Chapter 3 G.R. No. 104175 June 25, 1993 YOUNG AUTO SUPPLY CO.

AND NEMESIO GARCIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS,respondents. Angara, Abello, Concepcion, Regala & Cruz for petitioners. Antonio Nuyles for private respondent.

QUIASON, J.: Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed by respondent George C. Roxas of the complaint for collection filed by petitioners. It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176). Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs (Rollo, p. 290). Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a third motion for extension of time to submit a responsive pleading. On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas. On August 22, 1988, Roxas filed a motion to dismiss on the grounds that: 1. The complaint did not state a cause of action due to non-joinder of indispensable parties;

2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and 3. The venue was improperly laid (Rollo, p. 299). After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being proforma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer. On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit or merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49). A subsequent motion for reconsideration by petitioner was to no avail. Petitioners now come before us, alleging that the Court of Appeals erred in: 1. holding the venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are residents; 2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19). The petition is meritorious. In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters and several commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48). In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that he had relied upon those representations (Decision, p. 12, Rollo, p. 47). The Court of Appeals erred in holding that the venue was improperly laid in Cebu City. In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court]. There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu City, thus: 1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly organized and existing under Philippine laws with principal place of business at M. J. Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street, Pasay City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81). The Article of Incorporation of YASCO (SEC Reg. No. 22083) states: THIRD That the place where the principal office of the corporation is to be established or located is at Cebu City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984) (Rollo, p. 273). A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant. If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City was its principal place of business. But this is not the case before us. With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED. SO ORDERED.

[G.R. No. 51765. March 3, 1997]

REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents. DECISION HERMOSISIMA, JR., J.: This is a petition for certiorari seeking the annulment of the Decision[1] of the then Court of First Instance of Rizal[2] for having been rendered in grave abuse of discretion. Private respondents RobesFrancisco Realty and Development Corporation (hereafter, "the Corporation") and Adalia F. Robes filed

in the court a quo, an action for specific performance to compel petitioner to redeem 800 preferred shares of stock with a face value of P8,000.00 and to pay 1% quarterly interest thereon as quarterly dividend owing them under the terms and conditions of the certificates of stock. The court a quo rendered judgment in favor of private respondents; hence, this instant petition. Herein parties debate only legal issues, no issues of fact having been raised by them in the court a quo. For ready reference, however, the following narration of pertinent transactions and events is in order: On September 18, 1961, private respondent Corporation secured a loan from petitioner in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to private respondent Corporation, through its officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, petitioner lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after two (2) years from the date of issue at the option of the Corporation. x x x." On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint anchored on private respondents' alleged rights to collect dividends under the preferred shares in question and to have petitioner redeem the same under the terms and conditions of the stock certificates. Private respondents attached to their complaint, a letter-demand dated January 5, 1979 which, significantly, was not formally offered in evidence. Petitioner filed a Motion to Dismiss[3] private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive law; and (3) that the action was barred by the statute of limitations and/or laches. Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16, 1979. Petitioner then filed its Answer on May 2, 1979. [5] Thereafter, the trial court gave the parties ten (10) days from July 30, 1979 to submit their respective memoranda after the submission of which the case would be deemed submitted for resolution.[6]
[4]

On September 7, 1979, the trial court rendered the herein assailed decision in favor of private respondents. In ordering petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment, the trial court ruled: "There being no issue of fact raised by either of the parties who filed their respective memoranda delineating their respective contentions, a judgment on the pleadings, conformably with an earlier order of the Court, appears to be in order. From a further perusal of the pleadings, it appears that the provision of the stock certificates in question to the effect that the plaintiffs shall have the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating, clearly and unequivocably [sic] indicates that the same are 'interest bearing stocks' which are stocks issued by a corporation under an agreement to pay a

certain rate of interest thereon (5 Thompson, Sec. 3439). As such, plaintiffs become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend. On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and conditions in said stock certificates clearly allows the same. To allow the herein defendant not to redeem said preferred shares of stock and/or pay the interest due thereon despite the clear import of said provisions by the mere invocation of alleged Central Bank Circulars prohibiting the same is tantamount to an impairment of the obligation of contracts enshrined in no less than the fundamental law itself. Moreover, the herein defendant is considered in estoppel from taking shelter behind a General Banking Act provision to the effect that it cannot buy its own shares of stocks considering that the very terms and conditions in said stock certificates allowing their redemption are its own handiwork. As to the claim by the defendant that plaintiffs' cause of action is barred by prescription, suffice it to state that the running of the prescriptive period was considered interrupted by the written extrajudicial demands made by the plaintiffs from the defendant."[7] Aggrieved by the decision of the trial court, petitioner elevated the case before us essentially on pure questions of law. Petitioner's statement of the issues that it submits for us to adjudicate upon, is as follows: "A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO PAY RESPONDENT ADALIA F. ROBES THE AMOUNT OF P8,213.69 AS INTERESTS FROM 1961 To 1979 ON HER PREFERRED SHARES. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO REDEEM RESPONDENT ADALIA F. ROBES' PREFERRED SHARES FOR P8,000.00 RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISREGARDING THE ORDER OF THE CENTRAL BANK TO PETITIONER TO DESIST FROM REDEEMING ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS THEREON x x x. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT DOES NOT STATE A CAUSE OF ACTION. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR LACHES."[8]

B.

C.

D.

E.

The petition is meritorious. Before passing upon the merits of this petition, it may be pertinent to provide an overview on the nature of preferred shares and the redemption thereof, considering that these issues lie at the heart of the dispute. A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of common stock. The preferences are designed to induce persons to subscribe for shares of a corporation. [9] Preferred shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former is a share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation; [10] the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common stock.[11] There is no guaranty, however, that the share will receive any dividends. Under the old Corporation Law in force at the time the contract between the petitioner and the private

respondents was entered into, it was provided that "no corporation shall make or declare any dividend except from the surplus profits arising from its business, or distribute its capital stock or property other than actual profits among its members or stockholders until after the payment of its debts and the termination of its existence by limitation or lawful dissolution." [12] Similarly, the present Corporation Code[13] provides that the board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings.[14] The Code, in Section 43, adopting the change made in accounting terminology, substituted the phrase unrestricted retained earnings," which may be a more precise term, in place of "surplus profits arising from its business" in the former law. Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter. Dividends are thus payable only when there are profits earned by the corporation and as a general rule, even if there are existing profits, the board of directors has the discretion to determine whether or not dividends are to be declared. [15] Shareholders, both common and preferred, are considered risk takers who invest capital in the business and who can look only to what is left after corporate debts and liabilities are fully paid.[16] Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at a certain redemption price.[17] A redemption by the corporation of its stock is, in a sense, a repurchase of it for cancellation.[18] The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation. This is a new provision which in effect qualifies the general rule that the corporation cannot purchase its own shares except out of current retained earnings.[19] However, while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings, this is subject to the condition that the corporation has, after such redemption, assets in its books to cover debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature.[20] We come now to the merits of the case. The petitioner argues that it cannot be compelled to redeem the preferred shares issued to the private respondent. We agree. Respondent judge, in ruling that petitioner must redeem the shares in question, stated that: "On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and conditions in said stock certificates clearly allows the same."[21] What respondent Judge failed to recognize was that while the stock certificate does allow redemption, the option to do so was clearly vested in the petitioner bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock.[22] Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. We fail to see how respondent judge can ignore what, in his words, are the "very wordings of the terms and conditions in said stock certificates" and construe what is clearly a mere option to be his legal basis for compelling the petitioner to redeem the shares in question. The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central Bank made a finding that said petitioner has been suffering from chronic reserve deficiency, [23] and that such finding resulted in a directive, issued on January 31, 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the petitioner bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. [24] Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power. The respondent judge insists that the directive constitutes an impairment of the obligation of contracts. It has, however, been settled that the Constitutional guaranty of non-impairment of obligations of contract is limited by the

exercise of the police power of the state, the reason being that public welfare is superior to private rights.[25] The respondent judge also stated that since the stock certificate granted the private respondents the right to receive a quarterly dividend of one Per Centum (1%), cumulative and participating, it "clearly and unequivocably (sic) indicates that the same are 'interest bearing stocks' or stocks issued by a corporation under an agreement to pay a certain rate of interest thereon. As such, plaintiffs (private respondents herein) become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend." [26] There is no legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. [27] Clearly, the respondent judge, in compelling the petitioner to redeem the shares in question and to pay the corresponding dividends, committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law. Anent the issue of prescription, this Court so holds that the claim of private respondent is already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides that a right of action that is founded upon a written contract prescribes in ten (10) years. The letter-demand made by the private respondents to the petitioner was made only on January 5, 1979, or almost eighteen years after receipt of the written contract in the form of the stock certificate. As noted earlier, this letterdemand, significantly, was not formally offered in evidence, nor were any other evidence of demand presented. Therefore, we conclude that the only time the private respondents saw it fit to assert their rights, if any, to the preferred shares of stock, was after the lapse of almost eighteen years. The same clearly indicates that the right of the private respondents to any relief under the law has already prescribed. Moreover, the claim of the private respondents is also barred by laches. Laches has been defined as the failure or neglect, for an unreasonable 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 it or declined to assert it.[28] Considering that the terms and conditions set forth in the stock certificate clearly indicate that redemption of the preferred shares may be made at any time after the lapse of two years from the date of issue, private respondents should have taken it upon themselves, after the lapse of the said period, to inquire from the petitioner the reason why the said shares have not been redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional sixteen years passed before the private respondents saw it fit to demand their right. The petitioner, at the time it issued said preferred shares to the private respondents in 1961, could not have known that it would be suffering from chronic reserve deficiency twelve years later. Had the private respondents been vigilant in asserting their rights, the redemption could have been effected at a time when the petitioner bank was not suffering from any financial crisis. WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The challenged decision of respondent judge is set aside and the complaint against the petitioner is dismissed. Costs against the private respondents. SO ORDERED.

[G.R. No. 150976. October 18, 2004]

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.: For review on certiorari is the Partial Judgment[1] dated November 26, 2001 in Civil Case No. 010140, 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 directors or as corporate officers.[2] (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 A B NO. OF SHARES 1,000 4,000 PAR VALUE P1,000.00 P1,000.00

Only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers.[3] (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 A B NO. OF SHARES 1,000 31,000 PAR VALUE P1,000.00 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 directors or as corporate officers[4] (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 of the ultrasound unit.[5] 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.

SO ORDERED.[6] In finding for the respondents, the trial court ruled that corporations had the power to classify their shares of stocks, such as voting and non-voting shares, conformably with Section 6[7] 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 full voting right and the right to be voted.[8] 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 Incorporation and is in accord with Section 5 [9] 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 non-impairment clause[10] 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 legislature or by the corporation, without his consent, through amending the charter, or the by-laws.[11] Neither do we find merit in respondents position that Section 6 of the Corporation Code cannot apply to MCPI without running afoul of the non-impairment clause of the Bill of Rights. Section 148[12] 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 appeal via certiorari, only questions of law may be reviewed. [13] 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 been followed[14] and that official duty has been regularly performed[15] 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.

[G.R. No. 108905. October 23, 1997]

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. DECISION

MENDOZA, J.: The question for decision in this case is the right of petitioners representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioners representative had been recognized as a permanent director of the association. But on February 13, 1990, petitioner received notice from the associations committee on election that the latter was reexamining (actually, reconsidering) the right of petitioners representative to continue as an unelected member of the board. As the board denied petitioners request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGCs appeals board. Hence this petition for review based on the following contentions: 1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association; 2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and 3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law.[1] Briefly stated, the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought. As adopted in 1968, the by-laws of the association provided in Article IV, as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified.[2] It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows:[3]

VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent

seat in the board of directors of the association. On February 13, 1990, the associations committee on election in a letter informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by members of the association because to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board, and it is undemocratic for a person or entity to hold office in perpetuity.[4] For this reason, Tan was told that the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined. Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board.[5] As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof: The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition for mandamus was merely a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC. It argued that the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association and not the proposed amended by-laws.[6] In reply, petitioner maintained that the amended by-laws is valid and binding and that the association was estopped from questioning the by-laws.[7] A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioners action. The hearing officer held that the amended by-laws, upon which petitioner based its claim, [was] merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void and the by-laws of December 17, 1968 as the prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency. The hearing officer rejected petitioners contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that allowing the automatic

inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association.[8] The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92. Election and term of trustees. - Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school [was] being deprived of its right to be a member of the Board of Directors of respondent association, because the fact was that it may nominate as many representatives to the Associations Board as it may deem appropriate. It said that what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is not anchored upon any legal basis.[9] Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the associations by-laws because of failure to comply with the requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the bylaws provides:[10] The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws. This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides: 22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law. The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends:[11] Considering, therefore, that the agents or committee were duly authorized to draft the amended bylaws and the acts done by the agents were in accordance with such authority, the acts of the agents from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized

agents but express approval and confirmation of what the agents did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioners representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. .... If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the bylaws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees. It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. These provisions read: 28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation: Provided, however, That in corporations, other than banks, in which the United States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be

elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added) 29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added) The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,[12] similarly provides: 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. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law.[13] It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioners representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioners representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the existence of the association.[14] Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC. But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view

that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Gokongwei vs. SEC, 89 SCRA 336 (1979)

Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed onthe basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of hisright to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholders meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code.

Issue: Are

amendments

valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a bylaw is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties

and compensation of directors, officers, and employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

[G.R. No. 144767. March 21, 2002]

DILY

DANY NACPIL, petitioner, vs. CORPORATION, respondent. DECISION

INTERNATIONAL

BROADCASTING

KAPUNAN, J.: This is a petition for review on certiorari under Rule 45, assailing the Decision of the Court of Appeals dated November 23, 1999 in CA-G.R. SP No. 52755[1] and the Resolution dated August 31, 2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. The Court of Appeals reversed the decisions promulgated by the Labor Arbiter and the National Labor Relations Commission (NLRC), which consistently ruled in favor of petitioner. Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. According to petitioner, when Emiliano Templo was appointed to replace IBC President Tomas Gomez III sometime in March 1997, the former told the Board of Directors that as soon as he assumes the IBC presidency, he would terminate the services of petitioner. Apparently, Templo blamed petitioner, along with a certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted, humiliated and pressured petitioner into resigning until the latter was forced to retire. However, Templo refused to pay him his

retirement benefits, allegedly because he had not yet secured the clearances from the Presidential Commission on Good Government and the Commission on Audit. Furthermore, Templo allegedly refused to recognize petitioners employment, claiming that petitioner was not the Assistant General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, in 1997, petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of benefits. Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case. IBC contended that petitioner was a corporate officer who was duly elected by the Board of Directors of IBC; hence, the case qualifies as an intra-corporate dispute falling within the jurisdiction of the Securities and Exchange Commission (SEC). However, the motion was denied by the Labor Arbiter in an Order dated April 22, 1998.[2] On August 21, 1998, the Labor Arbiter rendered a Decision stating that petitioner had been illegally dismissed. The dispositive portion thereof reads: WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the complainant and against all the respondents, jointly and severally, ordering the latter: 1. To reinstate complainant to his former position without diminution of salary or loss of seniority rights, and with full backwages computed from the time of his illegal dismissal on May 16, 1997 up to the time of his actual reinstatement which is tentatively computed as of the date of this decision on August 21, 1998 in the amount of P1,231,750.00 (i.e., P75,000.00 a month x 15.16 months = P1,137,000.00 plus 13 thmonth pay equivalent to 1/12 of P 1,137,000.00 = P94,750.00 or the total amount of P 1,231,750.00). Should complainant be not reinstated within ten (10) days from receipt of this decision, he shall be entitled to additional backwages until actually reinstated. 2. Likewise, to pay complainant the following: a) b) c) P 2 Million as and for moral damages; P500,000.00 as and for exemplary damages; plus and (sic) Ten (10%) percent thereof as and for attorneys fees.

SO ORDERED.[3] IBC appealed to the NLRC, but the same was dismissed in a Resolution dated March 2, 1999, for its failure to file the required appeal bond in accordance with Article 223 of the Labor Code. [4] IBC then filed a motion for reconsideration that was likewise denied in a Resolution dated April 26, 1999.[5] IBC then filed with the Court of Appeals a petition for certiorari under Rule 65, which petition was granted by the appellate court in its Decision dated November 23, 1999. The dispositive portion of said decision states: WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The assailed decisions of the Labor Arbiter and the NLRC are REVERSED and SET ASIDE and the complaint is DISMISSED without prejudice. SO ORDERED.[6] Petitioner then filed a motion for reconsideration, which was denied by the appellate court in a Resolution dated August 31, 2000. Hence, this petition. Petitioner Nacpil submits that: I.

THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS APPOINTED BY RESPONDENTS BOARD OF DIRECTORS AS COMPTROLLER. THIS FINDING IS CONTRARY TO THE COMMON, CONSISTENT POSITION AND ADMISSION OF BOTH PARTIES. FURTHER, RESPONDENTS BY-LAWS DOES NOT INCLUDE COMPTROLLER AS ONE OF ITS CORPORATE OFFICERS. II. THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSIONS DECISION TO APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT CASE. THE ONLY ISSUE FOR ITS DETERMINATION IS WHETHER NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN DOING THE SAME.[7] The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal dismissal and non-payment of benefits filed by petitioner. The Court finds that the Labor Arbiter had no jurisdiction over the same. Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the complaint for illegal dismissal was instituted by petitioner in 1997, the following cases fall under the exclusive of the SEC: 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 appointment 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 property to cover all of 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 Committee created pursuant to this decree. (Emphasis supplied.) The Court has consistently held that there are two elements to be considered in determining whether the SEC has jurisdiction over the controversy, to wit: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.[8] Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had not been elected nor appointed as Comptroller and Assistant Manager by the IBCs Board of Directors. He points out that he had actually been appointed as such on January 11, 1995 by the IBCs General Manager, Ceferino Basilio. In support of his argument, petitioner underscores the fact that the IBCs By-Laws does not even include the position of comptroller in its roster of corporate officers.[9] He therefore contends that his dismissal is a controversy falling within the jurisdiction of the labor courts.
[10]

Petitioners argument is untenable. Even assuming that he was in fact appointed by the General Manager, such appointment was subsequently approved by the Board of Directors of the IBC.[11] That the position of Comptroller is not expressly mentioned among the officers of the IBC in the By-Laws is of no moment, because the IBCs Board of Directors is empowered under Section 25 of the Corporation Code[12] and under the corporations By-Laws to appoint such other officers as it may deem necessary. The By-Laws of the IBC categorically provides:

XII. OFFICERS The officers of the corporation shall consist of a President, a Vice-President, a Secretary-Treasurer, a General Manager, and such other officers as the Board of Directors may from time to time does fit to provide for. Said officers shall be elected by majority vote of the Board of Directors and shall have such powers and duties as shall hereinafter provide (Emphasis supplied).[13] The Court has held that in most cases the by-laws may and usually do provide for such other officers,[14] and that where a corporate office is not specifically indicated in the roster of corporate offices in the by-laws of a corporation, the board of directors may also be empowered under the bylaws to create additional officers as may be necessary.[15] An office has been defined as a creation of the charter of a corporation, while an officer as a person elected by the directors or stockholders. On the other hand, an employee occupies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.[16] As petitioners appointment as comptroller required the approval and formal action of the IBCs Board of Directors to become valid,[17] it is clear therefore holds that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which includes controversies involving both election and appointment of corporate directors, trustees, officers, and managers. [18] Had petitioner been an ordinary employee, such board action would not have been required. Thus, the Court of Appeals correctly held that: Since complainants appointment was approved unanimously by the Board of Directors of the corporation, he is therefore considered a corporate officer and his claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by Section 5 of P.D. 902-A. The rule is that dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the SEC, not to the NLRC.[19] As to petitioners argument that the nature of his functions is recommendatory thereby making him a mere managerial officer, the Court has previously held that the relationship of a person to a corporation, whether as officer or agent or employee is not determined by the nature of the services performed, but instead by the incidents of the relationship as they actually exist.[20] It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money claims, for such claims are actually part of the perquisites of his position in, and therefore linked with his relations with, the corporation. The inclusion of such money claims does not convert the issue into a simple labor problem. Clearly, the issues raised by petitioner against the IBC are matters that come within the area of corporate affairs and management, and constitute a corporate controversy in contemplation of the Corporation Code.[21] Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiters Decision for its non-payment of the appeal bond as required under Article 223 of the Labor Code, since compliance with the requirement of posting of a cash or surety bond in an amount equivalent to the monetary award in the judgment appealed from has been held to be both mandatory and jurisdictional.[22]Hence, the Decision of the Labor Arbiter had long become final and executory and thus, the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of jurisdiction in giving due course to the IBCs petition for certiorari, and in deciding the case on the merits. The IBCs failure to post an appeal bond within the period mandated under Article 223 of the Labor Code has been rendered immaterial by the fact that the Labor Arbiter did not have jurisdiction over the case since as stated earlier, the same is in the nature of an intra-corporate controversy. The Court has consistently held that where there is a finding that any decision was rendered without jurisdiction, the action shall be dismissed. Such defense can be interposed at any time, during appeal or even after final judgment.[23] It is a well-settled rule that jurisdiction is conferred only by the Constitution or by law. It cannot be fixed by the will of the parties; it cannot be acquired through, enlarged or diminished by, any act or omission of the parties.[24]

Considering the foregoing, the Court holds that no error was committed by the Court of Appeals in dismissing the case filed before the Labor Arbiter, without prejudice to the filing of an appropriate action in the proper court. It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No. 8799) which was signed into law by then President Joseph Ejercito Estrada on July 19, 2000, the SECs jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has been transferred to the Regional Trial Courts.[25] WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of Appeals in CAG.R. SP No. 52755 is AFFIRMED. SO ORDERED.

[G.R. No. 117847. October 7, 1998]

PEOPLES AIRCARGO AND WAREHOUSING CO. INC., petitioner, vs. COURT OF APPEALS and STEFANI SAO, respondents. DECISION PANGANIBAN, J.: Contracts entered into by a corporate president without express prior board approval bind the corporation, when such officers apparent authority is established and when these contracts are ratified by the corporation.

The Case This principle is stressed by the Court in rejecting the Petition for Review of the February 28, 1994 Decision and the October 28, 1994 Resolution of the Court of Appeals in CA-GR CV No. 30670. In a collection case[1] filed by Stefani Sao against Peoples Aircargo and Warehousing Co., Inc., the Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision [2] dated October 26, 1990, the dispositive portion of which reads:[3] WHEREFORE, in light of all the foregoing, judgment is hereby rendered, ordering [petitioner] to pay [private respondent] the amount of sixty thousand (P60,000.00) pesos representing payment of [private respondents] services in preparing the manual of operations and in the conduct of a seminar for [petitioner]. The Counterclaim is hereby dismissed. Aggrieved by what he considered a minuscule award of P60,000, private respondent appealed to the Court of Appeals[4] (CA) which, in its Decision promulgated February 28, 1994, granted his prayer for P400,000, as follows:[5] WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby MODIFIED in that [petitioner] is ordered to pay [private respondent] the amount of four hundred thousand pesos (P400,000.00) representing payment of [private respondents] services in preparing the manual of operations and in the conduct of a seminar for [petitioner]. As no new ground was raised by petitioner, reconsideration of the above-mentioned Decision was denied in the Resolution promulgated on October 28, 1994.

The Facts Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a customs bonded warehouse at the old Manila International Airport in Pasay City.[6] To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation president, solicited a proposal from private respondent for the preparation of a feasibility study.[7] Private respondent submitted a letter-proposal dated October 17, 1986 (First Contract hereafter) to Punsalan, which is reproduced hereunder:[8] Dear Mr. Punsalan: With reference to your request for professional engineering consultancy services for your proposed MIA Warehousing Project may we offer the following outputs and the corresponding rate and terms of agreement: =========================== ========= Project Feasibility Study consisting of Market Study Technical Study Financial Feasibility Study Preparation of pertinent documentation requirements for the application ===================================================== The above services will be provided for a fee of [p]esos 350,000.00 payable according to the following schedule: ===================================================== Fifty percent (50%) .upon confirmation of the agreement Twenty-five percent (25%)..15 days after the confirmation of the agreement Twenty-five percent (25%)..upon submission of the specified outputs The outputs will be completed and submitted within 30 days upon confirmation of the agreement and receipt by us of the first fifty percent payment. --------------------------------------------------------------------------------------------Thank you. Yours truly, (S)STEFANI C. SAO (T)STEFANI C. SAO CONFORME: (S)ANTONIO C. PUNSALAN, JR. (T)ANTONIO C. PUNSALAN, JR.

Consultant for Industrial Engineering

President, PAIRCARGO

Initially, Cheng Yong, the majority stockholder of petitioner, objected to private respondents offer, as another company priced a similar proposal at only P15,000.[9] However, Punsalan preferred private respondents services because of the latters membership in the task force, which was supervising the transition of the Bureau of Customs from the Marcos government to the Aquino administration.[10] On October 17, 1986, petitioner, through Punsalan, sent private respondent a letter, confirming their agreement as follows: Dear Mr. Sao: With regard to the services offered by your company in your letter dated 13 October 1986, for the preparation of the necessary study and documentations to support our Application for Authority to Operate a public Customs Bonded Warehouse located at the old MIA Compound in Pasay City, please be informed that our company is willing to hire your services and will pay the amount of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00) as follows: P100,000.00 upon signing of the agreement; 150,000.00 on or before October 31, 1986, with the favorable Recommendation of the CBW on our application.

100,000.00 -

upon receipt of the study in final form. Very truly yours, (S)ANTONIO C. PUNSALAN (T)ANTONIO C. PUNSALAN President

CONFORME & RECEIVED from PAIRCARGO, the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), this 17th day of October, 1986 as 1st installment payment of the service agreement dated October 13, 1986. (S)STEFANI C. SAO (T)STEFANI C. SAO Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid him the balance of the contract price, although not according to the schedule agreed upon.[11] On December 4, 1986, upon Punsalans request, private respondent sent petitioner another letterproposal (Second Contract hereafter), which reads:

Peoples Air Cargo & Warehousing Co., Inc. Old MIA Compound, Metro Manila Attention: Mr. ANTONIO PUN[S]ALAN, JR. President Dear Mr. Pun[s]alan: This is to formalize our proposal for consultancy services to your company the scope of which is defined in the attached service description. The total service you have decided to avail xxx would be available upon signing of the conforme below and would come [in] the amount of FOUR HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule defined as follows (with the balance covered by post-dated cheques): Downpayment upon signing conforme . . . P80,000.00 15 January 1987 30 January 1987 ............. ............. 53,333.00 53,333.00 53,333.00 53,333.00 53,333.00 53,333.00

15 February 1987 . . . . . . . . . . . . . 28 February 1987 . . . . . . . . . . . . . 15 March1987 30 March 1987 ............. .............

With this package, you are assured of the highest service quality as our performance record shows we always deliver no less. Thank you very much. Yours truly, (S)STEFANI C. SAO (T)STEFANI C. SAO Industrial Engineering Consultant CONFORME: (S)ANTONIO C. PUNSALAN JR. (T)PAIRCARGO CO. INC. During the trial, the lower court observed that the Second Contract bore, at the lower right portion of the letter, the following notations in pencil:

1. 2.

Operations Manual Seminar/workshop for your employees P400,000 package deal

50% upon completion of seminar/workshop 50% upon approval by the Commissioner The Manual has already been approved by the Commissioner but payment has not yet been made." The lower left corner of the letter also contained the following notations: 1st letter 2nd letter 4 Dec. 1986 15 June 1987 with Hinanakit. On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations manual prepared by private respondent.[12] Petitioner submitted said operations manual to the Bureau of Customs in connection with the formers application to operate a bonded warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to become one of the three public customs bonded warehouses at the international airport.[13] Private respondent also conducted, in the third week of January 1987 in the warehouse of petitioner, a three-day training seminar for the latters employees.[14] On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to then Commissioner Alex Padilla, a position he held until he became technical assistant to then Commissioner Miriam Defensor-Santiago on March 7, 1988.[15] Meanwhile, Punsalan sold his shares in petitioner-corporation and resigned as its president in 1987.[16] On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had prepared an operations manual for petitioner, conducted a seminar-workshop for its employees and delivered to it a computer program; but that, despite demand, petitioner refused to pay him for his services. Petitioner, in its answer, denied that private respondent had prepared an operations manual and a computer program or conducted a seminar-workshop for its employees. It further alleged that the letter-agreement was signed by Punsalan without authority, in collusion with [private respondent] in order to unlawfully get some money from [petitioner], and despite his knowledge that a group of employees of the company had been commissioned by the board of directors to prepare an operations manual.[17] The trial court declared the Second Contract unenforceable or simulated. However, since private respondent had actually prepared the operations manual and conducted a training seminar for petitioner and its employees, the trial court awarded P60,000 to the former, on the ground that no one should be unjustly enriched at the expense of another (Article 2142, Civil Code). The trial court determined the amount in light of the evidence presented by defendant on the usual charges made by a leading consultancy firm on similar services.[18]

The Ruling of the Court of Appeals

To Respondent Court, the pivotal issue of private respondents appeal was the enforceability of the Second Contract. It noted that petitioner did not appeal the Decision of the trial court, implying that it had agreed to pay the P60,000 award. If the contract was valid and enforceable, then petitioner should be held liable for the full amount stated therein, not P60,000 as held by the lower court. Rejecting the finding of the trial court that the December 4, 1986 contract was simulated or unenforceable, the CA ruled in favor of its validity and enforceability. According to the Court of Appeals, the evidence on record shows that the president of petitioner-corporation had entered into the First Contract, which was similar to the Second Contract. Thus, petitioner had clothed its president with apparent authority to enter into the disputed agreement. As it had also become the practice of the petitioner-corporation to allow its president to negotiate and execute contracts necessary to secure its license as a customs bonded warehouse without prior board approval, the board itself, by its acts and through acquiescence, practically laid aside the normal requirement of prior express approval. The Second Contract was declared valid and binding on the petitioner, which was held liable to private respondent in the full amount of P400,000. Disagreeing with the CA, petitioner lodged this petition before us.[19]

The Issues Instead of alleging reversible errors, petitioner imputes grave abuse of discretion to the Court of Appeals, viz.:[20] I. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation simply because it was entered into by its president[;] II. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation notwithstanding the lack of any board authority since it was the purported practice to allow the president to enter into contracts of said nature (citing one previous instance of a similar contract)[;] and III. xxx [I]n ruling that the subject letter-agreement for services was a valid contract and not merely simulated." The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its ground for seeking a reversal of the assailed Decision. Although the Rules of Court specify reversible errors as grounds for a petition for review under Rule 45, the Court will lay aside for the nonce this procedural lapse and consider the allegations of grave abuse as statements of reversible errors of law. Petitioner does not contest its liability; it merely disputes the amount of such accountability. Hence, the resolution of this petition rests on the sole issue of the enforceability and validity of the Second Contract, more specifically: (1) whether the president of the petitionercorporation had apparent authority to bind petitioner to the Second Contract; and (2) whether the said contract was valid and not merely simulated.

The Courts Ruling The petition is not meritorious.

First Issue: Apparent Authority of a Corporate President

Petitioner argues that the disputed contract is unenforceable, because Punsalan, its president, was not authorized by its board of directors to enter into said contract. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. [21] A corporation is a juridical person, separate and distinct from its stockholders and members, having xxx powers, attributes and properties expressly authorized by law or incident to its existence.[22] Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management,[23] as provided in Section 23 of the Corporation Code of the Philippines: 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. Under this provision, the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law.[24] 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 officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz.: [25] 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 the corporation has caused persons dealing with the officer or agent to believe that it has conferred. Accordingly, the appellate court ruled in this case that the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power was in fact exercised without any objection from its board or shareholders. Petitioner had previously allowed its president to enter into the First Contract with private respondent without a board resolution expressly authorizing him; thus, it had clothed its president with apparent authority to execute the subject contract. Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract does not constitute corporate practice, which Webster defines as frequent or customary action. It cites Board of Liquidators v. Kalaw,[26] in which the practice of NACOCO allowing its general manager to negotiate and execute contract in its copra trading activities for and on its behalf, without prior board approval, was inferred from sixty contracts not one, as in the present case -- previously entered into by the corporation without such board resolution. Petitioners argument is not persuasive. Apparent authority is derived not merely from practice. Its existence 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, whether within or beyond the scope of his ordinary powers. [27] It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties.[28] It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation. In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract, thus clothing its president with the power to bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong -- senior vice president, treasurer and major stockholder of petitioner. Testifying on the First Contract, he said:
[29]

A: Mr. [Punsalan] told me that he prefer[s] Mr. Sao because Mr. Sao is very influential with the Collector of Customs[s]. Because the Collector of Custom[s] will be the one to approve our project study and I objected to that, sir. And I said it [was an exorbitant] price. And Mr. Punsalan he is the [p]resident, so he [gets] his way. Q: And so did the company eventually pay this P350,000.00 to Mr. Sao? A: Yes, sir.

The First Contract was consummated, implemented and paid without a hitch. Hence, private respondent should not be faulted for believing that Punsalans conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority.[30] Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioners ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified by the acceptance of benefits under them under Article 1405. Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. [31] In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties.[32] Hence, it has been held in other jurisdictions that the president of a corporation possesses the power to enter into a contract for the corporation, when the conduct on the part of both the president and the corporation [shows] that he had been in the habit of acting in similar matters on behalf of the company and that the company had authorized him so to act and had recognized, approved and ratified his former and similar actions.[33] Furthermore, a party dealing with the president of a corporation is entitled to assume that he has the authority to enter, on behalf of the corporation, into contracts that are within the scope of the powers of said corporation and that do not violate any statute or rule on public policy.[34]

Second Issue: Alleged Simulation of the First Contract As an alternative position, petitioner seeks to pare down its liabilities by limiting its exposure from P400,000 to only P60,000, the amount awarded by the RTC. Petitioner capitalizes on the badges of fraud cited by the trial court in declaring said contract either simulated or unenforceable, viz.: xxx The October 1986 transaction with [private respondent] involved P350,000. The same was embodied in a letter which bore therein not only the conformity of [petitioners] then President Punsalan but also drew a letter-confirmation from the latter for, indeed, he was clothed with authority to enter into the contract after the same was brought to the attention and consideration of [petitioner]. Not only that, a [down payment] was made. In the alleged agreement of December 4, 1986 subject of the present case, the amount is even bigger-P400,000.00. Yet, the alleged letter-agreement drew no letter of confirmation. And no [down payment] and postdated checks were given. Until the filing of the present case in February 1988, no written demand for payment was sent to [petitioner]. [Private respondents] claim that he sent one in writing, and one was sent by his counsel who manifested that [h]e was looking for a copy in [his] files fails in light of his failure to present any such copy. These and the following considerations, to wit:

1) Despite the fact that no [down payment] and/or postdated checks [partial payments] (as purportedly stipulated in the alleged contract) [was given, private respondent] went ahead with the services[;] 2) [There was a delay in the filing of the present suit, more than a year after [private respondent] allegedly completed his services or eight months after the alleged last verbal demand for payment made on Punsalan in June 1987; 3) Does not Punsalans writing allegedly in June 1987 on the alleged letter-agreement of your employees[,] when it should have been our employees, as he was then still connected with [petitioner], indicate that the letter-agreement was signed by Punsalan when he was no longer connected with [petitioner] or, as claimed by [petitioner], that Punsalan signed it without [petitioners] authority and must have been done in collusion with plaintiff in order to unlawfully get some money from [petitioner]? 4) If, as [private respondent] claims, the letter was returned by Punsalan after affixing thereon his conformity, how come xxx when Punsalan allegedly visited [private respondent] in his office at the Bureau of Customs, in June 1987, Punsalan brought (again?) the letter (with the pencil [notation] at the left bottom portion allegedly already written)? 5) How come xxx [private respondent] did not even keep a copy of the alleged service contract allegedly attached to the letter-agreement? 6) Was not the letter-agreement a mere draft, it bearing the corrections made by Punsalan of his name (the letter n is inserted before the last letter o in Antonio) and of the spelling of his family name (Punsalan, not Punzalan)? 7) Why was not Punsalan impleaded in the case?

The issue of whether the contract is simulated or real is factual in nature, and the Court eschews factual examination in a petition for review under Rule 45 of the Rules of Court.[35] This rule, however, admits of exceptions, one of which is a conflict between the factual findings of the lower and of the appellate courts[36] as in the case at bar. After judicious deliberation, the Court agrees with the appellate court that the alleged badges of fraud mentioned earlier have not affected in any manner the perfection of the Second Contract or proved the alleged simulation thereof. First, the lack of payment (whether down, partial or full payment), even after completion of private respondents obligations, imports only a defect in the performance of the contract on the part of petitioner. Second, the delay in the filing of action was not fatal to private respondents cause. Despite the lapse of one year after private respondent completed his services or eight months after the alleged last demand for payment in June 1987, the action was still filed within the allowable period, considering that an action based on a written contract prescribes only after ten years from the time the right of action accrues.[37] Third, a misspelling in the contract does not establish vitiation of consent, cause or object of the contract. Fourth, a confirmation letter is not an essential element of a contract; neither is it necessary to perfect one. Fifth, private respondents failure to implead the corporate president does not establish collusion between them. Petitioner could have easily filed a third-party claim against Punsalan if it believed that it had recourse against the latter. Lastly, the mere fact that the contract price was six times the alleged going rate does not invalidate it. [38] In short, these badges do not establish simulation of said contract. A fictitious and simulated agreement lacks consent which is essential to a valid and enforceable contract.[39] A contract is simulated if the parties do not intend to be bound at all (absolutely simulated),[40] or if the parties conceal their true agreement (relatively simulated).[41] In the case at bar, petitioner received from private respondent a letter-offer containing the terms of the former, including a stipulation of the consideration for the latters services. Punsalans conformity, as well as the receipt and use of the operations manual, shows petitioners consent to or, at the very least, ratification of the contract. To repeat, petitioner even submitted the manual to the Bureau of Customs and allowed private respondent to conduct the seminar for its employees. Private respondent heard no objection from the petitioner, until he claimed payment for the services he had rendered.

Contemporaneous and subsequent acts are also principal factors in the determination of the will of the contracting parties.[42] The circumstances outlined above do not establish any intention to simulate the contract in dispute. On the contrary, the legal presumption is always on the validity of contracts. A corporation, by accepting benefits of a transaction entered into without authority, has ratified the agreement and is, therefore, bound by it.[43] WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.