Davids motion for reconsideration in a Resolution promulgated on 27 March 2001. The Issues David raises the following issues before this Court: 1. Whether or not in finding petitioner guilty of illegal closure and making him personally liable for payment of private respondents claims, petitioner had been afforded due process of law as guaranteed by the 1987 Constitution? 2. Whether or not the Labor Court has acquired jurisdiction over the person of petitioner by ordering him to be impleaded as a party respondent in the course of the proceedings not through a separate order prior to the promulgation of its decision, but through the decision itself, under which, petitioner was adjudged to be jointly and severally liable to pay the monetary award with the original respondent? 3. Whether or not the Labor Arbiter has acted with grave abuse of discretion in adjudging petitioner to be jointly and severally liable with his co-respondents on the sole ground that the valid claims of the employees should not be defeated by the closure of [10] the corporation? The Ruling of the Court The petition has merit. The issues raised by David can be limited to denial of due process and the propriety of Davids solidary liability. Denial of Due Process The proceedings before the Labor Arbiter deprived David of due process. MACLU and NAFLU filed their complaint against MAC on 12 August 1993. Arbiter Ortiguerras decision shows that MACLU, NAFLU, and MAC were the only parties summoned to a conference for a possible settlement. Because of MACs failure to appear, Arbiter Ortiguerra deemed the case submitted for resolution. Davids resignation from MAC took effect on 15 October 1993. NAFLU and MACLU moved to implead Carag and David

for the first time only in their position paper dated 3 January 1994. David did not receive any summons and had no knowledge of the decision against him. The records of the present case fail to show any order from Arbiter Ortiguerra summoning David to attend the preliminary conference. Despite this lack of summons, in her Decision dated 17 June 1994, Arbiter Ortiguerra not only granted MACLU and NAFLUs motion to implead Carag and David, she also held Carag and David solidarily liable with MAC. Arbiter Ortiguerras zeal to rule in favor of MACLU and NAFLU should have been tempered by observance of due process. Like Carag, David was not issued summons, not accorded a conciliatory conference, not ordered to submit a position paper, not accorded a hearing, not given an opportunity to present his evidence, and not notified that the case was submitted for [11] resolution. Unlike Carag, David did not even know that Arbiter Ortiguerra issued a decision against him. David was not even able to file an appeal before the NLRC. Davids participation in the present case, albeit belated, questioned his inclusion in the decisions of the tribunals below. Davids protestations are not without basis, as can be seen from Sections [12] [13] [14] [15] [16] [17] 2, 3, 4, 5(b), and 11(c) of Rule V of the New Rules of Procedure of the NLRC. The records of the case show that NAFLU and MACLU moved to implead Carag and David for the first time only in their position paper dated 3 January 1994. Arbiter Ortiguerras decision shows that MACLU, NAFLU, and MAC were the only parties summoned to a conference for a possible settlement. Therefore, at the time of the conference, David was not yet a party to the case. The position paper subsequently filed by MAC was filed at a time when David had already resigned from MAC. Davids knowledge of a labor case against MAC did not serve the same purpose as a summons. David did not receive any summons and had no knowledge of the decision against him. The Labor Arbiter and the NLRC did not have jurisdiction over David. This utter lack of jurisdiction voids any liability of David for any monetary award or judgment in favor of MACLU and NAFLU. Corporate Presidents Solidary Liability Assuming arguendo that the NLRC and the Labor Arbiter had jurisdiction over David, we rule that it was still improper to hold David liable for MACs obligations to its employees. Arbiter Ortiguerra held David liable for MACs debts pursuant to Article 212(e) of the Labor Code, which reads: Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer. However, Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation. Section 31 of the Corporation Code provides: Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. x x x There was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation, or that David was guilty of gross negligence or bad faith. WHEREFORE, we GRANT the petition. We SET ASIDE the Joint Decision dated 29 February 2000 and the Resolution dated 27 March 2001 of the Court of Appeals in CA-G.R. SP Nos. 54404-06. SO ORDERED.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents. DECISION KAPUNAN, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of Appeals dated October 6, 1995 and the Resolution of the same court dated August 29, 1996. The facts are as follows: Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides, copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque Minings real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, [1] the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges. On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Minings chattels, as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans totaling P2 Billion from DBP, [2] exclusive of interest and charges. On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights [3] subsequently acquired by Marinduque Mining. For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties. The events following the foreclosure are narrated by DBP in its petition, as follows: In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over the foreclosed real properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. 5 to 5-A, 6, 7 to 7-AA- PNB/DBP). For the foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. 10 to 10-X- PNB/ DBP). At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and P543,040,000.00 respectively (Exhs. 8 to 8-BB, 9 to 90-GGGGGGPNB/DBP). Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. 11 and12-QQQQQPNB). PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. 13-PNB). Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all its rights, interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial consideration of P325,800,000.00 (Exh. 14PNB/DBP). On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. 15 & [4] 15-APNB/DBP). In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorneys fees and the costs of suit. On September 7, 1984, Remingtons original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, [5] equipment and other assets of Marinduque Mining. On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, [6] equipment and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte. On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since: 1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extra-judicial foreclosure of MMICs assets as to make their supposed projects assets, machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the latter.

2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of co-defendant MMIC such that x x x practically there has only been a change of name for all legal purpose and intents. 3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise used to be the places of business, mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management. On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMICs assets, machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by codefendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business activities, invested considerable time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its operation, which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBPs instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that codefendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated as one and the same at least as far as plaintiffs transactions with co-defendant MMIC are concerned, so as not to defeat public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this [7] case. On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989. On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial Corporation, Philippine National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal obligation, including the stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum equivalent to 10% of the amount due as and for attorneys fees; [8] and to pay the costs. Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29, 1996. Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining, Island Cement, Maricalum Mining, and the APT. On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Minings purchases. [9] [10] In Yutivo Sons Hardware vs. Court of Tax Appeals, cited by the Court of Appeals in its decision, this Court declared: It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or in case of two corporations, merge them into one. (Koppel *Phils.+, Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) xxx In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate [11] entity was used to escape liability to third parties. In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil. It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides: It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to foreclose the collateral and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans, credits, accomodations and/or guarantees on which the arrearages are less than twenty (20%) percent. Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey the statutory command. The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The appellate court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because:

As aptly stated by the appellee in its brief, x x x where the corporations have directors and officers in common, there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where one corporation was insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x (page 105 of the Appellees Brief). In the same manner that x x x when the corporation is insolvent, its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors. xxx. (page 106 of the Appellees Brief.) We also concede that x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside [12] creditors. x x x (page 106-107 of the Appellees Brief.) The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP). The second principle invoked by respondent court involves directors who are creditors which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As [13] Remington itself concedes, DBP is not authorized by its charter to engage in the mining business. The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended. Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latters officers and personnel also constitute badges of bad faith. Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets are heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Minings personnel to manage and operate the properties and to maintain the continuity of the mining operations. To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public [14] convenience, justify wrong, protect fraud or defend crime. To disregard the separate juridical personality of a corporation, the [15] wrongdoing must be clearly and convincingly established. It cannot be presumed. In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. The Court of Appeals also held that there exists in Remingtons favor a lien on the unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP should be held liable for the value thereof. In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code provides: Article 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: xxx (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity, neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; xxx [16] In Barretto vs. Villanueva, the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The facts that gave rise to the case were summarized by this Court in its resolution as follows: x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly recorded. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclousre decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila.

In its decision upholding the order of the lower court, the Court ratiocinated thus: Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific immovable property, and among them are: "(2) For the unpaid price of real property sold, upon the immovable sold"; and "(5) Mortgage credits recorded in the Registry of Property." Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights." Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. xxx As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditor-debtor relationships where there are concurrence of credits would be left without any [17] rules to govern them, and it would render purposeless the special laws on insolvency. Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal: A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if necessary. Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides: "If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real rights." But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. This explains the rule of Article 2243 of the new Civil Code that "The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency xxx (Italics supplied). And the rule is further clarified in the Report of the Code Commission, as follows: "The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Italics supplied) Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect, and must be reversed. [Underscoring supplied] [18] The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al., and in two cases both [19] entitled Development Bank of the Philippines vs. NLRC. Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property is involved. As the extra-judicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from DBP. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby DISMISSED. SO ORDERED.

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON. FELICIANO S. GONZALES, petitioners, vs. HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO, respondents. Agrava, Lucero, Gineta & Roxas for petitioners. Bausa, Ampil, Suarez, Parades & Bausa for private respondents. GRINO-AQUINO, J.: This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision dated September 30, 1972 of the trial court (pp. 79-106, Rollo) became final and executory because none of the parties appealed, its execution has taken all of the past seventeen (17) years with the end nowhere in sight. The delay in writing finis to this case is attributable to several factors, not the least of which is the intransigence of the defeated party. Now, worn down by this attrital suit, both have pleaded for a decision to end this case. Assailed in this petition for review are: (a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP 04811, entitled "Africa Valdez Vda. de Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago de Erquiaga" (pp. 275-290, Rollo); (b) its resolution dated August 3, 1976, denying the motion for reconsideration (p. 298, Rollo); (c) its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and (d) its resolution of October 4, 1977, denying the motion to set aside the entry of judgment. Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third installments on time, the total price of the sale was later increased to P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo). As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation (p. 100, Rollo). However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares in the Erquiaga Development Corporation (CFI Decision, pp. 81-100, Rollo). As recited by the Court of Appeals in its decision under review, the following developments occurred thereafter: On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for rescission with preliminary injunction against Jose L. Reynoso and Erquiaga Development Corporation, in the Court of First Instance of Sorsogon, Branch I (Civil Case No. 2446).** After issues have been joined and after trial on the merits, the lower court rendered judgment (on September 30, 1972),*** the dispositive portion of which reads as follows: In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant Jose L. Reynoso, rescinding the sale of 3,100 paid up shares of stock of the Erquiaga Development Corporation to the defendant, and ordering: (a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the Erquiaga Development Corporation which now stand in his name in the books of the corporation; (b) The defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up shares of stock of the Erquiaga Development Corporation, as well as to return said fruits received by him to plaintiff Santiago de Erquiaga; (c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from November 4,1968, and the amount of P310,000.00 plus legal interest from December 17, 1968, until paid; (d) The defendant to pay the plaintiff as actual damages the amount of P12,000.00; (e) The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees; and (f) The defendant to pay the costs of this suit and expenses of litigation. (Annex A-Petition.) The parties did not appeal therefrom and it became final and executory. On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which reads: It will be noted that both parties having decided not to appeal, the decision has become final and executory. Nevertheless, the Court finds merit in the contention of the plaintiff that the payment to the defendant of the total sum of P410,000.00 plus the interest, should be held in abeyance pending rendition of the accounting by the defendant of the fruits received by him on account of the 3,100 shares of the capital stock of Erquiaga Development Corporation. The same may be said with respect to the sums due the plaintiff from the defendant for damages and attorney's fees. Indeed it is reasonable to suppose, as contended by the plaintiff, that when such accounting is made and the accounting, as urged by plaintiff, should refer not only to the dividends due from the shares of stock but to the products of the hacienda which is the only asset of the Erquiaga Development Corporation, certain sums may be found due to the plaintiff from the defendant which may partially or entirely off set (sic) the amount adjudged against him in the decision. It is the sense of the court that the fruits referred to in the decision include not only the dividends received, if any, on the 3,100 shares of stocks but more particularly the products received by the defendant from the hacienda. The hacienda and the products thereon produced constitute the physical assets of the Erquiaga Development Corporation represented by the shares of stock and it would be absurd to suppose that any accounting could be made by the defendant without necessarily taking into account the products received which could be the only basis for determining whether dividends are due or not on account of the investment. The hacienda and its natural fruits as represented by the shares of stock which the defendant received as manager and controlling stockholder of the Erquiaga Development Corporation can not be divorced from the certificates of stock in order to determine whether the defendant has correctly reported the income of the corporation or concealed part of it for his personal advantage. It is hardly necessary for the Court to restate an obvious fact that on both legal and equitable grounds, the Erquiaga Development

Corporation and defendant Jose Reynoso are one and the same persons as far as the obligation to account for the products of the hacienda is concerned,' (pp. 4-6, Annex 1, Answer.) In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of P100,000.00. The reasons of the lower court for appointing a receiver 'were that the matter of accounting of the fruits received by defendant Reynoso as directed in the decision will take time; that plaintiff Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver in order to preserve the Hacienda which has obviously been mismanaged by the defendant to a point where the amortization of the loan with the Development Bank of the Philippines has been neglected and the arrears in payments have risen to the amount of P503,510.70 as of October 19, 1972, and there is danger that the Development Bank of the Philippines may institute foreclosure proceedings to the damage and prejudice of the plaintiff.' (p. 7, Id.) On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda. de Reynoso and children, as party defendants. Defendants filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the annulment of the aforementioned Order of March 21, 1973. On June 28, 1973, the Court of Appeals rendered judgment dismissing the petition with costs against the petitioners, ruling that said Order is valid and the respondent court did not commit any grave abuse of discretion in issuing the same (Annex 2, Id.). Petitioners brought the case up to the Supreme Court on a petition for review on certiorari which was denied by said tribunal in a Resolution dated February 5, 1974 (Annex 3, Id.). Petitioners' motion for reconsideration thereof was likewise denied by the Supreme Court on March 29,1974. Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February 12,1975, dissolving the receivership and ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00 conditioned to the payment of whatever may be due to the substituted heirs of deceased defendant Reynoso (petitioners herein) after the approval of the accounting report submitted by Reynoso. Said order further directed herein petitioners to allow counsel for Erquiaga to inspect, copy and photograph certain documents related to the accounting report (Annex B, Petition). On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the possession, management and control of the hacienda were turned over to Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their motion for reconsideration which the CFI of Sorsogon denied in an Order, dated June 23, 1975 (Annex D, Id.). In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections interposed thereto by herein petitioners (Reynosos), the CFI of Sorsogon issued an Order, dated October 9, 1975, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, on the first count, the defendants are directed (to deliver) to the plaintiff or his counsel within five (5) days from receipt of this order the 1,600 shares of stock of the Erquiaga Development Corporation which are in their possession. Should the defendants refuse or delay in delivering such shares of stock, as prayed for, the plaintiff is authorized: (a) To call and hold a special meeting of the stockholders of the Erquiaga Development Corporation to elect the members of the Board of Directors; (b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name but also the 1,600 shares in the name and possession of the defendants; (c) The question as to who shall be elected members of the Board of Directors and officers of the board is left to the discretion of the plaintiff; (d) The members of the board and the officers who are elected are authorized to execute any and all contracts or agreements under such conditions as may be required by the Development Bank for the purpose of restructuring the loan of the Erquiaga Development Corporation with the said bank. On the second count, the prayer to strike out all expenses alleged[ly] incurred by the defendants in the production of the fruits of Hacienda San Jose and declaring the obligation of the plaintiff under paragraph (c) of the judgment to pay the defendant the sum of P410,000.00 with interest as fully compensated by the fruits earned by the defendants from the property, as well as the issuance of a writ of execution against the defendants to pay the plaintiffs P62,000.00 under paragraphs (e) and (d) and costs of litigation under paragraph (f) of the judgment of September 30, 1972, is denied. The defendants are once more directed to comply with the order of February 12, 1975, by answering the interrogatories propounded by counsel for the plaintiff and allowing said counsel or his representative to inspect, copy and photograph the documents mentioned by the plaintiff during reasonable hours of any working day within twenty (20) days from receipt of this order, should the defendants persist in their refusal or failure to comply with the order, the plaintiff may inform the court seasonably so that the proper action may be taken. (Annex J, Id.) Hence, the present petition for certiorari, prohibition and mandamus instituted by the substituted defendants, heirs of the deceased defendant Jose L. Reynoso against the CFI of Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281, Rollo.) On May 31, 1976, the Court of Appeals rendered judgment holding that: IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had acted with grave abuse of discretion or in excess of jurisdiction in issuing the assailed order of October 9, 1975 (Annex A, Petition) insofar only as that part of the Order (1) giving private respondent voting rights on the 3,100 shares of stock of the Erquiaga Development Corporation without first divesting petitioners of their title thereto and ordering the registration of the same in the corporation books in the name of private respondent, pursuant to Section 10, Rule 39 of the Revised Rules of Court; (2) authorizing corporate meetings and election of members of the Board of Directors of said corporation and (3) refusing to order the reimbursement of the purchase price of the 3,100 shares of stock in the amount of P410,000.00 plus interests awarded in said final decision of September 30, 1972 and the set-off therewith of the amount of P62,000.00 as damages and attorney's fees in favor of herein private respondent are concerned. Let writs of certiorari and prohibition issue against the aforesaid acts, and the writ of preliminary injunction heretofore issued is hereby made permanent only insofar as (1), (2) and (3) above are concerned. As to all other matters involved in said Order of October 9, 1975, the issuance of writs prayed for in the petition are not warranted and therefore denied. FINALLY, to give effect to all the foregoing, with a view of putting an end to a much protracted litigation and for the best interest of the parties, let a writ of mandamus issue, commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the necessary deed of conveyance to effect the transfer of ownership of the entire 3,100 shares of stock of the Erquiaga Development Corporation to private respondent Santiago Erquiaga in case of failure of petitioners to comply with the Order of October 9, 1975 insofar as the delivery of the 1,600 shares of stock to private respondent is concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of execution ordering private respondent to pay petitioners the amount of P410,000.00 plus

interests in accordance with the final decision of September 30, 1972 in Civil Case No. 2448, setting-off therewith the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners' predecessor-in-interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. (pp. 289-290, Rollo.) It may be seen from the foregoing narration of facts that as of the time the Court of Appeals rendered its decision on May 31, 1976 (now under review) only the following have been done by the parties in compliance with the final judgment in the main case (Civil Case No. 2446): 1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety bond of P410,000 in favor of Reynoso; 2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final judgment. What the parties have not done yet are: 1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a,) of the decision; 2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him under the sale, as ordered in paragraph (b) of the decision; 3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from November 4, 1968 and P310,000 plus legal interest from December 17, 1968, until paid (total: P410,000) as ordered in paragraph (c) of the decision; 4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of Erquiaga, under paragraph (d) of the judgment; 5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the judgment; and 6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the final judgment. The petitioner alleges, in her petition for review, that: I. The decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum of P410,000 plus interest, without first awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates the law of the case and Article 1385 of the Civil Code, alters the final order dated February 12, 1975 of the trial court, and is inequitous. II. The Court of Appeals erroneously applied the Corporation Law. III. The Court of Appeals erred in ordering entry of its judgment. We address first the third assignment of error for it will be futile to discuss the first and second if, after all, the decision complained of is already final, and the entry of judgment which the Court of Appeals directed to be made in its resolution of August 24,1977 (p. 316, Rollo) was proper. After examining the records, we find that the Court of Appeals' decision is not yet final. The entry of judgment was improvident for the Court of Appeals, in its resolution of December 13, 1976, suspended the proceedings before it "pending the parties' settlement negotiations" as prayed for in their joint motion (p. 313, Rollo). Without however giving them an ultimatum or setting a deadline for the submission of their compromise agreement, the Court of Appeals, out of the blue, issued a resolution on August 24, 1977 ordering the Judgment Section of that Court to enter final judgment in the case (p. 316, Rollo). We hold that the directive was precipitate and premature. Erquiaga received the order on September 2, 1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for reconsideration which the Court of Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial was received on October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for extension of time to file a petition for review, and the petition was filed within the extension granted by this Court. We now address the petitioners' first and second assignments of error. After deliberating on the petition for review, we find no reversible error in the Court of Appeals' decision directing the clerk of court of the trial court to execute a deed of conveyance to Erquiaga of the 1,600 shares of stock of the Erquiaga Development Corporation still in Reynoso's name and/or possession, in accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling the trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development Corporation without having effected the transfer of those shares in his name in the corporate books; and (2) authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga Development Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his name. It is a fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting rights only when the shares of stock to be voted are registered in his name in the corporate books. Until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee cannot enjoy the status of a stockholder; he cannot vote nor be voted for, and he will not be entitled to dividends. The Corporation will be protected when it pays dividend to the registered owner despite a previous transfer of which it had no knowledge. The purpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of a stockholder, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. (Corporation Code, Comments, Notes and Selected cases by Campos & LopezCampos, p. 838,1981 Edition.) The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with Art. 1385 of the Civil Code which provides: ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the time the hacienda was delivered to him on November 4,1968 until it was placed under receivership by the court on March 3, 1975. However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver to Reynoso the legal interest earned by his money, should await the rendition and

approval of his accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned by Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3, 1975. WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the Erquiaga Development Corporation should be computed as provided in the final judgment in Civil Case No. 2446 up to September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after September 30,1972, the date of the judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to costs. SO ORDERED.

MITA PARDO DE TAVERA, plaintiff-appellant, vs. PHILIPPINE TUBERCULOSIS SOCIETY, INC., FRANCISCO ORTIGAS, JR., MIGUEL CAIZARES, BERNARDO P. PARDO, RALPH NUBLA, MIDPANTAO ADIL, ENRIQUE GARCIA, ALBERTO G. ROMULO and THE PRESENT BOARD OF DIRECTORS, PHILIPPINE TUBERCULOSIS SOCIETY, INC., defendants- appellees. GUERRERO, J.: On March 23, 1976, plaintiff-appellant Mita Pardo de Tavera filed with the Court of First Instance of Rizal a complaint against the Philippine Tuberculosis Society, Inc. (hereinafter referred to as the Society), Miguel Canizares, Ralph Nubla, Bernardo Pardo, Enrique Garcia, Midpantao Adil, Alberto Romulo, and the present Board of Directors of the Philippine Tuberculosis Society, Inc. On April 12, 1976, plaintiff-appellant filed an amended complaint impleading Francisco Ortigas, Jr. as party defendant. In substance, the complaint alleged that plaintiff is a doctor of Medicine by profession and a recognized specialist in the treatment of tuberculosis, having been in the continuous practice of her profession since 1945; that she is a member of the Board of Directors of the defendant Society, in representation of the Philippine Charity Sweepstakes Office; that she was duly appointed on April 27, 1973 as Executive Secretary of the Society; that on May 29, 1974, the past Board of Directors removed her summarily from her position, the lawful cause of which she was not informed, through the simple expedient of declaring her position vacant; that immediately thereafter, defendant Alberto Romulo was appointed to the position by an affirmative vote of seven directors, with two abstentions and one objection; and that defendants Pardo, Nubla, Garcia and Adil, not being members of defendant Society when they were elevated to the position of members of the Board of Directors, are not qualified to be elected as such and hence, all their acts in said meeting of May 29, 1974 are null and void. The defendants filed their answer on May 12, 1976, specifically denying that plaintiff was illegally removed from her position as Executive Secretary and averring that under the Code of By-Laws of the Society, said position is held at the pleasure of the Board of Directors and when the pleasure is exercised, it only means that the incumbent has to vacate the same because her term has expired; that defendants Pardo, Nubla, Adil and Garcia were, at the time of their election, members of the defendant Society and qualified to be elected as members of the Board, that assuming that said defendants were not members of defendant Society at the time of their election, the question of qualification of the members of the Board of Directors should have been raised at the time of their election: that assuming that the qualification of members of the Board of Directors can be questioned after their assumption of their offices as directors, such contest cannot be done in a collateral action; that an action to question the qualifications of the Directors must be brought within one year from their election; and that a Director elected without necessary qualification becomes at least a de facto director, whose acts are as valid and binding as a de jure director. Further, defendant disputed the timeliness of the filing of the action stating that an action to question one's ouster from a corporate office must be filed within one year from said ouster. On the same date, defendant Adil filed a Motion to Dismiss on the ground that the complaint states no cause of action, or if it does, the same has prescribed. Inasmuch as plaintiff seeks reinstatement, he argued that the complaint is an action for quo warranto and hence, the same should be commenced within one year from May 29, 1974 when the plaintiff was ousted from her position. Plaintiff filed an Opposition to Motion to Dismiss on May 28, 1976, stating that the complaint is a suit for damages filed under the authority of Section 6, Article 11 of the present Constitution in relation to Articles 12 and 32(6) of the New Civil Code, and her constitutional right to equal protection of the law, as guaranteed by Section 1, Article IV of the present Constitution. On June 2, 1976, defendant Adil filed a Reply to Plaintiff's Opposition to Motion to Dismiss arguing that since there is an averment of plaintiff's right to office, and that defendant Romulo is unlawfully in possession thereof, their it is indeed, a case for quo warranto; and that assuming that it is merely a suit for damages, then, the same is premature, pursuant to Section 16, Rule 66 of the Rules of Court. On September 3, 1976, the coturt a quo rendered a decision holding that the present suit being one for quo warranto it should be filed within one year from plaintiff's outer from office; that nevertheless, plaintiff was not illegally rendered or used from her position as Executive Secretary in The Society since plaintiff as holding an appointment all the pleasure of the appointing power and hence her appointment in essence was temporary in nature, terminable at a moment's notice without need to show that the termination was for cause; and Chat plaintiff's ouster from office may not be challenged on the ground that the acts of defendants Pardo, Adil, Nubla and Garcia are null and void, they being not qualified to be elected members of the Board of Directors because the qualifications of the members of the Board of Directors which removed plaintiff from office may not be the subject of a collateral attack in the present suit for quo warranto affecting title to the office of Executive Secretary. On October 13, 1976, plaintiff filed a Motion for Reconsideration to which defendants filed an Opposition. On November 25, 1976, the court a quo denied the motion for Reconsideration. Dissatisfied with the decision and the order denying the motion for reconsideration. plaintiff filed a Notice of Appeal and an Urgent Motion for Extension of Time to File Record on Appeal, which was granted in an order dated December 15, 1976. However, on December 20, 1976, the court a quo issued an amended order where it qualified the action as principally one for quo warranto and hence, dispensed with the filing of a record on appeal as the original records of the case are required to be elevated to the Court of Appeals. On August 8, 1978, the Court of Appeals issued a resolution certifying this case to this Court considering that the appeal raises no factual issues and involves only issues of law, as may be gleaned from the following assignments of errors: I. The lower court erred in holding that the present case is one for quo warranto and not an action for damages. II. In deciding the case, the lower court erred in not upholding the Society's By-Laws, the applicable laws, and the pertinent provisions of the Constitution. III. The lower court erred in holding that the plaintiff-appellant is not in the civil service, and therefore, not entitled to the guaranty against removal from office except for cause and after due process of law. The nature of an action filed in court is determined by the facts alleged in the complaint as constituting the cause of action, and not those averred as a defense in the defendant's answer. The theory adopted by the plaintiff in his complaint is one thing; that by the defendant in his answer another. The purpose of an action or suit and the law to govern it, including the period of prescription, is to be determined not by the claim of the party filing the action, made in his argument or brief, but rather by the complaint itself, its allegations and prayer for relief. Rone et al. vs. Claro, et al., L-4472, May 8, 1952, 91 Phil. 250). In Baguioro vs. Barrios, et al., 77 Phil.

120, the Supreme Court held that if the relief demanded is not the proper one which may be granted under the law, it does not characterize or determine the nature of plaintiff's action, and the relief to which plaintiff is entitled based on the facts alleged by him in his complaint, although it is not the relief demanded, is what determines the nature of the action. While it is true that the complaint questions petitioner's removal from the position of Executive Secretary and seeks her reinstatement thereto, the nature of the suit is not necessarily one of quo warranto. The nature of the instant suit is one involving a violation of the rights of the plaintiff under the By-Laws of the Society, the Civil Code and the Constitution, which allegedly renders the individuals responsible therefore, accountable for damages, as may be gleaned from the following allegations in the complaint as constituting the plaintiff's causes of action, to wit: 20. That, as a consequence of the unfair and malicious removal of plaintiff from her office, which the plaintiff maintains to be contrary to morals, good customs, public policy, the pertinent provisions of said By-Laws of the Society, the laws, and the guarranties of the Constitution, by defendants Canizares, Ortigas Jr., Pardo, Adil, Nubla and Garcia, the plaintiff suffered not only material damages, but serious damage to her priceless properties, consisting of her honor and reputation, which were maliciously and unlawfully besmirched, thereby entitling her to compensation for material and moral damages, from said defendants, jointly and severally, under Article 21, in relation to Article 32(6) of the New Civil Code; xxx xxx xxx 24. That as a consequence of the inordinate use and abuse of power by defendants, Caares Ortigas Jr., Pardo, Adil, Nubla and Garcia, in arbitrarily, illegally, and unjustly removing the plaintiff from office, without due process of law, and in denying to her the enjoyment of the guaranty of the Constitution to equal protection of the law, the plaintiff suffered material and moral damages as a result of the debasement of her dignity, both as an individual and as a professional (physician) of good standing, therefore, defendant Caares Ortigas Jr., Pardo, Adil, Nubla and Garcia should be ordered to pay her moral damages, jointly and severally; xxx xxx xxx 26. That the acts of the defendants Canizares, Ortigas Jr., Pardo, Adil, Nubla and Garcia, in illegally removing the plaintiff from her position as Executive Secretary of defendant Society, which plaintiff was then holding under a valid appointment and thereafter, immediately appointing defendant Alberto Romulo to the position, is most unfair, unjust and malicious, because it is contrary to good morals, good customs, public policy, the pertinent provisions of the Code of By-Laws of the defendant Society, the laws and the aforementioned guarranties of the Constitution; that the plaintiff complaint that the said defendants are legally obligated to compensate her, in concept of exemplary damages, in order to restrain persons in authority from committing similar file I and un constitutional acts which debase human dignity and inflict injuries to their fellowmen; xxx xxx xxx 31. That, as a consequence of the said unjustified refusal of the defendant, present Board of Directors of the defendant Society, to resolve the complaint of the plaintiff and extend to her the reliefs to which she is entitled under the law and the Constitution, it is respectfully submitted that said defendant Board is under legal obligation to correct the illegal and unconstitutional act of defendants Caares Ortigas Jr., Pardo, Nubla, Adil and Garcia, by restoring the plaintiff to her position as Executive Secretary of the defendant Society, payment of salaries and other benefits, corresponding to the period of her illegal and unconstitutional removal from office. Further, it must be noted that the action is not only against Alberto Romulo, the person appointed in her stead, but also against the Society and the past and present members of the Board. In fact, Romulo is sued as present occupant of the office and not to hold him accountable for damages because he did not participate in the alleged illegal and unconstitutional removal of plaintiffappellant. The action is primarily against the Society and the past members of the Board who are responsible for her removal. The present Board of Directors has been implead as party defendant for the purpose merely of enabling it to act, "to reinstate the plaintiff to her position as Executive Secretary of the defendant Society" being one of the reliefs prayed for in the prayer of the complaint. Hence, We hold that where the respondents, except for one, namely, Alberto Romulo, are not actually holding the office in question, the suit could not be one for quo warranto. Corollarily, the one-year period fixed in Section 16, Rule 66 of the Revised Rules of Court within which a petition for quo warranto should be filed, counted from the date of ouster, does not apply to the case at bar. The action must be brought within four (4) years, in accordance with Valencia vs. Cebu Portland Cement Co., et al., L-13715, December 23, 1959, 106 Phil. 732, case involving a plaintiff separated from his employment for alleged unjustifiable causes, where this Court held that the action n is one for "injury to the rights of the plaintiff, and must be brought within 4 years murder Article 1146 of the New Civil Code . Nonetheless, although the action is not barred by the statute of limitations, We rule that it will not prosper. Contrary to her claim, petitioner was not illegally removed or from her position as Executive Secretary in violation of Code of By-laws of the Society. the New Civil Code and the pertinent provisions of the Constitution. Petitioner claims and the respondents do not dispute that the Executive Secretary is an officer of the Society pursuant to provision in the Code of By-laws Laws: Section 7.01. Officers of the Society. The executed officers f the Society shag be the President a Vice-President, a Treasurer who shall be elected by the Board of Directors, Executive Secretary, and an Auditor, who shall be appointed by the Board of Directors, all of whom shall exercise the functions. powers and prerogatives generally vested upon skich officers, the functions hereinafter set out for their respective offices and such other duties is from time to time, may be prescribed by the Board of Directors. On e person may hold more than one office except when the functions thereof are incompatible with each other. It is petitioner's contention that she is subject, to removal pursuant to Section 7.04 of the Code of By-laws which respondents correctly dispute citing Section 7.02 of the same Cede. The aforementioned provisions state as follows: Section 7.02. Tenure of Office. All executive officers of the Society except the Executive Secretary and the Auditor shall be elected the Board of Directors, for a term of one rear ind shall hold office until their successors are elected and have qualified. The Executive secretary, the Auditor and all other office ers and employees of the Society shall hold office at the pleasure of the Board of Directors, unless their term of employment shall have been fixed in their contract of employment. xxx xxx xxx Section 7.04. Removal of Officers and Employees. All officers and employees shall be subject to suspension or removal for a sufficient cause at any time by affirmative vote of a majority of an the members of the Board of Directors, except that employees appointed by the President alone or by the other officers alone at the pleasure of the officer appointing him.

It appears from the records, specifically the minutes of the special meeting of the Society on August 3, 1972, that petitioner was designated as Acting Executive Secretary with an honorarium of P200.00 monthly in view of the application of Dr. Jose Y. Buktaw for leave effective September 1, 1972 for 300 working days. This designation was formalized in Special Order No. 110, s. 1972 wherein it was indicated that: "This designation shall take effect on September 1, 1972 and shall remain until further advice." In the organizational meeting of the Society on April 25, 1973, the minutes of the meeting reveal that the Chairman mentioned the need of appointing a permanent Executive Secretary and stated that the former Executive Secretary, Dr. Jose Y. Buktaw, tendered his application for optional retirement, and while on terminal leave, Dr. Mita Pardo de Tavera was appointed Acting Executive Secretary. In view thereof, Don Francisco Ortigas, Jr. moved, duly seconded, that Dr. Mita Pardo de Tavera be appointed Executive Secretary of the Philippine Tuberculosis Society, Inc. The motion was unanimously approved. On April 27, 1973, petitioner was informed in writing of the said appointment, to wit: Dr. Mita Pardo de Tavera Philippine Tuberculosis Society, Inc. Manila Madam: I am pleased to inform you that at the meeting of the Board of Directors held on April 25, 1973, you were appointed Executive Secretary, Philippine Tuberculosis Society, Inc. with such compensation ,petition and allowances as are provided for in the Budget of the Society, effective immediately, vice Dr. Jose Y. Buktaw, retired. Congratulations. Very truly yours, For the Board of Directors: (Sgd) Miguel Canizares, M.D. MIGUEL CARIZARES, M.D. President Although the minutes of the organizational meeting show that the Chairman mentioned the need of appointing a "permanent" Executive Secretary, such statement alone cannot characterize the appointment of petitioner without a contract of employment definitely fixing her term because of the specific provision of Section 7.02 of the Code of By-Laws that: "The Executive Secretary, the Auditor, and all other officers and employees of the Society shall hold office at the pleasure of the Board of Directors, unless their term of employment shall have been fixed in their contract of employment." Besides the word permanent" could have been used to distinguish the appointment from acting capacity". The absence of a fixed term in the letter addressed to petitioner informing her of her appointment as Executive Secretary is very significant. This could have no other implication than that petitioner held an appointment at the pleasure of the appointing power. An appointment held at the pleasure of the appointing power is in essence temporary in nature. It is co-extensive with the desire of the Board of Directors. Hence, when the Board opts to replace the incumbent, technically there is no removal but only an expiration of term and in an expiration of term, there is no need of prior notice, due hearing or sufficient grounds before the incumbent can be separated from office. The protection afforded by Section 7.04 of the Code of By-Laws on Removal of Officers and Employees, therefore, cannot be claimed by petitioner. Thus, in the case of Moji vs. Mario 13 SCRA 293, where the appointment contains the following proviso: that it may be terminated at anytime without any proceedings, at the pleasure of the President of the Philippines, this Court held: "It may, therefore, be said that, though not technically a temporary appointment, as this term is used in Section 24(b) of the Civil Service Act of 1959, petitioner's appointment in essence is temporary because of its character that it is terminable at the pleasure of the appointing power. Being temporary in nature, the appointment can be terminated at a moment's notice without need to show cause as required in appointments that belong to the classified service." In Paragas vs. Bernal 17 SCRA 150, this Court distinguished between removal and expiration of term . In the case at bar there has been, however, no removal from office. Pursuant to the charter of Dagupan City, the Chief of Police thereof holds office at the pleasure of the President. Consequently, the term of office of the Chief of Police expires at any time that the President may so declare. This is not removal, inasmuch as the latter entails the ouster of an incumbent before the expiration of his term. In the present case, petitioner's term merely expired upon receipt by him of the communication of respondent Assistant Executive Secretary of the President, dated September 14, 1962. Petitioner cannot likewise seek relief from the general provisions of the New Civil Code on Human Relations nor from the fundamental principles of the New Constitution on preservation of human dignity. While these provisions present some basic principles that are to be observed for the rightful relationship between human beings and the stability of social order, these are merely guides for human conduct in the absence of specific legal provisions and definite contractual stipulations. In the case at bar, the Code of By-Laws of the Society contains a specific provision governing the term of office of petitioner. The same necessarily limits her rights under the New Civil Code and the New Constitution upon acceptance of the appointment. Moreover, the act of the Board in declaring her position as vacant is not only in accordance with the Code of By-Laws of the Society but also meets the exacting standards of honesty and good faith. The meeting of May 29, 1974, at which petitioner ,petitioner's position was declared vacant, was caged specifically to take up the unfinished business of the Reorganizational Meeting of the Board of April 30, 1974. Hence, and act cannot be said to impart a dishonest purpose or some moral obliquity and conscious doing to wrong but rather emanates from the desire of the Board to reorganize itself. Finally, We find it unnecessary to resolve the third assignment of error. The proscription against removal without just cause and due process of law under the Civil Service Law does not have a bearing on the case at bar for the reason, as We have explained, that there was no removal in her case but merely an expiration of term pursuant to Section 7.02 of the Code of By-Laws. Hence, whether or not the petitioner falls within the protective mantle of the Civil Service Law is immaterial and definitely unnecessary to resolve this case. WHEREFORE, premises considered, the decision of the lower court holding that petitioner was not illegally removed or ousted from her position as Executive Secretary of the Philippine Tuberculosis Society, Inc., is hereby AFFIRMED.

PEDRO LOPEZ DEE, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, HEARING OFFICER EMMANUEL SISON, NAGA TELEPHONE CO., INC., COMMUNICATION SERVICES, INC., LUCIANO MAGGAY, AUGUSTO FEDERIS, NILDA RAMOS, FELIPA JAVALERA, DESIDERIO SAAVEDRA, respondents. G.R. No. L-63922 July 16, 1991 JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO LOPEZ DEE, and VICENTE TORDILLA, JR., petitioners, vs. INTERMEDIATE APPELLATE COURT, LUCIANO MAGGAY, NILDA I. RAMOS, DESIDERIO SAAVEDRA, AUGUSTO FEDERIS, ERNESTO MIGUEL, COMMUNICATION SERVICES, INC., and NAGA TELEPHONE COMPANY, INC., respondents. PARAS, J.:p These are petitions for certiorari with preliminary injunction and/or restraining order which seek to annul and set aside in: (1) G.R. No. 60502, the order * of the hearing officer dated May 4, 1982, setting the date for the election of the directors to be held by the stockholders on May 22, 1982, in SEC Case No. 1748 entitled "Pedro Lopez Dee v. Naga Telephone Co., Inc. et al."; and (2) G.R. No. 63922, the decision ** of the Intermediate Appellate Court dated April 14, 1983 which annulled the judgment of the trial court on the contempt charge against the private respondents in G.R. No. SP-14846-R, entitled "Luciano Maggay, et al. v. Hon. Delfin Vir Sunga, et al." As gathered from the records, the facts of these cases are as follows: Naga Telephone Company, Inc. was organized in 1954, the authorized capital was P100,000.00. In 1974 Naga Telephone Co., Inc. (Natelco for short) decided to increase its authorized capital to P3,000,000.00. As required by the Public Service Act, Natelco filed an application for the approval of the increased authorized capital with the then Board of Communications under BOC Case No. 74-84. On January 8, 1975, a decision was rendered in said case, approving the said application subject to certain conditions, among which was: 3. That the issuance of the shares of stocks will be for a period of one year from the date hereof, "after which no further issues will be made without previous authority from this Board." Pursuant to the approval given by the then Board of Communications, Natelco filed its Amended Articles of Incorporation with the Securities and Exchange Commission (SEC for short). When the amended articles were filed with the SEC, the original authorized capital of P100,000.00 was already paid. Of the increased capital of P2,900,000.00 the subscribers subscribed to P580,000.00 of which P145,000 was fully paid. The capital stock of Natelco was divided into 213,000 common shares and 87,000 preferred shares, both at a par value of P10.00 per shares. On April 12, 1977, Natelco entered into a contract with Communication Services, Inc. (CSI for short) for the "manufacture, supply, delivery and installation" of telephone equipment. In accordance with this contract, Natelco issued 24,000 shares of common stocks to CSI on the same date as part of the downpayment. On May 5, 1979, another 12,000 shares of common stocks were issued to CSI. In both instances, no prior authorization from the Board of Communications, now the National Telecommunications Commission, was secured pursuant to the conditions imposed by the decision in BOC Case NO. 74-84 aforecited (Rollo, Vol. III, Memorandum for private respondent Natelco, pp. 814-816). On May 19, 1979, the stockholders of the Natelco held their annual stockholders' meeting to elect their seven directors to their Board of Directors, for the year 1979-1980. In this election Pedro Lopez Dee (Dee for short) was unseated as Chairman of the Board and President of the Corporation, but was elected as one of the directors, together with his wife, Amelia Lopez Dee (Rollo, Vol. III, Memorandum for private respondents, p. 985; p. 2). In the election CSI was able to gain control of Natelco when the latter's legal counsel, Atty. Luciano Maggay (Maggay for short) won a seat in the Board with the help of CSI. In the reorganization Atty. Maggay became president (Ibid., Memorandum for Private Respondent Natelco, p. 811). The following were elected in the May 19, 1979 election: Atty. Luciano Maggay, Mr. Augusto Federis, Mrs. Nilda Ramos, Ms. Felipa Javalera, Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez Dee. The last three named directors never attended the meetings of the Maggay Board. The members of the Maggay Board who attended its meetings were Maggay. Federis, Ramos and Javalera. The last two were and are CSI representatives (Ibid., p. 812). Petitioner Dee having been unseated in the election, filed a petition in the SEC docketed as SEC Case No. 1748, questioning the validity of the elections of May 19, 1979 upon the main ground that there was no valid list of stockholders through which the right to vote could be determined (Rollo, Vol. I, pp. 254-262-A). As prayed for in the petition (Ibid., p. 262), a restraining order was issued by the SEC placing petitioner and the other officers of the 1978-1979 Natelco Board in hold-over capacity (Rollo, Vol. II, Reply, p. 667). The SEC restraining order was elevated to the Supreme Court in G.R. No. 50885 where the enforcement of the SEC restraining order was restrained. Private respondents therefore, replaced the hold-over officers (Rollo, Vol. 11, p. 897). During the tenure of the Maggay Board, from June 22, 1979 to March 10, 1980, it did not reform the contract of April 12, 1977, and entered into another contract with CSI for the supply and installation of additional equipment but also issued to CSI 113,800 shares of common stock (Ibid., p. 812). The shares of common stock issued to CSI are as follows: NO. OF SHARES DATE ISSUED 24,000 shares April 12, 1977 12,000 shares May 5, 1979 28,000 shares October 2, 1979 28,500 shares November 5, 1979 20,000 shares November 14, 1979 20,000 shares January 7, 1980 16,500 shares January 26, 1980 149,000 shares (Ibid., pp. 816-817). Subsequently, the Supreme Court dismissed the petition in G.R. No. 50885 upon the ground that the same was premature and the Commission should be allowed to conduct its hearing on the controversy. The dismissal of the petition resulted in the unseating of the Maggay group from the board of directors of Natelco in a "hold-over" capacity (Rollo, Vol. II, p. 533).

In the course of the proceedings in SEC Case No. 1748, respondent hearing officer issued an order on June 23, 1981, declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote; (2) that unexplained 16,858 shares of Natelco appear to have been issued in excess to CSI which should not be allowed to vote; (3) that 82 shareholders with their corresponding number of shares shall be allowed to vote; and (4) consequently, ordering the holding of special stockholder' meeting to elect the new members of the Board of Directors for Natelco based on the findings made in the order as to who are entitled to vote (Rollo, Vol. 1, pp. 288-299). From the foregoing order dated June 23, 1981, petitioner Dee filed a petition for certiorari/appeal with the SEC en banc. The petition/appeal was docketed as SEC-AC NO. 036. Thereafter, the Commission en banc rendered a decision on April 5, 1982, the dispositive part of which leads: Now therefore, the Commission en banc resolves to sustain the order of the Hearing Officer; to dismiss the petition/appeal for lack of merit; and order new elections as the Hearing Officer shall set after consultations with Natelco officers. For the protection of minority stockholders and in the interest of fair play and justice, the Hearing Officer shall order the formation of a special committee of three, one from the respondents (other than Natelco), one from petitioner, and the Hearing Officer as Chairman to supervise the election. It remains to state that the Commission en banc cannot pass upon motions belatedly filed by petitioner and respondent Natelco to introduce newly discovered evidence any such evidence may be introduced at hearings on the merits of SEC Case No. 1748. SO ORDERED. (Rollo, Vol. I, p. 24). On April 21, 1982, petitioner filed a motion for reconsideration (Rollo, Vol. I, pp. 25-30). Likewise, private respondent Natelco filed its motion for reconsideration dated April 21, 1982 (Ibid., pp. 32-51). Pending resolution of the motions for reconsideration, on May 4, 1982, respondent healing officer without waiting for the decision of the commission en banc to become final and executory rendered an order stating that the election for directors would be held on May 22, 1982 (Ibid., pp. 300-301). On May 20, 1982, the SEC en banc denied the motions for reconsideration (Rollo, Vol. II, pp. 763-765). Meanwhile on May 20, 1982 (G.R. No. 63922), petitioner Antonio Villasenor (as plaintiff) filed Civil Case No. 1507 with the Court of First Instance of Camarines Sur, Naga City, against private respondents and co-petitioners, de Jesus, Tordilla and the Dee's all defendants therein, which was raffled to Branch I, presided over by Judge Delfin Vir Sunga (Rollo, G.R. No. 63922; pp. 25-30). Villasenor claimed that he was an assignee of an option to repurchase 36,000 shares of common stocks of Natelco under a Deed of Assignment executed in his favor (Rollo, p. 31). The defendants therein (now private respondents), principally the Maggay group, allegedly refused to allow the repurchase of said stocks when petitioner Villasenor offered to defendant CSI the repurchase of said stocks by tendering payment of its price (Rollo, p. 26 and p. 78). The complaint therefore, prayed for the allowance to repurchase the aforesaid stocks and that the holding of the May 22, 1982 election of directors and officers of Natelco be enjoined (Rollo, pp. 2829). A restraining order dated May 21, 1982 was issued by the lower court commanding desistance from the scheduled election until further orders (Rollo, p. 32). Nevertheless, on May 22, 1982, as scheduled, the controlling majority of the stockholders of the Natelco defied the restraining order, and proceeded with the elections, under the supervision of the SEC representatives (Rollo, Vol. III, p. 985); p. 10; G.R. No. 60502). On May 25, 1982, the SEC recognized the fact that elections were duly held, and proclaimed that the following are the "duly elected directors" of the Natelco for the term 1982-1983: 1. Felipa T. Javalera 2. Nilda I. Ramos 3. Luciano Maggay 4. Augusto Federis 5. Daniel J. Ilano 6. Nelin J. Ilano Sr. 7. Ernesto A. Miguel And, the following are the recognized officers to wit: 1. President Luciano Maggay 2. Vice-President Nilda I. Ramos 3. Secretary Desiderio Saavedra 4. Treasurer Felipa Javalera 5. Auditor Daniel Ilano (Rollo, Vol. 1, pp. 302-303) Despite service of the order of May 25, 1982, the Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting no elections were held and refused to vacate their positions (Rollo, Vol. III, p. 985; p. 11). On May 28, 1982, the SEC issued another order directing the hold-over directors and officers to turn over their respective posts to the newly elected directors and officers and directing the Sheriff of Naga City, with the assistance of PC and INP of Naga City, and other law enforcement agencies of the City or of the Province of Camarines Sur, to enforce the aforesaid order (Rollo, Vol. 11, pp. 577-578). On May 29, 1982, the Sheriff of Naga City, assisted by law enforcement agencies, installed the newly elected directors and officers of the Natelco, and the hold-over officers peacefully vacated their respective offices and turned-over their functions to the new officers (Rollo, Vol. III, p. 985; pp. 12-13). On June 2, 1982, a charge for contempt was filed by petitioner Villasenor alleging that private respondents have been claiming in press conferences and over the radio airlanes that they actually held and conducted elections on May 22, 1982 in the City of Naga and that they have a new set of officers, and that such acts of herein private respondents constitute contempt of court (G.R. 63922; Rollo, pp. 35-37). On September 7, 1982, the lower court rendered judgment on the contempt charge, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered: 1. Declaring respondents, CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court, and accordingly punished with imprisonment of six (6) months and to pay fine of P1,000.00 each; and

2. Ordering respondents, CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, and those now occupying the positions of directors and officers of NATELCO to vacate their respective positions therein, and ordering them to reinstate the hold-over directors and officers of NATELCO, such as Pedro Lopez Dee as President, Justino de Jesus, Sr., as Vice President, Julio Lopez Dee as Treasurer and Vicente Tordilla, Jr. as Secretary, and others referred to as hold-over directors and officers of NATELCO in the order dated May 28, 1982 of SEC Hearing Officer Emmanuel Sison, in SEC Case No. 1748 (Exh. 6), by way of RESTITUTION, and consequently, ordering said respondents to turn over all records, property and assets of NATELCO to said holdover directors and officers. (Ibid., Rollo, p. 49). The trial judge issued an order dated September 10, 1982 directing the respondents in the contempt charge to "comply strictly, under pain of being subjected to imprisonment until they do so" (Ibid., p. 50). The order also commanded the Deputy Provincial Sheriff, with the aid of the PC Provincial Commander of Camarines Sur and the INP Station Commander of Naga City to "physically remove or oust from the offices or positions of directors and officers of NATELCO, the aforesaid respondents (herein private respondents) . . . and to reinstate and maintain, the hold-over directors and officers of NATELCO referred to in the order dated May 28, 1982 of SEC Hearing Officer Emmanuel Sison." (Ibid.). Private respondents filed on September 17, 1982, a petition for certiorari and prohibition with preliminary injunction or restraining order against the CFI Judge of Camarines Sur, Naga City and herein petitioners, with the then Intermediate Appellate Court which issued a resolution ordering herein petitioners to comment on the petition, which was complied with, and at the same time temporarily refrained from implementing and/or enforcing the questioned judgment and order of the lower court (Rollo, p. 77), Decision of CA, p. 2). On April 14, 1983, the then Intermediate Appellate Court, rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered as follows: 1. Annuling the judgment dated September 7, 1982 rendered by respondent judge on the contempt charge, and his order dated September 10, 1982, implementing said judgment; 2. Ordering the "hold-over" directors and officers of NATELCO to vacate their respective offices; 3. Directing respondents to restore or re-establish petitioners (private respondents in this case) who were ejected on May 22, 1982 to their respective offices in the NATELCO, . . .; 4. Prohibiting whoever may be the successor of respondent Judge from interfering with the proceedings of the Securities and Exchange Commission in SE-CAC No. 036; xxx xxx xxx (Rollo, p. 88). The order of re-implementation was issued, and, finally, the Maggay group has been restored as the officers of the Natelco (Rollo, G.R. No. 60502, p. 985; p. 37). Hence, these petitions involve the same parties and practically the same issues. Consequently, in the resolution of the Court En Banc dated August 23, 1983, G.R. No. 63922 was consolidated with G.R. No. 60502. In G.R. No. 60502 In a resolution issued by the Court En Banc dated March 22, 1983, the Court gave due course to the petition and required the parties to submit their respective memoranda (Rollo, Resolution, p. 638-A; Vol. II). In G.R. No. 60502 The main issues in this case are: (1) Whether or not the Securities and Exchange Commission has the power and jurisdiction to declare null and void shares of stock issued by NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act; (2) Whether or not the issuance of 113,800 shares of Natelco to CSI made during the pendency of SEC Case No. 1748 in the Securities and Exchange Commission was valid; (3) Whether or not Natelco stockholders have a right of preemption to the 113,800 shares in question; and (4) Whether or not the private respondents were duly elected to the Board of Directors of Natelco at an election held on May 22, 1982. In G.R. No. 63922 The crucial issue to be resolved is whether or not the trial judge has jurisdiction to restrain the holding of an election of officers and directors of a corporation. The petitions are devoid of merit. In G.R. No. 60502 I It is the contention of petitioner that the Securities and Exchange Commission En Banc committed grave abuse of discretion when, in its decision dated April 5, 1982, in SEC-AC No. 036, it refused to declare void the shares of stock issued by Natelco to CSI allegedly in violation of Sec. 20 (h) of the Public Service Act. This section requires prior administrative approval of any transfer or sale of shares of stock of any public service which vest in the transferee more than forty percentum of the subscribed capital of the said public service. Section 5 of P.D. No. 902-A, as amended, enumerates the jurisdiction of the Securities and Exchange Commission: Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over Corporations, partnerships and other forms of associations, registered with it as expressly granted under the existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover

its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree, (As added by PD 1758) In other words, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between corporation, partnership or association and the public; (b) between the corporation, partnership, or association and its stockholders, partners, members or officers; (c) between the corporation, partnership or association and the state insofar as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners, or associates themselves (Union Glass & Container Corp. vs. SEC, 126 SCRA 31 [1983]). The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with internal affairs of such entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting corporations (Pereyra vs. IAC, 181 SCRA 244 [1990]; Sales vs. SEC, 169 SCRA 121 [1989]). The jurisdiction of the SEC in SEC Case No. 1748 is limited to deciding the controversy in the election of the directors and officers of Natelco. Thus, the SEC was correct when it refused to rule on whether the issuance of the shares of Natelco stocks to CSI violated Sec. 20 (h) of the Public Service Act. The SEC ruling as to the issue involving the Public Service Act, Section 20 (h), asserts that the Commission En Banc is not empowered to grant much less cancel franchise for telephone and communications, and therefore has no authority to rule that the issuance and sale of shares would in effect constitute a violation of Natelco's secondary franchise. It would be in excess of jurisdiction on our part to decide that a violation of our public service laws has been committed. The matter is better brought to the attention of the appropriate body for determination. Neither can the SEC provisionally decide the issue because it is only vested with the power to grant or revoke the primary corporate franchise. The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the only issue in this case. II The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of SEC Case No. 1748 in the Securities and Exchange Commission was valid. The findings of the SEC En Banc as to the issuance of the 113,800 shares of stock was stated as follows: But the issuance of 113,800 shares were (sic) pursuant to a Board Resolution and stockholders' approval prior to May 19, 1979 when CSI was not yet in control of the Board or of the voting shares. There is distinction between an order to issue shares on or before May 19, 1979 and actual issuanceof the shares after May 19, 1979. The actual issuance, it is true, came during the period when CSI was in control of voting shares and the Board (if they were in fact in control but only pursuant to the original Board and stockholders' orders, not on the initiative to the new Board, elected May 19, 1979, which petitioners are questioning. The Commission en banc finds it difficult to see how the one who gave the orders can turn around and impugn the implementation of the orders lie had previously given. The reformation of the contract is understandable for Natelco lacked the corporate funds to purchase the CSI equipment. xxx xxx xxx Appellant had raise the issue whether the issuance of 113,800 shares of stock during the incumbency of the Maggay Board which was allegedly CSI controlled, and while the case was sub judice, amounted to unfair and undue advantage. This does not merit consideration in the absence of additional evidence to support the proposition. In effect, therefore, the stockholders of Natelco approved the issuance of stock to CSI III While the group of Luciano Maggay was in control of Natelco by virtue of the restraining order issued in G.R. No. 50885, the Maggay Board issued 113,800 shares of stock to CSI Petitioner said that the Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their right of pre-emption to the unissued shares. This Court in Benito vs. SEC, et al., has ruled that: Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of pre-emption over the unissued shares. However, the general rule is that pre-emptive right is recognized only with respect to new issues of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore (sic) claim a dilution of interest (Benito vs. SEC, et al., 123 SCRA 722). The questioned issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the stockholders as claimed by the petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI. IV Petitioner insists that no meeting and election were held in Naga City on May 22, 1982 as directed by respondent Hearing Officer. This fact is shown by the Sheriffs return of a restraining order issued by the Court of First Instance of Camarines Sur in Case No. 1505 entitled "Antonio Villasenor v. Communications Service Inc, et al." (Rollo, Vol. 1, p. 309). There is evidence of the fact that the Natelco special stockholders' meeting and election of members of the Board of Directors of the corporation were held at its office in Naga City on May 22, 1982 as shown when the Hearing Officer issued an order on May 25, 1982, declaring the stockholders named therein as corporate officers duly elected for the term 1982-1983. More than that, private respondents were in fact charged with contempt of court and found guilty for holding the election on May 22, 1982, in defiance of the restraining order issued by Judge Sunga (Rollo, Vol. II, p. 750). It is, therefore, very clear from the records that an election was held on May 22, 1982 at the Natelco Offices in Naga City and its officers were duly elected, thereby rendering the issue of election moot and academic, not to mention the fact that the election of the Board of Directors/Officers has been held annually, while this case was dragging for almost a decade. The contempt charge against herein private respondents was predicated on their failure to comply with the restraining order issued by the lower court on May 21, 1982, enjoining them from holding the election of officers and directors of Natelco scheduled on May 22, 1982. The SEC en banc, in its decision of April 5, 1982, directed the holding of a new election which, through a conference attended by the hold-over directors of Natelco accompanied by their lawyers and presided by a SEC hearing officer, was scheduled on May 22, 1982 (Rollo, p. 59). Contrary to the claim of petitioners that the case is within the jurisdiction of the lower court as it

does not involve an intra-corporate matter but merely a claim of a private party of the right to repurchase common shares of stock of Natelco and that the restraining order was not meant to stop the election duly called for by the SEC, it is undisputed that the main objective of the lower court's order of May 21, 1982 was precisely to restrain or stop the holding of said election of officers and directors of Natelco, a matter purely within the exclusive jurisdiction of the SEC (P.D. No. 902-A, Section 5). The said restraining order reads in part: . . . A temporary restraining order is hereby issued, directing defendants (herein respondents), their agents, attorneys as well as any and all persons, whether public officers or private individuals to desist from conducting and holding, in any manner whatsoever, an election of the directors and officers of the Naga Telephone Co. (Natelco). . . . (Rollo, P. 32). Indubitably, the aforesaid restraining order, aimed not only to prevent the stockholders of Natelco from conducting the election of its directors and officers, but it also amounted to an injunctive relief against the SEC, since it is clear that even "public officers" (such as the Hearing Officer of the SEC) are commanded to desist from conducting or holding the election "under pain of punishment of contempt of court" (Ibid.) The fact that the SEC or any of its officers has not been cited for contempt, along with the stockholders of Natelco, who chose to heed the lawful order of the SEC to go on with the election as scheduled by the latter, is of no moment, since it was precisely the acts of herein private respondents done pursuant to an order lawfully issued by an administrative body that have been considered as contemptuous by the lower court prompting the latter to cite and punish them for contempt (Rollo, p. 48). Noteworthy is the pertinent portion of the judgment of the lower court which states: Certainly, this Court will not tolerate, or much less countenance, a mere Hearing Officer of the Securities and Exchange Commission, to render a restraining order issued by it (said Court) within its jurisdiction, nugatory and ineffectual and abet disobedience and even defiance by individuals and entities of the same. . . . (Rollo, p. 48). Finally, in the case of Philippine Pacific Fishing Co., Inc. vs. Luna, 12 SCRA 604, 613 [1983], this Tribunal stated clearly the following rule: Nowhere does the law (P.D. No. 902-A) empower any Court of First Instance to interfere with the orders of the Commission (SEC). Not even on grounds of due process or jurisdiction. The Commission is, conceding arguendo a possible claim of respondents, at the very least, a co-equal body with the Courts of First Instance. Even as such co-equal, one would have no power to control the other. But the truth of the matter is that only the Supreme Court can enjoin and correct any actuation of the Commission. Accordingly, it is clear that since the trial judge in the lower court (CFI of Camarines Sur) did not have jurisdiction in issuing the questioned restraining order, disobedience thereto did not constitute contempt, as it is necessary that the order be a valid and legal one. It is an established rule that the court has no authority to punish for disobedience of an order issued without authority (Chanco v. Madrilejos, 9 Phil. 356; Angel Jose Realty Corp. v. Galao, et al., 76 Phil. 201). Finally, it is well-settled that the power to punish for contempt of court should be exercised on the preservative and not on the vindictive principle. Only occasionally should the court invoke its inherent power in order to retain that respect without which the administration of justice must falter or fail (Rivera v. Florendo, 144 SCRA 643, 662-663 [1986]; Lipata v. Tutaan, 124 SCRA 880 [1983]). PREMISES CONSIDERED, both petitioners are hereby DISMISSED for lack of merit. SO ORDERED.

FRANCISCO V. DEL ROSARIO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents. Jardeleza, Sobrevias, Diaz, Hayudini & Bodegon Law Offices for petitioner. Lourdes T. Pagayatan for private respondent. CORTES, J.: In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4, 1986 dismissing the complaint for money claims for lack of merit. The decision was appealed to the National Labor Relations Commission (NLRC), which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as salary differentials, and $2,420.03, as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987 and entry of judgment was made on September 24, 1987. A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer operating and was financially incapable of satisfying the judgment. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation. On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read: WHEREFORE, premises considered, let an alias writ of Execution be issued and the handling sheriff is ordered to execute against the properties of Mr. Francisco V. del -Rosario and if insufficient, against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded. Petitioner appealed to the NLRC. On September 23, 1988, the NLRC dismissed the appeal. On October 21, 1988, petitioner's motion for reconsideration was denied. Thus, this petition was filed on October 28, 1988, alleging that the NLRC gravely abused its discretion. On November 10, 1988 the Court issued a temporary restraining order enjoining the enforcement of the NLRC's decision dated September 23, 1988 and resolution dated October 21, 1988. The petition was given due course on June 14, 1989. After considering the undisputed facts and the arguments raised in the pleadings, the Court finds grave abuse of discretion on the part of the NLRC. The action of the NLRC affirming the issuance of an alias writ of execution against petitioner, on the theory that the corporate personality of Philsa should be disregarded, was founded primarily on the following findings of the POEA xxx xxx xxx 6. Per the certification issued by the Licensing Division of this Office, it appears that Philsa Construction & Trading Co., Inc., with office address at 126 Pioneer St., Mandaluyong, Metro Manila, represented by Mr. Francisco V. del Rosario, President and General Manager, was formerly a registered construction contractor whose authority was originally issued on July 21, 1978 but was already delisted from the list of agencies/entities on August 15, 1986 for inactivity; 7. Per another certification issued by the Licensing Division of this Office, it also appears that another corporation, Philsa International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was registered as a licensed private employment agency whose license was issued on November 5, 1981, represented by the same Mr. Francisco V. del Rosario as its President/ General Manager. and an application of the ruling of the Court in A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269. However, we find that the NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is totally misplaced. 1. Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders [Civil Code, Art. 44; Corporation Code, sec. 2]. But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons [Koppel (Phil.), Inc. v. Yatco, 77 Phil. 496 (1946), citing 1 Fletcher, Cyclopedia of Corporations, 135-136; see also Palay, Inc. v. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638], and its responsible officers and/or stockholders shall be held individually liable [Namarco v. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962]. For the same reasons, a corporation shall be liable for the obligations of a stockholder [Palacio v. Fely Transportation Company, G.R. No. L-15121, August 31, 1962, 5 SCRA 1011; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, G.R. No. L-20502, February 26, 1965, 13 SCRA 290], or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter [Koppel v. Yatco, supra; Liddell & Co. v. Collector of Internal Revenue, G.R. No. L-9687, June 30, 1961, 2 SCRA 632]. But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In this regard we find the NLRC's decision wanting. The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains inviolable. Consider the following undisputed facts: (1) Private respondent filed his complaint with the POEA on June 4, 1985; (2) The last renewal of Philsa's license expired on October 12, 1985; (3) The POEA dismissed private respondent's complaint on February 4, 1986; (4) Philsa was delisted for inactivity on August 15, 1986; * (5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30, 1987 that the judgment awarding differentials and benefits to private respondent was rendered. Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its delisting. Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA as a private employment agency imply fraud since it was organized and registered in 1981, several years before private respondent filed his complaint with the POEA in 1985. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the consequent adverse judgment against Philsa Likewise, substantial identity of the incorporators of the two corporations does not necessarily imply fraud.

The circumstances of this case distinguish it from those in earlier decisions of the Court in labor cases where the veil of corporate fiction was pierced. In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil. 160 (1953), La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially owned by the same person. They had one office, one management, and a single payroll for both businesses. The laborers of the gaugaufactory and the coffee factory were also interchangeable, i.e., the workers in one factory worked also in the other factory. In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613, the Claparols Steel and Nail Plant, which was ordered to pay its workers backwages, ceased operations on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in operations. Moreover, all the assets of the steel and nail plant were transferred to the new corporation. 2. As earlier stated, we also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is inapplicable to this case. In A. C. Ransom, the Court said: ... In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. [At p. 274.] The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new corporation was created, owned by the same family, engaging in the same business and operating in the same compound. Thus, considering that the non-payment of the workers was a continuing situation, the Court adjudged its President, the "responsible officer" of the corporation, personally liable for the backwages awarded, he being the chief operation officer or "manager" who could be held criminally liable for violations of Republic Act No. 602 (the old Minimum Wage Law.) In the case now before us, not only has there been a failure to establish fraud, but it has also not been shown that petitioner is the corporate officer responsible for private respondent's predicament. It must be emphasized that the claim for differentials and benefits was actually directed against the foreign employer. Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign employer, an undertaking required by the rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of cash and surety bonds [Rule 11, sec. 4], in order to ensure that overseas workers shall find satisfaction for awards in their favor. At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. As provided in the POEA Rules and Regulations ... The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. ... [Rule II, see. 4.] Quite evidently, these bonds do not answer for a single specific liability, but for all sorts of liabilities of the recruiter to the worker and to the POEA. Moreover, the obligations guaranteed by the bonds are continuing. Thus, the bonds are subject to replenishment when they are garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license [Rule II, sec. 19]. Furthermore, a cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three (3) years [Rule II, sec. 20]. All these, to ensure recovery from the recruiter. It is therefore surprising why the POEA ordered execution "against the properties of Mr. Francisco V. del Rosarioand if insufficient, against the cash and/or surety bond of Bonding Company concerned for the till satisfaction of the judgment awarded" in complete disregard of the scheme outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have affirmed the POEA. WHEREFORE, the petition is GRANTED and the decision and resolution of the NLRC, dated September 23, 1988 and October 21, 1988, respectively, in POEA Case No. 85-06-0394 are SET ASIDE. The temporary restraining order issued by the Court on November 10, 1988 is MADE PERMANENT. SO ORDERED.

RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena Salas, as stockholders on their own behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other stockholders thereof who may wish to join in this action, plaintiffs-appellants, vs. MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO, defendants-appellants. San Juan, Africa and Benedicto for plaintiffs-appellants. Vicente Hilado and Gianzon, Sison, Yulo and Associates for defendants-appellants. CAPISTRANO, J.: This was a representative or derivative suit commenced on October 20, 1953, in the Court of First Instance of Manila by four minority stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado Araneta and three other directors of the corporation. The complaint comprising the period November, 1946 to October, 1952, stated five causes of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of self-dealing irregular loans, and unauthorized investments; (2) for alleged gross mismanagement; (3) for alleged forfeiture of corporate rights warranting dissolution; (4) for alleged damages and attorney's fees; and (5) for receivership. Plaintiffs prayed, in substance, as follows: Under the FIRST CAUSE OF ACTION, that the defendant J. Amado Araneta and his individual co-defendants be ordered to render an accounting of all transactions made and carried out by them for defendant corporation, and "to collect, produce and/or pay to the defendant corporation the outstanding balance of the amounts so diverted and still unpaid to defendant corporation"; Under the SECOND CAUSE OF ACTION, that the individual defendants be held liable and be ordered to pay to the defendant corporation "whatever amounts may be recovered by the plaintiffs in Civil Case No. 20122, entitled 'Francisco Rodriguez vs. Ma-ao Sugar Central Co.'"; to return to the defendant corporation all amounts withdrawn by way of discretionary funds or backpay, and to account for the difference between the corporation's crop loan accounts payable and its crop loan accounts receivable; Under the THIRD CAUSE OF ACTION, that the corporation be dissolved and its net assets be distributed to the stockholders; and Under the FOURTH CAUSE OF ACTION, that the defendants be ordered "to pay the sum of P300,000.00 by way of compensatory, moral and exemplary damages and for expenses of litigation, including attorney's fees and costs of the suit." THE FIFTH CAUSE OF ACTION was an application for the provisional remedy of receivership. In their answer originally filed on December 1, 1953, and amended on February 1, 1955, defendants denied "the allegations regarding the supposed gross mismanagement, fraudulent use and diversion of corporate funds, disregard of corporate requirements, abuse of trust and violation of fiduciary relationship, etc., supposed to have been discovered by plaintiffs, all of which are nothing but gratuitous, unwarranted, exaggerated and distorted conclusions not supported by plain and specific facts and transactions alleged in the complaint." BY WAY OF SPECIAL DEFENSES, the defendants alleged, among other things: (1) that the complaint "is premature, improper and unjustified"; (2) that plaintiffs did not make an "earnest, not simulated effort" to exhaust first their remedies within the corporation before filing their complaint; (3) that no actual loss had been suffered by the defendant corporation on account of the transactions questioned by plaintiffs; (4) that the payments by the debtors of all amounts due to the defendant corporation constituted a full, sufficient and adequate remedy for the grievances alleged in the complaint and (5) that the dissolution and/or receivership of the defendant corporation would violate and impair the obligation of existing contracts of said corporation. BY WAY OF COUNTERCLAIM, the defendants in substance further alleged, among others, that the complaint was premature, improper and malicious, and that the language used was "unnecessarily vituperative abusive and insulting, particularly against defendant J. Amado Araneta who appears to be the main target of their hatred." Wherefore, the defendant sought to recover "compensation for damages, actual, moral, exemplary and corrective, including reasonable attorney's fees." After trial, the Lower Court rendered its Decision (later supplemented by an Order resolving defendants' Motion for Reconsideration), the dispositive portion of which reads: IN VIEW WHEREOF, the Court dismisses the petition for dissolution but condemns J. Amado Araneta to pay unto Ma-ao Sugar Central Co., Inc. the amount of P46,270.00 with 8% interest from the date of the filing of this complaint, plus the costs; the Court reiterates the preliminary injunction restraining the Ma-ao Sugar Central Co., Inc. management to give any loans or advances to its officers and orders that this injunction be as it is hereby made, permanent; and orders it to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other company whose purpose is not connected with the Sugar Central business; costs of plaintiffs to be borne by the Corporation and J. Amado Araneta. From this judgment both parties appealed directly to the Supreme Court. Before taking up the errors respectively, assigned by the parties, we should state that the following findings of the Lower Court on the commission of corporate irregularities by the defendants have not been questioned by the defendants: 1. Failure to hold stockholders' meetings regularly. No stockholders' meetings were held in 1947, 1950 and 1951; 2. Irregularities in the keeping of the books. Untrue entries were made in the books which could not simply be considered as innocent errors; 3. Illegal investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining, P7,000.00. The investments were made not in pursuance of the corporate purpose and without the requisite authority of two-thirds of the stockholders; 4. Unauthorized loans to J. Amado Araneta totalling P132,082.00 (which, according to the defendants, had been fully paid), in violation of the by-laws of the corporation which prohibits any director from borrowing money from the corporation; 5. Diversion of corporate funds of the Ma-ao Sugar Central Co., Inc. to: J. Amado Araneta & Co. Luzon Industrial Corp. Associated Sugar General Securities Bacolod Murcia P243,415.62 585,918.17 463,860.36 86,743.65 501,030.61

Central Azucarera del Danao Talisay-Silay

97,884.42 4,365.90

The Court found that sums were taken out of the funds of the Ma-ao Sugar Central Co., Inc. and delivered to these affiliated companies, and vice versa, without the approval of the Ma-ao Board of Directors, in violation of Sec. III, Art. 6-A of the by-laws. The errors assigned in the appeal of the plaintiffs, as appellants, are as follows: I. THE LOWER COURT ERRED IN HOLDING THAT THE INVESTMENT OF CORPORATE FUNDS OF THE MA-AO SUGAR CENTRAL CO., INC., IN THE PHILIPPINE FIBER PROCESSING CO., INC. WAS NOT A VIOLATION OF SEC. 17- OF THE CORPORATION LAW. II. THE LOWER COURT ERRED IN NOT FINDING THAT THE MA-AO SUGAR CENTRAL CO., INC. WAS INSOLVENT. III. THE LOWER COURT ERRED IN HOLDING THAT THE DISCRIMINATORY ACTS COMMITTED AGAINST PLANTERS DID NOT CONSTITUTE MISMANAGEMENT. IV. THE LOWER COURT ERRED IN HOLDING THAT ITS CULPABLE ACTS WERE INSUFFICIENT FOR THE DISSOLUTION OF THE CORPORATION. The portions of the Decision of the Lower Court assailed by the plaintiffs as appellants are as follows: (1) ".... Finally, as to the Philippine Fiber, the Court takes it that defendants admit having invested P655,000.00 in shares of stock of this company but that this was ratified by the Board of Directors in Resolutions 60 and 80, Exhibits "R" and "R-2"; more than that, defendants contend that since said company was engaged in the manufacture of sugar bags it was perfectly legitimate for Ma-ao Sugar either to manufacture sugar bags or invest in another corporation engaged in said manufacture, and they quote authorities for the purpose, pp. 28-31, memorandum; the Court is persuaded to believe that the defendants on this point are correct, because while Sec. 17-1/2 of the Corporation Law provides that: No corporation organized under this act shall invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized unless its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal at the stockholders' meeting called for the purpose. the Court is convinced that that law should be understood to mean as the authorities state, that it is prohibited to the Corporation to invest in shares of another corporation unless such an investment is authorized by two-thirds of the voting power of the stockholders, if the purpose of the corporation in which investment is made is foreign to the purpose of the investing corporation because surely there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the Power of the Board of Directors; the only trouble here is that the investment was made without any previous authority of the Board of Directors but was only ratified afterwards; this of course would have the effect of legalizing the unauthorized act but it is an indication of the manner in which corporate business is transacted by the Ma-ao Sugar administration, the fact that off and on, there would be passed by the Board of Directors, resolutions ratifying all acts previously done by the management, e.g. resolutions passed on February 25, 1947, and February 25, 1952, by the Board of Directors as set forth in the affidavit of Isidro T. Dunca p. 127, etc. Vol. 1. (Decision, pp. 239-241 of Record on Appeal.) xxx xxx xxx (2) "On the other hand, the Court has noted against plaintiffs that their contention that Ma-ao Sugar is on the verge of bankruptcy has not been clearly shown; against this are Exh. C to Exh. C-3 perhaps the best proof that insolvency is still far is that this action was filed in 1953 and almost seven years have passed since then without the company apparently getting worse than it was before; ..." (Decision, pp. 243-244,supra.) xxx xxx xxx (3) "As to the crop loan anomalies in that instead of giving unto the planters the entire amount alloted for that, the Central withheld a certain portion for their own use, as can be seen in Appendix A of Exh. C-1, while the theory of plaintiffs is that since between the amount of P3,791,551.78 the crop loan account payable, and the amount of P1,708,488.22, the crop loan receivable, there is a difference of P2,083,063.56, this would indicate that this latter sum had been used by the Central itself for its own purposes; on the other hand, defendants contend that the first amount did not represent the totality of the crop loans obtained from the Bank for the purpose of relending to the planters, but that it included the Central's own credit line on its 40% share in the standing crop; and that this irregularity amounts to a grievance by plaintiffs as planters and not as stockholders, the Court must find that as to this count, there is really reason to find that said anomaly is not a clear basis for the derivative suit, first, because plaintiffs' evidence is not very sufficient to prove clearly the alleged diversion in the face of defendants' defense; there should have been a showing that the Central had no authority to make the diversion; and secondly, if the anomaly existed, there is ground to hold with defendants that it was an anomaly pernicious not to the Central but to the planters; it was not even pernicious to the stockholders. Going to the discriminatory acts of J. Amado Araneta, namely, manipulation of cane allotments, withholding of molasses and alcohol shares, withholding of trucking allowance, formation of rival planters associations, refusal to deal with legitimate planters group, Exh. S; the Court notices that as to the failure to provide hauling transportation, this in a way is corroborated by Exh. 7, that part containing the decision of the Court of First Instance of Manila, civil 20122, Francisco Rodriguez v. Ma-ao Sugar; for the reason, however, that even if these were true, those grievances were grievances of plaintiffs as planters and not as stockholders just as the grievance as to the crop loans already adverted to, this Court will find insufficient merit on this count. (Decision, pp. 230231, supra.) xxx xxx xxx (4) "...; for the Court must admit its limitations and confess that it cannot pretend to know better than the Board in matters where the Board has not transgressed any positive statute or by-law especially where as here, there is the circumstance that presumably, an impartial representative in the Board of Directors, the one from the Philippine National Bank, against whom apparently plaintiffs have no quarrel, does not appear to have made any protest against the same; the net result will be to hold that the culpable acts proved are not enough to secure a dissolution; the Court will only order the correction of abuses, proved as already mentioned; nor will the Court grant any more damages one way or the other. (Decision, p. 244,supra.)

On the other hand, the errors assigned in the appeal of the defendants as appellants are as follows: I. THE LOWER COURT ERRED IN ADJUDGING J. AMADO ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO., INC., THE AMOUNT OF P46,270.00, WITH 8% INTEREST FROM THE DATE OF FILING OF THE COMPLAINT. II. THE LOWER COURT ERRED IN NOT ORDERING THE PLAINTIFFS TO PAY THE DEFENDANTS, PARTICULARLY J. AMADO ARANETA, THE DAMAGES PRAYED FOR IN THE COUNTERCLAIM OF SAID DEFENDANTS. The portions of the Decision of the Lower Court assailed by the defendants as appellants are as follows: (1) "As to the alleged juggling of books in that the personal account of J. Amado Araneta of P46,270.00 was closed on October 31, 1947 by charges transferred to loans receivable nor was interest paid on this amount, the Court finds that this is related to charge No. 1, namely, the granting of personal loans to J. Amado Araneta; it is really true that according to the books, and as admitted by defendants, J. Amado Araneta secured personal loans; in 1947, the cash advance to him was P132,082.00 (Exh. A); the Court has no doubt that this was against the By-Laws which provided that: The Directors shall not in any case borrow money from the Company. (Sec. III, Art. 7); the Court therefore finds this count to be duly proved; worse, the Court also finds that as plaintiffs contend, while the books of the Corporation would show that the last balance of P46,270.00 was written off as paid, as testified to by Auditor Mr. Sanchez, the payment appeared to be nothing more than a transfer of his loan receivable account, stated otherwise, the item was only transferred from the personal account to the loan receivable account, so that again the Court considers established the juggling of the books; and then again, it is also true that the loans were secured without any interest and while it is true that in the Directors' meeting of 21 October, 1953, it was resolved to collect 8%, the Court does not see how such a unilateral action of the Board could bind the borrowers. Be it stated that defendants have presented in evidence Exh. 5 photostatic copy of the page in loan receivable and it is sought to be proved that J. Amado Araneta's debt was totally paid on 31 October, 1953; to the Court, in the absence of definite primary proof of actual payment having found out that there had already been a juggling of books, it cannot just believe that the amount had been paid as noted in the books. (Decision, pp. 233-235 of Record on Appeal.) (2) "With respect to the second point in the motion for reconsideration to the effect that the Court did not make any findings of fact on the counterclaim of defendants, although the Court did not say that in so many words, the Court takes it that its findings of fact on pages 17 to 21 of its decision were enough to justify a dismissal of the counterclaim, because the counterclaims were based on the fact that the complaint was premature, improper, malicious and that the language is unnecessarily vituperative abusive and insulting; but the Court has not found that the complaint is premature; nor has the Court found that the complaint was malicious; these findings can be gleaned from the decision with respect to the allegation that the complaint was abusive and insulting, the Court does not concur; for it has not seen anything in the evidence that would justify a finding that plaintiffs and been actuated by bad faith, nor is there anything in the complaint essentially libelous; especially as the rule is that allegations in pleading where relevant, are privileged even though they may not clearly proved afterwards; so that the Court has not seen any merit in the counterclaims; and the Court had believed that the decision already carried with it the implication of the dismissal of the counterclaims, but if that is not enough, the Court makes its position clear on this matter in this order, and clarifies that it has dismissed the counterclaims of defendant; ..." (Order of September 3, 1960, pp. 248-249, supra.) Regarding Assignment of Errors Nos. 2, 3 and 4 contained in the brief of the plaintiffs as appellants, it appears to us that the Lower Court was correct in its appreciation (1) that the evidence presented did not show that the defendant Ma-ao Sugar Company was insolvent (2) that the alleged discriminatory acts committed by the defendant Central against the planters were not a proper subject of derivative suit, but, at most, constituted a cause of action of the individual planters; and (3) that the acts of mismanagement complained of and proved do not justify a dissolution of the corporation. Whether insolvency exists is usually a question of fact, to be determined from an inventory of the assets and their value, as well as a consideration of the liabilities.... But the mere impairment of capital stock alone does not establish insolvency there being other evidence as to the corporation being a going concern with sufficient assets. Also, the excess of liabilities over assets does not establish insolvency, when other assets are available. (Fletcher Cyc. of the Law of Private Corporations, Vol. 15A, 1938 Ed pp. 34-37; Emphasis supplied). But relief by dissolution will be awarded in such cases only where no other adequate remedy is available, and is not available where the rights of the stockholders can be, or are, protected in some other way. (16 Fletcher Cyc. Corporations, 1942 Ed., pp. 812813, citing "Thwing v. McDonald", 134 Minn. 148, 156 N.W. 780, 158 N.W. 820, 159 N.W. 564, Ann. Cas. 1918 E 420; Mitchell v. Bank of St. Paul, 7 Minn. 252). The First Assignment of Error in the brief of the plaintiffs as appellants, contending that the investment of corporate funds by the Ma-ao Sugar Co., Inc., in another corporation (the Philippine Fiber Processing Co., Inc.) constitutes a violation of Sec. 17- of the Corporation Law, deserves consideration. Plaintiffs-appellants contend that in 1950 the Ma-ao Sugar Central Co., Inc., through its President, J. Amado Araneta,, subscribed for P300,000.00 worth of capital stock of the Philippine Fiber Processing Co. Inc., that payments on the subscription were made on September 20, 1950, for P150,000.00, on April 30, 1951, for P50,000.00, and on March 6, 1952, for P100,000.00; that at the time the first two payments were made there was no board resolution authorizing the investment; and that it was only on November 26, 1951, that the President of Ma-ao Sugar Central Co., Inc., was so authorized by the Board of Directors. In addition, 355,000 shares of stock of the same Philippine Fiber Processing Co., Inc., owned by Luzon Industrial, corporation were transferred on May 31, 1952, to the defendant Ma-ao Sugar Central Co., Inc., with a valuation of P355,000.00 on the basis of P1.00 par value per share. Again the "investment" was made without prior board resolution, the authorizing resolution having been subsequentIy approved only on June 4, 1952. Plaintiffs-appellants also contend that even assuming, arguendo, that the said Board Resolutions are valid, the transaction, is still wanting in legality, no resolution having been approved by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power, as required in Sec. 17- of the Corporation Law. The legal provision invoked by the plaintiffs, as appellants, Sec. 17- of the Corporation Law, provides: No corporation organized under this act shall invest its funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, unless its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal at a stockholders' meeting called for the purpose ....

On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the Corporation Law, which provides: SEC. 13. Every corporation has the power: xxx xxx xxx (9) To enter into any obligation or contract essential to the proper administration of its corporate affairs or necessary for the proper transaction of the business or accomplishment of the purpose for which the corporation was organized; (10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of incorporation, to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities and other evidences of indebtedness of any domestic or foreign corporation. A reading of the two afore-quoted provisions shows that there is need for interpretation of the apparent conflict. In his work entitled "The Philippine Corporation Law," now in its 5th edition, Professor Sulpicio S. Guevara of the University of the Philippines, College of Law, a well-known authority in commercial law, reconciled these two apparently conflicting legal provisions, as follows: j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporation Law; namely, (a) that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation; or (b) that a non-agricultural or non-mining corporation shall be restricted to own not more than 15% of the voting stock of any agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce or combination in restraint of trade. (The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89.) (Emphasis ours.)lawphi1.nt 40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary. (Id., p. 108.) (Emphasis ours.) We agree with Professor Guevara. We therefore agree with the finding of the Lower Court that the investment in question does not fall under the purview of Sec. 17- of the Corporation Law. With respect to the defendants' assignment of errors, the second (referring to the counterclaim) is clearly without merit. As the Lower Court aptly ruled in its Order of September 3, 1960 (resolving the defendants' Motion for Reconsideration) the findings of fact were enough to justify a dismissal of the counterclaim, "because the counterclaims were based on the fact that the complaint was premature, improper, malicious and that the language is unnecessarily vituperative abusive and insulting; but the Court has not found that the complaint is premature; nor has the Court found that the complaint was malicious; these findings can be gleaned from the decision; with respect to the allegation that the complaint was abusive and insulting, the Court does not concur; for it has not seen anything in the evidence that would justify a finding that plaintiffs had been actuated by bad faith, nor is there anything in the complaint essentially libelous especially as the rule is that allegations in pleadings where relevant, are privileged even though they may not be clearly proved afterwards; ..." As regards defendants' first assignment of error, referring to the status of the account of J. Amado Araneta in the amount of P46,270.00, this Court likewise agrees with the finding of the Lower Court that Exhibit 5, photostatic copy of the page on loans receivable does not constitute definite primary proof of actual payment, particularly in this case where there is evidence that the account in question was transferred from one account to another. There is no better substitute for an official receipt and a cancelled check as evidence of payment. In the judgment, the lower court ordered the management of the Ma-ao Sugar Central Co., Inc. "to refrain from making investments in Acoje Mining, Mabuhay Printing and any other company whose purpose is not connected with the sugar central business." This portion of the decision should be reversed because, Sec. 17- of the Corporation Law allows a corporation to "invest its fund in any other corporation or business, or for any purpose other than the main purpose for which it was organized," provided that its board of directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. IN VIEW OF ALL THE FOREGOING, that part of the judgment which orders the Ma-ao Sugar Central Co., Inc. "to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other: company whose purpose is not connected with the sugar central business," is reversed. The other parts of the judgment are, affirmed. No special pronouncement as to costs.

APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO, plaintiffs-appellees, vs. J. HOWARD MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant-appellant. REPUBLIC OF THE PHILIPPINES, intervenor-appellant. Jose P. Laurel, Adolfo A. Scheerer, Antonio Quirino, and J. C. Orendain, for appellees. Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M. Patajo, and Perkins, Ponce Enrile & Associates, for appellant. Office of the Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro for intervenor-appellant. CONCEPCION, J.: This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., a corporation duly organized and existing under the laws of the Philippines, hereinafter referred to, for the sake of brevity, as the Lepanto. Originally, one-half of said shares of stock were claimed by plaintiff, Apolinario de los Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the pendency of this case, the latter has allegedly conveyed and assigned his interest in and to said half claimed by him to the former. The shares of stock in question are covered by several stock certificates issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as owner of said stocks and whose indorsement in blank appears on the back of said certificates, all of which, except certificates No. 2279 marked Exhibit 2 covering 55,000 shares, are in plaintiffs' possession. So was said Exhibit 2, up to sometime in 1945 or 1946 when said possession was lost under the conditions set forth in subsequent pages. Briefly stated, plaintiffs contend that De los Santos bought 55,000 shares from Juan Campos, in Manila, early in December, 1942; that he bought 300,000 shares from Carl Hess, in the same city, several days later; and that, before Christmas of 1942, be bought 800,000 shares from Carl Hess, this time for the account and benefit of Astraquillo. By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was, however, vested in the Alien Property Custodian of the U. S. (hereinafter referred to as the Property Custodian) as Japanese property. Hence, plaintiffs filed their respective claims with the Property Custodian. In due course, the Vested Property Claims Committee of the Philippine Alien Property Administration made a "determination," dated March 9, 1948, allowing said claims, which were considered and heard jointly as Claim No. 535, but, upon personal review, the Philippine Alien Property Administration made by said Committee and decreed that "title to the shares in question shall remain in the name of the Philippine Alien Property Administrator." Consequently, plaintiffs instituted the present action to establish title to the aforementioned shares of stock. In their complaint, they pray that judgment be rendered declaring them lawful owners of said shares of stock, with such dividends, profits and rights as may have accrued thereto; requiring the defendant to render accounts and to transfer said shares of stock to plaintiffs' names; and sentencing the former to pay the costs. The defendant herein is the Attorney General of the U. S., successor to the "Administrator". He contends, substantially, that, prior to the outbreak of the war in the Pacific, said shares of stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha (hereinafter referred to as the "Mitsuis"), a corporation organized in accordance with the laws of Japan, the true owner thereof, with branch office in the Philippines; that on or before March, 1942, Madrigal delivered the corresponding stock certificates, with his blank indorsement thereon, to the Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter by the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the stock certificates aforementioned must have been stolen or looted, therefore, during the emergency resulting from said liberation. Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States, or any of its officials, under the Trading with the Enemy Act, as amended, located in the Philippines at the time of such vesting, or the proceeds thereof, shall be transferred to the Republic of the Philippines, the latter sought permission, and was allowed, to intervene in this case and filed an answer adopting in substance the theory of the defendant. After due hearing, the Court of First Instance of Manila, presided over by Honorable Higinio B. Macadaeg, Judge, rendered a decision the dispositive part of which reads, as follows: In view of the foregoing consideration, judgment is hereby rendered in favor of the plaintiffs and against the defendant, declaring the former the absolute owners of the shares of stock of the Lepanto consolidated Mining Company, covered by the certificates of stock, respectively, in their (plaintiffs') possession. The transfer of said shares of stock in favor of the Alien Property Custodian of the U. S. of America, now Philippine Alien Property Administration, is hereby declared null and void and of no effect. Consequently, the Lepanto consolidated mining Company is ordered to cancel the certificates of stock issued in the name of the Philippine Alien Property Custodian or Philippine Alien Property Administrator, as the case may be. Defendant shall pay the cost of the proceeding. (p. 67, R.A.) The defendant and the intervenor have appealed from this decision. The main question for determination in this appeal is whether or not plaintiffs had purchased the shares of stock in question. In support of the negative answer, appellants have introduced the testimony of Vicente Madrigal, Matsune Kitajima, Kingy Miwa, Miguel Simon, E. A. Perkins and Victor E. Lednicky, as well as several pieces of documentary evidence. Mr. Madrigal, whose testimony before the claims Committee of the Philippine Alien Property Administration was admitted with plaintiffs' consent, stated that he purchased the shares of stock in question, among others, for the Mitsuis and at their request; that he paid with his own funds the corresponding price, which was later reimbursed to him by the Mitsuis; that he held the corresponding stock certificates, which were issued in his name, with the understanding that he would effect the necessary transfer, to the Mitsuis, upon demand; and that, shortly before the outbreak of war, he delivered said stock certificates, with his blank endorsement thereon, to the Mitsuis, to whom said stock belonged. Matsune Kitajima declared that in June 1941 he relieved one Kobayashi, as manager of the branch office of the Mitsuis in Manila; that he then receive from Kobayashi the stock certificates for about 1,900,000 shares of the Lepanto, belonging to the Mitsuis, but issued in favor of the Vicente Madrigal, except the certificates for 200,000 shares, which were in the name of the Mitsuis; that all these certificates were in kept in a steel safe in said office of the Mitsuis; that, in July 1941, he returned the stock certificates to Madrigal, with the request that he buy for the Mitsuis, from time to time, some more shares of stock, in small lots; that Madrigal bought 200,000 additional shares of the Lepanto for the Mitsuis; that, late in November or early in December, 1941, the stock certificates of the aforementioned 2,100,000 shares were returned to the Mitsuis, which had decided to stop buying, in view of the strained international situation then prevailing; that, as branch manager of the Mitsuis, he was the only official authorized to dispose

of the shares in question, none of which was alienated by him; and that he had the aforementioned stock certificates in his possession continuously until early in April 1943, when he delivered the same to his successor in office, Kingy Miwa. Apart from corroborating Kitajima's testimony relative to said delivery of stock certificates in April 1943, Kingy Miwa testified that he kept the latter in his possession, as branch manager of the Mitsuis; that said shares of stock were never sold or otherwise disposed of by the Mitsuis; that, late in September 1944, he bade his assistant, one Miyazawa, to transfer all important documents to their residence and headquarters, at Taft Avenue, Manila, although he did not know personally whether or not the transfer was actually carried out; and that in January 1945, when the Japanese were about to evacuate Manila, he told his Assistant Manager, one Shinoda, to burn all important papers before leaving the city. Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have purchased 1,100,000 shares of stock, affirmed that Hess lived in front of his (Simon's) house; that they were close to each other and had long been associated in business; that he was the office manager of "Hess and Zeitling" before the war; that Hess used to tell him his daily transactions during the occupation; that at that time, Hess did not have in possession any certificates of stock of the Lepanto in the name of Vicente Madrigal; that neither did Hess, during that period, operate as broker, for being American, he was under Japanese surveillance, and that Hess had made, during the occupation, no transaction involving mining shares, except when he sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943. E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile testified substantially as follows: On October 27, 1945, Leonardo Recio brought stock certificate no. 2279 (Exhibit 2) and offered the same for sale to Clyde DeWitt, who in turn, asked Perkins, whose room adjoined that of DeWitt, to join them. Recio showed Exhibit 2 to DeWitt stating that he (Recio) wanted P0.13 per share. DeWitt handed Exhibit 2 over to Perkins, who, after examining the instrument, returned it to DeWitt. The latter, thereafter, checked it with a communication of the Property Custodian and then advised Recio that said Exhibit 2 was one of the stock certificates looted from the Mitsuis and that he (DeWitt) would have to report the matter to said official. As DeWitt, thereupon, telephoned one Mr. Erickson, of the Property Custodian's office, Recio stepped out of the room without Exhibit 2, which neither he or plaintiffs had ever tried to recover. Victor E. Lednicky, one of the organizers and prewar directors of the Lepanto, and present vice-president and member of its board of director, asserted that, having learned from a soldier of the existence of mining papers and securities of the Lepanto in the offices of the Mitsuis at the Ayala Building, formerly known as the National city Bank Building in Manila, he went thereto in February 1945 and saw many documents scattered on the desks and floor of said premises. Among said papers, he noticed two stock certificates of the Lepanto, one, in the name of either a Japanese or Chinese, and the other, in the name of Vicente Madrigal, endorsed in blank. Soon, however, he heard voices from the stairs, whereupon he departed hurriedly, for fear of being mistaken for a looter. After analyzing the foregoing evidence for the defense, the lower court found the same "inherently improbable" and seemingly concluded that, as a consequence, it should accept plaintiffs' version, for which reason judgment was rendered as above stated. It is well settled, in this jurisdiction, that the findings of fact particularly those relating to the credibility of the opposing witnesses made by the Judge a quo, should not be disturbed on appeal, in the absence of strong and cogent reasons therefor. This policy is predicated upon the circumstance that the trial court has had an opportunity, denied to the appellate court to observe the behaviour of the witnesses during the hearing, a potent factor in gauging their bias and veracity. In the case at bar, however, we notice that, rejecting the theory of the defense, the court of origin was guided, not by the conduct of the witnesses in the name course of their testimony, but by what His Honor, the trial Judge, regarded as the inherent weakness thereof, in the evaluation of which court does not enjoy the advantage already adverted to. Moreover, the decision appealed from appears to have assumed that plaintiffs' pretense must necessarily be relied upon, owing to the infirmities said to have been found in the theory of the defense. This view suffers from a fatal defect. It overlooks that fact that the burden of proof is upon the plaintiffs, and that, accordingly, a decision in their favor is not in order unless a preponderance of the evidence supports their claim. To put it differently, the alleged improbabilities in the testimony of the witnesses for the defense will not justify a judgment against the latter, if the evidence for the plaintiffs is more improbable than, or, at least, as improbable as, that of the defense. Such is the situation obtaining in the case at bar. Indeed, upon careful examination of the record before us, we find it impossible to share the conclusions, made in the decision appealed from, relative to the alleged flaws in the version of the defense. Let us, first, examine the evidence for the plaintiffs, consisting, mainly, of their own testimony and that of Primitivo Javier and Leonardo Recio. According to De los Santos, on or about December 8, 1942, he purchased from Juan Campos, in Manila, 500,000 shares of stock of the Lepanto, for the aggregate sum of P30,000.00, or about P0.06 each share, paid in cash, in exchange for the corresponding stock certificates, which were delivered to him. Several days later, he bought from Carl Hess, in Manila, 300,000 shares of the Lepanto, at the same rate. Soon after, he visited his daughter in Baguio, where he, likewise, saw his co-plaintiff, and former secretary, Isabelo Astraquillo. Before leaving Astraquillo's house, De los Santos happened to mention his aforesaid purchases of Lepanto shares, at P0.06 each, whereupon, Astraquillo expressed the wish to buy 800,000 shares at the same price, the amount of which he delivered to De los Santos the next day. Upon his return to Manila, De los Santos purchased from Hess said 800,000 shares, the certificates of which were turned over by the former to Astraquillo, in Baguio, at about Christmas time. Over 3 years later, or in January 1946, De los Santos repaired to the offices of the Lepanto in Manila to ascertain whether it accepted certificates of stock for registration. He then received a negative answer. Upon further inquiry, he learned, in February 1946, that the shares in the name of Madrigal were blocked. So engaged the services of Atty. A. Scheerer, who secured an order of release from the Freezing Control Office of the United States Treasury Department. As he brought a copy of this order to the offices of the Lepanto, on or about May 1, 1946, he was advised that no transfer could be affected without the authority of Clyde DeWitt, the company president. Thereupon, De los Santos caused to be filed, with the offices of the Property Custodian, the corresponding claim for the shares of stock in question, with the result already adverted to. Astraquillo tried to corroborate the testimony of De los Santos, concerning the purchase of 800,000 shares of stock on behalf of the former. Moreover, Astraquillo declared that, being in need of money, he came to Manila in November or December 1945, and delivered to stock broker Leonardo Recio stock certificate No. 2279 (Exhibit 2) for 55,000 shares, with a view to disposing of the same at a price ranging from P0.13 to P0.15 each. He advised Recio that, in the absence of any buyer, hew could see Mr. DeWitt, who, probably, would be interested in purchasing the shares. Sometime later, Astraquillo learned that, according to Recio, upon seeing Exhibit 2, DeWitt retained it upon the ground that the shares represented therein had been blocked by the United States and that he (Recio) got therefor a receipt, which was subsequently lost in a fire that destroyed his (Recio's) dwelling. As

Astraquillo hurried to Manila, he was told that representatives of the CIC would go to Baguio to investigate. So, he returned to Baguio, but he did not wait for the investigation in that city. Late in February or early in March, 1946, he came back to Manila and asked the assistance of De los Santos, whereupon both contacted Atty. Scheerer for the purpose already stated. Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from his uncle, Astraquillo, who wanted to sell the 55,000 shares represented by said stock certificate (No. 2279) at a price ranging from P0.12 to P0.15 each share. He, in turn, delivered the certificate to Recio, a licensed broker. Subsequently, Recio reported to him that he (Recio) had brought Exhibit 2 to the office of Mr. DeWitt, whom he did not see on his first visit; that he then left Exhibit 2 in the hands of a person who worked in said office, one Atty. Orlina, who issued a receipt therefor; that, when Recio came back, later on, DeWitt told him that Exhibit 2 was defective; and that, accordingly, Exhibit 2 was left in the possession of Mr. DeWitt. Javier relayed this information to Astraquillo, who, thereupon, came to Manila. Both went to the temporary residence of Recio in Sampaloc, his house in San Juan del Monte, Rizal, having been destroyed by fire late in December 1945. Recio then advised them that said receipt had been burned with his house. Leonardo Recio said that sometime in 1945, Javier gave him Exhibit 2, stating that it belonged to his uncle, who wanted to alienate the corresponding shares of stock at P0.15, more or less, each, and suggesting that he offer the same to Mr. DeWitt: In the latter's office, Atty. Orlina told Recio that DeWitt was busy and bade him (Recio) to return later. Recio delivered Exhibit 2 to Orlina, who gave him a receipt, which, subsequently, he showed to Javier. When, soon after, he went back to Orlina, the latter introduced him to Mr. DeWitt, who stated that the shares of stock covered by Exhibit 2 were included in the list of questioned shares. DeWitt, also, asked him whether he would leave the certificate, to which Recio replied affirmatively. While he was away, several months later, or shortly before Christmas, his house at Blumentrit Street, San Juan del Monte, Rizal, and everything contained therein, including the aforementioned receipt, which was in his wallet, were destroyed by fire. It thus appears that the only evidence on the alleged sale of the shares of stock in question to the plaintiffs the main issue in the case at bar is the testimony of Apolinario de los Santos, who now claims to be the sole owner thereof. Juan Campos and Carl Hess, the alleged vendors, could not take the witness stand, for Hess was executed by the Japanese, and Campos died during the liberation of Manila. Thus, death has sealed the lips of the only persons who could have positively corroborated or contradicted the aforementioned testimony of De los Santos. Was this a mere accident of fate, as plaintiffs would have us believe? Or were Campos and Hess named by the plaintiffs as their immediate predecessors in interest precisely because, as contended by appellants, said deceased persons could no longer said testimony? For obvious reasons, the Court can not answer these questions with absolute certainty. It can only explore the possibilities and probabilities of the case, in the light of human experience. And, viewed from this angle, it can not be denied that the demise of Campos and Hess before the filing of plaintiffs claim seriously impairs the weight thereof. That the Grim Reaper had chosen to strike at one of the alleged predecessors of the plaintiffs is a matter that may be attributed to sheer fortuitousness. When, as in the case at bar, not one, but both have thus been eliminated,, it is clear, however, that this circumstances is most unusual, and most place the Court on guard. The need for caution becomes more imperative when we bear in mind that an important piece of documentary evidence, which allegedly existed after liberation, and could have effectively corroborated one phase of the plaintiff's contention, had, according to their evidence, disappeared through still another unfortunate turn of the wheel of fate. It will be recalled that late in 1945, Leonardo Recio, allegedly acting on behalf of Astraquillo, offered to sell to Atty. DeWitt the 55,000 shares represented by stock certificate No. 2279 (Exhibit 2). Recio testified that, having been unable to see DeWitt, when he (Recio) went to the latter's office, for the first time, said Exhibit 2 was left by him (Recio) in the hands of Atty. Orlina who worked therein and gave him a receipt therefor. This receipt, if produced, would have surely afforded us tangible proof of the veracity of, at least this part of plaintiffs' story. Yet, we are now told that, one day in December, 1945, Recio's house accidentally caught fire, and that the latter consumed, also, said receipt, kept in a wallet, which, by accident, he had failed to bring with him. Aren't there too many accidents in plaintiffs' version? At any rate, we have thus been deprived of all means to check with reasonable certainty the truth of any of the controverted portions of their pretense. In other words, the same is based, and must stand or fall, therefore, upon the uncorroborated testimony of plaintiff Apolinario de los Santos, and the credence and weight that may be given thereto. Upon a review of the record, we find, however, that said testimony is highly improbable and inherently weak, for, among other things: (1) De los Santos declared that, in December, 1942, he purchased 300,000 shares from Juan Campos and 1,300,000 shares from Carl Hess, at P0.06 each share. As an enterprise controlled by Americans, the Lepanto had been seized by the Japanese who, accordingly, were operating it. At that time, there were no clear, or, even, substantial, indications that changes would take place, either in the local or in the international situation in the near of foreseeable future. In deed, the morale of the population in democratic countries, particularly in the Philippines, was then at its lowest ebb. Both in Europe and in the Pacific, the Axis powers had reached in enemy territories the highest degree of penetration attained during the last war. Before the world had recovered from the shock produced by the German blitzkrieg operations in the low countries and in France, the Nazis were already knocking at the gates of Stalingrad entrenched in New Guinea and the Soloman Islands. The people had a hazy notion about the facts pertinent to the Battle of Midway (June 3-6, 1942) and the implications thereof were by and large unknown. In other words, the conditions were such as to warrant the general belief that the Lepanto would remain under the authority and management of the Japanese Imperial forces for an indefinite period of time. As a consequence, the Lepanto stock had not merely a doubtful value, but as admitted by Santos even, no market value at all (p. 132, t.s.n). Indeed, the stockholders could neither collect dividends nor exercise their voting power, or otherwise participate in the operation of the enterprise. Moreover, there was a possibility of its assets being fully confiscated, for all practical purposes, should Japan emerge victorious in the was in the Pacific, which it appeared to be winning easily up to that time (December, 1942). (2) Inasmuch as citizens of the United States held a majority of the shares of stock of the Lepanto, the same had from the view point of the Japanese, an enemy character, and the purchase of said stocks was, therefore, a hostile act. As a matter of fact, in the proceedings before the Vested Property Claims Committee, the parties including plaintiffs herein had stipulated "that such transfers and dealings in said stock were prohibited by the Japanese during the occupation and hence were dangerous." (Record on Appeal, p. 110). Said transactions could jeopardize the life of the parties thereto and De los Santos was aware of the "highly dangerous" or "very risky" nature of the "mere possession" of the stock certificates in question. (pp. 141, 143, t. s. n.) (3) Astraquillo is merely a former employee of De los Santos, who had, therefore, no reason to risk his neck, not only by allegedly buying 800,000 shares of stock for Astraquillo, but, also, by avowedly bringing with him (De los Santos) the corresponding stock certificates from Manila to Baguio, to make delivery thereof to Astraquillo, as the defense would have us believe, notwithstanding

the many Japanese check points in the 250 kilometers highway connecting both cities and the absence of any monetary or other gain he could have derived from the acts he professes to have performed. (4) According to the Ballantyne schedule the accuracy of which has not been impugned by plaintiffs herein the Japanese war notes in the Philippines had the same exchange of purchase value as the currency of our legitimate government, in December, 1942 and this was conceded by De los Santos (p. 136, t. s. n.) when they claim to have purchased the Lepanto stocks. The P48,000 supposedly paid by the De los Santos, and the identical sum allegedly disbursed by Astraquillo, for their respective stock, represented, therefore, the same amount in legal tender of the Commonwealth of the Philippines. In fact, according to the evidence for the plaintiffs, part of the price allegedly paid by Astraquillo, or P6,000, were in the genuine Philippine money, representing his savings for 25 years. Said sum of P6,000 being insufficient to cover the cost of 800,000 shares of stock, Astraquillo, it is urged, alienated other properties to raise the amount necessary thereof. It is very difficult to believe that the plaintiffs would have parted with P48,000 each precisely when, owing to the abnormal conditions brought about by the occupation, said funds might be needed, at any time, to meet unforeseen emergencies of the gravest and most vital nature for shares of stock of dubious value then and in the foreseeable future. (5) We are not satisfied that either De los Santos or Astraquillo possessed enough resources to have P48,000, in cash, each, in December 1942. Their evidence on this point is too general apart from being based exclusively upon their respective oral testimonies, which are absolutely uncorroborated to support their contention. At any rate, De los Santos admitted that he is "not yet" rich (p. 134, t. s. n.), and his testimony suggests that he did not even own the house in which he lived. (6) Campos offered to sell his stocks, according to De los Santos, at P0.06 each (although its par value was P0.10), stating that "he (Campos) needed money" (p. 43, t.s.n.), and advised him that Hess was, also, willing to dispose of his own stocks at the same price. Being, accordingly, aware that Campos and Hess were in need of money and considering the risks attending the transaction, it is but logical to expect De los Santos, an experienced trader in stocks, to bargain for a lower price. Yet, the evidence for the plaintiffs shows that neither he nor Astraquillo tried to do so, contrary to the normal course of events. (7) De los Santos could not have purchased 1,300,000 shares of stock, from Hess, and received from him the corresponding stock certificates, endorsed in blank by Vicente Madrigal, for Hess had never had such stock certificates in his possession during the occupation. There is no plausible reason to doubt the veracity of the testimony of Miguel Simon to this effect, for the latter had no possible motive to commit perjury, and was in a position to know what he was talking about. Apart from being a brother-in-law of Hess, Simon was manager of the firm Hess & Zeitling, of which Hess was the senior partner, who used to inform him (Simon) of his (Hess) business transactions. (8) Campos and Hess could not have delivered the stock certificates for the 1,600,000 shares of stock in question, and, consequently, said shares of stock could not have been sold by them, to De los Santos in December 1942, inasmuch as from December 1941 to April 1943, said stock certificates were continuously in the custody of Matsume Kitajima, manager of the Mitsuis in Manila, whose testimony was corroborated by his successor in office, Kingy Miwa, to whom Kitajima turned over the stock certificates in April 1943. The sincerity of Matsume Kitajima and Kingy Miwa can not doubted, for neither appears to have any possible reason to trifle with the facts. Indeed, their testimony, if accepted as true, would ultimately result in the confiscation, by the Republic of the Philippines, of the shares of stock in question and, thus, place the same beyond the reach of the Mitsuis. It has been intimated that Kitajima and Kingy may have testified as they did, either to protect themselves, because they might have disposed of the shares of stock in question for their personal benefit, or because there had been undue influence or pressure from the authorities presumably officers of the government of the United States. But these are mere speculations, without sufficient basis. Besides, judicial notice may be taken of the circumstance that, during the occupation, even minor Japanese officials could easily make money, in the Japanese properties. Again, in December, 1942, the Japanese in the Philippines appeared to have no doubts that, in effect, Japan had already won the war. In short, Kitajima and Kingy must have thought that, sooner or later, Japan would own the Lepanto and that, therefore, they would have to account for the shares of stock under consideration. Consequently, it is most unlikely that neither would have misappropriated said shares of stock as suggested by the plaintiffs. The benefits which the Mitsuis and Japan may derive from a decision against the plaintiffs inasmuch as the value of the shares of stock in question would then be credited in payment of the reparation which may be demanded by the Philippines and/or the United States has been pointed out, in the dissenting opinion, as a possible motive for the commission of perjury by Kitajima and Kingy. Besides being purely conjectural in nature, this line of thought which not even the plaintiffs have taken would have no leg to stand on, unless we assume that the Mitsuis had sold or otherwise disposed of said stocks during the year 1942, but before the alleged transactions between Campos and Hess, on the one hand, and the plaintiffs on the other, in December of that year. It is inconceivable, however, that the Mitsuis would part with the stocks in question, precisely when Japanese was at the crest of its military and political victories. Indeed, even if its officers had already foreseen, at the time, the eventual defeat of the axis powers and everything then appeared to indicate the contrary the Mitsuis could not have disposed of said stocks without thereby revealing their own lack of faith in the ability of Japan to achieve final victory. Thus, the Mitsuis would have caused a grave injury upon the Japanese propaganda and thereby earned severe punishment from the Imperial Government. Nothing, absolutely nothing, in the record, or in contemporary history, warrants the belief that the Mitsuis, who were closely associated with the Japanese Government, could be guilty of such folly. Let us now turn our attention to the evidence for the defense, beginning with the testimony of Victor E. Lednicky. It will be recalled that this witness claimed to have gone to the premises of the Mitsuis, sometime in February 1945, including two (2) Lepanto certificates of stock, one of which was in the name of Vicente Madrigal, whose blank indorsement appeared thereon. Thus, the defense sought to prove that the certificates of the shares of stock involved in this case have probably been looted. The lower court found Lednicky's story inherently improbable and then concluded that the theory of the looting must, consequently, be "ruled out". To our mind, however, the testimony of Lednicky is not inherently improbable. Besides, it is a matter of common knowledge, of which judicial notice may be taken, that many offices and dwellings were looted during the liberation of Manila. The possibility that possession of the stock certificates in question may have been secured by looting should not be "ruled out," therefore, irrespective of the credence and weight given to the testimony of Lednicky. Actually, said certificates are included in the list of stocks certificates of the Lepanto which, soon after liberation, were reported and considered looted from the Mitsuis, and, accordingly, "blocked" or "frozen" by the authorities. Irrespective of the foregoing, De los Santos could not have obtained those certificates from Campos and Hess in December 1942, inasmuch, as, from December 1941 to April 1943, Kitajima had been continuously in possession of said documents, none of which had been held by Hess during the occupation.

The lower court considered against the defense the circumstance that Lednicky, Simon and Perkins had not testified before the Vested Property Claims Committee. There is no evidence, however, that any of them knew of the proceedings before said committee. Furthermore, none of them has any personal interest in the outcome of this action. Consequently, they have no possible motive to distort the truth, unlike De los Santos, who, as the present claimant of all shares of stock in dispute, will de directly affected by the outcome of the case at bar. His testimony, therefore, cannot be more weighty than that of the aforementioned witnesses for the defense. The decision appealed from criticizes the testimony of Perkins upon the following grounds: (1) Having taken no part in the alleged looting of Exhibit 2, Recio had nothing to fear in connection therewith and, so, he could not have left the office of Mr. DeWitt, while the latter was talking over the telephone with a representative of the Alien Property Custodian; . (2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the list of looted stock certificates, Perkins should have known that, as holder of the certificate, Recio is presumed to be the one who stole the same. Why then plaintiffs inquire did Perkins fail to prevent Recio from leaving said office? As regards the first observation, suffice it to say that, as bearer of the Exhibit 2, Recio who, according to the lower court, is an intelligent man must have realized the danger, probably unforeseen by him, of being considered a privy to the looting of said stock certificates, of which he might have been unaware before the conference with Mr. DeWitt. Hence, Recio's fright and virtual flight. Verily, the testimony of Perkins on this point is borne out by the undisputed fact that Exhibit 2 was left by Recio in the hands of DeWitt, and that neither Astraquillo, nor his alleged successor in interest, De los Santos, has ever demand from DeWitt the return of said certificate, or even recriminated Recio for having voluntarily parted with its possession, as he would have us believe, without authority therefor, as a broker or agent who was supposed merely to find a buyer. As to the second observation, Perkins knew that Recio was acting solely as a broker or agent. As such, he was not the real holder of Exhibit 2, and, consequently, the presumption adverted to did not apply to him. Even if it did, however, what could Perkins have done? Use force or violence upon the person of Recio, or ask a policeman to detain him? Neither step, however, could have been taken without some risks. To begin with, Perkins could not have properly taken the law in his own hands. Had he done so, Recio could have legally used force against force. Moreover, said presumption is rebuttable and would have easily been offset by the undeniable fact that Recio had acted merely in a representative capacity. Again, why should Perkins take the initiative in the matter? Was it not being handled by his associate in the law firm, Mr. DeWitt, one of the most able members of the Philippine Bar? It may not be amiss to add that the record before us discloses absolutely nothing that may cast even a shadow of doubt upon the honesty of Mr. Perkins. The language of the lower court in commenting on the testimony of Miwa was: . . . In general, the testimony of Miwa is unreliable. His behaviour in Court in denying first and then in accepting later his own signature throws him to a position where the Court must look upon him with suspicion and distrust. His prevarication before the Court as to the genuineness of his own signature was probably due to the conscience of a man who came to the Court with a mental reservation, but who may have been compelled under the circumstances to play the role of a willing tool. (p. 54, R.A.) The following portion of Miwa's testimony illustrates the point referred to in the decision appealed from: ATTY. QUIRINO: Q. Will you please go over this paper which for purposes of identification we request that it be marked as Exhibit M for the plaintiffs and which was marked Exhibit 6-b before the Vested Property Claims Committee, and tell us if you know that document? A. No. I do not remember this paper. Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was Exhibit 6b in the committee and submitted by the Alien Property Administration, there is a typewritten name, Kingy Miwa, and above it is a signature. Will you kindly tell the Court if that is your signature or not? Please look over it again. A. No. It is not mine. Q. Please examine it carefully and tell the Court afterwards if you recognize that signature. Examine it carefully. A. It looks very similar to my signature. Q. But would you want or are you willing to go on record and say that it is not your signature? A. I can not say. I don't exactly remember that I signed this, but it looks very similar to my signature. Q. You will not testify under oath that this is your signature? A. Yes. sir. Q. What do you mean to say by "yes, sir"? Do you swear that this is your signature or not your signature? A. I think this is my signature. Q. So, you are willing to go on record now that that signature appearing in Exhibit "M" is your signature? A. Yes, I think so. (pp. 125-126, t. s. n.) We do not agree with its appraisal by the lower court. It is clear that, as he did not remember the execution of Exhibit M several years before the hearing of this case, Miwa had doubts about the genuineness of the signature thereon, but the appearance thereof, similar or identical to that of his own signature, prevented him from denying its authenticity. This does not indicate lack of veracity on his part. At any rate, plaintiffs claim to have bought the shares of stock in question in December, 1942, or during the management of Kitajima, who held the corresponding stock certificates continuously from December, 1941, to April, 1943, when Miwa substituted him, so that neither Campos nor Hess could have delivered those certificates to De los Santos in December 1942. Apart from this, if there are flaws in the proof for the defense, those of the evidence for the plaintiffs are much bigger and more substantial and vital. Consequently, we hold that plaintiffs have not established their pretense by a preponderance of the evidence. Even, however, if Juan Campos and Carl Hess had sold the shares of stock in question, as testified to by De los Santos, the result, insofar as plaintiffs are concerned, would be the same. It is not disputed that said shares of stock were registered, in the records of the Lepanto, in the name of Vicente Madrigal. Neither it is denied that the latter was, as regards said shares of stock, a mere trustee for the benefit of the Mitsuis. The record shows and there is no evidence to the contrary that Madrigal had never disposed of said shares of stock in any manner whatsoever, except by turning over the corresponding stock certificates, late in 1941, to the Mitsuis, the beneficial and true owners thereof. It has, moreover, been established,, by the uncontradicted testimony of Kitajima and Miwa, the managers of the Mitsuis in the Philippines, from 1941 to 1945, that the Mitsuis had neither sold, conveyed, or alienated said shares of stock, nor delivered the aforementioned stock certificates, to anybody during said period. Section 35 of the Corporation Law reads: The capital stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws.

Shares of stock so issued are personal property and may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. (Emphasis supplied.) Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding stock certificate, coupled with its delivery. However, the transfer shall "not be valid, except as between the parties," until it is "entered and noted upon the books of the corporation." no such entry in the name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by Juan Campos and Carl Hess in their favor is "not valid, except as between" themselves. It does not bind either Madrigal or the Mitsuis, who are not parties to said alleged transaction. What is more, the same is "not valid," or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51 Wisc. 519, 8 N. W. 419) which were quoted approval in Uson vs. Diosomito (61 Phil., 535) "absolutely void" and, hence, as good as non-existent, insofar as Madrigal and the Mitsuis are concerned. For this reason, although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner or creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel. Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a forged assignment acquires no title which can be asserted against the true owner, unless his own negligence has been such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415).If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value (East Birmingham Land Co. vs. Dennis, 85 Ala. 565, 2 L.R.A. 836; Sherwoodvs. mining co., 50 Calif. 412). As was said by the Supreme Court of the United States in a leading case (Western Union Telegraph Co. vs. Davenfort, 97 U. S. 369; 24 L. Ed. 1047) "Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner. The great principle that no one can deprived of his property without his assent, except by processes of the law, requires, in the case mentioned, that the property wrongfully transferred or stolen should be restored to its rightful owner." (The Philippine Law of Stock Corporations by Fisher, p. 132.) (Emphasis supplied.) In the language of Fletcher's Cyclopedia Corporations (Vol. 12, pp. 521-534): The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. . . . xxx xxx xxx A reason often given for the rule is that it is a case for the application of the maxim that where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. But "negligence which will work an estoppel of this kind must be a proximate cause of the purchase or advancement of money by the holder of the property, and must enter into the transaction itself "; the negligence must be in or immediately connected with the transfer itself . Furthermore, "to establish this estoppel it must appear that the true owner had conferred upon the person who has diverted the security the indicia of ownership, or an apparent title or authority to transfer the title." So the owner is not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the apparent title. Nor is he deprived of his title or his remedy against the corporation because he intrusts a third person with the key of a box in which the certificate are kept, where the latter takes them from the box and by forging the owner's name to a power of attorney procures their transfer on the corporate books. Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting his title asagainst a bona fide purchaser from the finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss or theft of the certificate was not due to any negligence on the part of the owner, although there is some dangerous and wholly unjustifiable dictum to the contrary. So it has been held that the fact that stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title thereto as against a bona fide purchaser for value who derives his title from one who stole the certificate from the pledgee. And this has also been held to be true though the thief was an officer of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a misappropriation by the bank to whose custody the certificate was intrusted by the owner, even though the bank may be liable to the pledgor. . . . . A person is not guilty of negligence in leaving a certificate of stock endorsed in blank in a safe deposit box used by himself and another jointly, so as to be estopped from asserting his title after the certificate has been stolen by the other, and sold or pledged to a bona fide purchaser or pledgee.Nor is he negligent in putting a certificate so endorsed in a place to which an employee had access, where he has no reason to doubt the latter's honesty, . . . . (Emphasis supplied.) In the leading case of Knox vs. Eden Muscee American Co. (42 N. E. 988, 992-993), the rule has been forcefully stated as follows: The courts have been frequently importuned to extend the qualities of negotiability of stock certificates beyond the limits mentioned, and clothe them with the same character of complete negotiability as attaches to commercial paper, so as to make a transfer to a purchaser in good faith for value equivalent to actual title, although there was no agency in the transferor, and the certificate had been lost without the fault of the true owner, or had been obtained by theft or robbery. But the courts have refused to accede to this view, and we have found no case entitled to be regarded as authority which denies to the owner of a stock certificate which has been lost without his negligence, or stolen, the right to reclaim it from the hands of any person in whose possession it subsequently comes, although the holder may have taken it in good faith andfor value. The precise question has not often been presented to the courts, for the reason, probably, that they have with great uniformity held that stock certificates were not negotiable instruments in the broad meaning of that phrase; but whenever the question has a risen it has been held that the title of the true owner of a lost or stolen certificate may be asserted against any one subsequently its possession although the holder may be bona fide purchaser. Anderson vs. Nicholas, 28 N. Y. 600; Power vs. Robinson, 52 Fed. 520; Biddle vs. Bayard, 13 Pa. St. 150; Barstow vs. mining Co., 64 Cal. 388, 1 Pac. 349. See Shaw vs.Railroad Co., 101 U. S. 557. . . . It is plain, we think, that the argument in support of the judgment in this case, base on the complete negotiability of stock certificates, is not supported by, but is contrary to, the decisions. If public policy requires that a further advance should be made in more completely assimilating them to commercial paper in the qualities of negotiability, the legislature, and not the courts, should so declare. Under the law as it has hitherto prevailed

there does not seem to have been any serious hindrance in dealing with property of this character. It may, perhaps, be doubted, taking into consideration the interests of investors as well as dealers, whether it would be wise to remove the protection which the true owner of a stock certificate now has against accident, theft, or robbery. The system of registry of negotiable bonds, which prevails to a considerable extent, authorized by statutes of some of the states and of the United States, seems to indicate a tendency to restrict, rather than to extend, the range of negotiable instruments. (Emphasis supplied.) The status of quasi-negotiability generally accorded to, and at present enjoyed by, certificates of stock, under the Philippine law, is in itself a recognition of the fact that the certificates are non-negotiable. Instead of sustaining appellees' claim, section 5 of the uniform Stock Transfer Act, which "gives full negotiability to certificates of stock,"refutes said claim and confirms the non-negotiable character of stock certificates in the absence of said Unifrom Act, for, obviously, the same could not have given, negotiability to an instrument already possessing this attribute prior thereto. Again, apart from being distinct from the general Corporation Law, the aforementioned Uniform Act is not in force in the Philippines. In this connection, it should be noted that this special piece of legislation was adopted in some states of the union as early as the year 1910. The failure of the Philippine government to incorporate its provisions in our statute books, for a period of almost 45 years, is, to our mind, clear proof of the unwillingness of our department to change the policy set forth in section 35 of Act No. 1459. Needless to say, this fact negates our authority which is limited to the interpretation of the law, and its application, with all its imperfections to abandon what the dissenting opinion characterizes as the "civil law standpoint," and substitute, in lieu thereof, the commercial viewpoint, by applying said section 5 of the Uniform Stock Transfer Act, although not a part of the law of the land. Indeed, even in matters generally considered as falling within "commercial territory", the Roman Law concept has not given way in the Philippines to the Common Law approach, except when there is explicit statutory provision to the contrary. In the case at bar, neither madrigal nor the Mitsuis had alienated shares of stock in question. It is not even claimed that either had, through negligence, given occasion for an improper or irregular disposition of the corresponding stock certificates. Plaintiffs merely argue without any evidence whatsoever thereon that Kitajimamight have, or must have, assigned the certificates on or before December 1942, although, as above stated, this is, not only, improbable, under the conditions, then obtaining, but, also., impossible, considering that, in April 1943, Kitajima delivered the instruments to Miwa, who kept them in its possession until 1945. At any rate, such assignment by Miwa granting for the sake of argument the accuracy of the surmise of plaintiffs herein was unauthorized by the mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In other words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock certificates in question for his personal benefit, as claimed by the plaintiffs, the title of his assignees and successors in interest would still be subject to the rights of the registered owner, namely, Madrigal, and consequently, of the party for whose benefit and account the latter held the corresponding shares of stock, that is to say, the Mitsuis. At any rate, at the time of the alleged sales in their favor, plaintiffs were aware of sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and the title of the supposed vendors. Indeed, the certificates of stock in question were in the name of madrigal. Obviously, therefore, the alleged sellers (Campos and Hess) were not registered owners of the corresponding shares of stock. Being presumed to know the law particularly the provisions of section 35 of Act No. 1459 and, as experienced traders in shares of stock, plaintiffs must have, accordingly, been conscious of the consequent infirmities in the title of the supposed vendors, or of the handicaps thereof. Moreover, the aforementioned sales were admittedly hostile to the Japanese, who had prohibited it and plaintiffs had actual knowledge of these facts and of the risks attendant to the alleged transaction. In other words, plaintiffs advisedly assumed those risks and, hence, they can not validly claim, against the registered stockholder, the status of purchasers in good faith. The lower court held, and plaintiffs maintain that, not being the registered owners of the shares of stock in question, the Mitsuis can not assert a better right than said plaintiffs. This pretense is untenable. Inasmuch as Madrigal, the registered owner of said shares of stock, has always acknowledged that he held the same merely as an agent of, or trustee for, the mitsuis and this is not denied it follows that the latter are entitled to invoke such rights as Madrigal had as registered stockholder. Upon the other hand, even the alleged sale by Juan Campos and Carl Hess to plaintiffs herein is contested by the defense and, to our mind, has not been established by a preponderance of the evidence. Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. madrigal and the Mitsuis are not privies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latter's pretense. In conclusion, when the Property Custodian issued the Vesting Order complained of, the shares of stock in question belonged to the Mitsuis, admittedly an enemy corporation, so that Vesting Order is in conformity with law and should be upheld. Wherefore, the decision appealed from is hereby reversed, and the complaint, accordingly, dismissed, with costs against the plaintiffs-appellees. It is so ordered.

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents. GUTIERREZ, JR., J.: The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. Briefly, the facts of the case are summarized as follows: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry. On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A-5) On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive) The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive) On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo) On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision reads: ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordering the defendants and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo) The lower court's decision was affirmed on appeal by the Intermediate Appellate Court. The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision. We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and gave it due course. The petitioners allege that: The denial of the petition will work great injustice to the petitioners, in that: 1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million; 2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer of actual ownership interests by petitioners to third parties; and 3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp. 251-252, Rollo) The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange." Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo) Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo) The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There

is a sale when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo) On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock. We rule for the petitioners. After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties. A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107). Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter. It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. As explained by Eduardo Neria: xxx xxx xxx ATTY. LINSANGAN: Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on the properties for no par value shares of the defendant corporation? A Yes, sir. COURT: Q What do you mean by "point of view"? A To take advantage for both spouses and corporation in entering in the deed of exchange. ATTY. LINSANGAN: Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of exchange? A Continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. Q What are these advantages to the said spouses from the point of view of taxation in entering in the deed of exchange? A Having fulfilled the conditions in the income tax law, providing for tax free exchange of property, they were able to execute the deed of exchange free from income tax and acquire a corporation. Q What provision in the income tax law are you referring to? A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation." Q Did you explain to the spouses this benefit at the time you executed the deed of exchange? A Yes, sir Q You also, testified during the last hearing that the decision to have no par value share in the defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection with the ownership of the property in question? A There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. The board can fix the value of the shares equivalent to the capital requirements of the corporation. Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of the property in question? A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies. Q Now what advantage is this continuity in relation to ownership by a particular person of certain properties in respect to taxation? A The property is not subjected to taxes on succession as the corporation does not die. Q So the benefit you are talking about are inheritance taxes? A Yes, sir. (pp. 3-5, tsn., December 15, 1981) The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs. SO ORDERED.