SECOND DIVISION [G.R. No. 117188. August 7, 1997.] LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.

, petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.

Rene A. Diokno for petitioner. Reyno De Vera Tiu Domingo and Santos for private respondents.

after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission". It necessarily follows that failure to file the by-laws within any period does not imply the "demise" of the corporation. By-laws may be necessary for the "government" of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: "In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid." As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. 3.ID.; ID.; ID.; EFFECT OF FAILURE TO FILE. Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: "SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: . . . (1) to suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: . . . Failure to file by-laws within the required period; . . . In the exercise of the foregoing authority and jurisdiction of the Commissions or by a Commissioner or by such there bodies, boards committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction. The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court." Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise" private of corporate existence. Proper notice and hearing are cardinal

SYLLABUS 1.STATUTORY CONSTRUCTION; STATUTE; INTERPRETATION; THE WORD "MUST" IS NOT ALWAYS IMPERATIVE. Ordinarily, the word "must" connotes an imperative act or operates to impose a duty which may be enforced. It is synonymous with "ought" which connotes compulsion or mandatoriness. However, the word "must" in a statute, like, "shall", is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word "must". Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be given that meaning. cdt 2.COMMERCIAL LAW; CORPORATION CODE; SEC. 46 (ADOPTION OF BYLAWS); BY-LAWS; REQUIREMENT FOR THE ADOPTION THEREOF WITHIN THE PERIOD PROVIDED; NOT MANDATORY. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum). Section 46 of the Corporation Code reveals the legislative intent to attach a directory, and not mandatory, meaning for the word "must" in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the bylaws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws "within one (1) month

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components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions above-quoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence. cdasia

organizations within the subdivision the North Association and the South Association. According to private respondents, a non-resident and Soliven himself, respectively headed these associations. They also discovered that these associations had five (5) registered homeowners each who were also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as member of the North Association while three (3) members of LGVHAI were listed as members of the South Association. 3 The North Association was registered with the HIGC on February 13, 1989 under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted its by-laws on December 20, 1988. In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the association's activities. Apparently, this information resulted in the registration of the South Association with the HIGC on July 27, 1989 covering Phases West I, East I and East II. It filed its by-laws on July 26, 1989. These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:

DECISION

ROMERO, J p: May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution? This is the issue raised in this petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners Association (LGVHA) as the sole homeowners' association in Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City that was owned and developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas Homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association). aisadc LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole homeowners' organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. 2 'To the officers' consternation, they discovered that there were two other

"WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered to render an accounting and turn-over to

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Loyola Grand Villas Homeowners Association, Inc., all assets and records of the Association now under his custody and possession." The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the Board 4 dismissed the appeal for lack of merit. Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of LGVHAI. Second, whether or not two homeowners' associations may be authorized by the HIGC in one "sprawling subdivision." However, in the Decision of August 23, 1994 being assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board. In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation commences to have corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The requirement for the filing of by-laws under Section 46 of the Corporation Code within one month from official notice of the issuance of the certificate of incorporation presupposes that it is already incorporated, although it may file its by-laws with its articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said: "We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22, Corporation Code, or in any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the corporation. While Section 46, in prescribing that by-laws must be adopted within the period prescribed therein, may be interpreted as a mandatory provision, particularly because of the use of the word 'must,' its meaning cannot be stretched to support the argument that automatic dissolution results from non-compliance. We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to adopt and file the bylaws within the required period. Thus, Section 46 and other related provisions of the Corporation Code are to be construed with Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or revocation, the same section provides, should be made

upon proper notice and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or suspend the certificates of registration or homeowners associations. (Section 2 [a], E.O. 535, series 1979, transferred the powers and authorities of the SEC over homeowners associations to the HIGC.) We also do not agree with the petitioner's interpretation that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former. There is no basis for such interpretation considering that these two provisions are not inconsistent with each other. They are, in fact, complementary to each other so that one cannot be considered as invalidating the other." The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it continued to be the duly registered homeowners' association in the Loyola Grand Villas. More importantly, the South Association did not dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business within the period prescribed by law. On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC has the authority to order the holding of a referendum to determine which of two contending associations should represent the entire community, village or subdivision. Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation. Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of by-laws, noncompliance therewith would result in "self-extinction" either due to nonoccurrence of a suspensive condition or the occurrence of a resolutory condition ''under the hypothesis that (by) the issuance of the certificate of registration alone the corporate personality is deemed already formed." It asserts that the Corporation Code provides for a "gradation of violations of requirements." Hence, Section 22 mandates that the corporation must be formally organized and should commence transactions within two years from date of incorporation. Otherwise, the corporation would be deemed dissolved. On the other hand, if the corporation commences operations but becomes continuously inoperative for five years, then it may be suspended or its corporate franchise revoked.

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Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for non-filing of the by-laws. However, it insists that no sanction need be provided "because the mandatory nature of the provision is so clear that there can be no doubt about its being an essential attribute of corporate birth." To petitioner, its submission is buttressed by the facts that the period for compliance is "spelled out distinctly," that the certification of the SEC/HIGC must show that the by-laws are not inconsistent with the Code, and that a copy of the by-laws "has to be attached to the articles of incorporation." Moreover, no sanction is provided for because "in the first place, no corporate identity has been completed." Petitioner asserts that "non-provision for remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence had yet evolved," and therefore, there was "no need to proclaim its demise." 6 In a bid to convince the Court of its arguments, petitioner stresses that: ". . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its compulsion is integrated in its very essence MUST is always enforceable by the inevitable consequence that is, 'OR ELSE'. The use of the word MUST in Sec. 46 is no exception it means file the by-laws within one month after notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is inextricably a part of MUST. Do this or if you do not you are 'Kaput'. The importance of the by-laws to corporate existence compels such meaning for as decreed the by-laws is 'the government' of the corporation. Indeed, how can the corporation do any lawful act as such without by-laws. Surely, no law is intended to create chaos." 7 Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does not provide sanctions for non-filing of by-laws. For the petitioner, it is "not proper to assess the true meaning of Sec. 46 . . . on an unauthorized provision on such matter contained in the said decree." In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio v. Intermediate Appellate Court, 8 private respondents contend that Section 6(I) of that decree provides that non-filing of by-laws is only a ground for suspension or revocation of the certificate of registration of corporations and, therefore, it may not result in automatic dissolution of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the by-laws have

not yet been filed, a corporation may be considered a de facto corporation. To emphasize the fact the LGVHAI was registered as the sole homeowners' association in the Loyola Grand Villas, private respondents point out that membership in the LGVHAI was an "unconditional restriction in the deeds of sale signed by lot buyers." cdtai In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the word "must" in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied to this case, this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and regulations to implement the Corporation Code can "rise above and change" the substantive provisions of the Code. The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:

"Sec. 46.Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of bylaws by the corporation, the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members, in the case of non-stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to inspection of the stockholders or members during office hours; and a copy thereof, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the bylaws are not inconsistent with this Code.

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The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law." As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of the word "must" in this section. Ordinarily, the word "must" connotes an imperative act or operates to impose a duty which may be enforced. 9 It is synonymous with "ought" which connotes compulsion or mandatoriness. 10 However, the word "must" in a statute, like "shall," is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a reasonable construction of the statute in which it is used demands or requires. 11 This is equally true as regards the word "must." Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be given that meaning. 12 In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating: "MR. FUENTEBELLA. Thank you, Mr. Speaker. On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must immediately be filed within one month after the issuance? In other words, would this be mandatory or directory in character? MR. MENDOZA. This is mandatory. MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation to file these bylaws within one month? MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the consequences of violations of any provision of this Code. One such consequence is the dissolution of the corporation for its inability, or perhaps, incurring certain penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the mandatory penalty? MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is brought, one takes to account the gravity of the violation committed. If the by-laws were late the filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are delayed over a period of months as is happening now because of the absence of a clear requirement that by-laws must be completed within a specified period of time, the corporation must suffer certain consequences." 13 This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), 14 Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word ''must" in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the bylaws "within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation. By-laws may be necessary for the "government" of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. 15 There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: "In the absence of charter or statutory provisions to the contrary, bylaws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will

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not render void any acts of the corporation which would otherwise be valid." 16 (Emphasis supplied.) As Fletcher aptly puts it: "It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been adopted the corporation may not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them. This would seem to follow as a matter of principle from the office and functions of by-laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes. And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts." 17 Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: "SEC. 6.In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx (l)To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx

5.Failure to file by-laws within the required period; xxx xxx xxx In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction. cdpr The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court." Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence. 18 As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," 19

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by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v. Intermediate Appellate Court, 20 as follows: ". . . Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that 'every corporation formed under this Act, must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws.' Whether this provision should be given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(l) of PD 902-A, the SEC is empowered to 'suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation' on the ground inter alia of 'failure to file by-laws within the required period.' It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm.

It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted 'within one month after receipt of official notice of the issuance of its certificate of incorporation.'" 21 That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1986. 22 With respect to homeowners associations, the HIGC shall "exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission . . ., the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding." 23 WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner. cda SO ORDERED. Regalado, Puno and Mendoza, JJ ., concur. Torres, Jr., J ., is on leave.

FIRST DIVISION [G.R. No. 117604. March 26, 1997.] CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

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Lim Vigilia Cinco & Orencia for petitioner. Jose F . Manacop for private respondent.

SYLLABUS 1.COMMERCIAL LAW; P.D. 902-A; JURISDICTION OF THE SECURITIES AND EXCHANGE COMMISSION; CASE AT BAR; INTRA-CORPORATE CONTROVERSY BETWEEN A CORPORATION AND ITS STOCKHOLDER. There is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. In addition, Calapatia, the original owner of the subject share, has not contested the said transfer. By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A. 2.ID.; ID.; ID.; THE SECURITIES AND EXCHANGE COMMISSION TOOK PROPER COGNIZANCE OF THE INSTANT CASE. An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club . . ." It is pursuant to this provision that VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls for the special competence of the SEC. We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz: 6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labormanagement Controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making and expeditious doctrine of primary jurisdiction. . . the courts cannot or will not determine a controversy involving a question which is within the jurisdiction of an

administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the regulatory statute administered ." In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]"' The Court in the earlier case of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently, . . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim." In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance of the instant case. 3.ID.; ID.; ID.; THE FILING OF A COMPLAINT WITH ONE COURT WHICH HAS NO JURISDICTION OVER IT DOES NOT PREVENT THE PLAINTIFF FROM FILING THE SAME COMPLAINT LATER WITH THE COMPETENT COURT. VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intracorporate relations between itself and VGCCI. VGCCI's contention lacks merit. In Zamora v. Court of Appeals, this Court, through Mr. Justice Isagani A. Cruz, declared that: "It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply because it made a mistake before in the choice of the proper forum . . ." We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically, stated (in its motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC. 4.ID.; CORPORATION CODE; BY-LAWS; THIRD PERSONS ARE NOT BOUND BY THE BY-LAWS OF A CORPORATION SINCE THEY ARE NOT PRIVY THERETO.

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 In order to be bound, the third party must have acquired knowledge of the pertinent bylaws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. 5.ID.; ID.; SECTION 63 THEREOF; THE TERM "UNPAID CLAIM" REFERS TO ANY UNPAID CLAIM ARISING FROM UNPAID SUBSCRIPTION, AND NOT TO ANY INDEBTEDNESS WHICH A SUBSCRIBER OR STOCKHOLDER MAY OWE THE CORPORATION FROM ANY OTHER TRANSACTION. Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply. 6.CIVIL LAW; SPECIAL CONTRACTS; PLEDGE; RULE THAT THE CREDITOR MUST TAKE CARE OF THE THING PLEDGED WITH THE DILIGENCE OF A GOOD FATHER OF A FAMILY; DOES NOT APPLY TO A PLEDGEE OF A SHARE OF STOCK. VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, is clearly not applicable: "In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive. It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia' s unpaid accounts and the restrictive provisions in VGCCI's by-laws.

KAPUNAN, J p: Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September 1994 which denied petitioner's motion for reconsideration. The case unfolds thus: On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for brevity). 1 On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in its books. 2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's favor was duly noted in its corporate books. 3 On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the aforestated pledge agreement still existing between Calapatia and petitioner. 4 Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock. 5 On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of Calapatia's unsettled accounts with the club. 6 Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding certificate of sale. 7

DECISION

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On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the same amount 9 and another notice dated 22 November 1986 for P23,483.24. 10 On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate No. 1219). Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. 11 On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. 12 On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. 13 On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. 14 On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration. On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency." 15 Consequently, the case was dismissed. 16 On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer. It declared thus: The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of the pledged share. WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The auction sale conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is ordered to issue another membership certificate in the name of appellant-petitioner bank. SO ORDERED. 18 VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7 December 1993. 19 The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as follows: In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The establishment of any of the relationship mentioned will not necessarily always confer jurisdiction over the dispute on the Securities and Exchange Commission to the exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or distinctions is

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not that absolute. The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323). Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that used to belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not any of those mentioned in the aforecited case. WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over the subject matter of the case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in this instance. SO ORDERED. 20 Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. 21 Hence, this petition wherein the following issues were raised: II ISSUES WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN: 1.IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST

RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE; 2.IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF. The petition is granted. The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC. P.D. No. 902-A conferred upon the SEC the following pertinent powers: SEC. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines, and in the exercise of its authority, it shall have the power to enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm, association or person. xxx xxx xxx SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a)Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which

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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.

As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. 25 In addition, Calapatia, the original owner of the subject share, has not contested the said transfer. By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly exemplifies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A. An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club . . ." 26 It is pursuant to this provision that VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls for the special competence of the SEC. cdphil We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27 : 6.In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sensemaking and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is

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. The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus: . . . The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy. Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the controversy between petitioner and private respondent corporation is intra-corporate.

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essential to comply with the purposes of the regulatory statute administered." In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]'" The Court in the earlier case of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently,. . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim." In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous analysis and correct interpretation of a corporation's bylaws as well as the applicable provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance of the instant case. VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI. VGCCI's contention lacks merit. In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that: It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The

plaintiff is not estopped from doing so simply because it made a mistake before in the choice of the proper forum . . . We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC. Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings. It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the issues raised by petitioner. Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Gabriel-Almoradie v. Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals: 31 In the interest of the public and for the expeditious administration of justice the issue on infringement shall be resolved by the court considering that this case has dragged on for years and has gone from one forum to another. It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of an issue in a case is remanded to the trial court only to have its decision raised again to the Court of Appeals and from there to the Supreme Court. We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample authority to review matters, even those not raised

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on appeal if it finds that their consideration is necessary in arriving at a just disposition of the case. In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice Ricardo J. Francisco, ruled in this wise: At the outset, the Court's attention is drawn to the fact that that since the filing of this suit before the trial court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication. In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to enable us to render a sound judgment and since only questions of law were raised (the proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits of the case.

advancements (or renewals thereof) that Calapatia (the pledgor) may procure from petitioner: xxx xxx xxx This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts, bills or exchange, discounts, and all other obligations of every kind which have heretofore been contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses (including attorney's fees) which PLEDGEE may incur in connection with the collection thereof. 35 (Emphasis ours.) The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first promissory note covered by the same pledge agreement. VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in accordance with the express provision found in its by-laws. Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith. In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:

The procedural niceties settled, we proceed to the merits. VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the same was null and void for lack of consideration because the pledge agreement was entered into on 21 August 1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August 1983. 34 VGCCI's contention is unmeritorious. A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein that the said pledge will also stand as security for any future

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The general rule really is that third persons are not bound by the bylaws of a corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. Since the by-laws was already binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said share subject to the right of the private respondent to sell the said share for reasons of delinquency and the right of private respondent to have a first lien on said shares as these rights are provided for in the by-laws very very clearly. 36 VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37 "And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. "An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption." (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.) "When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice." (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

"The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone." (Ireland vs. Globe Milling Co., 21 R.I., 9.) "A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons." (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis ours.) In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is particularly instructive: By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and control of its affairs, in whole or in part, in the management and control of its affairs and activities. (9 Fletcher 4166. 1982 Ed.) The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. (Ibid.) Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-

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law restricting the transfer of shares cannot have any effect on the the transferee of the shares in question as he "had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by the by-law between the shareholder . . . and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a purchaser." (Emphasis supplied.) By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to the present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's by-laws. It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge agreement was duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus, appellantpetitioner was in good faith when the pledge agreement was contracted. The Commission en banc also believes that for the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor. In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect that: According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully protected against a subsequent purchaser who would be charged with constructive notice that the certificate is covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount due on the debt secured. In other words, the pledgee has the right to resort to its collateral for the payment of the debts. (Ibid, 502) To cancel the pledged certificate outright and the issuance of new certificate to a third person who purchased the same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its collateral for the payment of the debt. The pledgor or his representative or registered stockholders has no right to require a return of the pledged stock until the debt for which it was given as security is paid and satisfied, regardless of the length of time which have elapsed since debt was created. (12-A Fletcher 409) A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or of third persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may subsequently arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the pledgee on the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38 Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H . Lee, 39 is clearly not applicable: In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive.

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It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia' s unpaid accounts and the restrictive provisions in VGCCI's by-laws. Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." 40 In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. 41 What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply. WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED. SO ORDERED.

2.ID.; ID.; ID.; TERMINATION; SUBSTANTIVE AND PROCEDURAL GROUNDS. Viewed in this light, while private respondent has the right to terminate the services of petitioner, this is subject to both substantive and procedural grounds. The substantive causes for dismissal are those provided in Articles 282 and 283 of the Labor Code, while the procedural grounds refer to the observance of the requirement of due process. In all these instances, it is the private respondent, being the employer, who must prove the validity of the dismissal. These requirements are mandatory and non-compliance therewith renders any judgment reached by the management void and inexistent. 3.ID.; ID.; ID.; ID.; GROSS NEGLIGENCE AND SERIOUS MISCONDUCT, MUST BE SUPPORTED BY EVIDENCE; AFFIDAVIT, NOT SUFFICIENT. While private respondent imputes "gross negligence," and "serious misconduct" as the causes of petitioner's dismissal, not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations. The facts and circumstances regarding such alleged infractions were never explained. While it is true that private respondent, through its president Bonifacio Dazo, executed an affidavit narrating the alleged violations of the petitioner, these were never corroborated by concrete or competent evidence. It is settled that no undue importance should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex parte, an affidavit is almost always incomplete and inaccurate. Furthermore, it must be noted that when petitioner was terminated in 1992, these alleged infractions were never raised nor communicated to him. In fact, these were only revealed after the complaint was filed by the petitioner in 1993. Why there was a delay was never adequately explained by private respondent. Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to crossexamine him and propound clarificatory questions regarding matters averred in his affidavit. All told, the foregoing lapses and the belated submission of the affidavit, cast doubt as to the credibility of the allegations. In sum, the dismissal of the petitioner had no factual basis whatsoever. The rule is that unsubstantiated accusations without more, are not tantamount to guilt. 4.ID.; ID.; ID.; ID.; ESSENCE OF DUE .PROCESS. The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name and reputation from any taint. It includes the twin requirements of notice and hearing. This concept evolved from the basic tenet that one's employment or profession is a property right protected by the constitutional guaranty of due process of law. Hence, an individual's separation from work must be founded on clearly-established facts, not on mere conjectures and suspicions. 5.ID.; ID.; ID.; DISMISSAL WITHOUT DUE PROCESS, AN INVALID AND OBNOXIOUS EXERCISE OF MANAGEMENT PREROGATIVE. Dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing ground. As such, a decision to terminate an employee without fully apprising

THIRD DIVISION [G.R. No. 121791. December 23, 1998.] ENRIQUE SALAFRANCA, petitioner, vs. PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC), respondents.

SYLLABUS 1.LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYMENT; ELEVEN YEARS OF SERVICE RENDERS EMPLOYEE REGULAR. On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of service with the private respondent. Accordingly, petitioner enjoys the right to security of tenure and his services may be terminated only for causes provided by law. cdasia

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him of the facts, on the pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative. 6.ID.; ID.; ID.; TERMINATION BASED ON AMENDED BY-LAWS CANNOT IMPAIR OBLIGATION OF EXISTING CONTRACTS OR RIGHTS. Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioner's stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular employee guaranteed under the Labor Code. 7.REMEDIAL LAW; ACTIONS; APPEAL; ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL; CASE AT BAR. In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of compulsory retirement, as a cause for terminating petitioner's service. In its appeal before the NLRC, this ground was never discussed. In fact, private respondent, in justifying the termination of the petitioner, still anchored its claim on the applicability of the amended by-laws. This omission is fatal to private respondent's cause, for the rule is well-settled that matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court, as they cannot be raised for the first time on appeal. 8.ID.; SPECIAL CIVIL ACTIONS; PERIOD FOR FILING. Under the 1997 Rules of Civil Procedure, a petition for certiorari must now be instituted within sixty days of receipt of the assailed judgment, order or resolution. However, since this case arose in 1995 and the aforementioned rule only took effect on July 1, 1997 then the old rule is applicable. Since prior to the effectivity of the new rule, a special civil action of certiorari should be instituted within a period of three months, the instant petition which was filed on September 20, 1995 or two months and twenty-two days thereafter, was still within the reglementary period. 9.LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYMENT TERMINATION, EMPLOYEE ILLEGALLY DISMISSED ENTITLED TO BACKWAGES AND REINSTATEMENT. However, since we have already ruled petitioner's dismissal as without just cause and lacking due process, the award of backwages and reinstatement is proper. An illegally dismissed employee is entitled to its full payment as long as the cause of action accrued after March 21, 1989. Considering that petitioner was terminated from the service on December 9, 1992, which is after March 21, 1989, he is entitled to full backwages from the time of the illegal dismissal without any qualification or deduction. TSHEIc

10.ID.; ID.; ID.; ID.; AWARD OF SEPARATION PAY PROPER WHERE REINSTATEMENT IS NO LONGER FEASIBLE. In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was removed from his employment. As a substitute thereof, separation pay is generally awarded, the amount of which must be equivalent to one-month salary for every year of service. 11.ID.; ID.; ID.; RETIREMENT BENEFITS; BASIS OF COMPUTATION. As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half (1/2) month salary for every year of service. This time we agree with private respondent's contention. The pertinent law is Article 287 of the Labor Code, as amended by Republic Act No. 7641, which reads: . . . In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. 12.ID.; ID.; ID.; TERMINATION; MANAGERIAL EMPLOYEE NOT ENTITLED TO 13TH MONTH PAY. With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay, Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, provides: "Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank and file employees a 13th month pay not later than December 24 of every year." Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of course, this does not preclude an employer from granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion. cSEaTH 13.CIVIL LAW; DAMAGES; TERMINATION OF EMPLOYMENT EFFECTED IN OPPRESSIVE MANNER WARRANTS AWARD OF MORAL AND EXEMPLARY DAMAGES. Finally, we cannot simply ignore private respondent's malicious scheme to remove petitioner from his position which is contrary to good customs and effected in an oppressive manner, thus warranting an award of moral and exemplary damages to the petitioner. 14.ID.; ID.; ATTORNEY'S FEES; AWARDED EMPLOYEE WHO WAS FORCED TO LITIGATE TO PROTECT HIS RIGHTS AND INTERESTS. Moreover, since petitioner was forced to litigate and incur expenses to protect his right and interests, he is entitled to attorney's fees. ECcTaH

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DECISION

took place. Moreover, the Amendment should be applied prospectively and not retroactively." On appeal by the private respondent, the NLRC reversed the decision of the Labor Arbiter and rendered a new one 7 reducing petitioner's monetary award to only one-half () month pay for every year of service representing his retirement pay. In other words, the NLRC viewed the dismissal of the petitioner as a valid act by the private respondent. "The fact that he continued to perform the function of the office of administrative officer without extension or re-appointment thereafter, to our mind, did not in any way make his employment permanent as in fact, he was even reminded of the nature of his position by then president of the association Jaime Y. Ladao in a letter of 3 July 1987. His reply to the aforesaid letter, claiming his employment regular, and viz a viz, referring to submit his medical certificate, notwithstanding, to our mind, merely underscored the need to define his position as, in fact, the Association's Rules and Regulations were amended if but to put to rest the tenural (sic) limit of the office of the Administrative Officer in accordance with its earlier intention, that it is co-terminus with that of the members of the Board of Directors. WHEREFORE, the decision appealed from is hereby set aside. Respondents are hereby ordered to pay herein appellee one half () month pay for every year of service representing his retirement pay." In view of the sudden turn of events, petitioner has elevated the case to this Court assigning the following errors: 8 1.The NLRC gravely abused its discretion when it ruled that the employment of the Petitioner is not purely based on considerations of Employer-Employee relationship. 2.Petitioner was illegally dismissed by private respondents. As to the first assigned error by the petitioner, we need not dwell on this at length. We agree with the Solicitor General's observation that an employer-employee relationship exists between the petitioner and the private respondent. 9 "xxx xxx xxx

ROMERO, J p: Petitioner Enrique Salafranca started working with the private respondent Philamlife Village Homeowners Association on May 1, 1981 as administrative officer for a period of six months. From this date until December 31, 1983, petitioner was reappointed to his position three more times. 1 As administrative officer, petitioner was generally responsible for the management of the village's day to day activities. 2 After petitioner's term of employment expired on December 31, 1983, he still continued to work in the same capacity, albeit, without the benefit of a renewed contract. cda

Sometime in 1987, private respondent decided to amend its by-laws. Included therein was a provision regarding officers, specifically, the position of administrative officer under which said officer shall hold office at the pleasure of the Board of Directors. In view of this development, private respondent, on July 3, 1987, informed the petitioner that his term of office shall be coterminus with the Board of Directors which appointed him to his position. Furthermore, until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month basis. 3 Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued working until his termination in December 1992. 4 Claiming that his services had been unlawfully and unceremoniously dispensed with, petitioner filed a complaint for illegal dismissal with money claims and for damages. 5 After the submission by the parties of their respective position papers and other pleadings, the Labor Arbiter rendered a decision 6 ordering private respondent to pay the petitioner the amount of P257,833.33 representing his backwages, separation pay and 13th month pay. In justifying the award, the Labor Arbiter elucidated: "Respondents' contention that complainant's term of employment was co-terminus with the term of Office of the Board of Directors, is wanting in merit. Records show that complainant had been hired in 1981 while the Amendment of the respondents' By-Laws making the position of an Administrative Officer co-terminus with the term of the Board of Directors was made in 1987. Evidently, the said Amendment would not be applicable to the case of complainant who had become a regular employee long time before the Amendment

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The first element is present in this case. Petitioner was hired as Administrative Officer by respondents. In fact, he was extended successive appointments by respondents. The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed salary for his services. As to the third element, it can be seen from the Records that respondents had the power of dismissal over petitioner. In their letter dated December 7, 1992, respondents informed petitioner that they had decided to discontinue his services. In their Position Paper submitted to the Labor Arbiter, respondents stated that petitioner 'was dismissed for cause.' (p. 17, Record). With respect to the fourth and most important element, respondents controlled the work of petitioner not only with respect to the ends to be achieved but also the means used in reaching such ends." Relative to the second assigned error of the petitioner, both the Solicitor General and the private respondent take the stance that petitioner was not illegally dismissed. 10 On this aspect, we disagree with their contentions. On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of service with the private respondent. Accordingly, petitioner enjoys the right to security of tenure 11 and his services may be terminated only for causes provided by law. 12 Viewed in this light, while private respondent has the right to terminate the services of petitioner, this is subject to both substantive and procedural grounds. 13 The substantive causes for dismissal are those provided in Articles 282 and 283 of the Labor Code, 14 while the procedural grounds refer to the observance of the requirement of due process. 15 In all these instances, it is the private respondent being the employer, who must prove the validity of the dismissal. 16 Having reviewed the records of this case carefully, we conclude that private respondent utterly failed to substantiate petitioner's dismissal, rendering the latter's termination illegal. At the risk of being redundant, it must be stressed that these requirements are mandatory and non-compliance therewith renders any judgment reached by the management void and inexistent. 17

While private respondent imputes "gross negligence," and "serious misconduct" as the causes of petitioner's dismissal, 18 not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations. The facts and circumstances regarding such alleged infractions were never explained. While it is true that private respondent, through its president Bonifacio Dazo, executed an affidavit narrating the alleged violations of the petitioner, 19 these were never corroborated by concrete or competent evidence. It is settled that no undue importance should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex-parte, an affidavit is almost always incomplete and inaccurate. 20 Furthermore, it must be noted that when petitioner was terminated in 1992, these alleged infractions were never raised nor communicated to him. In fact, these were only revealed after the complaint was filed by the petitioner in 1993. Why there was a delay was never adequately explained by private respondent. Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to cross-examine him and propound clarificatory questions regarding matters averred in his affidavit. All told, the foregoing lapses and the belated submission of the affidavit, cast doubt as to the credibility of the allegations. In sum, the dismissal of the petitioner had no factual basis whatsoever. The rule is that unsubstantiated accusations without more, are not tantamount to guilt. 21 As regards the issue of procedural due process, private respondent justifies its noncompliance therewith in this wise: LexLib "The Association Officers, being his peers and friends had a problem however in terminating his services. He had been found to have committed infractions as previously enumerated. PVHA could have proceeded with a full-blown investigation to hear these charges, but the ordeal might break the old man's heart as this will surely affect his standing in the community. So they decided to make their move as discreetly (but legally) as possible to save the petitioner's reputation. Terminating him in accordance with the provision of the by-laws of the Association without pointing out his numerous faults and malfeasance in office and with one-half month pay for every year of service in accordance with the Retirement Law was the best and only alternative." We are not impressed. The reasoning advanced by the private respondent is as puerile as it is preposterous. The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name and reputation from any taint. It includes the twin

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requirements of notice and hearing. 22 This concept evolved from the basic tenet that one's employment or profession is a property right protected by the constitutional guaranty of due process of law. 23 Hence, an individual's separation from work must be founded on clearly-established facts, not on mere conjectures and suspicions. 24 In light of the foregoing, private respondent's arguments are clearly baseless and without merit. In truth, instead of protecting petitioner's reputation, private respondent succeeded in doing exactly the opposite it condemned the petitioner without even hearing his side. It is stating the obvious that dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing ground. 25 As such, a decision to terminate an employee without fully apprising him of the facts, on the pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative.

Interestingly, the Solicitor General is of the view that what actually transpired was that petitioner was retired from his employment, considering the fact that in 1992 he was already 70 years old and not terminated. 29 While there seems to be a semblance of plausibility in this contention for the matter of extension of service of such employee or official is addressed to the sound discretion of the employer, still we have no doubt that this was just a mere after-thought a dismissal disguised as retirement. In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of compulsory retirement, 30 as a cause for terminating petitioner's service. In its appeal before the NLRC, this ground was never discussed. In fact, private respondent, in justifying the termination of the petitioner, still anchored its claim on the applicability of the amended by-laws. This omission is fatal to private respondent's cause, for the rule is well-settled that matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court, as they cannot be raised for the first time on appeal. 31 Undaunted, private respondent now asserts that the instant petition was filed out of time, 32 considering that the assailed NLRC decision was received on June 28, 1995 while this petition was filed on September 20, 1995. At this juncture, we take this opportunity to state that under the 1997 Rules of Civil Procedure, a petition for certiorari must now be instituted within sixty days of receipt of the assailed judgment, order or resolution. 33 However, since this case arose in 1995 and the aforementioned rule only took effect on July 1, 1997 then the old rule is applicable. Since prior to the effectivity of the new rule, a special civil action of certiorari should be instituted within a period of three months, 34 the instant petition which was filed on September 20, 1995 or two months and twenty-two days thereafter, was still within the reglementary period. With respect to the issue of the monetary award to be given to the petitioner, private respondent argues that he deserves only retirement pay and nothing more. This position would have been tenable had petitioner not been illegally dismissed. However, since we have already ruled petitioner's dismissal as without just cause and lacking due process, the award of backwages and reinstatement is proper. 35 In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was removed from his employment. As a substitute thereof, separation pay is generally awarded, 36 the amount of which must be equivalent to onemonth salary for every year of service. 37

Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the latter's position is coterminus with that of the Village's Board of Directors, as provided for in its amended by-laws. 26 Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. Prescinding from these premises, private respondent's insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure; hence, his services may only be terminated for causes provided by law. 27 A contrary interpretation would not find justification in the laws or the Constitution. If we were to rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event. If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioner's stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular employee guaranteed under the Labor Code. 28

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With respect to the amount of backwages which, incidentally is different from separation pay, 38 it is now settled that an illegally dismissed employee is entitled to its full payment as long as the cause of action accrued after March 21, 1989. 39 Considering that petitioner was terminated from the service on December 9, 1992, which is after March 21, 1989, he is entitled to full backwages from the time of the illegal dismissal without any qualification or deduction. 40 As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half () month salary for every year of service. This time we agree with private respondent's contention. The pertinent law is Article 287 of the Labor Code, as amended by Republic Act No. 7641, which reads: "Art. 287.Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, That an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein. In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half () month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. xxx xxx xxx." With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay, Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, provides:

"Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank and file employees a 13th month pay not later than December 24 of every year." Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of course, this does not preclude an employer from granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion. Finally, we cannot simply ignore private respondent's malicious scheme to remove petitioner from his position which is contrary to good customs and effected in an oppressive manner, thus warranting an award of moral and exemplary damages to the petitioner. 41 Moreover, since petitioner was forced to litigate and incur expenses to protect his right and interests, he is entitled to attorney's fees. 42 WHEREFORE, in view of the foregoing, the instant petition is GRANTED The NLRC decision dated June 15, 1995 is hereby REVERSED and SET ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED: (1) to pay petitioner Enrique Salafranca separation pay equivalent to one month salary for every year of service; (2) to pay his full backwages in accordance with our ruling in Bustamante v. NLRC ; 43 (3) to pay his retirement pay in accordance with Article 287 of the Labor Code, as amended by Republic Act No. 7641, (4) to pay moral and exemplary damages in the amount of twenty thousand (P20,000.00) pesos and ten thousand (P10,000.00) pesos, respectively; 44 and (5) to pay ten (10%) percent of the total amount due to petitioner, as attorney's fees. Consequently, the respondent NLRC is ORDERED to COMPUTE the total monetary benefits awarded in accordance with this decision and to submit its compliance thereon within thirty (30) days from notice of this decision. SO ORDERED. cda Kapunan, Purisima and Pardo, JJ ., concur.

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