CLASS SUIT

1.

2. Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,

vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS &
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.

Hill & Associates Law Offices for appellant.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate
Counsel for appellee National Waterworks & Sewerage Authority.

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an
action in behalf of its individual members for the recovery of certain parcels of land allegedly owned
by said members; for the nullification of the transfer certificates of title issued in favor of defendants
appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute
owners of the property" and the issuance of the corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the
Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-
appellees to recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the
Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The complaint, as
amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under
the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan;
that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the
members of the plaintiff corporation, through themselves and their predecessors-in-interest, had
pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish
regime and continuously possessed the said property openly and public under concept of ownership
adverse against the whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year
1958, through force and intimidation, ejected the members of the plaintiff corporation fro their possession
of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of
plaintiff corporation, they found out for the first time in the year 1961 that the land in question "had been
either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title
No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is
fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor plan
whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of
Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case
because no notice of such proceeding was given to the members of the plaintiff corporation who were
then in actual possession of said properties; that as a consequence of the nullity of the original title, all
subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of
Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of
Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the
name of, the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986
issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of
Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original
Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be
nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and
that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio
Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the
amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks &
Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special
and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such
action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7,
1966, praying that the case be transferred to another branch of the Court of First Instance sitting at
Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion,
hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish
the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion dated
October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for
failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-
appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that
it also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial
court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds
that the court had no jurisdiction to issue the Order of dismissal, because its request for the transfer
of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the
said court has been approved by the Department of Justice; that the complaint states a sufficient
cause of action because the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present complaint should be treated as a
class suit; and that the action is not barred by the statute of limitations because (a) an action for the
reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a
void judgment may be brought any time. This motion was denied by the trial court in its Order dated
February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion
for reconsideration, plaintiff-appellant appealed to the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in
the appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of
the legal issues involved in the controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and
jurisdiction in dismissing the amended complaint when the Secretary of Justice had already
approved the transfer of the case to any one of the two branches of the Court of First Instance of
Malolos, Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in
the different branches of the same Court of First Instance. Jurisdiction implies the power of the court
to decide a case, while venue the place of action. There is no question that respondent court has
jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section
2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to the caprice of plaintiff, but
must be in accordance with the aforesaid provision of the rules. 2The mere fact that a request for the
transfer of a case to another branch of the same court has been approved by the Secretary of Justice
does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change
the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of
Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance,
but only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for
the parties. The trial court is not without power to either grant or deny the motion, especially in the light of
a strong opposition thereto filed by the defendant. We hold that the court a quo acted within its authority in
denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by
the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack
of personality of plaintiff to file the instant action. Essentially, the term 'cause of
action' is composed of two elements: (1) the right of the plaintiff and (2) the violation
of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules
require that every action must be prosecuted and defended in the name of the real
party in interest and that all persons having an interest in the subject of the action
and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In
the amended complaint, the people whose rights were alleged to have been violated
by being deprived and dispossessed of their land are the members of the corporation
and not the corporation itself. The corporation has a separate. and distinct
personality from its members, and this is not a mere technicality but a matter of
substantive law. There is no allegation that the members have assigned their rights
to the corporation or any showing that the corporation has in any way or manner
succeeded to such rights. The corporation evidently did not have any rights violated
by the defendants for which it could seek redress. Even if the Court should find
against the defendants, therefore, the plaintiff corporation would not be entitled to the
reliefs prayed for, which are recoveries of ownership and possession of the land,
issuance of the corresponding title in its name, and payment of damages. Neither
can such reliefs be awarded to the members allegedly deprived of their land, since
 they are not parties to the suit. It appearing clearly that the action has not been filed
in the names of the real parties in interest, the complaint must be dismissed on the
ground of lack of cause of action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed
the amended complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct
legal entity to be considered as separate and apart from the individual stockholders or members who
compose it, and is not affected by the personal rights, obligations and transactions of its
stockholders or members. 4 The property of the corporation is its property and not that of the
stockholders, as owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the
corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president of a
corporation does not render the property which he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are separate similarities. 7 Similarly, stockholders in
a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder
thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the land, as would
support a suit for title, especially against parties other than the corporation. 8

It must be noted, however, that the juridical personality of the corporation, as separate and distinct
from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to
subserve the ends of justice. 9 This separate personality of the corporation may be disregarded, or the
veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to
work -an injustice, or where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the
case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no business
purpose and is intended only as a blind, or an alter ego or business conduit for the sole benefit of the
stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has been applied
by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or when the veil
of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when
necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the
funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited
principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or
injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may
have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a
corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its
stockholders or members for the purpose of recovering property which belongs to said stockholders
or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right
conferred' by law upon a person. 17 Evidently, there can be no wrong without a corresponding right, and
no breach of duty by one person without a corresponding right belonging to some other person. 18 Thus,
the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the
defendant, an act or omission of the defendant in violation of the aforesaid legal right. 19 Clearly, no right
of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the
subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in
interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant
to Section 12 of Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject
matter of the controversy is one of common or general interest to many persons; and (2) that the
parties are so numerous that it is impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with
those for whom he sues, and there must be that unity of interest between him and all such other
persons which would entitle them to maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been
explained in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the
court to dispense with the presence of all the parties, when numerous, except a
determinate number, is not only an interest in the question, but one in common in the
subject Matter of the suit; ... a community of interest growing out of the nature and
condition of the right in dispute; for, although there may not be any privity between
the numerous parties, there is a common title out of which the question arises, and
which lies at the foundation of the proceedings ... [here] the only matter in common
among the plaintiffs, or between them and the defendants, is an interest in the
Question involved which alone cannot lay a foundation for the joinder of parties.
There is scarcely a suit at law, or in equity which settles a Principle or applies a
principle to a given state of facts, or in which a general statute is interpreted, that
does not involved a Question in which other parties are interested. ... (Emphasis
supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in
the subject matter of the controversy, and cannot, therefore, represent its members or stockholders
who claim to own in their individual capacities ownership of the said property. Moreover, as correctly
stated by the appellees, a class suit does not lie in actions for the recovery of property where several
persons claim Partnership of their respective portions of the property, as each one could alleged and
prove his respective right in a different way for each portion of the land, so that they cannot all be
held to have Identical title through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower
court cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this
Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real
property based upon constructive or implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

3. Republic of the Philippines

 Supreme Court
Baguio City

EN BANC

G.R. No. 166620

ATTY. SYLVIA BANDA,
CONSORICIA O. PENSON,
RADITO V. PADRIGANO, JEAN
R. DE MESA, LEAH P. DELA
CRUZ, ANDY V. MACASAQUIT,
SENEN B. CORDOBA, ALBERT
BRILLANTES, GLORIA BISDA,
JOVITA V. CONCEPCION,
TERESITA G. CARVAJAL,
ROSANNA T. MALIWANAG,
RICHARD ODERON, CECILIA
ESTERNON, BENEDICTO
CABRAL, MA. VICTORIA E.
LAROCO, CESAR ANDRA,
FELICISIMO GALACIO, ELSA R.
CALMA, FILOMENA A.
GALANG, JEAN PAUL
MELEGRITO, CLARO G.
SANTIAGO, JR., EDUARDO
FRIAS, REYNALDO O. ANDAL,
NEPHTALIE IMPERIO, RUEL
BALAGTAS, VICTOR R. ORTIZ,
FRANCISCO P. REYES, JR.,
ELISEO M. BALAGOT, JR., JOSE
C. MONSALVE, JR., ARTURO
ADSUARA, F.C. LADRERO, JR.,
NELSON PADUA, MARCELA C.
SAYAO, ANGELITO MALAKAS,
GLORIA RAMENTO, JULIANA
SUPLEO, MANUEL
MENDRIQUE, E. TAYLAN,
CARMELA BOBIS, DANILO
VARGAS, ROY-LEO C. PABLO,
ALLAN VILLANUEVA, VICENTE
R. VELASCO, JR., IMELDA
ERENO, FLORIZA M. CATIIS,
RANIEL R. BASCO, E. JALIJALI,
MARIO C. CARAAN, DOLORES
M. AVIADO, MICHAEL P.
LAPLANA, GUILLERMO G.
SORIANO, ALICE E. SOJO,
ARTHUR G. NARNE, LETICIA
SORIANO, FEDERICO RAMOS,
JR., PETERSON CAAMPUED,
RODELIO L. GOMEZ, ANTONIO
D. GARCIA, JR., ANTONIO
GALO, A. SANCHEZ, SOL E.
TAMAYO, JOSEPHINE A.M.
COCJIN, DAMIAN QUINTO, JR.,
EDLYN MARIANO, M.A.
MALANUM, ALFREDO S.
ESTRELLA, and JESUS MEL Present:
SAYO,

Petitioners,

PUNO, C.J.,
 CARPIO,

- versus - CORONA,

CARPIO MORALES,

VELASCO, JR.,

EDUARDO R. ERMITA, in his NACHURA,

capacity as Executive LEONARDO-DE CASTRO,
Secretary, THE DIRECTOR
GENERAL OF THE PHILIPPINE BRION,
INFORMATION
PERALTA,
AGENCY and THE NATIONAL
TREASURER, BERSAMIN,

Respondents. DEL CASTILLO,

ABAD,*

VILLARAMA, JR.,

PEREZ, and

MENDOZA, JJ.
 Promulgated:

April 20, 2010

x------------------------------------------------
--x

DECISION

LEONARDO-DE CASTRO, J.:

The present controversy arose from a Petition for Certiorari and

prohibition challenging the constitutionality of Executive Order
No. 378 dated October 25, 2004, issued by President Gloria
Macapagal Arroyo (President Arroyo). Petitioners characterize
their action as a class suit filed on their own behalf and on behalf
of all their co-employees at the National Printing Office (NPO).
 The NPO was formed on July 25, 1987, during the term of
former President Corazon C. Aquino (President Aquino), by virtue
of Executive Order No. 285[1] which provided, among others, the
creation of the NPO from the merger of the Government Printing
Office and the relevant printing units of the Philippine Information
Agency (PIA). Section 6 of Executive Order No. 285 reads:

SECTION 6. Creation of the National Printing

Office. There is hereby created a National Printing Office
out of the merger of the Government Printing Office and
the relevant printing units of the Philippine Information
Agency. The Office shall have exclusive printing
jurisdiction over the following:

a. Printing, binding and distribution of all standard and

accountable forms of national, provincial, city and municipal
governments, including government corporations;

b. Printing of officials ballots;

c. Printing of public documents such as the

Official Gazette, General Appropriations Act, Philippine
Reports, and development information materials of the
Philippine Information Agency.

The Office may also accept other government

printing jobs, including government publications, aside
 from those enumerated above, but not in an exclusive
basis.

The details of the organization, powers, functions,

authorities, and related management aspects of the
Office shall be provided in the implementing details
which shall be prepared and promulgated in accordance
with Section II of this Executive Order.

The Office shall be attached to the Philippine

Information Agency.

On October 25, 2004, President Arroyo issued the herein

assailed Executive Order No. 378, amending Section 6 of
Executive Order No. 285 by, inter alia, removing the exclusive
jurisdiction of the NPO over the printing services requirements of
government agencies and instrumentalities. The pertinent
portions of Executive Order No. 378, in turn, provide:

SECTION 1. The NPO shall continue to provide

printing services to government agencies and
instrumentalities as mandated by law. However, it
shall no longer enjoy exclusive jurisdiction over
the printing services requirements of the
government over standard and accountable
forms. It shall have to compete with the private
sector, except in the printing of election
paraphernalia which could be shared with the Bangko
Sentral ng Pilipinas, upon the discretion of the
 Commission on Elections consistent with the provisions of
the Election Code of 1987.

SECTION 2. Government
agencies/instrumentalities may source printing services
outside NPO provided that:

2.1 The printing services to be provided by the

private sector is superior in quality and at a lower cost
than what is offered by the NPO; and

2.2 The private printing provider is flexible in terms

of meeting the target completion time of the government
agency.

SECTION 3. In the exercise of its functions,

the amount to be appropriated for the programs,
projects and activities of the NPO in the General
Appropriations Act (GAA) shall be limited to its
income without additional financial support from
the government. (Emphases and underscoring
supplied.)

Pursuant to Executive Order No. 378, government agencies

and instrumentalities are allowed to source their printing services
from the private sector through competitive bidding, subject to
the condition that the services offered by the private supplier be
of superior quality and lower in cost compared to what was
offered by the NPO. Executive Order No. 378 also limited NPOs
appropriation in the General Appropriations Act to its income .

Perceiving Executive Order No. 378 as a threat to their

security of tenure as employees of the NPO, petitioners now
challenge its constitutionality, contending that: (1) it is beyond
the executive powers of President Arroyo to amend or repeal
Executive Order No. 285 issued by former President Aquino when
the latter still exercised legislative powers; and (2) Executive
Order No. 378 violates petitioners security of tenure, because it
paves the way for the gradual abolition of the NPO.

We dismiss the petition.

Before proceeding to resolve the substantive issues, the

Court must first delve into a procedural matter. Since petitioners
instituted this case as a class suit, the Court, thus, must first
determine if the petition indeed qualifies as one. In Board of
Optometry v. Colet,[2] we held that [c]ourts must exercise utmost
caution before allowing a class suit, which is the exception to the
requirement of joinder of all indispensable parties. For while no
difficulty may arise if the decision secured is favorable to the
plaintiffs, a quandary would result if the decision were otherwise
as those who were deemed impleaded by their self-appointed
representatives would certainly claim denial of due process.

Section 12, Rule 3 of the Rules of Court defines a class

suit, as follows:
 Sec. 12. Class suit. When the subject matter of the
controversy is one of common or general interest to
many persons so numerous that it is impracticable to join
all as parties, a number of them which the court finds to
be sufficiently numerous and representative as to fully
protect the interests of all concerned may sue or defend
for the benefit of all. Any party in interest shall have the
right to intervene to protect his individual interest.

From the foregoing definition, the requisites of a class suit

are: 1) the subject matter of controversy is one of common or
general interest to many persons; 2) the parties affected are so
numerous that it is impracticable to bring them all to court;
and 3) the parties bringing the class suit are sufficiently
numerous or representative of the class and can fully protect
the interests of all concerned.

In Mathay v. The Consolidated Bank and Trust Company,

[3]
the Court held that:

An action does not become a class suit merely because it

is designated as such in the pleadings. Whether the suit is
or is not a class suit depends upon the attending facts,
and the complaint, or other pleading initiating the
class action should allege the existence of the
necessary facts, to wit, the existence of a subject matter
of common interest, and the existence of a class and the
number of persons in the alleged class, in order
that the court might be enabled to determine
whether the members of the class are so numerous
as to make it impracticable to bring them all before
the court, to contrast the number appearing on the
 record with the number in the class and to
determine whether claimants on record adequately
represent the class and the subject matter of
general or common interest.(Emphases ours.)

Here, the petition failed to state the number of NPO

employees who would be affected by the assailed Executive
Order and who were allegedly represented by petitioners. It was
the Solicitor General, as counsel for respondents, who pointed out
that there were about 549 employees in the NPO. [4] The 67
petitioners undeniably comprised a small fraction of the NPO
employees whom they claimed to represent. Subsequently, 32 of
the original petitioners executed an Affidavit of Desistance, while
one signed a letter denying ever signing the petition, [5] ostensibly
reducing the number of petitioners to 34. We note that counsel
for the petitioners challenged the validity of the desistance or
withdrawal of some of the petitioners and insinuated that such
desistance was due to pressure from people close to the seat of
power.[6] Still, even if we were to disregard the affidavit of
desistance filed by some of the petitioners, it is highly doubtful
that a sufficient, representative number of NPO employees have
instituted this purported class suit.A perusal of the petition itself
would show that of the 67 petitioners who signed the
Verification/Certification of Non-Forum Shopping, only 20
petitioners were in fact mentioned in the jurat as having duly
subscribed the petition before the notary public. In other words,
only 20 petitioners effectively instituted the present case.

Indeed, in MVRS Publications, Inc. v. Islamic Dawah Council

of the Philippines, Inc.,[7] we observed that an element of a class
suit or representative suit is the adequacy of
representation. In determining the question of fair and
adequate representation of members of a class, the court must
consider (a) whether the interest of the named party is
coextensive with the interest of the other members of the class;
(b) the proportion of those made a party, as it so bears, to the
total membership of the class; and (c) any other factor bearing on
the ability of the named party to speak for the rest of the class.

Previously, we held in Ibaes v. Roman Catholic Church [8] that

where the interests of the plaintiffs and the other members of the
class they seek to represent are diametrically opposed, the class
suit will not prosper.

It is worth mentioning that a Manifestation of Desistance,

[9]
to which the previously mentioned Affidavit of Desistance [10]was
attached, was filed by the President of the National Printing Office
Workers Association (NAPOWA). The said manifestation expressed
NAPOWAs opposition to the filing of the instant petition in any
court. Even if we take into account the contention of petitioners
counsel that the NAPOWA President had no legal standing to file
such manifestation, the said pleading is a clear indication that
there is a divergence of opinions and views among the members
of the class sought to be represented, and not all are in favor of
filing the present suit. There is here an apparent conflict between
petitioners interests and those of the persons whom they claim to
represent. Since it cannot be said that petitioners sufficiently
represent the interests of the entire class, the instant case cannot
be properly treated as a class suit.

As to the merits of the case, the petition raises two main

grounds to assail the constitutionality of Executive Order No. 378:
 First, it is contended that President Arroyo cannot amend or
repeal Executive Order No. 285 by the mere issuance of another
executive order (Executive Order No. 378). Petitioners maintain
that former President Aquinos Executive Order No. 285 is a
legislative enactment, as the same was issued while President
Aquino still had legislative powers under the Freedom
Constitution;[11] thus, only Congress through legislation can validly
amend Executive Order No. 285.

Second, petitioners maintain that the issuance of Executive

Order No. 378 would lead to the eventual abolition of the NPO
and would violate the security of tenure of NPO employees.

Anent the first ground raised in the petition, we find the

same patently without merit.

It is a well-settled principle in jurisprudence that the

President has the power to reorganize the offices and agencies in
the executive department in line with the Presidents
constitutionally granted power of control over executive offices
and by virtue of previous delegation of the legislative power to
reorganize executive offices under existing statutes.

In Buklod ng Kawaning EIIB v. Zamora,[12] the Court pointed

out that Executive Order No. 292 or the Administrative Code of
1987 gives the President continuing authority to reorganize and
redefine the functions of the Office of the President. Section 31,
Chapter 10, Title III, Book III of the said Code, is explicit:
 Sec. 31. Continuing Authority of the President to
Reorganize his Office. The President, subject to the
policy in the Executive Office and in order to
achieve simplicity, economy and efficiency, shall
have continuing authority to reorganize the
administrative structure of the Office of the
President. For this purpose, he may take any of the
following actions:

(1) Restructure the internal

organization of the Office of the
President Proper, including the immediate
Offices, the President Special
Assistants/Advisers System and the Common
Staff Support System, by abolishing,
consolidating or merging units thereof or
transferring functions from one unit to
another;

(2) Transfer any function under the

Office of the President to any other
Department or Agency as well as transfer
functions to the Office of the
President from other Departments and
Agencies; and

(3) Transfer any agency under the

Office of the President to any other
department or agency as well as transfer
agencies to the Office of the
President from other Departments or
agencies. (Emphases ours.)
 Interpreting the foregoing provision, we held in Buklod ng
Kawaning EIIB, thus:

But of course, the list of legal basis authorizing the

President to reorganize any department or agency in the
executive branch does not have to end here. We must
not lose sight of the very source of the power that which
constitutes an express grant of power. Under Section 31,
Book III of Executive Order No. 292 (otherwise known as
the Administrative Code of 1987), the President, subject
to the policy in the Executive Office and in order to
achieve simplicity, economy and efficiency, shall have
the continuing authority to reorganize the administrative
structure of the Office of the President. For this purpose,
he may transfer the functions of other Departments or
Agencies to the Office of the President. In Canonizado
v. Aguirre [323 SCRA 312 (2000)], we ruled that
reorganization involves the reduction of
personnel, consolidation of offices, or abolition
thereof by reason of economy or redundancy of
functions. It takes place when there is an
alteration of the existing structure of government
offices or units therein, including the lines of
control, authority and responsibility between
them. The EIIB is a bureau attached to the Department
of Finance. It falls under the Office of the
President.Hence, it is subject to the Presidents continuing
authority to reorganize.[13] (Emphasis ours.)
 It is undisputed that the NPO, as an agency that is part of
the Office of the Press Secretary (which in various times has been
an agency directly attached to the Office of the Press Secretary or
as an agency under the Philippine Information Agency), is part of
the Office of the President.[14]

Pertinent to the case at bar, Section 31 of the Administrative

Code of 1987 quoted above authorizes the President (a)
to restructure the internal organization of the Office of the
President Proper, including the immediate Offices, the President
Special Assistants/Advisers System and the Common Staff
Support System, by abolishing, consolidating or merging units
thereof or transferring functions from one unit to another, and (b)
to transfer functions or offices from the Office of the President to
any other Department or Agency in the Executive Branch, and
vice versa.

Concomitant to such power to abolish, merge or consolidate

offices in the Office of the President Proper and to transfer
functions/offices not only among the offices in the Office of
President Proper but also the rest of the Office of the President
and the Executive Branch, the President implicitly has the power
to effect less radical or less substantive changes to the functional
and internal structure of the Office of the President, including the
modification of functions of such executive agencies as the
exigencies of the service may require.

In the case at bar, there was neither an abolition of the NPO

nor a removal of any of its functions to be transferred to another
agency. Under the assailed Executive Order No. 378, the NPO
remains the main printing arm of the government for all kinds of
government forms and publications but in the interest of greater
economy and encouraging efficiency and profitability, it must now
compete with the private sector for certain government printing
jobs, with the exception of election paraphernalia which remains
the exclusive responsibility of the NPO, together with the Bangko
Sentral ng Pilipinas, as the Commission on Elections may
determine.At most, there was a mere alteration of the main
function of the NPO by limiting the exclusivity of its printing
responsibility to election forms.[15]

There is a view that the reorganization actions that the

President may take with respect to agencies in the Office of the
President are strictly limited to transfer of functions and offices as
seemingly provided in Section 31 of the Administrative Code of
1987.

However, Section 20, Chapter 7, Title I, Book III of the same

Code significantly provides:

Sec. 20. Residual Powers. Unless Congress provides

otherwise, the President shall exercise such other
powers and functions vested in the President which
are provided for under the laws and which are not
specifically enumerated above, or which are not
delegated by the President in accordance with law.
(Emphasis ours.)

Pursuant to Section 20, the power of the President to

reorganize the Executive Branch under Section 31 includes such
powers and functions that may be provided for under other
laws. To be sure, an inclusive and broad interpretation of the
Presidents power to reorganize executive offices has been
consistently supported by specific provisions in general
appropriations laws.

In the oft-cited Larin v. Executive Secretary,[16] the

Court likewise adverted to certain provisions of Republic Act No.
7645, the general appropriations law for 1993, as among the
statutory bases for the Presidents power to reorganize executive
agencies, to wit:

Section 48 of R.A. 7645 provides that:

Sec. 48. Scaling Down and Phase Out of

Activities of Agencies Within the Executive
Branch. The heads of departments, bureaus
and offices and agencies are hereby directed to
identify their respective activities which are no
longer essential in the delivery of public
services and which may be scaled down,
phased out or abolished, subject to civil
[service] rules and regulations. x x x. Actual
scaling down, phasing out or abolition of the
activities shall be effected pursuant to Circulars
or Orders issued for the purpose by the Office
of the President.

Said provision clearly mentions the acts of "scaling

down, phasing out and abolition" of offices only
and does not cover the creation of offices or
transfer of functions. Nevertheless, the act of
creating and decentralizing is included in the
subsequent provision of Section 62, which provides
that:
 Sec. 62. Unauthorized organizational
changes. Unless otherwise created by law or
directed by the President of the Philippines, no
organizational unit or changes in key positions
in any department or agency shall be
authorized in their respective organization
structures and be funded from appropriations
by this Act.

The foregoing provision evidently shows that the

President is authorized to effect
organizational changes including the creation of offices
in the department or agency concerned.

The contention of petitioner that the two provisions are

riders deserves scant consideration. Well settled is the
rule that every law has in its favor the presumption of
constitutionality. Unless and until a specific provision of
the law is declared invalid and unconstitutional, the same
is valid and binding for all intents and purposes.
[17]
(Emphases ours)

Buklod ng Kawaning EIIB v. Zamora,[18] where the Court

upheld as valid then President Joseph Estradas Executive Order
No. 191 deactivating the Economic Intelligence and Investigation
Bureau (EIIB) of the Department of Finance, hewed closely to the
reasoning in Larin. The Court, among others, also traced from the
General Appropriations Act[19] the Presidents authority to effect
organizational changes in the department or agency under the
executive structure, thus:

We adhere to the precedent or ruling in Larin that this

provision recognizes the authority of the President to
 effect organizational changes in the department or agency
under the executive structure. Such a ruling further finds
support in Section 78 of Republic Act No. 8760. Under this
law, the heads of departments, bureaus, offices and
agencies and other entities in the Executive Branch are
directed (a) to conduct a comprehensive review of their
respective mandates, missions, objectives, functions,
programs, projects, activities and systems and procedures;
(b) identify activities which are no longer essential in the
delivery of public services and which may be scaled down,
phased-out or abolished; and (c) adopt measures that
will result in the streamlined organization and
improved overall performance of their respective
agencies. Section 78 ends up with the mandate that the
actual streamlining and productivity improvement in
agency organization and operation shall be effected
pursuant to Circulars or Orders issued for the purpose by
the Office of the President. x x x.[20] (Emphasis ours)

Notably, in the present case, the 2003 General

Appropriations Act, which was reenacted in 2004 (the year of the
issuance of Executive Order No. 378), likewise gave the President
the authority to effect a wide variety of organizational changes in
any department or agency in the Executive Branch. Sections 77
and 78 of said Act provides:

Section 77. Organized Changes. Unless otherwise

provided by law or directed by the President of
the Philippines, no changes in key positions or
organizational units in any department or agency shall be
authorized in their respective organizational structures
and funded from appropriations provided by this Act.
 Section 78. Institutional Strengthening and
Productivity Improvement in Agency Organization and
Operations and Implementation of
Organization/Reorganization Mandated by Law. The
Government shall adopt institutional strengthening
and productivity improvement measures to improve
service delivery and enhance productivity in the
government, as directed by the President of
the Philippines. The heads of departments, bureaus,
offices, agencies, and other entities of the Executive
Branch shall accordingly conduct a comprehensive
review of their respective mandates, missions, objectives,
functions, programs, projects, activities and systems and
procedures; identify areas where improvements are
necessary; and implement corresponding structural,
functional and operational adjustments that will
result in streamlined organization and operations
and improved performance and productivity:
PROVIDED, That actual streamlining and productivity
improvements in agency organization and operations, as
authorized by the President of the Philippines for the
purpose, including the utilization of savings generated
from such activities, shall be in accordance with the rules
and regulations to be issued by the DBM, upon
consultation with the Presidential Committee on Effective
Governance: PROVIDED, FURTHER, That in the
implementation of organizations/reorganizations,
or specific changes in agency structure, functions
and operations as a result of institutional
strengthening or as mandated by law, the
appropriation, including the functions, projects,
purposes and activities of agencies concerned may
be realigned as may be necessary: PROVIDED,
FINALLY, That any unexpended balances or savings in
 appropriations may be made available for payment of
retirement gratuities and separation benefits to affected
personnel, as authorized under existing laws. (Emphases
and underscoring ours.)

Implicitly, the aforequoted provisions in the appropriations

law recognize the power of the President to reorganize even
executive offices already funded by the said appropriations act,
including the power to implement structural, functional, and
operational adjustments in the executive bureaucracy and, in
so doing, modify or realign appropriations of funds as may be
necessary under such reorganization. Thus, insofar as petitioners
protest the limitation of the NPOs appropriations to its own
income under Executive Order No. 378, the same is statutorily
authorized by the above provisions.

In the 2003 case of Bagaoisan v. National Tobacco

Administration,[21] we upheld the streamlining of the National
Tobacco Administration through a reduction of its personnel and
deemed the same as included in the power of the President to
reorganize executive offices granted under the laws,
notwithstanding that such streamlining neither involved an
abolition nor a transfer of functions of an office. To quote the
relevant portion of that decision:

In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo
D. Zamora, in his capacity as the Executive Secretary, et al., this Court
has had occasion to also delve on the Presidents power to reorganize the
Office of the President under Section 31(2) and (3) of Executive Order
No. 292 and the power to reorganize the Office of the President Proper.
xxx
 xxxx

The first sentence of the law is an express grant to the President of

a continuing authority to reorganize the administrative structure of the
Office of the President. The succeeding numbered paragraphs are
not in the nature of provisos that unduly limit the aim and scope of
the grant to the President of the power to reorganize but are to be
viewed in consonance therewith. Section 31(1) of Executive Order No.
292 specifically refers to the Presidents power to restructure the internal
organization of the Office of the President Proper, by abolishing,
consolidating or merging units hereof or transferring functions from one
unit to another, while Section 31(2) and (3) concern executive offices
outside the Office of the President Proper allowing the President to
transfer any function under the Office of the President to any other
Department or Agency and vice-versa, and the transfer of any agency
under the Office of the President to any other department or agency
and vice-versa.

In the present instance, involving neither an

abolition nor transfer of offices, the assailed action
is a mere reorganization under the general
provisions of the law consisting mainly
of streamlining the NTA in the interest of
simplicity, economy and efficiency. It is an act well
within the authority of the President motivated and
carried out, according to the findings of the appellate
court, in good faith, a factual assessment that this Court
could only but accept.[22] (Emphases and underscoring
supplied.)

In the more recent case of Tondo Medical Center Employees

Association v. Court of Appeals, [23] which involved a structural
and functional reorganization of the Department of Health
under an executive order, we reiterated the principle that the
power of the President to reorganize agencies under the
executive department by executive or administrative order is
constitutionally and statutorily recognized. We held in that case:

This Court has already ruled in a number of

cases that the President may, by executive or
administrative order, direct the reorganization of
government entities under the Executive
Department. This is also sanctioned under the
Constitution, as well as other statutes.

Section 17, Article VII of the 1987

Constitution, clearly states: [T]he president shall
have control of all executive departments, bureaus
and offices. Section 31, Book III, Chapter 10 of
Executive Order No. 292, also known as the
Administrative Code of 1987 reads:

SEC. 31. Continuing Authority of the

President to Reorganize his Office - The
President, subject to the policy in the Executive
Office and in order to achieve simplicity,
economy and efficiency, shall have continuing
authority to reorganize the administrative
structure of the Office of the President. For this
purpose, he may take any of the following
actions:

xxxx
 In Domingo v. Zamora [445 Phil. 7 (2003)], this
Court explained the rationale behind the Presidents
continuing authority under the Administrative Code to
reorganize the administrative structure of the Office of
the President. The law grants the President the
power to reorganize the Office of the President in
recognition of the recurring need of every
President to reorganize his or her office to achieve
simplicity, economy and efficiency. To remain
effective and efficient, it must be capable of being shaped
and reshaped by the President in the manner the Chief
Executive deems fit to carry out presidential directives
and policies.

The Administrative Code provides that the Office of the

President consists of the Office of the President Proper
and the agencies under it. The agencies under the Office
of the President are identified in Section 23, Chapter
8, Title II of the Administrative Code:

Sec. 23. The Agencies under the Office

of the President.The agencies under the Office
of the President refer to those offices placed
under the chairmanship of the President, those
under the supervision and control of the
President, those under the administrative
supervision of the Office of the President, those
attached to it for policy and program
coordination, and those that are not placed by
law or order creating them under any specific
department.
 xxxx

The power of the President to reorganize the executive

department is likewise recognized in general
appropriations laws. x x x.

xxxx

Clearly, Executive Order No. 102 is well within the

constitutional power of the President to issue. The
President did not usurp any legislative
prerogative in issuing Executive Order No. 102. It is an
exercise of the Presidents constitutional power of
control over the executive department, supported
by the provisions of the Administrative Code,
recognized by other statutes, and consistently
affirmed by this Court.[24] (Emphases supplied.)

Subsequently, we ruled in Anak Mindanao Party-List Group v.

Executive Secretary[25] that:

The Constitutions express grant of the power of control in

the President justifies an executive action to carry out
reorganization measures under a broad authority of law.
 In enacting a statute, the legislature is presumed
to have deliberated with full knowledge of all existing
laws and jurisprudence on the subject. It is thus
reasonable to conclude that in passing a statute which
places an agency under the Office of the President, it was
in accordance with existing laws and jurisprudence on the
Presidents power to reorganize.

In establishing an executive department, bureau or

office, the legislature necessarily ordains an executive
agencys position in the scheme of administrative
structure. Such determination is primary, but subject to
the Presidents continuing authority to reorganize the
administrative structure. As far as bureaus, agencies or
offices in the executive department are concerned, the
power of control may justify the President to deactivate
the functions of a particular office. Or a law may
expressly grant the President the broad authority to carry
out reorganization measures. The Administrative Code of
1987 is one such law.[26]

The issuance of Executive Order No. 378 by President

Arroyo is an exercise of a delegated legislative power granted
by the aforementioned Section 31, Chapter 10, Title III, Book III
of the Administrative Code of 1987, which provides for the
continuing authority of the President to reorganize the Office of
the President, in order to achieve simplicity, economy and
efficiency. This is a matter already well-entrenched in
jurisprudence. The reorganization of such an office through
executive or administrative order is also recognized in the
 Administrative Code of 1987. Sections 2 and 3, Chapter 2, Title
I, Book III of the said Code provide:

Sec. 2. Executive Orders. - Acts of the

President providing for rules of a general or permanent
character in implementation or execution of
constitutional or statutory powers shall be
promulgated in executive orders.

Sec. 3. Administrative Orders. - Acts of the

President which relate to particular aspects of
governmental operations in pursuance of his duties as
administrative head shall be promulgated
in administrative orders. (Emphases supplied.)

To reiterate, we find nothing objectionable in the provision in

Executive Order No. 378 limiting the appropriation of the NPO to
its own income. Beginning with Larin and in subsequent cases,
the Court has noted certain provisions in the general
appropriations laws as likewise reflecting the power of the
President to reorganize executive offices or agencies even to the
extent of modifying and realigning appropriations for that
purpose.

Petitioners contention that the issuance of Executive Order

No. 378 is an invalid exercise of legislative power on the part of
the President has no legal leg to stand on.
 In all, Executive Order No. 378, which purports to institute
necessary reforms in government in order to improve and
upgrade efficiency in the delivery of public services by redefining
the functions of the NPO and limiting its funding to its own
income and to transform it into a self-reliant agency able to
compete with the private sector, is well within the prerogative of
President Arroyo under her continuing delegated legislative power
to reorganize her own office. As pointed out in the separate
concurring opinion of our learned colleague, Associate Justice
Antonio T. Carpio, the objective behind Executive Order No. 378 is
wholly consistent with the state policy contained in Republic Act
No. 9184 or the Government Procurement Reform Act to
encourage competitiveness by extending equal opportunity to
private contracting parties who are eligible and qualified. [27]

To be very clear, this delegated legislative power to

reorganize pertains only to the Office of the President and the
departments, offices and agencies of the executive branch and
does not include the Judiciary, the Legislature or the
constitutionally-created or mandated bodies. Moreover, it must be
stressed that the exercise by the President of the power to
reorganize the executive department must be in accordance with
the Constitution, relevant laws and prevailing jurisprudence.

In this regard, we are mindful of the previous

pronouncement of this Court in Dario v. Mison[28] that:
Reorganizations in this jurisdiction have been
regarded as valid provided they are pursued in
good faith. As a general rule, a reorganization is carried
out in good faith if it is for the purpose of economy or to
make bureaucracy more efficient. In that event, no
dismissal (in case of a dismissal) or separation actually
occurs because the position itself ceases to exist. And in
 that case, security of tenure would not be a Chinese wall.
Be that as it may, if the abolition, which is nothing else
but a separation or removal, is done for political reasons
or purposely to defeat security of tenure, or otherwise not
in good faith, no valid abolition takes place and whatever
abolition is done, is void ab initio. There is an invalid
abolition as where there is merely a change of
nomenclature of positions, or where claims of economy
are belied by the existence of ample funds. (Emphasis
ours.)

Stated alternatively, the presidential power to reorganize

agencies and offices in the executive branch of government is
subject to the condition that such reorganization is carried out in
good faith.

If the reorganization is done in good faith, the abolition of

positions, which results in loss of security of tenure of affected
government employees, would be valid. In Buklod ng Kawaning
EIIB v. Zamora,[29] we even observed that there was no such thing
as an absolute right to hold office. Except those who hold
constitutional offices, which provide for special immunity as
regards salary and tenure, no one can be said to have any vested
right to an office or salary.[30]

This brings us to the second ground raised in the

petition that Executive Order No. 378, in allowing government
agencies to secure their printing requirements from the private
sector and in limiting the budget of the NPO to its income, will
purportedly lead to the gradual abolition of the NPO and the loss
of security of tenure of its present employees. In other words,
petitioners avow that the reorganization of the NPO under
Executive Order No. 378 is tainted with bad faith. The basic
evidentiary rule is that he who asserts a fact or the affirmative of
an issue has the burden of proving it.[31]

A careful review of the records will show that petitioners

utterly failed to substantiate their claim. They failed to allege,
much less prove, sufficient facts to show that the limitation of the
NPOs budget to its own income would indeed lead to the abolition
of the position, or removal from office, of any employee. Neither
did petitioners present any shred of proof of their assertion that
the changes in the functions of the NPO were for political
considerations that had nothing to do with improving the
efficiency of, or encouraging operational economy in, the said
agency.

In sum, the Court finds that the petition failed to show any
constitutional infirmity or grave abuse of discretion amounting to
lack or excess of jurisdiction in President Arroyos issuance of
Executive Order No. 378.

WHEREFORE, the petition is hereby DISMISSED and the

prayer for a Temporary Restraining Order and/or a Writ of
Preliminary Injunction is hereby DENIED. No costs.

SO ORDERED.
 4. Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-23136 August 26, 1974

ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR

DIONISIO, plaintiffs-appellants,
vs.
THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ, WILFRIDO C.
TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR., ANTONIO P. MADRIGAL, JOSE P.
MADRIGAL, CLAUDIO TEEHANKEE, and ALFONSO JUAN OLONDRIZ, defendants-appellees.
CIPRIANO AZADA, MARIA CRISTINA OLONDRIZ PERTIERRA jointly with her husband
ARTURO PERTIERRA, and MARIA DEL PUY OLONDRIZ DE STEVENS, movants-intervenors-
appellants.

Deogracias T. Reyes & Associates for appellants.

Taada, Teehankee & Carreon for appellees.

Paterno Pedrena for appellee Fermin Z. Caram, Jr.

ZALDIVAR, J.:p

In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the order dated
March 21, 1964 of the Court of First Instance of Manila dismissing the complaint together with all
other pending incidents in Civil Case No. 55810.

The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12, Rule 3, of
the Rules of Court, contained six causes of action. Under the first cause of action, plaintiffs-
appellants alleged that they were, on or before March 28, 1962, stockholders in the Consolidated
Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and existing under
Philippine laws; that the stockholders of the CMI, including the plaintiffs-appellants, passed, at a
regular stockholders' meeting, a Resolution providing: (a) that the Consolidated Bank & Trust Co.
(hereinafter referred to as Bank) be organized with an authorized capital of P20,000,000.00; (b) that
the organization be undertaken by a Board of Organizers composed of the President and Members
of the Board of Directors of the CMI; (c) that all stockholders of the CMI, who were legally qualified to
become stockholders, would be entitled to subscribe to the capital stock of the proposed Bank "at
par value to the same extent and in the same amount as said stockholders' respective share
holdings in the CMI," as shown in its stock books on a date to be fixed by the Board of Directors
[which date was subsequently fixed as January 15, 1963], provided that the right to subscribe should
be exercised within thirty days from the date so fixed, and "that if such right to subscription be not so
exercised then the stockholders concerned shall be deemed to have thereby waived and
released ipso facto their right to such subscription in favor of the Interim Board of Organizers of the
Defendant Bank or their assignees;" and (d) that the Board of Directors of the CMI be authorized to
declare a "special dividend" in an amount it would fix, which the subscribing stockholders might
authorize to be paid directly to the treasurer of the proposed Bank in payment of the subscriptions;
that the President and members of the Board of Directors of the CMI, who are the individuals-
defendants-appellees in the instant case, constituted themselves as the Interim Board of Organizers;
that said Board sent out, on or about November 20, 1962, to the CMI stockholders, including the
plaintiffs-appellants, circular letters with "Pre-Incorporation Agreement to Subscribe" forms that
provided that the payment of the subscription should be made in cash from time to time or by the
application of the special dividend declared by the CMI, and that the subscription must be made
within the period from December 4, 1962 to January 15, 1963, "otherwise such subscription right
shall be deemed to have been thereby ipso facto waived and released in favor of the Board of
Organizers of the Defendant Bank and their assignees"; that the plaintiffs-appellants accomplished
and filed their respective "Pre-Incorporation Agreement to Subscribe" and paid in full their
subscriptions; that plaintiffs-appellants and the other CMI subscribing stockholders in whose behalf
the action was brought also subscribed to a very substantial amount of shares; that on June 25,
1963, the Board of Organizers caused the execution of the Articles or Incorporation of the proposed
Bank indicating an original subscription of 50,000 shares worth P5,000,000 subscribed and paid only
by six of the individuals-defendants-appellees, namely, Antonio P. Madrigal, Jose P. Madrigal Simon
R. Paterno, Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo C. Tecson, thereby excluding the
plaintiffs-appellants and the other CMI subscribing stockholders who had already subscribed; that
the execution of said Articles of Incorporation was "in violation of law and in breach of trust and
contractual agreement as a means to gain control of Defendant Bank by Defendant Individuals and
persons or entities chosen by them and for their personal profit or gain in disregard of the rights of
Plaintiffs and other CMI Subscribing Stockholders;" that the paid-in capital stock was raised, as
required by the Monetary Board, to P8,000,000.00, and individuals-defendants-appellees caused to
be issued from the unissued shares 30,000 shares amounting to P3,000,000.00, all of which were
again subscribed and paid for entirely by individuals-defendants-appellees or entities chosen by
them "to the exclusion of Plaintiffs and other CMI subscribing stockholders" "in violation of law and
breach of trust and of the contractual agreement embodied in the contractual agreement of March
28, 1962"; that the Articles were filed with the Securities and Exchange Commission which issued
the Certificate of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-
appellants and other CMI subscribing stockholders had been denied, through the unlawful acts and
manipulation of the defendant Bank and Individuals-defendants-appellees, the right to subscribe at
par value, in proportion to their equities established under their respective "Pre-Incorporation
Agreements to Subscribe" to the capital stock, i.e., (a) to the original issue of 50,000 shares and/or
(b) to the additional issue of 30,000 shares, and/or (c) in that portion of said original or additional
issue which was unsubscribed; that the individuals-defendants-appellees and the persons chosen by
them had unlawfully acquired stockholdings in the defendant-appellee Bank in excess of what they
were lawfully entitled and held such shares "in trust" for the plaintiffs-appellants and the other CMI
stockholders; that it would have been vain and futile to resort to intra corporate remedies under the
facts and circumstances alleged above. As relief on the first cause of action, plaintiffs-appellants
prayed that the subscriptions and share holdings acquired by the individuals-defendants- appellees
and the persons chosen by them, to the extent that plaintiffs-appellants and the other CMI
stockholders had been deprived of their right to subscribe, be annulled and transferred to plaintiffs-
appellants and other CMI subscribing stockholders.

Besides reproducing all the above allegations in the other causes of action, plaintiffs-appellants
further alleged under the second cause of action that on or about August 28, 1963, defendants-
appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z. Caram, Jr., and Wilfredo C. Tecson
"falsely certified to the calling of a special stockholders' meeting allegedly pursuant to due notice and
call of Defendant Bank" although plaintiffs-appellants and other CMI stockholders were not notified
thereof, and amended the Articles of Incorporation increasing the number of Directors from 6 to 7,
and had the illegally created Position of Director filled up by defendant-appellee Alfonso Juan
Olondriz, who was not competent or qualified to hold such position. In the third cause of action,
plaintiffs-appellants claimed actual damages in an amount equivalent to the difference between the
par value of the shares they were entitled, but failed, to acquire and the higher market value of the
same shares. In the fourth cause of action, Plaintiffs-appellants claimed moral damages; in the fifth,
exemplary damages; and in the sixth, attorney's fees.

In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one of the original
plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria Cristina Olondriz Pertierra, Maria del
Puy Olondriz de Stevens (who later withdrew as intervenors-appellants) and Carmen Sievert de
Amoyo, filed a motion to intervene, and to join the plaintiffs-appellants on record, to which motion
defendants-appellees, except Fermin Z. Caram, Jr., filed, on January 17, 1964 their opposition.

On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to dismiss
on the grounds that (a) plaintiffs-appellants had no legal standing or capacity to institute the alleged
class suit; (b) that the complaint did not state a sufficient and valid cause of action; and (c) that
plaintiffs-appellants' complaint against the increase of the number of directors did not likewise state a
cause of action. Plaintiffs-appellants filed their opposition thereto on February 21, 1964.

On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a writ of
preliminary injunction to enjoin defendants-appellees from considering or ratifying by resolution, at
the meeting of the stockholders of defendant-appellee Bank to be held the following day, the
unlawful apportionment of the shares of the defendant-appellee Bank and the illegal amendment to
its Articles of Incorporation increasing the number of Directors, The Court, after hearing, granted the
writ, but subsequently set it aside upon the appellees' filing a counter bond.

Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al., and Carlos Moran
Sison, et al., filed separate manifestations that they were opposing and disauthorizing the suit of
plaintiffs-appellants.

On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a supplemental ground
for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr., who abstained,
had unanimously, at their regular annual meeting held on March 5, 1964, ratified and confirmed all
the actuations of the organizers-directors in the incorporation, organization and establishment of the
Bank.

In its order, dated March 21, 1964, the trial court granted the motion to dismiss, holding, among
other things, that the class suit could not be maintained because of the absence of a showing in the
complaint that the plaintiffs-appellants were sufficiently numerous and representative, and that the
complaint failed to state a cause of action. From said order, appellants, plaintiffs and intervenors,
interposed this appeal to this Court on questions of law and fact, contending that the lower court
erred as follows:

1. In holding that plaintiffs-appellants could not maintain the present class suit
because of the absence of a showing in the complaint that they were sufficiently
numerous and representative;

II. In holding that the instant action could not be maintained as a class suit because
plaintiffs-appellants did not have a common legal interest in the subject matter of the
suit;

III. In dismissing the present class suit on the ground that it did not meet the
requirements of Rule 3, section 12 of the Rules of Court;
 IV. In holding that the complaint was fatally defective in that it failed to state with
particularity that plaintiffs-appellants had resorted to, and exhausted, intra-corporate
remedies;

V. In resolving defendants-appellees' motion on the basis of facts not alleged in the

complaint;

VI. In holding that plaintiffs-appellants' complaint stated no valid cause of action

against defendants-appellees;

VII. In not holding that a trust relationship existed between the Interim Board of
Organizers of defendant-appellee Bank and the CMI subscribing stockholders and in
not holding that the waiver was in favor of the Board of Trustees for the CMI
subscribing stockholders;

VIII. In holding that the failure of plaintiffs-appellants to allege that they had paid or
had offered to pay for the shares allegedly pertaining to them constituted another
ground for dismissal;

XI. In holding that the allegations under the second cause of action stated no valid
cause of action due to a fatal omission to allege that plaintiffs-appellants were
stockholders of record at the time of the holding of the special stockholders' meeting;

X. In holding that plaintiffs-appellants' complaint stated no cause of action against

defendant-appellee Bank; and

XI. In considering the resolution of ratification and confirmation and in holding that
the resolution rendered the issues in this case moot.

The assigned error revolve around two questions namely: (1) whether the instant action could be
maintained as a class suit, and (2) whether the complaint stated a cause of action. These issues
alone will be discussed.

1. Appellants contended in the first three assigned errors that the trial court erred in holding that the
present suit could not be maintained as a class suit, and in support thereof argued that the propriety
of a class suit should be determined by the common interest in the subject matter of the controversy;
that in the instant case there existed such common interest which consisted not only in the recovery
of the shares of which the appellants were unlawfully deprived, but also in divesting the individuals-
defendants-appellees and the person or entities chosen by them of control of the appellee Bank. 1 ;
that the complaint showed that besides the four plaintiff-appellants of record, and the four movant-
intervenors-appellants there were in the appellee Bank many other stockholders who, tough similarly
situated as the appellants, did not formally include themselves as parties on record in view of the
representative character of the suit; that the test, in order to determine the legal standing of a party to
institute a class suit, was not one, of number, but whether or not the interest of said party was
representative of the persons in whose behalf the class suit was instituted; that granting arguendo, that
the plaintiffs-appellants were not sufficiently numerous and representative, the court should not have
dismissed the action, for insufficiency of number in a class suit was not a ground for a motion to dismiss,
and the court should have treated the suit as an action under Rule 3, section 6, of the Rules of Court
which permits a joinder of parties.

Defendants-appellees, on the contrary, stressed that the instant suit was instituted as a class suit
and the plaintiffs-appellants did not sue in their individual capacities for the protection of their
individual interests; that the plaintiffs appellants of record could not be considered numerous and
representative, as said plaintiffs-appellants were only four out of 1,500 stockholders, and owned only
8 shares out of the 80,000 shares of stock of the appellee Bank; that even if to the four plaintiffs-
appellants were added the four movants-intervenors-appellants the situation would be the same as
two of the intervenors, to wit, Ma. Cristina Olondriz Pertierra and Ma. del Puy Olondriz de Stevens,
could not sue as they did not have their husbands' consent; that it was necessary that in a class suit
the complaint itself should allege facts showing that the plaintiffs were sufficiently numerous and
representative, and this did not obtain in the instant case, as the complaint did not. even allege how
many other CMI stockholders were "similarly situated"; that the withdrawal of one plaintiff, Francisco
Sevilla, the subsequent disclaimers of any interest in the suit made in two separate pleadings by
other CMI stockholders and the disauthorization of their being represented by plaintiffs-appellants by
the 986 (out of 1,663) stockholders who attended the annual meeting of bank stockholders on March
5, 1964, completely negated plaintiffs-appellants' pretension that they were sufficiently numerous
and representative or that there were many other stockholders similarly situated whom the plaintiffs-
appellants allegedly represented; that plaintiffs-appellants did not have that common or general
interest required by the Rules of Court in the subject matter of the suit. 2

In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3, not being one
enumerated in Rules 16 and 17, was not a ground for dismissal; that the requirements for a class
had been complied with; that the required common interest existed even if the interests were several
for there was a common question of law or fact and a common relief was sought; that the common
or general interest could be in the object of the action, in the result of the proceedings, or in the
question involved in the action, as long as there was a common right based on the same essential
facts; that plaintiffs-appellants adequately represented the aggrieved group of bank stockholders,
inasmuch as appellants' interests were not antagonistic to those of the latter, and appellants were in
the same position as the group in whose behalf the complaint was filed.

The governing statutory provision for the maintenance of a class suit is Section 12 of Rule 3 of the
Rules of Court, which reads as follows:

Sec. 12. Class suit When the subject matter of the controversy is one of common
or general interest to many persons, and the parties are so numerous that it is
impracticable to bring them all before the court, one or more may sue or defend for
the benefit of -ill. But in such case the court shall make sure that the parties actually
before it are sufficiently numerous and representative so that all interests concerned
are fully protected. Any party in interest shall have a right to intervene in protection of
his individual interest.

The necessary elements for the maintenance of a class suit are accordingly: (1) that the subject
matter of the controversy be one of common or general interest to many persons, and (2) that such
persons be so numerous as to make it impracticable to bring them all to the court. An action does
not become a class suit merely because it is designated as such in the pleadings. Whether the suit
is or is not a class quit depends upon the attending facts, and the complaint, or other pleading
initiating the class action should allege the existence of the necessary facts, to wit, the existence of a
subject matter of common interest, and the existence of a class and the number of persons in the
alleged class, 3 in order that the court might be enabled to determine whether the members of the class
are so numerous as to make it impracticable to bring them all before the court, to contrast the number
appearing on the record with the number in the class and to determine whether claimants on record
adequately represent the class and the subject matter of general or common interest. 4

The complaint in the instant case explicitly declared that the plaintiffs- appellants instituted the
"present class suit under Section 12, Rule 3, of the Rules of Court in. behalf of CMI subscribing
stockholders" 5 but did not state the number of said CMI subscribing stockholders so that the trial court
could not infer, much less make sure as explicitly required by the sufficiently numerous and representative
in order that all statutory provision, that the parties actually before it were interests concerned might be
fully protected, and that it was impracticable to bring such a large number of parties before the court.

The statute also requires, as a prerequisite to a class suit, that the subject-matter of the controversy
be of common or general interest to numerous persons. Although it has been remarked that the
"innocent 'common or general interest' requirement is not very helpful in determining whether or not
the suit is proper", 6 the decided cases in our jurisdiction have more incisively certified the matter when
there is such common or general interest in the subject matter of the controversy. By the phrase "subject
matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels,
and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the
defendant." 7

This Court has ruled that a class suit did not lie in an action for recovery of real property where
separate portions of the same parcel were occupied and claimed individually by different parties to
the exclusion of each other, such that the different parties had determinable, though undivided
interests, in the property in question. 8 It his likewise held that a class suit would not lie against 319
defendants individually occupying different portions of a big parcel of land, where each defendant had an
interest only in the particular portion he was occupying, which portion was completely different from the
other portions individually occupied by other defendants, for the applicable section 118 of the Code of
Civil Procedure relates to a common and general interest in single specific things and not to distinct
ones. 9 In an action for the recovery of amounts that represented surcharges allegedly collected by the city
from some 30,000 customers of four movie houses, it was held that a class suit did not lie, as no one
plaintiff had any right to, or any share in the amounts individually claimed by the others, as each of them
was entitled, if at all, only to the return of what he had personally paid. 10

The interest, subject matter of the class suits in the above cited cases, is analogous to the interest
claimed by appellants in the instant case. The interest that appellants, plaintiffs and intervenors, and
the CMI stockholders had in the subject matter of this suit the portion of stocks offering of the
Bank left unsubscribed by CMI stockholders who failed to exercise their right to subscribe on or
before January 15, 1963 was several, not common or general in the sense required by the
statute. Each one of the appellants and the CMI stockholders had determinable interest; each one
had a right, if any, only to his respective portion of the stocks. No one of them had any right to, or
any interest in, the stock to which another was entitled. Anent this point, the trial court correctly
remarked:

It appears to be the theory of the plaintiffs borne out by the prayer, that each
subscribing CMI stockholder is entitled to further subscribe to a certain Proportion
depending upon his stockholding in the CMI, of the P8 million capital stock of the
defendant bank open to subscription (out of the 20 million authorized capital stock)
as well as the unsubscribed portion of the P8 million stock offering which were left
unsubscribed by those CMI stockholders who for one reason or another had failed to
exercise their subscription rights on or before January 15, 1963. Under the plaintiffs'
theory therefore, each subscribing CMI stockholder was entitled to subscribe to a
definite number of shares both in the original offering of P8 million and in that part
thereof not subscribed on or before the deadline mentioned, so that one subscribing
CMI stockholder may be entitled to subscribe to one share, another to 3 shares and
a third to 11 shares, and so on, depending upon the amount and extent of CMI stockholding. But except for the
fact that a question of law the proper interpretation of the waiver provisions of the CMI stockholders' resolution of
March 28, 1962 is common to all, each CMI subscribing stock holder has a legal interest in, and a claim to, only his
respective proportion of shares in the defendant bank, and none with regard to any of the shares to which another
stockholder is entitled. Thus plaintiff Ismael Mathay has no legal interest in, or claim to, any share claimed by any or all
of his co-plaintiffs from the defendant individuals. Hence, no CMI subscribing stockholder or, for that matter, not any
number of CMI stockholders can maintain a class suit in behalf of others,... 11
Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders
suffered wrongs that had been committed by similar means and even pursuant to a single plan of the
Interim Board of Organizers of the Bank, the wrong suffered by each of them would constitute a
wrong separate from those suffered by the other stockholders, and those wrongs alone would not
create that common or general interest in the subject matter of the controversy as would entitle any
one of them to bring a class suit on behalf of the others. Anent this point it has been said that:

Separate wrongs to separate persons, although committed by similar means and

even pursuant to a single plan, do not alone create a 'common' or 'general' interest in
those who are wronged so as to entitle them to maintain a representative action. 12

Appellants, however, insisted, citing American authorities, 13 that a class suit might be brought even if
the interests of plaintiffs-appellants might be several as long as there was a common question of law or
fact affecting them and a common relief was sought. We have no conflict with the authorities cited; those
were rulings under the Federal Rules of Civil Procedure, pursuant to Rule 23 of which, there were three
types of class suits, namely: the true, the hybrid, and the spurious, and these three had only one feature
in common, that is, in each the persons constituting the class must be so numerous as to make it
impracticable to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the
spurious class action (Rule 23 (a) (3) which involves a right sought to be enforced, which is several, and
there is a common question of law or fact affecting the several rights and a common relief is
sought. 14 The spurious class action is merely a permissive joinder device; between the members of the
class there is no jural relationship, and the right or liability of each is distinct, the class being formed solely
by the presence of a common question of law or fact. 15 This permissive joinder is provided in Section 6 of
Rule 3, of our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this action
purported and was intended to be as per averment of the complaint.

It may be granted that the claims of all the appellants involved the same question of law. But this
alone, as said above, did not constitute the common interest over the subject matter indispensable in
a class suit. The right to purchase or subscribe to the shares of the proposed Bank, claimed by
appellants herein, is analogous to the right of preemption that stockholders have when their
corporation increases its capital. The right to preemption, it has been said, is personal to each
stockholder, 16 and while a stockholder may maintain a suit to compel the issuance of his proportionate
share of stock, it has been ruled, nevertheless, that he may not maintain a representative action on behalf
of other stockholders who are similarly situated. 17 By analogy, the right of each of the appellants to
subscribe to the waived stocks was personal, and no one of them could maintain on behalf of others
similarly situated a representative suit.

Straining to make it appear that appellants and the CMI subscribing stockholders had a common or
general interest in the subject matter of the suit, appellants stressed in their brief that one of the
reliefs sought in the instant action was "to divest defendant individuality and the persons or entities
chosen by them of control of the defendant bank." 18 This relief allegedly sought by appellants did not,
however, appear either in the text or in the prayer of the complaint.

Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground for
dismissal of one action. This Court has, however, said that where it appeared that no sufficient
representative parties had been joined, the dismissal by the trial court of the action, despite the
contention by plaintiffs that it was a class suit, was correct. 19 Moreover, insofar as the instant case is
concerned, even if it be granted for the sake of argument, that the suit could not be dismissed on that
ground, it could have been dismissed, nevertheless, on the ground of lack of cause of action which will be
presently discussed. .

2. Appellants supported their assigned error that the court erred in holding that the complaint stated
no valid cause of action, by claiming that paragraph 15 together with the other allegations of the
complaint to the effect that defendants-appellees had unlawfully acquired stockholdings in the capital
stock of defendant-appellee Bank in excess of what they were lawfully entitled to, in violation of law
and in breach of trust and the contractual agreement, constituted a valid and sufficient cause of
action; 20 and that only the allegations in the complaint should have been considered by the trial court in
determining whether the complaint stated a cause of action or not.

Defendants-appellees, on the contrary, maintained that the allegations of the complaint should not
be the only ones to be considered in determining whether there is a cause of action; that even if the
ultimate facts alleged in the first cause of action of the complaint be the only ones considered the
complaint would still fail to state a valid cause of action on the following grounds: first, there was no
allegation regarding appellants' qualification to subscribe to the capital stock of the appellee Bank,
for under the CMI stockholders' resolution of March 28, 1962, only those qualified under the law
were entitled to subscribe, and under the regulations of the Monetary Board, only natural-born
Filipino citizens could be stockholders of a banking corporation organized under the laws of the
Philippines, and nowhere did the complaint alleged that plaintiffs-appellants were natural born
Filipino citizens. 21Second, appellants' averment in paragraph 8 that they "subscribed," and their
averment in paragraph 15 that they were "denied the right to subscribe ... to the capital stock of the
defendant Bank", were inconsistent, and hence neutralized each other, thereby leaving in shambles the
first cause of action. Third, there was no allegation that appellants had not yet received or had not been
issued the corresponding certificates of stock covering the shares they had subscribed and paid for.
Fourth, the allegations failed to show the existence of the supposed trust; and fifth, the complaint failed to
allege that plaintiffs-appellants had paid or offered to pay for the shares allegedly pertaining to them. 22

Let us premise the legal principles governing the motion to dismiss on the ground of lack of cause of
action.

Section 1, Rule 16 of the Rules of Court providing in part that: .

Within the time for pleading a motion to dismiss may be made on any of the following
grounds: ....

(g) That the complaint states no cause of action. ..1.

explicitly requires that the sufficiency of the complaint must be tested exclusively on the basis of the
complaint itself and no other should be considered when the ground for motion to dismiss is that the
complaint states no cause of action. Pursuant thereto this Court has ruled that:

As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss, must be
determined exclusively on the basis of the facts alleged therein. 23

It has been likewise held that a motion to dismiss based on lack of cause of action hypothetically
admits the truth of the allegations of fact made in the complaint. 24 It is to be noted that only the facts
well pleaded in the complaint, and likewise, any inferences fairly deducible therefrom, are deemed
admitted by a motion to dismiss. Neither allegations of conclusions 25 nor allegations of facts the falsity of
which the court may take judicial notice are deemed admitted. 26 The question, therefore, submitted to the
Court in a motion to dismiss based on lack of cause of action is not whether the facts alleged in the
complaint are true, for these are hypothetically admitted, but whether the facts alleged are sufficient to
constitute a cause of action such that the court may render a valid judgment upon the facts alleged
therein.

A cause of action is an act or omission of one party in violation of the legal right of the other. Its
essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative legal
duty in the defendant, and (3) an act or omission of the defendant in violation of plaintiff's right with
consequential injury or damage to the plaintiff for which he may maintain an action for the recovery
of damages or other appropriate relief. 27 On the other hand, Section 3 of Rule 6 of the Rules of Court
provides that the complaint must state the ultimate facts constituting the plaintiff's cause of action. Hence,
where the complaint states ultimate facts that constitute the three essential elements of a cause of action,
the complaint states a cause of action; 28 otherwise, the complaint must succumb to a motion to dismiss
on that ground.

The legal principles having been premised, let us now analyze and discuss appellant's various
causes of action.

Appellants' first cause of action, pursuant to what has been premised above, should have consisted
of: (1) the right of appellants as well as of the other CMI stockholders to subscribe, in proportion to
their equities established under their respective "Pre-Incorporation Agreements to Subscribe", to that
portion of the capital stock which was unsubscribed because of failure of the CMI stockholders to
exercise their right to subscribe thereto; (2) the legal duty of the appellant to have said portion of the
capital stock to be subscribed by appellants and other CMI stockholders; and (3) the violation or
breach of said right of appellants and other CMI stockholders by the appellees.

Did the complaint state the important and substantial facts directly forming the basis of the primary
right claimed by plaintiffs? Before proceeding to elucidate this question, it should be noted that a
bare allegation that one is entitled to something is an allegation of a conclusion. Such allegations
adds nothing to the pleading, it being necessary to plead specifically the facts upon which such
conclusion is founded. 29 The complaint alleged that appellants were stockholders of the CMI; that as
such stockholders, they were entitled; by virtue of the resolution of March 28, 1962, to subscribe to the
capital stock of the proposed Consolidated Bank and Trust Co., at par value to the same extent and in the
same amount as said stockholders' respective share holdings in the CMI as shown in the latter's stock
book as of January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided said
stockholders of the CMI were qualified under the law to become stockholders of the proposed
Bank; 30 that appellants accomplished and filed their respective "Pre-Incorporation Agreements to
Subscribe" and fully paid the subscription. 31

These alleged specific facts did not even show that appellants were entitled to subscribe to the
capital stock of the proposed Bank, for said right depended on a condition precedent, which was,
that they were qualified under the law to become stockholders of the Bank, and there was no direct
averment in the complaint of the facts that qualified them to become stockholders of the Bank. The
allegation of the fact that they subscribed to the stock did not, by necessary implication, show that
they were possessed of the necessary qualifications to become stockholders of the proposed Bank.

Assuming arguendo that appellants were qualified to become stockholders of the Bank, they could
subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the same extent and
in the same amount as said stockholders' respective stockholdings in the CMI" as of January 15,
1963. 32 This was the measure of the right they could claim to subscribe to waived stocks. Appellants did
not even aver that the stocks waived to the subscription of which they claimed the right to subscribe, were
comprised in "the extent and amount" of their respective share holdings in the CMI. It is not surprising that
they did not make such an averment for they did not even allege the amount of shares of stock to which
they claimed they were entitled to subscribe. The failure of the complaint to plead specifically the above
facts rendered it impossible for the court to conclude by natural reasoning that the appellants and other
CMI stockholders had a right to subscribe to the waived shares of stock, and made any allegation to that
effect a conclusion of the pleader, not an ultimate fact, in accordance with the test suggested by the
California Supreme Court, to wit:
 If from the facts in evidence, the result can be reached by that process of natural
reasoning adopted in the investigation of truth, it becomes an ultimate fact, to be
found as such. If, on the other hand, resort must be had to the artificial processes of
the law, in order to reach a final determination, the result is a conclusion of law. 33

Let us now pass to the second and third elements that would have constituted the first cause of
action. Did the complaint allege as ultimate facts the legal duty of defendants-appellees to have a
portion of the capital stock subscribed to by appellants? Did the complaint allege as ultimate facts
that defendants appellees had violated appellants' right?

Even if it be assumed arguendo that defendants-appellees had the duty to have the waived stocks
subscribed to by the CMI stockholders, this duty was not owed to all the CMI stockholders, but only
to such CMI stockholders as were qualified to become stockholders of the proposed Bank. Inasmuch
as it has been shown that the complaint did not contain ultimate facts to show that plaintiffs-
appellants were qualified to become stockholders of the Bank, it follows that the complaint did not
show that defendants-appellees were under duty to have plaintiffs-appellants subscribe to the stocks
of the proposed Bank. It inevitably follows also that the complaint did not contain ultimate facts to
show that the right of the plaintiffs-appellants to subscribe to the shares of the proposed Bank had
been violated by defendants-appellees. How could a non-existent right be violated?

Let us continue the discussion further. The complaint alleged that by virtue of the resolution of March
28, 1962, the President and Members of the Board of Directors of the CMI would be constituted as a
Board of Organizers to undertake and carry out the organization of the Bank; 34 that the Board of
Organizers was constituted and proceeded with the establishment of the Bank, 35 that the persons
composing the Board of Organizers were the individuals-defendants-appellees; 36 that the Board of
Organizers sent our circular letters with "Pre-Incorporation Agreement to Subscribe" forms 37 which
specified, among others, "such subscription right shall be deemed ipso facto waived and released in favor
of the Board of Organizers of the defendant Bank and their assignees"; 38 that in the Articles of
Incorporation prepared by the Board of Organizers, the individuals-defendants-appellees alone appeared
to have subscribe to the 50, shares; 39 and that individuals-defendants-appellees again subscribe to all the
additional 30,000 shares. 40 From these facts, appellants concluded that they were denied their right to
subscribe in proportion to their equities; 41 that the individuals-defendants-appellees unlawfully acquired
stockholdings far in excess of what they were lawfully entitled in violation of law and in breach of trust and
of contractual agreement; 42 and that, because of matters already alleged, the individuals-defendants-
appellees "hold their shares in the defendant bank in trust for plaintiffs." 43

The allegation in the complaint that the individuals-defendants-appellees held their shares "in trust"
for plaintiffs-appellants without averment of the facts from which the court could conclude the
existence of the alleged trust, was not deemed admitted by the motion to dismiss for that was a
conclusion of law. Express averments "that a party was the beneficial owner of certain property; ...
that property or money was received or held in trust, or for the use of another; that particular funds
were trust funds; that a particular transaction created an irrevocable trust; that a person held
Property as constructive trustee; that on the transfer of certain property a trust resulted" have been
considered as mere conclusions of law. 44 The facts alleged in the complaint did not, by logical
reasoning, necessarily lead to the conclusion that defendants-appellees were trustees in favor of
appellants of the shares of stock waived by the CMI stockholders who failed to exercise their right to
subscribe. In this connection, it has been likewise said that:

"The general rule is that an allegation of duty in terms unaccompanied by a statement of the facts
showing the existence of the duty, is a mere conclusion of law, unless there is a relation set forth
from which the law raises the duty." 45
In like manner, the allegation that individuals-defendants-appellees held said shares in trust was no
more than an interpretation by appellants of the effect of the waiver clause of the Resolution and as
such it was again a mere conclusion of law. It has been said that:

The following are also conclusions of law: ... an allegation characterizing an

instrument or purporting to interpret it and state its effects, ... 46

Allegations in petition in the nature of conclusions about the meaning of contract, inconsistent with
stated terms of the contract, cannot be considered. 47

The allegation that the defendants-appellee acquired stockholdings far in excess of what they were
lawfully entitled, in violation of law and in breach of trust and of contractual agreement, is also mere
conclusion of law.

Of course, the allegation that there was a violation of trust duty was plainly a conclusion of law, for "a
mere allegation that it was the duty of a party to do this or that, or that he was guilty of a breach of
duty, is a statement of a conclusion not of fact." 48

An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal conclusion or
opinion of the pleader. 49

Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the individual
defendant-appellee were entitled to; hence there was no basis for the court to determine what
amount subscribed to by them was excessive.

From what has been said, it is clear that the ultimate facts stated under the first cause of action are
not sufficient to constitute a cause of action.

The further allegations in the second cause of action that the calling of a special meeting was
"falsely certified", that the seventh position of Director was "illegally created" and that defendant
Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere conclusions of law,
the same not being necessarily inferable from the ultimate facts stated in the first and second causes
of action. It has been held in this connection that:

An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal conclusion or
opinion of the pleader. The same is true of allegations that an instrument was
'illegally' certified or ... that an act was arbitrarily done ..." 50

A pleader states a mere conclusion when he makes any of the following allegations: that
a party was incapacitated to enter into a contract or convey
property ... 51

The third, fourth, fifth and sixth causes of action depended on the first cause of action, which, as has
been shown, did not state ultimate facts sufficient to constitute a cause of action. It stands to reason,
therefore, that said causes of action would also be fatally defective.

It having been shown that the complaint failed to state ultimate facts to constitute a cause of action,
it becomes unnecessary to discuss the other assignments of errors.
WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the Court of
First Instance of Manila dismissing the complaint in Civil Case No. 55810 is affirmed, with costs in
this instance against appellants. It is so ordered.

DEATH OR SEPARATION OF A PARTY

Republic of the Philippines

Supreme Court
Baguio City
 THIRD DIVISION

DOMINGO CARABEO, G.R. No. 190823

Petitioner,
Present:

CARPIO,* J.,
- versus - CARPIO MORALES, J., Chairperson,
BRION,
BERSAMIN, and
SERENO, JJ.
SPOUSES NORBERTO and
SUSAN DINGCO, Promulgated:
Respondents. April 4, 2011

x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract

denominated as Kasunduan sa Bilihan ng Karapatan sa Lupa[1] (kasunduan) with
Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to
sell his rights over a 648 square meter parcel of unregistered land situated
in Purok III, Tugatog, Orani, Bataan to respondents for P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the

contract, the remaining balance to be paid on September 1990.

Respondents were later to claim that when they were about to hand in the balance
of the purchase price, petitioner requested them to keep it first as he was yet to
settle an on-going squabble over the land.

Nevertheless, respondents gave petitioner small sums of money from time to

time which totaled P9,100, on petitioners request according to them; due to
respondents inability to pay the amount of the remaining balance in full, according
to petitioner.

By respondents claim, despite the alleged problem over the land, they
insisted on petitioners acceptance of the remaining balance of P18,900
but petitioner remained firm in his refusal, proffering as reason therefor that he
would register the land first.

Sometime in 1994, respondents learned that the alleged problem over the
land had been settled and that petitioner had caused its registration in his name on
December 21, 1993 under Transfer Certificate of Title No. 161806. They thereupon
offered to pay the balance but petitioner declined, drawing them to file a complaint
before the Katarungan Pambarangay. No settlement was reached, however, hence,
respondent filed a complaint for specific performance before the Regional Trial
Court (RTC) of Balanga, Bataan.

Petitioner countered in his Answer to the Complaint that the sale was void
for lack of object certain, the kasunduan not having specified the metes and bounds
of the land. In any event, petitioner alleged that if the validity of the kasunduan is
upheld, respondents failure to comply with their reciprocal obligation to pay the
balance of the purchase price would render the action premature. For, contrary to
respondents claim, petitioner maintained that they failed to pay the balance
of P28,000 on September 1990 to thus constrain him to accept installment
payments totaling P9,100.

After the case was submitted for decision or on January 31, 2001,
[2]
petitioner passed away. The records do not show that petitioners counsel
informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his
death and that proper substitution was effected in accordance with Section 16, Rule
3, Rules of Court.[3]

By Decision of February 25, 2001,[4] the trial court ruled in favor of

respondents, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered

ordering:
 1. The defendant to sell his right over 648 square meters of land
pursuant to the contract dated July 10, 1990 by executing a Deed of
Sale thereof after the payment of P18,900 by the plaintiffs;

2. The defendant to pay the costs of the suit.

SO ORDERED.[5]

Petitioners counsel filed a Notice of Appeal on March 20, 2001.

By the herein challenged Decision dated July 20, 2009, [6] the Court of
Appeals affirmed that of the trial court.

Petitioners motion for reconsideration having been denied by Resolution of

January 8, 2010, the present petition for review was filed by Antonio Carabeo,
petitioners son,[7] faulting the appellate court:

(A)

in holding that the element of a contract, i.e., an object certain is

present in this case.

(B)

in considering it unfair to expect respondents who are not lawyers

to make judicial consignation after herein petitioner allegedly refused to
accept payment of the balance of the purchase price.

(C)

in upholding the validity of the contract, Kasunduan sa Bilihan ng

Karapatan sa Lupa, despite the lack of spousal consent,(underscoring
supplied)

and proffering that

 (D)

[t]he death of herein petitioner causes the dismissal of the action filed by
respondents; respondents cause of action being an action in
personam. (underscoring supplied)

The petition fails.

The pertinent portion of the kasunduan reads:[8]

xxxx
Na ako ay may isang partial na lupa na matatagpuan sa Purok 111,
Tugatog, Orani Bataan, na may sukat na 27 x 24 metro kuwadrado, ang
nasabing lupa ay may sakop na dalawang punong santol at isang punong
mangga, kayat ako ay nakipagkasundo sa mag-asawang Norby Dingco at
Susan Dingco na ipagbili sa kanila ang karapatan ng nasabing lupa sa
halagang P38,000.00.

x x x x (underscoring supplied)

That the kasunduan did not specify the technical boundaries of the property
did not render the sale a nullity. The requirement that a sale must have for its object
a determinate thing is satisfied as long as, at the time the contract is entered into,
the object of the sale is capable of being made determinate without the necessity of
a new or further agreement between the parties.[9] As the above-quoted portion of
the kasunduan shows, there is no doubt that the object of the sale is determinate.

Clutching at straws, petitioner proffers lack of spousal consent. This was

raised only on appeal, hence, will not be considered, in the present case, in the
interest of fair play, justice and due process.[10]

Respecting the argument that petitioners death rendered respondents complaint

against him dismissible, Bonilla v. Barcena[11]enlightens:

The question as to whether an action survives or not depends on

the nature of the action and the damage sued for. In the causes of action
which survive, the wrong complained [of] affects primarily and
 principally property and property rights, the injuries to the person being
merely incidental, while in the causes of action which do not survive,
the injury complained of is to the person, the property and rights of
property affected being incidental. (emphasis and underscoring supplied)

In the present case, respondents are pursuing a property right arising from
the kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect
his proprietary interest. Assuming arguendo, however, that the kasunduan is
deemed void, there is a corollary obligation of petitioner to return the money paid
by respondents, and since the action involves property rights,[12] it survives.

It bears noting that trial on the merits was already

concluded before petitioner died. Since the trial court was not informed of
petitioners death, it may not be faulted for proceeding to render judgment without
ordering his substitution. Its judgment is thus valid and binding upon petitioners
legal representatives or successors-in-interest, insofar as his interest in the property
subject of the action is concerned.[13]

In another vein, the death of a client immediately divests the counsel of

authority.[14] Thus, in filing a Notice of Appeal, petitioners counsel of record had no
personality to act on behalf of the already deceased client who, it bears reiteration,
had not been substituted as a party after his death. The trial courts decision had
thereby become final and executory, no appeal having been perfected.

WHEREFORE, the petition is DENIED.