FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C.

HART, in their own behalf and in that all other stockholders of the Balatoc Mining
Company, etc., plaintiffs-appellants,
vs.
BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and A. W.
BEAM, defendants-appellees.

STREET, J.:
This action was originally instituted in the Court of First Instance of the City of Manila by F. M. Harden, acting in his own behalf and that of all other
stockholders of the Balatoc Mining Co. who might join in the action and contribute to the expense of the suit. With the plaintiff Harden two others, J. D.
Highsmith and John C. Hart, subsequently associated themselves. The defendants are the Benguet Consolidated Mining Co., the Balatoc Mining Co., H.
E. Renz, John W. Haussermann, and A. W. Beam. The principal purpose of the original action was to annul a certificate covering 600,000 shares of the
stock of the Balatoc Mining Co., which have been issued to the Benguet Consolidated Mining Co., and to secure to the Balatoc Mining Co., the
restoration of a large sum of money alleged to have been unlawfully collected by the Benguet Consolidated Mining Co., with legal interest, after
deduction therefrom of the amount expended by the latter company under a contract between the two companies, bearing date of March 9, 1927. The
complaint was afterwards amended so as to include a prayer for the annulment of this contract. Shortly prior to the institution of this lawsuit, the Benguet
Consolidated Mining Co., transferred to H. E. Renz, as trustee, the certificate for 600,000 shares of the Balatoc Mining Co. which constitute the principal
subject matter of the action. This was done apparently to facilitate the splitting up to the shares in the course of the sale or distribution. To prevent this
the plaintiffs, upon filing their original complaint, procured a preliminary injunction restraining the defendants, their agents and servants, from selling,
assigning or transferring the 600,000 shares of the Balatoc Mining Co., or any part thereof, and from removing said shares from the Philippine Islands.
This explains the connection of Renz with the case. The other individual defendants are made merely as officials of the Benguet Consolidated Mining
Co. Upon hearing the cause the trial court dismissed the complaint and dissolved the preliminary injunction, with costs against the plaintiffs. From this
judgment the plaintiffs appealed.
The facts which have given rise this lawsuit are simple, as the financial interests involve are immense. Briefly told these facts are as follows: The
Benguet Consolidated Mining Co. was organized in June, 1903, as a sociedad anonima in conformity with the provisions of Spanish law; while the
Balatoc Mining Co. was organized in December 1925, as a corporation, in conformity with the provisions of the Corporation Law (Act No. 1459). Both
entities were organized for the purpose of engaging in the mining of gold in the Philippine Islands, and their respective properties are located only a few
miles apart in the subprovince of Benguet. The capital stock of the Balatoc Mining Co. consists of one million shares of the par value of one peso (P1)
each.
When the Balatoc Mining Co. was first organized the properties acquired by it were largely undeveloped; and the original stockholders were unable to
supply the means needed for profitable operation. For this reason, the board of directors of the corporation ordered a suspension of all work, effective
July 31, 1926. In November of the same year a general meeting of the company's stockholders appointed a committee for the purpose of interesting
outside capital in the mine. Under the authority of this resolution the committee approached A. W. Beam, then president and general manager of the
Benguet Company, to secure the capital necessary to the development of the Balatoc property. As a result of the negotiations thus begun, a contract,
formally authorized by the management of both companies, was executed on March 9, 1927, the principal features of which were that the Benguet
Company was to proceed with the development and construct a milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day, and with an
extraction of at least 85 per cent of the gold content. The Benguet Company also agreed to erect an appropriate power plant, with the aerial tramlines and
such other surface buildings as might be needed to operate the mine. In return for this it was agreed that the Benguet Company should receive from the
treasurer of the Balatoc Company shares of a par value of P600,000, in payment for the first P600,000 be thus advanced to it by the Benguet Company.
The performance of this contract was speedily begun, and by May 31, 1929, the Benguet Company had spent upon the development the sum of
P1,417,952.15. In compensation for this work a certificate for six hundred thousand shares of the stock of the Balatoc Company has been delivered to
the Benguet Company, and the excess value of the work in the amount of P817,952.15 has been returned to the Benguet Company in cash. Meanwhile
dividends of the Balatoc Company have been enriching its stockholders, and at the time of the filing of the complaint the value of its shares had
increased in the market from a nominal valuation to more than eleven pesos per share. While the Benguet Company was pouring its million and a half
into the Balatoc property, the arrangements made between the two companies appear to have been viewed by the plaintiff Harden with complacency, he
being the owner of many thousands of the shares of the Balatoc Company. But as soon as the success of the development had become apparent, he began
this litigation in which he has been joined by two others of the eighty shareholders of the Balatoc Company.
Briefly, the legal point upon which the action is planted is that it is unlawful for the Benguet Company to hold any interest in a mining corporation and
that the contract by which the interest here in question was acquired must be annulled, with the consequent obliteration of the certificate issued to the
Benguet Company and the corresponding enrichment of the shareholders of the Balatoc Company.
When the Philippine Islands passed to the sovereignty of the United States, in the attention of the Philippine Commission was early drawn to the fact that
there is no entity in Spanish law exactly corresponding to the notion of the corporation in English and American law; and in the Philippine Bill, approved
July 1, 1902, the Congress of the United States inserted certain provisions, under the head of Franchises, which were intended to control the lawmaking
power in the Philippine Islands in the matter of granting of franchises, privileges and concessions. These provisions are found in section 74 and 75 of the
Act. The provisions of section 74 have been superseded by section 28 of the Act of Congress of August 29, 1916, but in section 75 there is a provision
referring to mining corporations, which still remains the law, as amended. This provisions, in its original form, reads as follows: "... it shall be unlawful
for any member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise
interested in any other corporation engaged in agriculture or in mining."
Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine Commission entered upon the enactment of a general
law authorizing the creation of corporations in the Philippine Islands. This rather elaborate piece of legislation is embodied in what is called our
Corporation Law (Act No. 1459 of the Philippine Commission). The evident purpose of the commission was to introduce the American corporation into
the Philippine Islands as the standard commercial entity and to hasten the day when the sociedad anonima of the Spanish law would be obsolete. That
statute is a sort of codification of American corporate law.
For the purposes general description only, it may be stated that the sociedad anonima is something very much like the English joint stock company, with
features resembling those of both the partnership is shown in the fact that sociedad, the generic component of its name in Spanish, is the same word that
is used in that language to designate other forms of partnership, and in its organization it is constructed along the same general lines as the ordinary
partnership. It is therefore not surprising that for purposes of loose translation the expression sociedad anonima has not infrequently the other hand, the
affinity of this entity to the American corporation has not escaped notice, and the expression sociedad anonima is now generally translated by the word
corporation. But when the word corporation is used in the sense of sociedad anonima and close discrimination is necessary, it should be associated with
the Spanish expression sociedad anonima either in a parenthesis or connected by the word "or". This latter device was adopted in sections 75 and 191 of
the Corporation Law.
In drafting the Corporation Law the Philippine Commission inserted bodily, in subsection (5) of section 13 of that Act (No. 1459) the words which we
have already quoted from section 75 of the Act of Congress of July 1, 1902 (Philippine Bill); and it is of course obvious that whatever meaning
originally attached to this provision in the Act of Congress, the same significance should be attached to it in section 13 of our Corporation Law.
As it was the intention of our lawmakers to stimulate the introduction of the American Corporation into Philippine law in the place of the sociedad
anonima, it was necessary to make certain adjustments resulting from the continued co-existence, for a time, of the two forms of commercial entities.
Accordingly, in section 75 of the Corporation Law, a provision is found making the sociedad anonima subject to the provisions of the Corporation Law
"so far as such provisions may be applicable", and giving to the sociedades anonimas previously created in the Islands the option to continue business as
such or to reform and organize under the provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is
repealed in so far as it relates to sociedades anonimas. The purpose of the commission in repealing this part of the Code of Commerce was to compel
commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt some form or other of the
partnership. To this provision was added another to the effect that existing sociedades anonimas, which elected to continue their business as such, instead
of reforming and reorganizing under the Corporation Law, should continue to be governed by the laws that were in force prior to the passage of this Act
"in relation to their organization and method of transacting business and to the rights of members thereof as between themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act."
As already observed, the provision above quoted from section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting
corporations engaged in mining and members of such from being interested in any other corporation engaged in mining, was amended by section 7 of
Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929. The change in the law effected by this amendment was in the direction
of liberalization. Thus, the inhibition contained in the original provision against members of a corporation engaged in agriculture or mining from being
interested in other corporations engaged in agriculture or in mining was so modified as merely to prohibit any such member from holding more than
fifteen per centum of the outstanding capital stock of another such corporation. Moreover, the explicit prohibition against the holding by any corporation
(except for irrigation) of an interest in any other corporation engaged in agriculture or in mining was so modified as to limit the restriction to
corporations organized for the purpose of engaging in agriculture or in mining.
As originally drawn, our Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a corporation, a member
of a corporation , in acquiring an interest contrary to paragraph (5) of section 13 of the Act. The Philippine Legislature undertook to remedy this situation
in section 3 of Act No. 2792 of the Philippine Legislature, approved on February 18, 1919, but this provision was declared invalid by this court
inGovernment of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for lack of an adequate title to the Act. Subsequently the Legislature
reenacted substantially the same penal provision in section 21 of Act No. 3518, under a title sufficiently broad to comprehend the subject matter. This
part of Act No. 3518 became effective upon approval by the Governor-General, on December 3, 1928, and it was therefore in full force when the
contract now in question was made.
This provision was inserted as a new section in the Corporation Law, forming section 1990 (A) of said Act as it now stands. Omitting the proviso, which
seems not to be pertinent to the present controversy, said provision reads as follows:
SEC. 190 (A). Penalties. The violation of any of the provisions of this Act and its amendments not otherwise penalized therein, shall be
punished by a fine of not more than five thousand pesos and by imprisonment for not more than five years, in the discretion of the court. If the
violation is committed by a corporation, the same shall, upon such violation being proved, be dissolved by quo warranto proceedings instituted
by the Attorney-General or by any provincial fiscal by order of said Attorney-General: . . . .
Upon a survey of the facts sketched above it is obvious that there are two fundamental questions involved in this controversy. The first is whether the
plaintiffs can maintain an action based upon the violation of law supposedly committed by the Benguet Company in this case. The second is whether,
assuming the first question to be answered in the affirmative, the Benguet Company, which was organized as a sociedad anonima, is a corporation within
the meaning of the language used by the Congress of the United States, and later by the Philippine Legislature, prohibiting a mining corporation from
becoming interested in another mining corporation. It is obvious that, if the first question be answered in the negative, it will be unnecessary to consider
the second question in this lawsuit.
Upon the first point it is at once obvious that the provision referred to was adopted by the lawmakers with a sole view to the public policy that should
control in the granting of mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of the Corporation Law for the violation of
the prohibition in question are of such nature that they can be enforced only by a criminal prosecution or by an action of quo warranto. But these
proceedings can be maintained only by the Attorney-General in representation of the Government.
What room then is left for the private action which the plaintiffs seek to assert in this case? The defendant Benguet Company has committed no civil
wrong against the plaintiffs, and if a public wrong has been committed, the directors of the Balatoc Company, and the plaintiff Harden himself, were the
active inducers of the commission of that wrong. The contract, supposing it to have been unlawful in fact, has been performed on both sides, by the
building of the Balatoc plant by the Benguet Company and the delivery to the latter of the certificate of 600,000 shares of the Balatoc Company. There is
no possibility of really undoing what has been done. Nobody would suggest the demolition of the mill. The Balatoc Company is secure in the possession
of that improvement, and talk about putting the parties in status quo ante by restoring the consideration with interest, while the Balatoc Company
remains in possession of what it obtained by the use of that money, does not quite meet the case. Also, to mulct the Benguet Company in many millions
of dollars in favor of individuals who have not the slightest equitable right to that money in a proposition to which no court can give a ready assent.
The most plausible presentation of the case of the plaintiffs proceeds on the assumption that only one of the contracting parties has been guilty of a
misdemeanor, namely, the Benguet Company, and that the other party, the Balatoc Company, is wholly innocent to participation in that wrong. The
plaintiffs would then have us apply the second paragraph of article 1305 of the Civil Code which declares that an innocent party to an illegal contract
may recover anything he may have given, while he is not bound to fulfill any promise he may have made. But, supposing that the first hurdle can be
safely vaulted, the general remedy supplied in article 1305 of the Civil Code cannot be invoked where an adequate special remedy is supplied in a
special law. It has been so held by this court in Go Chioco vs. Martinez (45 Phil., 256, 280), where we refused to apply that article to a case of nullity
arising upon a usurious loan. The reason given for the decision on this point was that the Usury Act, as amended, contains all the provisions necessary
for the effectuation of its purposes, with the result that the remedy given in article 1305 of the Civil Code is unnecessary. Much more is that idea
applicable to the situation now before us, where the special provisions give ample remedies for the enforcement of the law by action in the name of the
Government, and where no civil wrong has been done to the party here seeking redress.
The view of the case presented above rest upon considerations arising upon our own statutes; and it would seem to be unnecessary to ransack the
American decisions for analogies pertinent to the case. We may observe, however, that the situation involved is not unlike that which has frequently
arisen in the United States under provisions of the National Bank Act prohibiting banks organized under that law from holding real property. It has been
uniformly held that a trust deed or mortgaged conveying property of this kind to a bank, by way of security, is valid until the transaction is assailed in a
direct proceeding instituted by the Government against the bank, and the illegality of such tenure supplies no basis for an action by the former private
owner, or his creditor, to annul the conveyance. (National Bank vs. Matthews, 98 U. S., 621; Kerfoot vs. Farmers & M. Bank, 218 U. S., 281.) Other
analogies point in the same direction. (South & Ala. R. Ginniss vs. B. & M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs.
Holmes & Wessell Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R. Co., 77 Hun., 332.)
Most suggestive perhaps of all the cases in Compaia Azucarera de Carolina vs. Registrar (19 Porto Rico, 143), for the reason that this case arose under a
provision of the Foraker Act, a law analogous to our Philippine Bill. It appears that the registrar had refused to register two deeds in favor of the
Compaia Azucarera on the ground that the land thereby conveyed was in excess of the area permitted by law to the company. The Porto Rican court
reversed the ruling of the registrar and ordered the registration of the deeds, saying:
Thus it may be seen that a corporation limited by the law or by its charter has until the State acts every power and capacity that any other
individual capable of acquiring lands, possesses. The corporation may exercise every act of ownership over such lands; it may sue in ejectment
or unlawful detainer and it may demand specific performance. It has an absolute title against all the world except the State after a proper
proceeding is begun in a court of law. ... The Attorney General is the exclusive officer in whom is confided the right to initiate proceedings for
escheat or attack the right of a corporation to hold land.
Having shown that the plaintiffs in this case have no right of action against the Benguet Company for the infraction of law supposed to have been
committed, we forego cny discussion of the further question whether a sociedad anonima created under Spanish law, such as the Benguet Company, is a
corporation within the meaning of the prohibitory provision already so many times mentioned. That important question should, in our opinion, be left
until it is raised in an action brought by the Government.
The judgment which is the subject of his appeal will therefore be affirmed, and it is so ordered, with costs against the appellants.

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and PUERTO AZUL LAND, INC., respondents.

The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the
President,[1] with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its
inumerable functions, and one of the most important, is the supervision of all corporations, partnerships or associations, who are grantees
or primary franchise and/or a license or permit issued by the government to operate in the Philippines. [2] Just how far this regulatory
authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.

In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996,
which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow
the private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of PALIs shares.

The facts of the case are undisputed, and are hereby restated in sum.

The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise
funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to
Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said
stock exchange an application to list its shares, with supporting documents attached.

On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs Board of
Governors the approval of PALIs listing application.
 On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter from the heirs of
Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation,
which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for
then President Marcos and now, effectively for his estate, and requested PALIs application to be deferred. PALI was requested to comment
upon the said letter.

PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its
assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and
beneficial ownership of other properties titled under the name of PALI.

On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government
(PCGG) requesting for comments on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses
received a Temporary Restraining Order on the same date, enjoining the Marcoses from, among others, further impeding, obstructing,
delaying or interfering in any manner by or any means with the consideration, processing and approval by the PSE of the initial public
offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561,
pending in Branch 69 thereof.

In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs application,
citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the
suitability of listing PALIs shares in the stock exchange.

On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs
attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in
the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action
on PALIs listing application and institute such measures as are just and proper and under the circumstances.

On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the matter. On April 22,
1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.

On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities
Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of Governors of the
Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to
immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to disclose such other
material information it deems necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.

PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May
9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24, 1996, and in the
light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of
material facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its registration statements
filed with the Commission to incorporate the full disclosure of these material facts and information.

Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with application for Writ of
Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of the SEC, submitting the following as
errors of the SEC:

I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS
WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF
SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE
ON LISTING APPLICATIONS;

II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN
ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION;
 III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF
PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND

IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND
APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION.

On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June
10, 1996, PSE filed its Reply to Comment and Opposition to Motion to Dismiss.

On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence, this Petition by
the PSE.

The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant
to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised
Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the
petitioner is subject to public respondents jurisdiction, regulation and control. Accepting the argument that the public respondent has the
authority merely to supervise or regulate, would amount to serious consequences, considering that the petitioner is a stock exchange
whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If the
securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment of
stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the exchange in the listing
or delisting of securities, then the law certainly granted to the public respondent the plenary authority over the petitioner; and the power of
review necessarily comes within its authority.

All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its
shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted differently on
the application of PALI, as compared to the IPOs of other companies similarly that were allowed listing in the Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of the
other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to
overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties, neither
has the government instituted recovery proceedings against these properties. Yet the import of PSEs decision in denying PALIs application
is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these properties before its shares
can be listed.

In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The point is, the
PALI properties are now titled. A property losses its public character the moment it is covered by a title. As a matter of fact, the titles have
long been settled by a final judgment; and the final decree having been registered, they can no longer be re-opened considering that the
one year period has already passed. Lastly, the determination of what standard to apply in allowing PALIs application for listing, whether
the discretion method or the system of public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it
being the government agency that exercises both supervisory and regulatory authority over all corporations.

On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari, taking exception to
the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17, 1996. On the same
date, the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGGs Petition for Intervention on
October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the
SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGGs motion for leave to file petition
for intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.

On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the Solicitor
General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.

PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the
stock exchange.Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as compared to its
authority over ordinary corporations. In connection with this, the powers of the SEC over stock exchanges under the Revised Securities
Act are specifically enumerated, and these do not include the power to reverse the decisions of the stock exchange. Authorities are in
abundance even in the United States, from which the countrys security policies are patterned, to the effect of giving the Securities
Commission less control over stock exchanges, which in turn are given more lee-way in making the decision whether or not to allow
corporations to offer their stock to the public through the stock exchange. This is in accord with the business judgment rule whereby the
SEC and the courts are barred from intruding into business judgments of corporations, when the same are made in good faith.The said
rule precludes the reversal of the decision of the PSE to deny PALIs listing application, absent a showing a bad faith on the part of the
PSE. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept or reject
applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to
accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public.

Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are
under sequestration.A reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the
properties of PALI, which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation
(MSDC), are under sequestration by the PCGG, and the subject of forfeiture proceedings in the Sandiganbayan. This ruling of the Court is
the law of the case between the Republic and the TDC and MSDC. It categorically declares that the assets of these corporations were
sequestered by the PCGG on March 10, 1986 and April 4, 1988.

It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned,
since certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous and ignores well settled
jurisprudence on land titles. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an
absolute rule and admits certain exceptions. It is fundamental that forest lands or military reservations are non-alienable. Thus, when a title
covers a forest reserve or a government reservation, such title is void.

PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the
PALIs shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the case records reveal the truth
that PALI did not comply with the listing rules and disclosure requirements. In fact, PALIs documents supporting its application contained
misrepresentations and misleading statements, and concealed material information. The matter of sequestration of PALIs properties and
the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a corporate
entity, its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance to the continued operation
and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its
affairs becomes justified, if not necessary. Indeed, as the only operational stock exchange in the country today, the PSE enjoys a
monopoly of securities transactions, and as such, it yields an immense influence upon the countrys economy.

Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges.[6]

These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all corporations under
Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the
interests of the investing public may be fully safeguarded.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority over the
petitioner PSE even as it provides that 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 The SECs regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a
corporations concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate
franchise from the state.

The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or
incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the
fair administration of such exchange.[7] It is, likewise, observed that the principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and
their activities pursued for the promotion of economic development.[8]

Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing
in the stock exchange of the private respondent PALI. The SECs action was affirmed by the Court of Appeals.

We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation,
may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws, such as the
Revised Securities Act and to regulate the sale and disposition of securities in the country.[9] As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a stock exchange,
the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it
has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner
certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret
its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly,
unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to government
regulation.

The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential
Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and
other forms of associations not otherwise vested in some other government office.[10]

This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all,
a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main
concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations,
including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to
perform all other legal acts within its allocated express or implied powers.

A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body.[11] As
to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute
their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in
good faith, its orders are not reviewable by the courts.[12]

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in
matters of application for listing in the market, the SEC may exercise such power only if the PSEs judgment is attended by bad faith. In
board of Liquidators vs. Kalaw,[13] it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill
will, partaking of the nature of fraud.

In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which in the general scheme,
brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of the late President Ferdinand E. Marcos and his family who claim
the properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan
Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and
to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give
rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a
contrary ruling was not to the best interest of the general public. The purpose of the Revised Securities Act, after all, is to give adequate
and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.[14]

It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors with adequate information
upon which to base their decisions to buy and sell securities, but also to protect legitimate business seeking to obtain capital through
honest presentation against competition form crooked promoters and to prevent fraud in the sale of securities. (Tenth Annual Report, U.S.
Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions, merely by
requirement of that details be revealed; (2) placing the market during the early stages of the offering of a security a body of information,
which operating indirectly through investment services and expert investors, will tend to produce a more accurate appraisal of a security. x
x x. Thus, the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete or
inaccurate in any material respect, and empower the Commission to issue a stop order suspending the effectiveness of any registration
statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. (Idem).

Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect such
goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. It was reasonable for
PSE, therefore, to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled
upon, and public welfare is safeguarded.

In this connection, it is proper to observe that the concept of government absolutism in a thing of the past, and should remain so.

The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. At this juncture,
there is the claim that the properties were owned by the TDC and MSDC and were transferred in violation of sequestration orders, to
Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that such properties belong to Marcos estate, and were held only
in trust by Rebecco Panlilio. It is also alleged by the petitioner that these properties belong to naval and forest reserves, and therefore
beyond private dominion. If any of these claims is established to be true, the certificates of title over the subject properties now held by
PALI may be disregarded, as it is an established rule that a registration of a certificate of title does not confer ownership over the
properties described therein to the person named as owner. The inscription in the registry, to be effective, must be made in good faith. The
defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw.

In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the
properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the properties ownership and
alienability exists, and this puts to question the qualification of PALIs public offering. In sum, the Court finds that the SEC had acted
arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI, since this
is a matter addressed to the sound discretion of the PSE, a corporate entity, whose business judgments are respected in the absence of
bad faith.

The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the SEC is not for the
Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In mandating the SEC to administer the
Revised Securities Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under Section 3 thereof,
gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement
of the said laws. The second paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt by law,
shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance with the rules
and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. Presidential Decree
No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and control over all corporations and over the
securities market as a whole, and as such, is given ample authority in determining appropriate policies. Pursuant to this regulatory
authority, the SEC has manifested that it has adopted the policy of full material disclosure where all companies, listed or applying for
listing, are required to divulge truthfully and accurately, all material information about themselves and the securities they sell, for the
protection of the investing public, and under pain of administrative, criminal and civil sanctions. In connection with this, a fact is deemed
material if it tends to induce or otherwise effect the sale or purchase of its securities.[15] While the employment of this policy is recognized
and sanctioned by laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of
securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the
registration of a security:
- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration
statement if it finds that - -
(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material
fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not misleading; or
(2) The issuer or registrant - -
(i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of the
Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest and for the
protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and
regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director or principal
stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice
to the public interest or as a fraud upon the purchaser or investors. (Emphasis Ours)

A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities
dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the Securities and
Exchange Commission. This measure was meant to protect the interest of the investing public against fraudulent and worthless securities,
and the SEC is mandated by law to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on
the full disclosure method in the registration of securities is, therefore, untenable. At it is, the Court finds that the private respondent PALI,
on at least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the
effectivity of whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so. However, the SEC must recognize and implement the mandate of the law, particularly the Revised
Securities Act, the provisions of which cannot be amended or supplanted my mere administrative issuance.
 In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of arbitrariness
and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.

ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review on Certiorari. The
decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27, 1996 and April 24, 1996, respectively, are
hereby REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange
to deny the application for listing of the private respondent Puerto Azul Land, Inc.

SO ORDERED.

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which reversed the
separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases between petitioner
Reynoso and respondent General Credit Corporation (GCC).

Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and investment firm, decided to
organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC
were designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident
manager of the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (hereinafter, CCC-QC).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full control
of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called DOSRI Rule, prohibiting the
lending of funds by corporations to its directors, officers, stockholders and other persons with related interests therein.

On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form CCC
Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-
QC, together with two seats in the latters Board of Directors.

Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of CCC-
Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-
Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified members of
the Commercial Credit Corporation Employees Pension Plan.

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The business
activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing promissory notes. The amounts
deposited are then loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his personal
funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.

On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed as Civil Case No. Q-30583, was
instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from his
employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioners wife, as a party
defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at
least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property
was mortgaged to CCC, and was later foreclosed.

In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11
represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said company.[3]

The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary
Reorganization Act of 1980.

On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of filing of Amended
Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under the promissory note of October 24,
1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.
SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City was
dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.

Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989.[4] However, the judgment
remained unsatisfied,[5]prompting petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and to Bring
Financial Records for Examination to Court.CCC-QC filed an Opposition to petitioners motion,[6] alleging that the possession of its
premises and records had been taken over by CCC.

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation to file its
comment on petitioners motion for alias writ of execution.[7] General Credit Corporation filed a Special Appearance and Opposition on
December 2, 1991,[8] alleging that it was not a party to the case, and therefore petitioner should direct his claim against CCC-QC and not
General Credit Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct instrumentality, conduit and agency of
CCC. Furthermore, petitioner invoked the decision of the Securities and Exchange Commission in SEC Case No. 2581, entitled, Avelina
G. Ramoso, et al., Petitioner versus General Credit Corp., et al., Respondents, where it was declared that General Credit Corporation,
CCC-Equity and other franchised companies including CCC-QC were declared as one corporation.

On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution. [10] On December
20, 1991, General Credit Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still pending appeal, and
maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of the court was erroneous.

In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of Commercial
Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated as one and the same entity.

On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion.[12] On March 5, 1992, it issued an Order
directing the issuance of an alias writ of execution.[13]

Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig against
Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City,[14] docketed as Civil Case No. 61777,
praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title No. 29940 be declared
null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and from further levying on other
properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q-30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation
instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No.
27683. These cases were later consolidated.

On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having been
rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the respondents and their representatives
are hereby enjoined from conducting an auction sale (on execution) of petitioner's properties as well as initiating similar acts of levying
(upon) and selling on execution other properties of said petitioner". The injunction thus granted, as modified by the words in parenthesis,
shall remain in force until Civil Case No. 61777 shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in excess of
jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process through which the petitioner is
made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.[16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON
CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN
CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF LEVYING
UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A STRANGER TO
CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE
ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR
GENERAL CREDIT CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his former employer, CCC-
QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become final and
executory. The only issue, therefore, to be resolved in the instant petition is whether or not the judgment in favor of petitioner may be
executed against respondent General Credit Corporation. The latter contends that it is a corporation separate and distinct from CCC-QC
and, therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent raises
corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order
to determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence.[17] It is an artificial being invested by law with a personality separate
and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. [18] It was
evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the
advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural
persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to look
carefully into the exercise of powers by these artificial persons it has created.

Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and
adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded when necessary in
the interest of justice.

In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was used,
among others, to avoid a judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a decedent;[21] to avoid liability
arising from debt;[22] when made use of as a shield to perpetrate fraud and/or confuse legitimate issues;[23] or to promote unfair
objectives or otherwise to shield them.[24]

In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its character as a different
corporation which is a non-party or stranger to this case.

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the
mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of
the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.[25]

We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the legal fiction of a corporation being a
judicial entity with a distinct and separate personality was envisaged for convenience and to serve justice. Therefore, it should not be used
as a subterfuge to commit injustice and circumvent the law.

Precisely for the above reasons, we grant the instant petition.

 It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a
component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from CCC-
Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The organization of
subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital, the ability to cover more territory and
population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the mother
corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice,
the law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive management contract
insured that CCC-QC would be managed and controlled by CCC and would not deviate from the commands of the mother corporation. In
addition to the exclusive management contract, CCC appointed its own employee, petitioner, as the resident manager of CCC-QC.

Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In fact, even after his
assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC, which later
became respondent General Credit Corporation. Not only that. Petitioner and the other permanent employees of CCC-QC were qualified
members and participants of the Employees Pension Plan of CCC.

There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of interests,
management, and control; the transfer of funds to suit their individual corporate conveniences; and the dominance of policy and practice
by the mother corporation insure that CCC-QC was an instrumentality or agency of CCC.

As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a single transaction
process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its
accounts receivables to CCC.

The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive auditing
function of CCC over CCC-QC.[27] The two corporations also shared the same office space. CCC-QC had no office of its own.

The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of CCC. The
lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.

The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal party in the
case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The
judgment award in this case arose from the counterclaim which petitioner set up against CCC-QC.

The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the discounting
agreements through which CCC controlled the finances of its subordinates became unlawful when Central Bank adopted the DOSRI
prohibitions. Under this rule the directors, officers, and stockholders are prohibited from borrowing from their company. Instead of adhering
to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the corporate device to continue the prohibited
practice. CCC organized still another corporation, the CCC-Equity Corporation.However, as a wholly owned subsidiary, CCC-Equity was in
fact only another name for CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were appointed to
positions in CCC-Equity.

In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and its directive to
follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo-compliance with the phasing out
orders. For his unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal practices, petitioner earned
the ire of his employers. Eventually, his services were terminated, and criminal and civil cases were filed against him.

Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in implementing
the required phase-out program. Funds from his current account in the Far East Bank and Trust Company were transferred to CCC-
QC. These monies were alleged in the criminal complaints against him as having been stolen. Complaints for qualified theft and estafa
were brought by CCC-QC against petitioner. These criminal cases were later dismissed. Similarly, the civil complaint which was filed with
the Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was dismissed, but his counterclaims
were granted.

Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud of its
creditors. CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to the
motion for alias writ of execution that all its properties and assets had been transferred and taken over by CCC.

Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC, that the
corporate fiction should be appreciated in its favor is without merit.
 Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v. National Labor
Relations,[29] it is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the present case could, and
should, be pierced as it was deliberately and maliciously designed to evade its financial obligation of its employees.

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The decision
raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals,[30] the ends of
justice are not served if further litigation is encouraged when the issue is determinable based on the records.

A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the
legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive relief. Courts have been organized
to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate veil.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the holding of an
auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the levying upon
and selling on execution of other properties of General Credit Corporation, is LIFTED.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP.,respondents.

DECISION
PANGANIBAN, J.

May a corporate treasurer, by herself and without any authorization from the board of directors, validly sell a
parcel of land owned by the corporation? May the veil of corporate fiction be pierced on the mere ground that
almost all of the shares of stock of the corporation are owned by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari
before us, assailing the March 18, 1997 Decision[1] of the Court of Appeals[2] in CA GR CV No. 46801 which, in
turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro Manila, Branch 63 [3] in
Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On the
other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to
plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-
appellant. There is no pronouncement as to costs.[4]
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.[5]
 The Facts

The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.s amended complaint alleged that
on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1
of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City, Metro
Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No.
(362909) 2876; that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid
the down payment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be
paid on or before March 2, 1989; that on March 1, 1989, Mr. Andres T. Co, president of plaintiff-
appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting
for a computation of the balance to be paid; that said letter was coursed through defendant-
appellees broker, Linda Aduca, who wrote the computation of the balance; that on March 2, 1989,
plaintiff-appellant was ready with the amount corresponding to the balance, covered by
Metrobank Cashiers Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were
supposed to meet in the office of plaintiff-appellant but defendant-appellees treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated
demands and in utter disregard of its commitments had refused to execute the Transfer of
Rights/Deed of Assignment which is necessary to transfer the certificate of title; that defendant
ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development
Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right
in favor of defendant-appellee Motorich Sales Corporation; that on April 6, 1989, defendant ACL
Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale
whereby the former transferred to the latter the subject property; that by reason of said transfer,
the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales
Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing to execute a formal
Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages
which may be assessed against defendants-appellees in the sum of Five Hundred Thousand
(500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporations unjustified and unwarranted failure to execute the required Transfer of
Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-
appellees should be assessed exemplary damages in the sum of One Hundred Thousand
(P100,000.00) Pesos; that by reason of defendants-appellees bad faith in refusing to execute a
Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the
opportunity to construct a residential building in the sum of One Hundred Thousand
(P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita Lee Gruenberg
and Motorich Sales Corporations bad faith in refusing to execute a deed of sale in favor of
plaintiff-appellant, it has been constrained to obtain the services of counsel at an agreed fee of
One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court
hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and Chairman of Motorich did not sign the
agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenbergs signature on the
agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other
signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required; that
plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights
(Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint)
was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. Gruenberg
accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of
the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated
period (up to March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-
appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash
payment; thus they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of
Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of
the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing
plaintiff-appellants complaint, ruling that:
'The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed
of absolute sale in accordance with the agreement of February 14, 1989; and if so, whether
plaintiff is entitled to damages.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was
indeed authorized by defendant corporation, Motorich Sales, to dispose of that property covered
by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation, Motorich
Sales, then its disposition should be governed by the requirement laid down in Sec. 40, of the
Corporation Code of the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combination and monopolies, a corporation may by a majority vote of its board of directors xxx
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets, including its goodwill xxx when authorized by the vote of the stockholders
representing at least two third (2/3) of the outstanding capital stock x x x.
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither
was there evidence to show that the supposed transaction was ratified by the corporation. Plaintiff
should have been on the look out under these circumstances. More so, plaintiff himself [owns]
several corporations (tsn dated August 16, 1993, p. 3) which makes him knowledgeable on
corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to hold
defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent
herself to be authorized by the corporation to sell the property to plaintiff (tsn dated September
27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at
instance for lack of merit.
Defendants counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-
35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by
virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor.
Balderama St., Pio del Pilar, Makati, Metro Manila, represented herein by its Treasurer, NENITA
LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;
- and --
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with principal office address at
Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of
the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City,
Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS,
covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and
Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed
as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00)
per square meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be
paid upon the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the
Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of
the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that
there [are] no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1. (b), the earnest
money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN STRUCTURAL &
TRANSFEROR STEEL FABRICATORS
TRANSFEREE
[SGD.] [SGD.]
By: NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed in the presence of:
[SGD.] [SGD.]
_________________________ _____________________[6]

In its recourse before the Court of Appeals, petitioner insisted:

1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance
with the Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.[7]
As stated earlier, the Court of Appeals debunked petitioners arguments and affirmed the Decision of the RTC
with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the
amount remitted as downpayment or earnest money. Hence, this petition before us.[8]

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant
case
II. Whether or not the appellate court may consider matters which the parties failed to raise in the
lower court
III. Whether or not there is a valid and enforceable contract between the petitioner and the
respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic note[s]
V. Whether or not respondents are liable for damages and attorneys fees[9]

The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenbergs testimony as recorded in the transcript of stenographic
notes material to the disposition of this case?
4. Are respondents liable for damages and attorneys fees?

The Courts Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through
its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corporation, which was in
turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that [w]hen Gruenberg and Co
affixed their signatures on the contract they both consented to be bound by the terms thereof. Ergo, petitioner
contends that the contract is binding on the two corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement according to which a lot owned by
Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind Motorich, because it never
authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the
property of the corporation is not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the corporations board of directors.[10] Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.
Indubitably, a corporation may act only through its board of directors, or, when authorized either by its bylaws
or by its board resolution, through its officers or agents in the normal course of business. The general principles of
agency govern the relation between the corporation and its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law.[11] Thus, this Court has held that a corporate officer or agent
may represent and bind the corporation in transactions with third persons to the extent that the authority to do so
has been conferred upon him, and this includes powers which have been intentionally conferred, and also such
powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it
has conferred.[12]

Furthermore, the Court has also recognized the rule that persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). [13] Unless duly authorized,
a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.[14]

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its
treasurer, to sell the subject parcel of land. [15] Consequently, petitioner had the burden of proving that Nenita
Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge
this burden. Its offer of evidence before the trial court contained no proof of such authority.[16] It has not shown
any provision of said respondents articles of incorporation, bylaws or board resolution to prove that Nenita
Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation.Petitioner cannot assume that she, by virtue of
her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate
treasurers function, which generally has been described as to receive and keep the funds of the corporation, and to
disburse them in accordance with the authority given him by the board or the properly authorized officers.[17]

Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of
Motorich is marketing, distribution, export and import in relation to a general merchandising business.
[18] Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an
activity which falls way beyond the scope of her general authority.

Articles 1874 and 1878 of the Civil Code of the Philippines provides:
ART. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void.
ART. 1878 Special powers of attorney are necessary in the following case:
xxxxxxxxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;
x x x x x x x x x.

Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its
acceptance of benefits, as evidenced by the receipt issued by Respondent Gruenberg. [19] Petitioner is clutching at
straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind the corporation, unless it has
ratified such acts or is estopped from disclaiming them.[20]
 In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it
appear to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was
there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the
receipt, which, however, does not prove the fact of ratification. The document is a hand-written one, not a
corporate receipt, and it bears only Nenita Gruenbergs signature. Certainly, this document alone does not prove
that her acts were authorized or ratified by Motorich.

Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which
is established. As found by the trial court[21] and affirmed by the Court of Appeals,[22] there is no evidence that
Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. This
factual finding of the two courts is binding on this Court. [23] As the consent of the seller was not obtained, no
contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich.

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land,
we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874
of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified.[24]

Second Issue:
Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a
close corporation. Since Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or
99.866% to be accurate, of the subscribed capital stock[25] of Motorich, petitioner argues that Gruenberg needed
no authorization from the board to enter into the subject contract. [26] It adds that, being solely owned by the
Spouses Gruenberg, the company can be treated as a close corporation which can be bound by the acts of its
principal stockholder who needs no specific authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly,[27] not having done so during the trial, but
only when it filed its sur-rejoinder before the Court of Appeals.[28] Thus, this Court cannot entertain said issue at
this late stage of the proceedings. It is well-settled that points of law, theories and arguments not brought to the
attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time on appeal. [29] Allowing petitioner to change horses in midstream, as it were, is to run
roughshod over the basic principles of fair play, justice and due process.

Second, even if the above-mentioned argument were to be addressed at this time, the Court still finds no
reason to uphold it. True, one of the advantages of a corporate form of business organization is the limitation of an
investors liability to the amount of the investment. [30] This feature flows from the legal theory that a corporate
entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil
may be used only for legitimate purposes.[31] On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another
corporation.[32]

Thus, the Court has consistently ruled that [w]hen the fiction is used as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement
or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.[33]

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud,
illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate
veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or
that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons, like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation
Code defines a close corporation as follows:
SEC. 96. Definition and Applicability of Title. -- A close corporation, within the meaning of this
Code, is one whose articles of incorporation provide that: (1) All of the corporations issued stock
of all classes, exclusive of treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be
subject to one or more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales Corporation does not contain any provision stating that (1)
the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any
stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of
such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation.
[35] Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866%
of its subscribed capital stock. The [m]ere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities.[36] So too, a narrow distribution of ownership does not, by itself, make a close
corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals[37] wherein the Court ruled that xxx
petitioner corporation is classified as a close corporation and, consequently, a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the corporation for the action of its president. [38] But
the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real property was
contracted by the president of a close corporation with the knowledge and acquiescence of its board of directors.
[39] In the present case, Motorich is not a close corporation, as previously discussed, and the agreement was
entered into by the corporate treasurer without the knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where an action by a director, who singly is the
controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a
mere formality.[40] The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost 99.866% of Respondent
Motorich.[41] Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does
not apply. Granting arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land
would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their
marriage. There being no indication that said spouses, who appear to have been married before the effectivity of
the Family Code, have agreed to a different property regime, their property relations would be governed by
conjugal partnership of gains.[42]As a consequence, Nenita Gruenberg could not have effected a sale of the subject
lot because [t]here is no co-ownership between the spouses in the properties of the conjugal partnership of
gains. Hence, neither spouse can alienate in favor of another his or her interest in the partnership or in any
property belonging to it; neither spouse can ask for a partition of the properties before the partnership has been
legally dissolved.[43]

Assuming further, for the sake of argument, that the spouses property regime is the absolute community of
property, the sale would still be invalid. Under this regime, alienation of community property must have the
written consent of the other spouse or the authority of the court without which the disposition or encumbrance
is void.[44] Both requirements are manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of stenographic notes(TSN):

Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?

A Yes, sir.[45]

Petitioner claims that the answer Yes was crossed out, and, in its place was written a No with an initial
scribbled above it.[46] This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent
Respondent Motorich in the sale of its immovable property. Said excerpt should be understood in the context of
her whole testimony. During her cross-examination, Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?

A Yes, sir.

Q You stated on direct examination that you did not represent that you were authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that
correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to
sign on behalf of the corporation.
 Q You did not say that you were not authorized nor did you say that you were authorized?

A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at
that time. That was our first meeting.[47]

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the
other hand, her testimony demonstrates that the president of Petitioner Corporation, in his great desire to buy the
property, threw caution to the wind by offering and paying the earnest money without first verifying Gruenbergs
authority to sell the lot.

Fourth Issue:
Damages and Attorneys Fees

Finally, petitioner prays for damages and attorneys fees, alleging that [i]n an utter display of malice and bad
faith, [r]espondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals that
Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the former
specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich
likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was]
not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenbergs act.
[48] Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent
Gruenberg should be held liable because she acted fraudulently and in bad faith [in] representing herself as duly
authorized by [R]espondent [C]orporation.[49]

As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorneys fees cannot be justified. The amount paid
as earnest money was not proven to have redounded to the benefit of Respondent Motorich. Petitioner claims that
said amount was deposited to the account of Respondent Motorich, because it was deposited with the account of
Aren Commercial c/o Motorich Sales Corporation.[50] Respondent Gruenberg, however, disputes the allegations of
petitioner. She testified as follows:

Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed.

A Yes, sir, the check was paid in my name and I deposit[ed] it . . .

Q In your account?

A Yes, sir. [51]

In any event, Gruenberg offered to return the amount to petitioner xxx since the sale did not push through.[52]

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Petitioner Corporation for more than ten years and has also served as chief executive of two other
corporate entities.[53] Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as
Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenbergs authorization to enter into
a contract to sell a parcel of land belonging to Motorich.
 Indeed, petitioners claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably,
petitioner appears to be the victim of its own officers negligence in entering into a contract with and paying an
unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to
petitioner the amount she received as earnest money, as no one shall enrich himself at the expense of another, [54] a
principle embodied in Article 2154 of the Civil Code. [55] Although there was no binding relation between them,
petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich.
[56] Article 2155 of the Civil Code provides that [p]ayment by reason of a mistake in the construction or
application of a difficult question of law may come within the scope of the preceding article.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.

SO ORDERED.