Professional Documents
Culture Documents
YUJUICO VS QUIAMBAO
DECISION
PEREZ, J.:
This case is a Petition for Review on Certiorari1 from the Orders2 dated 4 June
2007 and 5 November 2007 of the Regional Trial Court (RTC), Branch 154, of
Pasig City in S.C.A. No. 3047.
The facts:
Background
8. However, upon meeting with Pilapil and Quiambao, the latter still
refused to turnover the stock and transfer book to Blando. Instead, Blando
was once again constrained to agree to a proposal by Pilapil to have the
stock and transfer book deposited with the RTC, Branch 155, of Pasig
City. The said court, however, refused to accept such deposit on the
ground that it had no place for safekeeping.
9. Since Quiambao and Pilapil still refused to turnover the stock and
transfer book, Blando again acceded to have the book deposited in a
safety deposit box, this time, with the Export and Industry Bank in San
Miguel A venue, Pasig City.
Pursuant to the resolution, two (2) informations11 were filed against the
respondents before the Metropolitan Trial Court (MeTC) of Pasig City. The
informations were docketed as Criminal Case No. 89723 and Criminal Case No.
89724 and were raffled to Branch 69.
Criminal Case No. 89723 is for the offense of removing the stock and transfer
book of STRADEC from its principal office. The information reads:12
On and/or about the period between March 1 and June 25, 2004, inclusive, in
Pasig City and within the jurisdiction of this Honorable Court, the above accused,
being then members of the Board of Directors and/or officers, as the case
maybe, of Strategic Alliance Development Corporation (STRADEC, for short),
conspiring and confederating together and mutually helping and aiding one
another, did then and there willfully, unlawfully and feloniously, remove the stock
and transfer book of the said STRADEC at its principal office at the 24th Floor,
One Magnificent Mile-CITRA City Bldg., San Miguel A venue, Ortigas Center,
Pasig City, where they should all be kept, in violation of the aforesaid law, and to
the prejudice of the said complainants.
Criminal Case No. 89724, on the other hand, covers the offense of refusing
access to, and examination of, the corporate records and the stock and transfer
book of STRADEC at its principal office. The information reads:13
On and/or about the period between March 1 and June 25, 2004, inclusive, in
Pasig City, and within the jurisdiction of this Honorable Court, the above
accused, being then members of the Board of Directors and/or officers, as the
case maybe, of Strategic Alliance Development Corporation (STRADEC, for
short), conspiring and confederating together and mutually helping and aiding
one another, did then and there willfully, unlawfully and feloniously, refuse to
allow complainants Bonifacio C. Sumbilla and Aderito Z. Yujuico, being then
stockholders and/or directors of STRADEC, access to, and examination of, the
corporate records, including the stock and transfer book, of STRADEC at its
principal office at the 24th Floor, One Magnificent Mile-CITRA Bldg., San Miguel
Avenue, Ortigas Center, Pasig City, where they should all be kept, in violation of
the aforesaid law, and to the prejudice of the said complainants.
Urgent Omnibus Motion and the Dismissal of Criminal Case No. 89723
On 8 May 2006, the MeTC issued an order15 partially granting the Urgent
Omnibus Motion. The MeTC dismissed Criminal Case No. 89723 but ordered the
issuance of a warrant of arrest against respondents in Criminal Case No. 89724.
In dismissing Criminal Case No. 89723, the MeTC held that Section 74, in
relation to Section 144, of the Corporation Code only penalizes the act of
"refus[ing] to allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from the records or minutes of the
corporation"16 and that act is already the subject matter of Criminal Case No.
89724. Hence, the MeTC opined, Criminal Case No. 89723-which seeks to try
respondents for merely removing the stock and transfer book of STRADEC from
its principal office-actually charges no offense and, therefore, cannot be
sustained.17
Anent directing the issuance of a warrant of arrest in Criminal Case No. 89724,
the MeTC found probable cause to do so; given the failure of the respondents to
present any evidence during the preliminary investigation showing that they do
not have possession of the corporate records of STRADEC or that they allowed
petitioners to inspect the corporate records and the stock and transfer book of
STRADEC.18
Certiorari Petition and the Dismissal of Criminal Case No. 89724 After their
motion for partial reconsideration was denied, respondents filed a certiorari
petition,21 with prayer for the issuance of a temporary restraining order (TRO),
before the RTC of Pasig City on 27 September 2006. The petition was docketed
as S.C.A. No. 3047.
On 16 November 2006, the RTC issued a TRO enjoining the MeTC from
conducting further proceedings in Criminal Case No. 89724 for twenty (20)
days.22
The RTC found that the finding of probable cause against the respondents in
Criminal Case No. 89724 was not supported by the evidence presented during
the preliminary investigation but was, in fact, contradicted by them:24
1. The R TC noted that, aside from the complaint itself, no evidence was
ever submitted by petitioners to prove that they demanded and was
refused access to the corporate records of STRADEC between 1 March to
25 June 2004. What petitioners merely submitted is their letter dated 6
September 2004 demanding from respondents access to the corporate
records of STRADEC.
3. The RTC also took exception to the reason provided by the MeTC in
supporting its finding of probable cause against the respondents. The R
TC held that it was not incumbent upon the respondents to provide
evidence proving their innocence. Hence, the failure of the respondents to
submit evidence showing that they do not have possession of the
corporate records of STRADEC or that they have allowed inspection of the
same cannot be taken against them much less support a finding of
probable cause against them.
The RTC further pointed out that, at most, the evidence on record only supports
probable cause that the respondents were withholding the stock and transfer
book of STRADEC. The RTC, however, opined that refusing to allow inspection
of the stock and transfer book, as opposed to refusing examination of other
corporate records, is not punishable as an offense under the Corporation
Code.26 Hence, the directive of the RTC dismissing Criminal Case No. 89724.
In their petition, petitioners claim that Criminal Case No. 89724 may still be
sustained against the respondents insofar as the charge of refusing to allow
access to the stock and transfer book of STRADEC is concerned. They argue
that the R TC made a legal blunder when it held that the refusal to allow
inspection of the stock and transfer book of a corporation is not a punishable
offense under the Corporation Code. Petitioners contend that such a refusal still
amounts to a violation of Section 74 of the Corporation Code, for which Section
144 of the same code prescribes a penalty.
OUR RULING
The RTC indeed made an inaccurate pronouncement when it held that the act of
refusing to allow inspection of the stock and transfer book of a corporation is not
a punishable offense under the Corporation Code. Such refusal, when done in
violation of Section 74(4) of the Corporation Code, properly falls within the
purview of Section 144 of the same code and thus may be penalized as an
offense.
The foregoing gaffe nonetheless, We still sustain the dismissal of Criminal Case
No. 89724 as against the respondents.
Section 74 is the provision of the Corporation Code that deals with the books a
corporation is required to keep. It reads:
Section 74. Books to be kept; stock transfer agent. - Every corporation shall keep
and carefully preserve at its principal office a record of all business transactions
and minutes of all meetings of stockholders or members, or of the board of
directors or trustees, in which shall be set forth in detail the time and place of
holding the meeting, how authorized, the notice given, whether the meeting was
regular or special, if special its object, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director, trustee, stockholder or
member entered or left the meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be taken on any motion or proposition,
and a record thereof carefully made. The protest of any director, trustee,
stockholder or member on any action or proposed action must be recorded in full
on his demand.
The records of all business transactions of the corporation and the minutes of
any meetings shall be open to inspection by any director, trustee, stockholder or
member of the corporation at reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records or minutes, at his
expense.
Any officer or agent of the corporation who shall refuse to allow any director,
trustees, stockholder or member of the corporation to examine and copy excerpts
from its records or minutes, in accordance with the provisions of this Code, shall
be liable to such director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable under Section
144 of this Code: Provided, That if such refusal is made pursuant to a resolution
or order of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted for such
refusal: and Provided, further, That it shall be a defense to any action under this
section that the person demanding to examine and copy excerpts from the
corporation's records and minutes has improperly used any information secured
through any prior examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a legitimate purpose
in making his demand.
Stock corporations must also keep a book to be known as the "stock and transfer
book'', in which must be kept a record of all stocks in the names of the
stockholders alphabetically arranged; the installments paid and unpaid on all
stock for which subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of stock made, the
date thereof, and by and to whom made; and such other entries as the by-laws
may prescribe. The stock and transfer book shall be kept in the principal office of
the corporation or in the office of its stock transfer agent and shall be open for
inspection by any director or stockholder of the corporation at reasonable hours
on business days.
Section 144 of the Corporation Code, on the other hand, is the general penal
provision of the Corporation Code. It reads:
Section 144. Violations of the Code. - Violations of any of the provisions of this
Code or its amendments not otherwise specifically penalized therein shall be
punished by a fine of not less than one thousand (₱1,000.00) pesos but not more
than ten thousand (₱10,000.00) pesos or by imprisonment for not less than thirty
(30) days but not more than five (5) years, or both, in the discretion of the court. If
the violation is committed by a corporation, the same may, after notice and
hearing, be dissolved in appropriate proceedings before the Securities and
Exchange Commission: Provided, That such dissolution shall not preclude the
institution of appropriate action against the director, trustee or officer of the
corporation responsible for said violation: Provided, further, That nothing in this
section shall be construed to repeal the other causes for dissolution of a
corporation provided in this Code. (190 112 a) (Emphasis supplied)
In the assailed Orders, the RTC expressed its opinion that the act of refusing to
allow inspection of the stock and transfer book, even though it may be a violation
of Section 74(4), is not punishable as an offense under the Corporation
Code.29 In justifying this conclusion, the RTC seemingly relied on the fact that,
under Section 7 4 of the Corporation Code, the application of Section 144 is
expressly mentioned only in relation to the act of "refus[ing] to allow any director,
trustees, stockholder or member of the corporation to examine and copy excerpts
from [the corporation's] records or minutes" that excludes its stock and transfer
book.
We do not agree.
While Section 74 of the Corporation Code expressly mentions the application of
Section 144 only in relation to the act of "refus[ing] to allow any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from
[the corporation's] records or minutes," the same does not mean that the latter
section no longer applies to any other possible violations of the former section.
Indeed, we find no cogent reason why Section 144 of the Corporation Code
cannot be made to apply to violations of the right of a stockholder to inspect the
stock and transfer book of a corporation under Section 74(4) given the already
unequivocal intent of the legislature to penalize violations of a parallel right, i.e.,
the right of a stockholder or member to examine the other records and minutes of
a corporation under Section 74(2). Certainly, all the rights guaranteed to
corporators under Section 7 4 of the Corporation Code are mandatory for the
corporation to respect. All such rights are just the same underpinned by the same
policy consideration of keeping public confidence in the corporate vehicle thru an
assurance of transparency in the corporation's operations.
Verily, we find inaccurate the pronouncement of the RTC that the act of refusing
to allow inspection of the stock and transfer book is not a punishable offense
under the Corporation Code. Such refusal, when done in violation of Section
74(4) of the Corporation Code, properly falls within the purview of Section 144 of
the same code and thus may be penalized as an offense.
and what are the other obligations of the corporation to its stockholders or
members in relation to such books and records.1âwphi1 Hence, by parity of
reasoning, the second and fourth paragraphs of Section 74, including the first
paragraph of the same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth
paragraphs of Section 74 can only be maintained against corporate officers or
such other persons that are acting on behalf of the corporation. Violations of the
second and fourth paragraphs of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of any of its
stockholders to inspect the records, minutes and the stock and transfer book of
such corporation.
The problem with the petitioners' complaint and the evidence that they submitted
during preliminary investigation is that they do not establish that respondents
were acting on behalf of STRADEC. Quite the contrary, the scenario painted by
the complaint is that the respondents are merely outgoing officers of STRADEC
who, for some reason, withheld and refused to turn-over the company records of
STRADEC; that it is the petitioners who are actually acting on behalf of
STRADEC; and that STRADEC is actually merely trying to recover custody of the
withheld records.
In other words, petitioners are not actually invoking their right to inspect the
records and the stock and transfer book of STRADEC under the second and
fourth paragraphs of Section 74. What they seek to enforce is the proprietary
right of STRADEC to be in possession of such records and book. Such right,
though certainly legally enforceable by other means, cannot be enforced by a
criminal prosecution based on a violation of the second and fourth paragraphs of
Section 74. That is simply not the situation contemplated by the second and
fourth paragraphs of Section 74 of the Corporation Code.
For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of
probable cause.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
DECISION
Petitioner corporation is organized and operating under and by virtue of the laws
of the Republic of the Philippines. It is a holding company that owns shares in
project companies such as Mirant Sual Corporation and Mirant Pagbilao
Corporation (Mirant Pagbilao) which operate and maintain power stations located
in Sual, Pangasinan and Pagbilao, Quezon, respectively. Petitioner corporation
and its related companies maintain around 2,000 employees detailed in its main
office and other sites. Petitioner corporation had changed its name to CEPA
Operations in 1996 and to Southern Company in 2001. In 2002, Southern
Company was sold to petitioner Mirant whose corporate parent is an Atlanta-
based power producer in the United States of America.6 Petitioner corporation is
now known as Team Energy Corporation.7
Respondent filed a complaint10 for illegal dismissal and money claims for 13th
and 14th month pay, bonuses and other benefits, as well as the payment of
moral and exemplary damages and attorney’s fees. Respondent posits the
following allegations in his Position Paper:11
Respondent avers that at around 11:30 a.m. of the same day, he received a
phone call from his wife’s colleague who informed him that a bombing incident
occurred near his wife’s work station in Tel Aviv, Israel where his wife was then
working as a caregiver. Respondent attached to his Position Paper a Press
Release13 of the Department of Foreign Affairs (DFA) in Manila to prove the
occurrence of the bombing incident and a letter14 from the colleague of his wife
who allegedly gave him a phone call from Tel Aviv.
Respondent claims that after the said phone call, he proceeded to the Israeli
Embassy to confirm the news on the alleged bombing incident. Respondent
further claims that before he left the office on the day of the random drug test, he
first informed the secretary of his Department, Irene Torres (Torres), at around
12:30 p.m. that he will give preferential attention to the emergency phone call
that he just received. He also told Torres that he would be back at the office as
soon as he has resolved his predicament. Respondent recounts that he tried to
contact his wife by phone but he could not reach her. He then had to go to the
Israeli Embassy to confirm the bombing incident. However, he was told by Eveth
Salvador (Salvador), a lobby attendant at the Israeli Embassy, that he could not
be allowed entry due to security reasons.
On January 19, 2005, petitioner corporation’s Asst. Vice President for Material
Management Department, George K. Lamela, Jr. (Lamela), recommended19 that
respondent be terminated from employment instead of merely being suspended.
Lamela argued that even if respondent did not outrightly refuse to take the
random drug test, he avoided the same. Lamela averred that "avoidance" was
synonymous with "refusal."
Respondent further asserts that he was illegally dismissed due to the following
circumstances:
3. He agreed to take the drug test the following day at his own expense,
which he says was clearly not an indication of evasion from the drug test.
When respondent failed to appear at the scheduled drug test, Cecilia prepared
an incident report addressed to Dulot, the Logistics Manager of the Materials
Management Department.23 Since it was stated under petitioner corporation’s
Mirant Drugs Policy Employee Handbook to terminate an employee for
"unjustified refusal to submit to a random drug test" for the first offense, Dulot
sent respondent a Show Cause Notice24 dated November 8, 2004, requiring him
to explain why no disciplinary action should be imposed for his failure to take the
random drug test. Respondent, in a letter dated November 11, 2004, explained
that he attended to an emergency call from his wife’s colleague and apologized
for the inconvenience he had caused. He offered to submit to a drug test the next
day even at his expense.25 Finding respondent’s explanation unsatisfactory,
petitioner corporation formed a panel to investigate and recommend the penalty
to be imposed on respondent.26 The Investigating Panel found respondent’s
explanations as to his whereabouts on that day to be inconsistent, and
recommended that he be suspended for four weeks without pay. The
Investigating Panel took into account that respondent did not directly refuse to be
subjected to the drug test and that he had been serving the company for ten
years without any record of violation of its policies. The Investigating Panel
further recommended that the Mirant Drug Policy be reviewed to clearly define
the phrase "unjustified refusal to submit to random drug testing."27 Petitioner
corporation’s Vice-President for Operations, Sliman, however disagreed with the
Investigating Panel’s recommendations and terminated the services of
respondent in accordance with the subject drug policy. Sliman likewise stated
that respondent’s violation of the policy amounted to willful breach of trust and
loss of confidence.28
2. Respondent could not even tell if he received the call via the landline
telephone service at petitioner corporation’s office or at his mobile phone.
3. Petitioner corporation was also of the opinion that granting there was
such a phone call, there was no compelling reason for respondent to act
on it at the expense of his scheduled drug testing. Petitioner corporation
principally pointed out that the call merely stated that a bomb exploded
near his wife’s work station without stating that his wife was affected.
Hence, it found no point in confirming it with extraordinary haste and
forego the drug test which would have taken only a few minutes to
accomplish. If at all, respondent should have undergone the drug testing
first before proceeding to confirm the news so as to leave his mind free
from this obligation.
4. Petitioner corporation maintained that respondent could have easily
asked permission from the Drug Watch Committee that he was leaving the
office since the place where the activity was conducted was very close to
his work station.29
To the mind of petitioners, they are not liable for illegal dismissal because all of
these circumstances prove that respondent really eluded the random drug test
and was therefore validly terminated for cause after being properly accorded with
due process. Petitioners further argue that they have already fully settled the
claim of respondent as evidenced by a Quitclaim which he duly executed. Lastly,
petitioners maintain that they are not guilty of unfair labor practice as
respondent’s dismissal was not intended to curtail his right to self-organization;
that respondent is not entitled to the payment of his 13th and 14th month
bonuses and other incentives as he failed to show that he is entitled to these
amounts according to company policy; that respondent is not entitled to
reinstatement, payment of full back wages, moral and exemplary damages and
attorney’s fees due to his termination for cause.
In a decision dated August 31, 2005, Labor Arbiter Aliman D. Mangandog found
respondent to have been illegally dismissed. The Labor Arbiter also found that
the quitclaim purportedly executed by respondent was not a bona fide quitclaim
which effectively discharged petitioners of all the claims of respondent in the
case at bar. If at all, the Labor Arbiter considered the execution of the quitclaim
as a clear attempt on the part of petitioners to mislead its office into thinking that
respondent no longer had any cause of action against petitioner corporation. The
decision stated, viz.:
SO ORDERED.30
The Labor Arbiter stated that while petitioner corporation observed the proper
procedure in the termination of an employee for a purported authorized cause,
such just cause did not exist in the case at bar. The decision did not agree with
the conclusions reached by petitioner corporation’s own Investigating Panel that
while respondent did not refuse to submit to the questioned drug test and merely
"avoided" it on the designated day, "avoidance" and "refusal" are one and the
same. It also held that the terms "avoidance" and "refusal" are separate and
distinct and that "the two words are not even synonymous with each other."31 The
Labor Arbiter considered as more tenable the stance of respondent that his
omission merely resulted to a "failure" to submit to the said drug test – and not an
"unjustified refusal." Even if respondent’s omission is to be considered as refusal,
the Labor Arbiter opined that it was not tantamount to "unjustified refusal" which
constitutes as just cause for his termination. Finally, the Labor Arbiter found that
respondent was entitled to moral and exemplary damages and attorney’s fees.
On appeal to the NLRC, petitioners alleged that the decision of the Labor Arbiter
was rendered with grave abuse of discretion for being contrary to law, rules and
established jurisprudence, and contained serious errors in the findings of facts
which, if not corrected, would cause grave and irreparable damage or injury to
petitioners. The NLRC, giving weight and emphasis to the inconsistencies in
respondent’s explanations, considered his omission as "unjustified refusal" in
violation of petitioner corporation’s drug policy. Thus, in a decision dated May 31,
2006, the NLRC ruled, viz.:
"I was scheduled for drug test after lunch that day of November 3, 2004 as
confirmed with Tina Cecilia. I was having my lunch when a colleague of my wife
abroad called up informing me that there was something wrong [that] happened
in their neighborhood, where a bomb exploded near her workstation.
Immediately, I [left] the office to confirm said information but at around 12:30
P.M. that day, I informed MS. IRENE TORRES, our Department Secretary[,] that
I would be attending to this emergency call. Did even [inform] her that I’ll try to be
back as soon as possible but unfortunately, I was able to return at 6:15 P.M. I
didn’t know that Tina was the one calling me on my cell that day. Did only receive
her message after I charged my cell at the office that night. I was able to call
back Tina Cecilia later [that] night if it’s possible to have it (drug test) the next
day.
My apology [for] any inconvenience to the Drug Watch Committee, that I forgot
everything that day including my scheduled drug test due to confusion of what
had happened. It [was] not my intention not to undergo nor refuse to have a drug
test knowing well that it’s a company policy and it’s mandated by law."
In his explanation, the [respondent] stated that the reason why he had to leave
the office on 3 November 2004 was to verify an information at the Israel
Embassy of the alleged bombing incident on the same day. However,
[petitioners] in their position paper alleged that Ms. Torres of [petitioner] company
received a text message from him at around 12:47 p.m. informing her that he will
try to be back since he had a lot of things to do and asking her if there was a
signatory on that day. [Respondent] did not deny sending said text messages to
Ms. Torres in his reply and rejoinder x x x. He actually confirmed that he was
involved in the CIIS registration with all companies that was involved with
[petitioner] company and worked on the registration of [petitioner] company’s
vehicles with TRO.
It is also herein noted that [respondent] had initially reported to Ms. Torres that it
was his mother in law who informed him about the problem concerning his wife.
However, in his written explanation x x x, the [respondent] stated that it was a
friend of his wife, whom he could not even identify, who informed him of the
alleged bombing incident in Tel Aviv, Israel. [Respondent] also did not deny
receiving a cellphone call from Ms. Cecilia that day. He merely stated that he did
not know that it was Ms. Cecilia calling him up in a cellphone and it was only after
he charged his cellphone at the office that night that he received her message. In
effect, [respondent] asserted that his cellphone battery was running low or
drained. [Petitioners] were able to refute [these] averments of [respondent] when
they presented [respondent’s] Smart Billing Statement
x x x showing that he was able to make a cellphone call at 5:29 p.m. to [petitioner
corporation’s] supplier, Mutico for a duration of two (2) minutes.32
Given the foregoing facts, the NLRC stated that the offer of respondent to submit
to another drug test the following day, even at his expense, cannot operate to
free him from liability. The NLRC opined that taking the drug test on the day
following the scheduled random drug test would affect both the integrity and the
accuracy of the specimen which was supposed to be taken from a randomly
selected employee who was notified of his/her selection on the same day that the
drug test was to be administered. The NLRC further asserted that a drug test,
conducted many hours or a day after the employee was notified, would
compromise its results because the employee may have possibly taken remedial
measures to metabolize or eradicate whatever drugs s/he may have ingested
prior to the drug test.
The NLRC further stated that these circumstances have clearly established the
falsity of respondent’s claims and found no justifiable reason for respondent to
refuse to submit to the petitioner corporation’s random drug test. While the NLRC
acknowledged that it was petitioner corporation’s own Investigating Panel that
considered respondent’s failure to take the required drug test as mere
"avoidance" and not "unjustified refusal," it concluded that such finding was
merely recommendatory to guide top management on what action to take.
The NLRC also found that petitioner corporation’s denial of respondent’s motion
to reconsider his termination was in order. Petitioner corporation’s reasons for
such denial are quoted in the NLRC decision, viz.:
"Your appeal is anchored on your claim that you responded to an emergency call
from someone abroad informing you that a bomb exploded near the work station
of your wife making you unable to undergo the scheduled drug testing. This claim
is groundless taking into account the following:
We are not convinced that there was indeed that call which you claim to have
received noon of November 3, 2004. On the contrary, our belief is based on the
fact that you could not tell who called you up or how the call got to you. If you
forgot to ask the name of the person who called you up, surely you would have
known how the call came to you. You said you were having lunch at the third
floor of the CTC building when you received the call. There were only two means
of communication available to you then: the land line telephone service in your
office and your mobile phone. If your claim were (sic) not fabricated, you would
be able to tell which of these two was used.
Granting that you indeed received that alleged call, from your own account, there
was no compelling reason for you to act on it at the expense of your scheduled
drug testing. The call, as it were, merely stated that ‘something wrong happened
(sic) in their neighborhood, where a bomb exploded near her workstation.’
Nothing was said if your wife was affected. There is no point in confirming it with
extraordinary haste and forego the drug test which would have taken only a few
minutes to accomplish. If at all, you should have undergone the drug testing first
before proceeding to confirm the news so as to leave your mind free from this
obligation.
Additionally, if it was indeed necessary that you skip the scheduled drug testing
to verify that call, why did you not ask permission from the Drug Watch
[C]ommittee that you were leaving? The place where the activity was being
conducted was very close to your workstation. It was absolutely within your reach
to inform any of its members that you were attending to an emergency call. Why
did you not do so?
All this undisputedly proves that you merely eluded the drug testing. Your claim
that you did not refuse to be screened carries no value. Your act was a negation
of your words."33
The NLRC found that respondent was not only validly dismissed for cause – he
was also properly accorded his constitutional right to due process as shown by
the following succession of events:
SO ORDERED.36
In a petition for certiorari before the CA, respondent raised the following issues:
whether the NLRC acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of its jurisdiction when it
construed that the terms "failure," "avoidance," "refusal" and "unjustified refusal"
have similar meanings; reversed the factual findings of the Labor Arbiter; and
held that respondent deliberately breached petitioner’s Anti-Drugs
Policy.40 Respondent further argued before the appellate court that his failure to
submit himself to the random drug test was justified because he merely
responded to an emergency call regarding his wife’s safety in Tel Aviv, and that
such failure cannot be considered synonymous with "avoidance" or "refusal" so
as to mean "unjustified refusal" in order to be meted the penalty of termination.41
The CA disagreed with the NLRC and ruled that it was immaterial whether
respondent failed, refused, or avoided being tested. To the appellate court, the
singular fact material to this case was that respondent did not get himself tested
in clear disobedience of company instructions and policy. Despite such
disobedience, however, the appellate court considered the penalty of dismissal to
be too harsh to be imposed on respondent, viz.:
In this case, [petitioner corporation’s] own investigating panel has revealed that
the penalty of dismissal is too harsh to impose on [respondent], considering that
this was the first time in his 10-year employment that the latter violated its
company policies. The investigating panel even suggested that a review be had
of the company policy on the term "unjustified refusal" to clearly define what
constitutes a violation thereof. The recommendation of the investigating panel is
partially reproduced as follows:
"VII. Recommendation
However, despite having violated the company policy, the panel recommends 4
working weeks suspension without pay (twice the company policy’s maximum of
2 working weeks suspension) instead of termination due to the following
mitigating circumstances.
2. In the case of Mr. Joselito A. Caro, the two conditions for termination
(Unjustified and Refusal) were not fully met as he expressly agreed to
undergo drug test.
3. Mr. Joselito A. Caro voluntarily offered himself to undergo drug test the
following day at his own expense.
The Panel also took into consideration that Mr. Joselito A. Caro has served the
company for ten (10) years without any record of violation of the company
policies.
xxxx
The Panel also recommends that Management review the Mirant Drug Policy
specifically ‘Unjustified [R]efusal to submit to random drug testing.’ The Panel
believes that the term refusal casts certain ambiguities and should be clearly
defined."42
The CA however found that award of moral and exemplary damages is without
basis due to lack of bad faith on the part of the petitioner corporation which
merely acted within its management prerogative. In its assailed Decision dated
June 26, 2007, the CA ruled, viz.:
SO ORDERED.43
Petitioner moved for reconsideration. In its assailed Resolution dated January 11,
2008, the CA denied petitioners’ motion for reconsideration for lack of merit. It
ruled that the arguments in the motion for reconsideration were already raised in
their past pleadings.
We shall first rule on the issue raised by petitioners that the petition for certiorari
filed by respondent with the CA should have been summarily dismissed as it
lacked the requisite verification and certification against forum shopping under
Sections 4 and 5, Rule 7 of the Rules, viz.:
A pleading is verified by an affidavit that the affiant has read the pleading and
that the allegations therein are true and correct of his knowledge and belief.
Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise provided, upon motion
and after hearing. The submission of a false certification or noncompliance with
any of the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of
the party or his counsel clearly constitute willful and deliberate forum shopping,
the same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative sanctions.
This jurisdiction has adopted in the field of labor protection a liberal stance
towards the construction of the rules of procedure in order to serve the ends of
substantial justice. This liberal construction in labor law emanates from the
mandate that the workingman’s welfare should be the primordial and paramount
consideration.45 Thus, if the rules of procedure will stunt courts from fulfilling this
mandate, the rules of procedure shall be relaxed if the circumstances of a case
warrant the exercise of such liberality. If we sustain the argument of petitioners in
the case at bar that the petition for certiorari should have been dismissed outright
by the CA, the NLRC decision would have reached finality and respondent would
have lost his remedy and denied his right to be protected against illegal dismissal
under the Labor Code, as amended.
We agree with the disposition of the appellate court that there was illegal
dismissal in the case at bar.
Petitioner corporation’s subject Anti-Drugs Policy fell short of being fair and
reasonable.
First. The policy was not clear on what constitutes "unjustified refusal" when the
subject drug policy prescribed that an employee’s "unjustified refusal" to submit
to a random drug test shall be punishable by the penalty of termination for the
first offense. To be sure, the term "unjustified refusal" could not possibly cover all
forms of "refusal" as the employee’s resistance, to be punishable by termination,
must be "unjustified." To the mind of the Court, it is on this area where petitioner
corporation had fallen short of making it clear to its employees – as well as to
management – as to what types of acts would fall under the purview of
"unjustified refusal." Even petitioner corporation’s own Investigating Panel
recognized this ambiguity, viz.:
The Panel also recommends that Management review the Mirant Drug Policy
specifically "Unjustified [R]efusal to submit to random drug testing." The Panel
believes that the term "refusal" casts certain ambiguities and should be clearly
defined.48
The fact that petitioner corporation’s own Investigating Panel and its Vice
President for Operations, Sliman, differed in their recommendations regarding
respondent’s case are first-hand proof that there, indeed, is ambiguity in the
interpretation and application of the subject drug policy. The fact that petitioner
corporation’s own personnel had to dissect the intended meaning of "unjustified
refusal" is further proof that it is not clear on what context the term "unjustified
refusal" applies to. It is therefore not a surprise that the Labor Arbiter, the NLRC
and the CA have perceived the term "unjustified refusal" on different prisms due
to the lack of parameters as to what comes under its purview. To be sure, the
fact that the courts and entities involved in this case had to engage in semantics
– and come up with different constructions – is yet another glaring proof that the
subject policy is not clear creating doubt that respondent’s dismissal was a result
of petitioner corporation’s valid exercise of its management prerogative.
It is not a mere jurisprudential principle, but an enshrined provision of law, that all
doubts shall be resolved in favor of labor. Thus, in Article 4 of the Labor Code, as
amended, "[a]ll doubts in the implementation and interpretation of the provisions
of [the Labor] Code, including its implementing rules and regulations, shall be
resolved in favor of labor." In Article 1702 of the New Civil Code, a similar
provision states that "[i]n case of doubt, all labor legislation and all labor contracts
shall be construed in favor of the safety and decent living for the laborer."
Applying these provisions of law to the circumstances in the case at bar, it is not
fair for this Court to allow an ambiguous policy to prejudice the rights of an
employee against illegal dismissal. To hold otherwise and sustain the stance of
petitioner corporation would be to adopt an interpretation that goes against the
very grain of labor protection in this jurisdiction. As correctly stated by the Labor
Arbiter, "when a conflicting interest of labor and capital are weighed on the scales
of social justice, the heavier influence of the latter must be counter-balanced by
the sympathy and compassion the law must accord the underprivileged
worker."49
Second. The penalty of termination imposed by petitioner corporation upon
respondent fell short of being reasonable. Company policies and regulations are
generally valid and binding between the employer and the employee unless
shown to be grossly oppressive or contrary to law50 – as in the case at bar.
Recognizing the ambiguity in the subject policy, the CA was more inclined to
adopt the recommendation of petitioner corporation’s own Investigating Panel
over that of Sliman and the NLRC. The appellate court succinctly but incisively
pointed out, viz.:
Thus, We find that the recommended four (4) working weeks’ suspension without
pay as the reasonable penalty to be imposed on [respondent] for his
disobedience. x x x51 (Additional emphasis supplied.)
We believe that this issue was extensively discussed by both the Labor Arbiter
and the CA and we find no reversible error on the disposition of this issue, viz.:
A review of the records show that the alluded quitclaim, which was undated and
not even notarized although signed by the petitioner, was for the amount of
₱59,630.05. The said quitclaim was attached as Annex 26 in the [petitioners’]
Position Paper filed before the Labor Arbiter. As fully explained by [respondent]
in his Reply filed with the Labor Arbiter, the amount stated therein was his last
pay due to him when he was terminated, not the amount representing his
legitimate claims in this labor suit x x x. To bolster his defense, [respondent]
submitted the pay form issued to him by the [petitioner corporation], showing his
net pay at ₱59,630.05 exactly the amount stated in the quitclaim x x x. Then, too,
as stated on the quitclaim itself, the intention of the waiver executed by the
[respondent] was to release [petitioner corporation] from any liability only on the
said amount representing [respondent’s] "full and final payment of [his] last
salary/separation pay" x x x. It did not in any way waive [respondent’s] right to
pursue his legitimate claims regarding his dismissal in a labor suit. Thus, We
gave no credence to [petitioners’] private defense that alleged quitclaim rendered
the instant petition moot.55
Finally, the petition avers that petitioner Bautista should not be held personally
liable for respondent’s dismissal as he acted in good faith and within the scope of
his official functions as then president of petitioner corporation. We agree with
petitioners.1âwphi1 Both decisions of the Labor Arbiter and the CA did not
discuss the basis of the personal liability of petitioner Bautista, and yet the
dispositive portion of the decision of the Labor Arbiter - which was affirmed by the
appellate court - held him jointly and severally liable with petitioner corporation,
viz.:
A corporation has a personality separate and distinct from its officers and board
of directors who may only be held personally liable for damages if it is proven
that they acted with malice or bad faith in the dismissal of an employee.57 Absent
any evidence on record that petitioner Bautista acted maliciously or in bad faith in
effecting the termination of respondent, plus the apparent lack of allegation in the
pleadings of respondent that petitioner Bautista acted in such manner, the
doctrine of corporate fiction dictates that only petitioner corporation should be
held liable for the illegal dismissal of respondent.
No pronouncement as to costs.
SO ORDERED.
DECISION
REYES, J.:
This Petition for Review on Certiorari1 under Rule 45 of the 1997 Revised Rules
on Civil Procedure seeks to nullify and set aside:
(a) the Court of Appeals (CA) Decision2 dated May 29, 2008, affirming the
Decision3 dated May 29, 2002 of the Regional Trial Court (RTC), Branch
28, Santa Cruz, Laguna in Civil Case No. SC-3150; and
(b) the CA Resolution4 dated July 23, 2008, denying the subsequent
Motion for Reconsideration5 thereof.
In 1993, the PTA implemented a reorganization and reshuffling in its top level
management. Herein petitioner Rodolfo Laborte (Laborte) was designated as
Area Manager, CALABARZON area with direct supervision over the PTA
Complex and other entities at the Southern Luzon.
On October 22, 1993, Laborte served a written notice upon the respondents to
cease the operations of the latter’s restaurant business and boat ride services in
view of the rehabilitation, facelifting and upgrading project of the PTA Complex.
Consequently, on November 9, 1993, the PTCC filed with the RTC, Branch 28,
Santa Cruz, Laguna a Complaint for Prohibition, Injunction and Damages with
Temporary Restraining Order (TRO) and Preliminary Injunction7 against Laborte,
docketed as Civil Case No. 3150. The PTCC also sought from the court the
award of moral and exemplary damages, attorney’s fees and costs of suit. It also
prayed for the issuance of a TRO or writ of preliminary injunction to prohibit
Laborte from causing the PTCC to cease the operations of the restaurant and
boat ride services and from evicting the PTCC’s restaurant from the main
building of the PTA Complex.8
In an Order dated November 11, 1993, the trial court issued the TRO prayed for,
prohibiting Laborte from (a) causing the PTCC to cease operations; (b) doing the
threatened act of closing the operation of the PTCC’s restaurant and other
activities; (c) evicting the PTCC’s restaurant from the main building of the PTA
Complex; and (d) demolishing the said building. In the same Order, the trial court
set the hearing on the Writ of Preliminary Injunction on November 25, 1993.9
Opposing the issuance of the TRO, Laborte averred that the PTCC does not own
the restaurant facility as it was only tolerated to operate the same by the PTA as
a matter of lending support and assistance to the cooperative in its formative
years. It has neither been granted any franchise nor concession to operate the
restaurant nor any exclusive franchise to handle the boating operations in the
complex. Since the PTCC had no contract, concession, or exclusive franchise to
operate the restaurant business and the boating services in the PTA Complex,
no existing right has been allegedly violated by the petitioners. The respondents,
therefore, had no right for the injunctive relief prayed for.10
On December 7, 1993, the PTCC filed with the trial court a Petition for Contempt
with Motion for Early Resolution. It alleged that Laborte and his lawyers defied
the TRO and proceeded to close the restaurant on December 2, 1993. The
PTCC also alleged that Laborte prohibited its own boatmen from ferrying tourists
and allowed another association of boatmen to operate.11
On March 14, 1994, the individual respondents, Fabricio et al., who are
employees and boatmen of the PTCC, filed a Complaint-in-Intervention against
Laborte.16 They stated that they were rendered jobless and were deprived of their
livelihood because Laborte failed to heed the trial court’s TRO. Thus, they prayed
that the trial court order Laborte to pay their unearned salaries, among
others.17 Laborte opposed but the trial court in an Order dated March 25, 1994
admitted the Complaint-in-Intervention, finding the same to be well-founded.18
On May 29, 2002, the RTC rendered a decision finding for the respondents, the
dispositive portion of which provides:
Attorney’s fees in the amount of ₱992,940.00 or 25% of the total claim of the
intervenors.
SO ORDERED.22
Dissatisfied, Laborte and the PTA appealed to the CA.23 On May 29, 2008, the
CA promulgated its Decision, affirming the RTC Decision24 dated May 29, 2002.
The petitioners seasonably filed a Motion for Reconsideration,25but the said
motion was also denied for lack of merit.26
Hence, the petitioners filed the present petition, raising the following:
II
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING
PETITIONER LABORTE LIABLE BOTH IN HIS PERSONAL AND OFFICIAL
CAPACITY NOTWITHSTANDING THE EXISTENCE OF PECULIAR AND
UNUSUAL CIRCUMSTANCES WHICH WOULD RENDER THE DECISION
UNJUST AND INEQUITABLE, IN THAT:
Anent the procedural issue raised, both the trial court and the CA faulted the
petitioners for their failure to formally offer their evidence inspite of the ample
opportunity granted to do so.28 Thus, such lapse allegedly militated against the
petitioners whose assertions were otherwise supported by sufficient evidence on
record.
Section 34, Rule 132 of the Revised Rules on Evidence provides the general
rule, to wit:
Sec. 34. Offer of Evidence. – The Court shall consider no evidence which has not
been formally offered. The purpose for which the evidence is offered must be
specified.
From the above provision, it is clear that the court considers the evidence only
when it is formally offered. The offer of evidence is necessary because it is the
duty of the trial court to base its findings of fact and its judgment only and strictly
on the evidence offered by the parties. A piece of document will remain a scrap
of paper without probative value unless and until admitted by the court in
evidence for the purpose or purposes for which it is offered.29 The formal offer of
evidence allows the parties the chance to object to the presentation of an
evidence which may not be admissible for the purpose it is being offered.30
However, there are instances when the Court relaxed the foregoing rule and
allowed evidence not formally offered to be admitted. Citing People v. Napat-
a31 and People. v. Mate,32 the Court in Heirs of Romana Saves, et al., v. Heirs of
Escolastico Saves, et al.,33 enumerated the requirements for the evidence to be
considered despite failure to formally offer it, namely: "first, the same must have
been duly identified by testimony duly recorded and, second, the same must
have been incorporated in the records of the case."34 In People v. Vivencio De
Roxas et al.,35 the Court also considered exhibits which were not formally offered
by the prosecution but were repeatedly referred to in the course of the trial by the
counsel of the accused.36
In the instant case, the Court finds that the above requisites are attendant to
warrant the relaxation of the rule and admit the evidence of the petitioners not
formally offered. As can be seen in the records of the case, the petitioners were
able to present evidence that have been duly identified by testimony duly
recorded. To identify is to prove the identity of a person or a thing.37 Identification
means proof of identity; the proving that a person, subject or article before the
court is the very same that he or it is alleged, charged or reputed to be.38
In support of his position, Laborte in his testimony presented and identified the
following: (a) the letter informing the Chairman of PTCC about the decision of
PTA main office regarding the repair works to be conducted;39 (b) Office Order
No. 1018-93 from a person named Mr. Anota, relative to the suspension of the
boat ride services at the Complex;40 (c) a copy of the memorandum from the
Technical Evaluation Committee (TEC), referring to the conduct of the repair
works at the Complex;41 (d) the letter to PTCC informing it of the repair at the
Complex;42 (e) the certificates of availability of funds for the guesthouse of the
PTC Complex and for the repainting, repair works at the Pagsanjan
Administration Complex respectively;43 (f) the program of works dated July 22,
1993 for the renovation of the Pagsanjan Complex and of the swimming pool at
the guesthouse respectively;44 (g) the program of works referring to the
repainting and repair works at the Complex dated August 6, 1993;45 (h) a set of
plans and specification of the projects conducted at the Complex, particularly for
the repairs and repainting of the guesthouse shower room, the repair of the
Pagsanjan Administration Complex;46 (i) the office order relative to the directive
to Mr. Francisco Abalos of the PTA main office to close the restaurant
facilities;47 (j) a memorandum from Mr. Oscar Anota, Deputy General Manager
for Operation of the PTA, dated December 8, 1993 addressed to the security
office of the Pagsanjan Administration Complex, instructing the same not to allow
the entry of anything without the clearance from the main office in Manila into the
Pagsanjan Complex;48 and (k) the office order signed by Eduardo Joaquin,
General Manager of the PTA, relative to the posting of bond in favor of herein
petitioner Laborte by the PTA main office in the amount of ₱10,000.00 to be
deposited with the RTC, Branch 28, Sta. Cruz, Laguna.49
Undeniably, these pertinent evidence were also found in the records of the RTC,
i.e. : (a) the letter informing the Chairman of PTCC about the decision of PTA
main office regarding the repair works to be conducted;50 (b) Office Order No.
1018-93 from a person named Mr. Anota, relative to the suspension of the boat
ride services at the Complex;51 (c) the letter to PTCC informing it of the repair at
the Complex;52 (d) the certificates of availability of funds for the guesthouse of
the PTC Complex and for the repainting, repair works at the Pagsanjan
Administration Complex respectively;53 (e) the program of works dated July 22,
1993 for the renovation of the Pagsanjan Complex and of the swimming pool at
the guesthouse respectively;54 (f) the program of works referring to the repainting
and repair works at the Complex dated August 6, 1993;55 and (g) a memorandum
from Mr. Oscar Anota, Deputy General Manager for Operation of the PTA, dated
December 8, 1993 addressed to the security office of the Pagsanjan
Administration Complex, instructing the same not to allow the entry of anything
without clearance from the main office in Manila into the Pagsanjan
Complex.56 In all these, the respondents had all the chance to object to the
documents which Laborte properly identified and marked and which are found in
the records of the trial court. Considering that no objections were made by the
respondents to the foregoing documents, the Court sees no reason why these
documents should not be admitted.
The Court notes the CA’s ruling that the closure of the business is a factual
matter which need not be reviewed by the Court under Rule 45. The Court has
consistently held that as a general rule, a petition for review under Rule 45 of the
Rules of Court covers questions of law only. The rule, however, admits of
exceptions, subject to the following exceptions, to wit: (1) when the findings are
grounded entirely on speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is a
grave abuse of discretion; (4) when the judgment is based on misappreciation of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings,
the same are contrary to the admissions of both appellant and appellee; (7) when
the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioner’s main and reply
briefs are not disputed by the respondent; and (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the
evidence on record.57 After a careful review and based on the evidence on
record, the Court finds cogent reason to deviate from the general rule, warranting
a reversal of the decision of the CA.
(2) The petitioners also claimed that bidding out to private parties of the
business operations in the PTA Complex is a legal requirement and a
mandate given to every revenue-generating government entity like the
PTA. Thus, since it is only exercising its mandate and has acted in good
faith, petitioner PTA believes that it has not incurred any liability against
respondents.62 Citing Mendoza v. Rural Bank of Lucban,63 the petitioners
argued that: "[L]abor laws discourage interference in employers’
judgments concerning the conduct of their business. The law must protect
not only the welfare of employees, but also the right of [the]
employers."64 In other words, the petitioners likened the relationship
between PTA and the respondents to that of an employer and employee;
(3) The petitioners also reiterated that the PTCC is without contract,
concession or exclusive franchise to operate the restaurant and boat ride
service at the PTA Complex. They insisted that the PTA temporarily
authorized the PTCC to operate the same in order to extend financial
assistance to its PTA employee-members who are members of the then
fledging PTCC. Thus, for the petitioners, the PTCC has no vested right to
continue operating the restaurant and boat ride services, and therefore,
not entitled to damages;65 and
(4) The petitioners also claimed to have informed the PTCC as early as
October 22, 1993 of the intention to rehabilitate and upgrade the facilities
of the PTA Complex and for the PTCC to vacate the area by November
15, 1993. In fact, the deadline was even extended for another twenty-one
(21) days or until December 6, 1993, to allow the PTCC sufficient time to
pack its goods, merchandise and appliances.66
Except for receipts for rents paid by the PTCC to the PTA, the respondents failed
to show any contract, concession agreement or franchise to operate the
restaurant and boat ride services.1âwphi1 In fact, the PTCC initially did not
implead the PTA in its Complaint since it was well aware that there was no
contract executed between the PTCC and the PTA. While the PTCC has been
operating the restaurant and boat ride services for almost ten (10) years until its
closure, the same was by mere tolerance of the PTA.67 In the consolidated case
of Phil. Ports Authority v. Pier 8 Arrastre & Stevedoring Services, Inc.,68 the Court
upheld the authority of government agencies to terminate at any time hold-over
permits.69 Thus, considering that the PTCC’s operation of the restaurant and the
boat ride services was by mere tolerance, the PTA can, at any time, terminate
such operation.
The CA ruled that "the closure of the restaurant and boat ride business within the
PTA Complex was tainted with bad faith on the part of [the] defendants-
appellants."70 It referred to the Sheriff’s Report dated January 19, 1994, which
stated that no such repairs and rehabilitation were actually undertaken. Further,
the petitioners engaged the services of a new restaurant operator (the New
Selecta Restaurant) after the closure of the restaurant per official receipts
showing that the new operator of the restaurant paid PTA commissions for its
catering services from March 1994 to April 1994.71
The Court disagrees. The records disclose that sufficient notice was given by the
PTA for the respondents to vacate the area. The Sheriff’s Report dated January
19, 1994, alleging that there were, in fact, no repairs and rehabilitation
undertaken in the area at the time of inspection cannot be given weight. It must
be noted that the RTC had issued on November 11, 1993 a TRO enjoining the
petitioners from pursuing its actions. Thus, the absence of any business activity
in the premises is even proof of the petitioner’s compliance to the order of the
trial court. Furthermore, the Sheriff’s Report was executed only about a month
after the announced construction or development; thus, it cannot be expected
that the petitioners would immediately go full-blast in the implementation of the
repair and renovation.
With respect to Laborte's liability in his official and personal capacity, the Court
finds that Laborte was simply implementing the lawful order of the PTA
Management. As a general rule the officer cannot be held personally liable with
the corporation, whether civilly or otherwise, for the consequences of his acts, if
acted for and in behalf of the corporation, within the scope of his authority and in
good faith.73 Furthermore, the Court also notes that the charges against
petitioners Laborte and the PTA for grave coercion and for the violation of R.A.
671374 have all been dismissed.75 Thus, the Court finds no basis to hold
petitioner Laborte liable.
WHEREFORE, the petit10n is GRANTED. The Decision dated May 29, 2008 and
the Resolution dated July 23, 2008 of the Court of Appeals are VACATED. The
Amended Complaint and the Complaint-in-Intervention filed by the Respondents
in the Regional Trial Court, Branch 28, Sta. Cruz, Laguna in Civil Case No. SC-
3150 are DISMISSED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
DECISION
ABAD, J.:
In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner Bank of
Commerce (Bancommerce) for ₱10.4 billion its banking business consisting of
specified assets and liabilities. Bancommerce agreed subject to prior Bangko
Sentral ng Pilipinas' (BSP's) approval of their Purchase and Assumption (P & A)
Agreement. On November 8, 2001 the BSP approved that agreement subject to
the condition that Bancommerce and TRB would set up an escrow fund of PSO
million with another bank to cover TRB liabilities for contingent claims that may
subsequently be adjudged against it, which liabilities were excluded from the
purchase.
Specifically, the BSP Monetary Board Min. No. 58 (MB Res. 58) decided as
follows:
The parties to the P & A had considered other potential liabilities against TRB,
and to address these claims, the parties have agreed to set up an escrow fund
amounting to Fifty Million Pesos (₱50,000,000.00) in cash to be invested in
government securities to answer for any such claim that shall be judicially
established, which fund shall be kept for 15 years in the trust department of any
other bank acceptable to the BSP. Any deviation therefrom shall require prior
approval from the Monetary Board.
xxxx
To comply with the BSP mandate, on December 6, 2001 TRB placed ₱50 million
in escrow with Metropolitan Bank and Trust Co. (Metrobank) to answer for those
claims and liabilities that were excluded from the P & A Agreement and remained
with TRB. Accordingly, the BSP finally approved such agreement on July 3,
2002.
Shortly after or on October 10, 2002, acting in G.R. 138510, Traders Royal Bank
v. Radio Philippines Network (RPN), Inc., this Court ordered TRB to pay
respondents RPN, Intercontinental Broadcasting Corporation, and Banahaw
Broadcasting Corporation (collectively, RPN, et al.) actual damages of
₱9,790,716.87 plus 12% legal interest and some amounts. Based on this
decision, RPN, et al.filed a motion for execution against TRB before the Regional
Trial Court (RTC) of Quezon City. But rather than pursue a levy in execution of
the corresponding amounts on escrow with Metrobank, RPN, et al. filed a
Supplemental Motion for Execution1 where they described TRB as "now Bank of
Commerce" based on the assumption that TRB had been merged into
Bancommerce.
This prompted Bancommerce to file a petition for certiorari with the Court of
Appeals (CA) in CA-G.R. SP 91258 assailing the RTC’s Order. On December 8,
2009 the CA4 denied the petition. The CA pointed out that the Decision of the
RTC was clear in that Bancommerce was not being made to answer for the
liabilities of TRB, but rather the assets or properties of TRB under its possession
and custody.5
In the same Decision, the CA modified the Decision of the RTC by deleting the
phrase that the P & A Agreement between TRB and Bancommerce is a farce or
"a mere tool to effectuate a merger and/or consolidation between TRB and
BANCOM." The CA Decision partly reads:
xxxx
We are not prepared though, unlike the respondent Judge, to declare the PSA
between TRB and BANCOM as a farce or "a mere tool to effectuate a merger
and/or consolidation" of the parties to the PSA. There is just a dearth of
conclusive evidence to support such a finding, at least at this point.
Consequently, the statement in the dispositive portion of the assailed August 15,
2005 Order referring to a merger/consolidation between TRB and BANCOM is
deleted.6
xxxx
SO ORDERED.7
On January 8, 2010 RPN, et al. filed with the RTC a motion to cause the
issuance of an alias writ of execution against Bancommerce based on the CA
Decision. The RTC granted8 the motion on February 19, 2010 on the premise
that the CA Decision allowed it to execute on the assets that Bancommerce
acquired from TRB under their P & A Agreement.
On August 18, 2010 the RTC issued the assailed Order10 denying Bancommerce
pleas and, among others, directing the release to the Sheriff of Bancommerce’s
"garnished monies and shares of stock or their monetary equivalent" and for the
sheriff to pay 25% of the amount "to the respondents’ counsel representing his
attorney’s fees and ₱200,000.00 representing his appearance fees and litigation
expenses" and the balance to be paid to the respondents after deducting court
dues.
2. Whether or not the CA gravely erred in failing to rule that the RTC’s
Order of execution against Bancommerce was a nullity because the CA
Decision of December 8, 2009 in CA-G.R. SP 91258 held that TRB had
not been merged into Bancommerce as to make the latter liable for TRB’s
judgment debts.
Section 1, Rule 65 of the Rules of Court provides that a petition for certiorari may
only be filed when there is no plain, speedy, and adequate remedy in the course
of law. Since a motion for reconsideration is generally regarded as a plain,
speedy, and adequate remedy, the failure to first take recourse to is usually
regarded as fatal omission.
In this case, the records amply show that Bancommerce’s action fell within the
recognized exceptions to the need to file a motion for reconsideration before
filing a petition for certiorari.
First. The filing of a motion for reconsideration would be redundant since actually
the RTC’s August 18, 2010 Order amounts to a denial of Bancommerce motion
for reconsideration of the February 19, 2010 Order which granted the application
for the issuance of the alias writ.
Significantly, the alias writ of execution itself, the quashal of which was sought by
Bancommerce two times (via a motion to quash the writ and a supplemental
motion to quash the writ) derived its existence from the RTC’s February 19, 2010
Order. Another motion for reconsideration would have been superfluous. The
RTC had not budge on those issues in the preceding incidents. There was no
point in repeatedly asking it to reconsider.
Second. An urgent necessity for the immediate resolution of the case by the CA
existed because any further delay would have greatly prejudiced Bancommerce.
The Sheriff had been resolute and relentless in trying to execute the judgment
and dispose of the levied assets of Bancommerce. Indeed, on April 22, 2010 the
Sheriff started garnishing Bancommerce’s deposits in other banks, including
those in Banco de Oro-Salcedo-Legaspi Branch and in the Bank of the Philippine
Islands Ayala Paseo Branch.
Further, the Sheriff forcibly levied on Bancommerce’s Lipa Branch cash on hand
amounting to ₱1,520,000.00 and deposited the same with the Landbank. He also
seized the bank’s computers, printers, and monitors, causing the temporary
cessation of its banking operations in that branch and putting the bank in an
unwarranted danger of a run. Clearly, Bancommerce had valid justifications for
skipping the technical requirement of a motion for reconsideration.
The Corporation Code requires the following steps for merger or consolidation:
(5) If necessary, the SEC shall set a hearing, notifying all corporations
concerned at least two weeks before.
Indubitably, it is clear that no merger took place between Bancommerce and TRB
as the requirements and procedures for a merger were absent. A merger does
not become effective upon the mere agreement of the constituent
corporations.15 All the requirements specified in the law must be complied with in
order for merger to take effect. Section 79 of the Corporation Code further
provides that the merger shall be effective only upon the issuance by the
Securities and Exchange Commission (SEC) of a certificate of merger.
The dissenting opinion of Justice Mendoza finds, however, that a "de facto"
merger existed between TRB and Bancommerce considering that (1) the P & A
Agreement between them involved substantially all the assets and liabilities of
TRB; (2) in an Ex Parte Petition for Issuance of Writ of Possession filed in a
case, Bancommerce qualified TRB, the petitioner, with the words "now known as
Bancommerce;" and (3) the BSP issued a Circular Letter (series of 2002)
advising all banks and non-bank financial intermediaries that the banking
activities and transaction of TRB and Bancommerce were consolidated and that
the latter continued the operations of the former.
The idea of a de facto merger came about because, prior to the present
Corporation Code, no law authorized the merger or consolidation of Philippine
Corporations, except insurance companies, railway corporations, and public
utilities.16 And, except in the case of insurance corporations, no procedure
existed for bringing about a merger.17Still, the Supreme Court held in Reyes v.
Blouse,18 that authority to merge or consolidate can be derived from Section 28½
(now Section 40) of the former Corporation Law which provides, among others,
that a corporation may "sell, exchange, lease or otherwise dispose of all or
substantially all of its property and assets" if the board of directors is so
authorized by the affirmative vote of the stockholders holding at least two-thirds
of the voting power. The words "or otherwise dispose of," according to the
Supreme Court, is very broad and in a sense, covers a merger or consolidation.
But the facts in Reyes show that the Board of Directors of the Corporation being
dissolved clearly intended to be merged into the other corporations. Said this
Court:
It is apparent that the purpose of the resolution is not to dissolve the [company]
but merely to transfer its assets to a new corporation in exchange for its
corporation stock. This intent is clearly deducible from the provision that the
[company] will not be dissolved but will continue existing until its stockholders
decide to dissolve the same. This comes squarely within the purview of Section
28½ of the corporation law which provides, among others, that a corporation may
sell, exchange, lease, or otherwise dispose of all its property and assets,
including its good will, upon such terms and conditions as its Board of Directors
may deem expedient when authorized by the affirmative vote of the shareholders
holding at least 2/3 of the voting power. [The phrase] "or otherwise dispose of" is
very broad and in a sense covers a merger or consolidation."19
In his book, Philippine Corporate Law,20 Dean Cesar Villanueva explained that
under the Corporation Code, "a de facto merger can be pursued by one
corporation acquiring all or substantially all of the properties of another
corporation in exchange of shares of stock of the acquiring corporation. The
acquiring corporation would end up with the business enterprise of the target
corporation; whereas, the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring corporation."
(Emphasis supplied)
No de facto merger took place in the present case simply because the TRB
owners did not get in exchange for the bank’s assets and liabilities an equivalent
value in Bancommerce shares of stock. Bancommerce and TRB agreed with
BSP approval to exclude from the sale the TRB’s contingent judicial liabilities,
including those owing to RPN, et al.21
The Bureau of Internal Revenue (BIR) treated the transaction between the two
banks purely as a sale of specified assets and liabilities when it rendered its
opinion22 on the tax consequences of the transaction given that there is a
difference in tax treatment between a sale and a merger or consolidation.
Indubitably, since the transaction between TRB and Bancommerce was neither a
merger nor a de facto merger but a mere "sale of assets with assumption of
liabilities," the next question before the Court is whether or not the RTC could
regard Bancommerce as RPN, et al.’s judgment debtor.
It is pointed out that under common law,23 if one corporation sells or otherwise
transfers all its assets to another corporation, the latter is not liable for the debts
and liabilities of the transferor if it has acted in good faith and has paid adequate
consideration for the assets, except: (1) where the purchaser expressly or
impliedly agrees to assume such debts; (2) where the transaction amounts to a
consolidation or merger of the corporations; (3) where the purchasing corporation
is merely a continuation of the selling corporation; and (4) where the transaction
is entered into fraudulently in order to escape liability for such debts.24
But, in the first place, common law has no application in this jurisdiction where
existing statutes governing the situation are in place. Secondly, none of the cited
exceptions apply to this case.
Article II
CONSIDERATION: ASSUMPTION OF LIABILITIES
xxxx
2. Items in litigation, both actual and prospective, against TRB which include but
not limited to the following:
2.1 Claims of sugar planters for alleged under valuation of sugar export
sales x x x;
2. As already pointed out above, the sale did not amount to merger or de facto
merger of Bancommerce and TRB since the elements required of both were not
present.
3. The evidence in this case fails to show that Bancommerce was a mere
continuation of TRB. TRB retained its separate and distinct identity after the
purchase. Although it subsequently changed its name to Traders Royal
Holding’s, Inc. such change did not result in its dissolution. "The changing of the
name of a corporation is no more than creation of a corporation than the
changing of the name of a natural person is the begetting of a natural person.
The act, in both cases, would seem to be what the language which we use to
designate it imports—a change of name and not a change of being."26 As such,
Bancommerce and TRB remained separate corporations.
4. To protect contingent claims, the BSP directed Bancommerce and TRB to put
up ₱50 million in escrow with another bank. It was the BSP, not Bancommerce
that fixed the amount of the escrow. Consequently, it cannot be said that the
latter bank acted in bad faith with respect to the excluded liabilities. They did not
enter into the P & A Agreement to enable TRB to escape from its liability to
creditors with pending court cases.
Further, even without the escrow, TRB continued to be liable to its creditors
although under its new name. Parenthetically, the P & A Agreement shows that
Bancommerce acquired greater amount of TRB liabilities than assets. Article II of
the P & A Agreement shows that Bancommerce assumed total liabilities of
₱10,401,436,000.00 while it received total assets of only ₱10,262,154,000.00.
This proves the arms length quality of the transaction.
The dissenting opinion of Justice Mendoza cites certain instances indicating the
existence of a de facto merger in this case. One of these is the fact that the P &
A Agreement involved substantially all the assets and liabilities of TRB. But while
this is true, such fact alone would not prove the existence of a de facto merger
because a corporation "does not really lose its juridical entity"27 on account of
such sale. Actually, the law allows a corporation to "sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its properties
and assets including its goodwill" to another corporation.28 This is not merger
because it recognizes the separate existence of the two corporations that
transact the sale.
The dissenting opinion of Justice Mendoza claims that another proof of a de facto
merger is that in a case, Bancommerce qualified TRB in its Ex Parte Petition for
Issuance of Writ of Possession with the words "now known as Bancommerce."
But paragraph 3 of the Ex Parte Petition shows the context in which such
qualification was made. It reads:29
It is thus clear that the phrase "now known as Bank of Commerce" used in the
petition served only to indicate that Bancommerce is now the former property
owner’s creditor that filed the petition for writ of possession as a result of the P &
A Agreement. It does not indicate a merger.
Lastly, the dissenting opinion of Justice Mendoza cited the Circular Letter (series
of 2002) issued by the BSP advising all banks and non-bank financial
intermediaries that the banking activities and transaction of TRB and
Bancommerce were consolidated and that the latter continued the operations of
the former as an indication of a de facto merger. The Circular Letter30 reads:
CIRCULAR LETTER
(series of 2002)
The Securities and Exchange Commission approved on August 15, 2002 the
Amendment of the Articles of Incorporation and By-Laws of Traders Royal Bank
on the deletion of the term "banks" and "banking" from the corporate name and
purpose, pursuant to the purchase of assets and assumption of liabilities of
Traders Royal Bank by Bank of Commerce. Accordingly, the bank franchise of
Traders Royal Bank has been automatically revoked and Traders Royal Bank
has ceased to operate as a banking entity.
(Sgd.)
ALBERTO V. REYES
Deputy Governor
Indeed, what was "consolidated" per the above letter was the banking activities
and transactions of Bancommerce and TRB, not their corporate existence. The
BSP did not remotely suggest a merger of the two corporations. What controls
the relationship between those corporations cannot be the BSP letter circular,
which had been issued without their participation, but the terms of their P & A
Agreement that the BSP approved through its Monetary Board.
Also, in a letter dated November 2,2005 Atty. Juan De Zuñiga, Jr., Assistant
Governor and General Counsel of the BSP, clarified to the RTC the use of the
word "merger" in their January 29, 2003 letter. According to him, the word
"merger" was used "in a very loose sense x x x and merely repeated, for
convenience" the term used by the RTC.31It further stated that "Atty. Villanueva
did not issue any legal pronouncement in the said letter, which is merely
transmittal in nature. Thus it cannot, by any stretch of construction, be
considered as binding on the BSP. What is binding to the BSP is MB Res. 58
referring to the aforementioned transaction between TRB and Bancommerce as
a purchase and assumption agreement."32
The CA Decision in
CA-G.R. SP 91258
But it should be the substance of the CA’s modification of the RTC Order that
should control, not some technical flaws that are taken out of context. Clearly, the
RTC’s basis for holding Bancommerce liable to TRB was its finding that TRB had
been merged into Bancommerce, making the latter liable for TRB’s debts to
RPN, et al. The CA clearly annulled such finding in its December 8, 2009
Decision in CA-G.R. SP 91258, thus:
SO ORDERED.33
Thus, the CA was careful in its decision to restrict the enforcement of the writ of
execution only to "TRB’s properties found in Bancommerce’s possession."
Indeed, the CA clearly said in its decision that it was not Bancommerce that the
RTC Order was being made to answer for TRB’s judgment credit but "the
assets/properties of TRB in the hands of BANCOM." The CA then went on to
state that it is not prepared, unlike the RTC, to declare the P & A Agreement but
a farce or a "mere tool to effectuate a merger and/or consolidation." Thus, the CA
deleted the RTC’s reliance on such supposed merger or consolidation between
the two as a basis for its questioned order.
The enforcement, therefore, of the decision in the main case should not include
the assets and properties that Bancommerce acquired from TRB. These have
ceased to be assets and properties of TRB under the terms of the BSP-approved
P & A Agreement between them. They are not TRB assets and properties in the
possession of Bancommerce. To make them so would be an unwarranted
departure from the CA’s Decision in CA-G.R. SP 91258.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
PERLAS-BERNABE, J.:
The Facts
On July 19, 2002, petitioner sent a third letter,12 this time, addressed
to "MR. ALLAN JOSEPH CLARKE, CEO, New International
Environmental University, Inc. x x x," demanding that the latter vacate
the premises due to the damage caused by an Isuzu van driven by its
employee to the left wing of an aircraft parked inside the hangar
space, which Capt. Clarke had supposedly promised to buy, but did
not.13
After due trial, the RTC rendered a Decision24 dated May 19, 2006
finding petioner: (a) guilty of indirect contempt for contumaciously
disregarding its Order25 dated March 6, 2003, by not allowing
respondent to possess occupy the leased premises pending final
decision in the main case; and (b) liable for breach of contract for
illegally terminating the MOA even before the expiration of the term
thereof.26 He was, thus, ordered to pay a fine of P5,000.00, and to
pay respondent nominal damages of P100,000.00 and attorney's fees
of P50,000.00 with legal interest, and costs of suit.27
The RTC further declared that the MOA, which was "made and
executed by and between CAPT. [PRISCILO] B. PAZ, Officer-In-Charge
of Aircraft Hangar at Davao International Airport, Davao City,
Philippines, hereinafter called as FIRST PARTY [a]nd CAPT. ALLAN J.
CLARKE[,] President of INTERNATIONAL ENVIRONMENTAL
UNIVERSITY with office address at LIBERTY AVIATION HANGAR, Davao
International Airport, Davao City, Philippines, hereinafter called as
SECOND PARTY,"31 was executed by the parties not only in their
personal capacities but also in representation of their respective
corporations or entities.32
On the issue of the violation of the terms of the MOA, the RTC found
respondent to have been effectively evicted from the leased
premises between July and August of 2002, or long before the
expiration of the term thereof in 2004, when petitioner: (a) placed a
gate/fence that prevented ingress to and egress from the leased
premises; (b) parked a plane inside and outside the leased premises;
(c) disconnected the electrical and telephone connections of
respondent; and (d) locked respondent's employees out.33 Despite the
service of the injunctive writ upon petitioner, respondent was not
allowed to possess and occupy the leased premises, as in fact, the trial
court even had to order on March 8, 2004 the inventory of the items
locked inside the bodega of said premises that was kept off-limits to
respondent. Hence, petitioner was declared guilty of indirect
contempt.34
The CA Ruling
Finding that the errors ascribed by petitioner to the trial court only
touched the civil action for breach of contract, the appellate court
resolved the appeal against him in a Decision36 dated January 31,
2012, and affirmed the RTC's finding of petitioner's liability for breach
of contract.37
The CA ruled that, while there was no corporate entity at the time of
the execution of the MOA on March 1, 2000 when Capt. Clarke signed
as "President of International Environmental University," petitioner is
nonetheless estopped from denying that he had contracted with
respondent as a corporation, having recognized the latter as the
"Second Party" in the MOA that "will use the hangar space exclusively
for company aircraft/helicopter."38 Petitioner was likewise found to
have issued checks to respondent from May 3, 2000 to October 13,
2000, which belied his claim of contracting with Capt. Clarke in the
latter's personal capacity.39
First, on the matter of the consolidation50 of the instant case with G.R.
No. 202826 entitled "Priscilo B. Paz v. New International
Environmental University,'' the petition for review of the portion of the
RTC Decision finding petitioner guilty of indirect contempt,51 the Court
had earlier denied said motion in a Resolution52 dated July 24, 2013 on
the ground that G.R. No. 202826 had already been denied53 with
finality.54 Thus, any further elucidation on the issue would be a mere
superfluity.
The CA had correctly pointed out that, from the very language itself of
the MOA entered into by petitioner whereby he obligated himself to
allow the use of the hangar space "for company aircraft/helicopter,"
petitioner cannot deny that he contracted with respondent.59 Petitioner
further acknowledged this fact in his final letter dated July 23, 2002,
where he reiterated and strongly demanded the former to immediately
vacate the hangar space his "company is occupying/utilizing."60
Section 2161 of the Corporation Code62 explicitly provides that one who
assumes an obligation to an ostensible corporation, as such, cannot
resist performance thereof on the ground that there was in fact no
corporation. Clearly, petitioner is bound by his obligation under the
MOA not only on estoppel but by express provision of law. As aptly
raised by respondent in its Comment63 to the instant petition, it is
futile to insist that petitioner issued the receipts for rental payments in
respondent's name and not with Capt. Clarke's, whom petitioner
allegedly contracted in the latter's personal capacity, only because it
was upon the instruction of an employee.64 Indeed, it is disputably
presumed that a person takes ordinary care of his concerns,65 and that
all private transactions have been fair and regular.66 Hence, it is
assumed that petitioner, who is a pilot, knew what he was doing with
respect to his business with respondent.
The lower courts, therefore, did not err in finding petitioner liable for
breach of contract for effectively evicting respondent from the leased
premises even before the expiration of the term of the lease. The
Court reiterates with approval the ratiocination of the RTC that, if it
were true that respondent was violating the terms and conditions of
the lease, "[petitioner] should have gone to court to make the
[former] refrain from its 'illegal' activities or seek rescission of the
[MOA], rather than taking the law into his own hands."70
SO ORDERED.
6. EYANA VS PHIL TRANSMARINE CARRIES INC.
AL O. EYANA, Petitioner,
vs.
PHILIPPINE TRANSMARINE CARRIERS, INC., ALAIN A. GARILLOS,
CELEBRITY CRUISES, INC. (U.S.A.),Respondents.
DECISION
REYES, J.:
The instant petition for review on certiorari1 assails the Decision2 dated March 22,
2010 and Resolution3 dated August 13, 2010 of the Court of Appeals (CA) in CA-
G.R. SP No. 108483. The CA affirmed the Decision4 of the National Labor
Relations Commission (NLRC) dated November 28, 2008, which declared that Al
0. Eyana (petitioner) is entitled to an award of disability compensation equivalent
to Grade Eight under the Philippine Overseas Employment Agency (POEA)
Standard Employment Contract (SEC). The NLRC reversed the labor arbiter's
(LA) earlier decision,5 which awarded to the petitioner US$80,000.00 as total and
permanent disability benefits, and US$8,000.00 as attorney’s fees.
Antecedents
PTCI, for and on behalf of its foreign principal, Celebrity Cruises, Inc. (CCI), hired
the petitioner to assume the position of a utility cleaner on board M/V Century.
The petitioner then joined the ship on April 15, 2006. His contract covered a
period of eight months and his basic monthly salary was US$267.00. His tasks
were predominantly manual in nature, which involved lifting, carrying, loading,
transporting and arranging food supplies, and floor cleaning.6
On August 2, 2006, the petitioner felt a sudden pain in his back after lifting a 30-
kilo block of cheese from the freezer shelf. He was no longer able to carry the
cheese to the kitchen. He reported the incident to his superior.7
The petitioner was confined in a hospital in Oslo, Norway from August 4 to 16,
2006. He was medically repatriated to the Philippines on August 17, 2006.8
PTCI immediately referred the petitioner to Dr. Natalio G. Alegre II (Dr. Alegre)
for treatment. The initial consultation was on August 18, 2006. Dr. Alegre noted
that the petitioner was (a) suffering from severe low back pains, (b) experiencing
numbness and weakness in his right lower leg, and (c) having difficulty bending
and sitting. The former was, thus, advised to undergo physical therapy thrice a
week.9
The petitioner thereafter consulted Dr. Alegre eight more times from August 28,
2006 up to January 26, 2007.He continued with physical therapy and was
prescribed medications.10
On October 23, 2006, Dr. Alegrereported that the Magnetic Resonance Imaging
scan of the petitioner’s lumbosacral spine showed "disk desiccation L4L5 and
L5S1 with left posterolateral disk herniations and nerve root compression." Since
the petitioner was hesitant to undergo surgery, Dr. Alegre recommended the
administration of epidural steroid injection to decrease the pain and swelling, and
the continuation of physical therapy.11
On January 20, 2007, Dr. Alegre informed PTCI that the petitioner still suffered
from persistent back pains and restricted truncal mobility. Since the petitioner
was still young,"conservative management with physical therapy" was
recommended. The petitioner was then given a "Disability Grade of 8 (Chest-
Trunk-Spine # 5, moderate rigidity or 2/3 loss of motion or lifting power of the
trunk)."12
The petitioner’s last consultation with Dr. Alegre was on January 26, 2007. The
former manifested his preference for the continuation of physical therapy and
once again refused the offer of surgical intervention.13
On June 6, 2007, the petitioner sought the opinion of Dr. Venancio P. Garduce,
Jr. (Dr. Garduce), an orthopedic surgeon. The medical certificate signed by the
latter indicated that the petitioner had (a) nerve root compression at L4-L5 and
L5-S1; (b) numbness and sensory deficits of 40% with weakness of the left big
toe extension; and (c) limited range of motion of the back. Dr. Garduce
concluded that the petitioner had a Disability Grade of One and was thus unfit for
sea duty.14
On June 7, 2007, the petitioner filed before the NLRC a complaint15 for disability
benefits, medical reimbursements, damages and attorney’s fees against PTCI,
Garillos and CCI (respondents).
Ruling of the LA
The LA found Dr. Garduce’s opinion as credible. The LA likewise declared that
even if the Disability Grade of Eight assessed by Dr. Alegre would be considered
instead, it cannot alter the fact that the petitioner’s medical condition was
permanent thereby resulting in the loss of his profession as a seaman. Further,
the petitioner was unable to perform his customary job for more than 120 days,
hence, under the law, he should be considered as permanently and totally
disabled.19
The respondents assailed the LA decision before the NLRC. The dispositive
portion of the NLRC Decision20 dated November 28, 2008 reads as follows:
SO ORDERED.21
Records show that [Dr. Alegre] personally examined the [petitioner] starting
August 18, 2006. From said date until January 26, 2007, [the petitioner]
underwent medical examination for no less than eight (8) times x x x. Notably, on
two occasions, Dr. Alegre suggested that [the petitioner] undergo operation. [The
petitioner] himself refused but instead opted for epidural steroid injection and
physical therapy x x x. Having failed to receive a higher disability rating, [the
petitioner] waited [for] over four (4) months before he sought a second opinion
which was based on a mere single consultation that, in turn, produced a mere
handwritten diagnosis. From these established facts, even granting that the
disability assessment should have been as what [the petitioner’s] private
physician had determined, his conduct is considered as a supervening cause that
could account for such disability, noting further that the second medical opinion
was obtained several months after the company-designated physician had
issued a disability rating. These circumstances warrant according to the medical
opinion of [the petitioner’s] private physician with such nil significance.
On February 13, 2009, the NLRC denied the respondents’ motion for
reconsideration.23 Ruling of the CA
The Court notes that Section 20(B) of the employment contract states that it is
the company-designated physician who determines a seafarer’s fitness to work
or his degree of disability. Nonetheless, a claimant may dispute the company-
designated physician’s report by seasonably consulting another doctor. Insuch a
case, the medical report issued by the latter shall be evaluated by the labor
tribunal and the court, based on its inherent merit.
It is noted that petitioner took four(4) months before disputing the finding of Dr.
Alegre by consulting a second opinion of his physician of choice, whose only
consultation with him is recorded by a handwritten diagnosis dated June 6, 2007,
a day before he filed a complaint for disability benefits. x x x.
xxxx
In Maunlad Transport, Inc. vs. Manigo, where the Supreme Court took note of the
doctrines laid down in Cadornigara v. NLRC and Sarocam v. Interorient Maritime
Ent., Inc., which We hold to be the more applicable rule in the instant case,
wherein the Court held that an assessment of a private doctor consulted by the
claimant six (6) months after he was declared "fit to work" by the company-
designated physician in Cadornigaraand seven (7) to eight (8) months in
Sarocam, has no evidentiary value, for the claimant’s health condition may have
drastically changed in the interregnum.
Moreover, the records lack competent showing of the extent of the medical
treatment that the private doctor gave to the petitioner. In contrast, Dr. Alegre’s
extensive medical treatment that enabled him to make a final diagnosis on the
degree of the petitioner’s disability was amply demonstrated. Thus, betweenthe
certification issued by the company[-]designated physician and the certification
issued by the private doctor, We would lend more credence to the certification
issued by the company[-]designated physician because it was done in the regular
performance of his duties as company physician and who consistently examined
complainant’s health condition. We cannot simply brush aside said certification in
the absence of solid proof that it was issued with grave abuse of authority of the
company physician. This was what respondent NLRC precisely considered in
coming out with its reversal decision. In doing so, it may not be said that it
gravely abused its discretion.
While the Court may agree with the petitioner that the [POEA SEC] for Seamen
is designed primarilyfor the protection and benefit of Filipino seamen in the
pursuit of the employment on board ocean-going vessels and its provisions must,
therefore be construed and applied fairly, reasonably and liberally in their favor,
We must also emphasize that the constitutional policy to provide full protection to
labor is not meant to be a sword to oppress employers, nor a means to prevent
the court from sustaining the employer when it is in the right.25 (Citations omitted)
Issues
This Court is now called upon to resolve the issues of whether or not the CA and
the NLRC erred in not considering the following:
(a) provisions of the CBA which provide full compensation for loss of
profession regardless of the degree of disability;26 and
The petitioner also reiterates that permanent and total disability does not mean
absolute helplessness, but mere inability to do substantially all material acts
necessary for the pursuit of any occupation for remuneration in substantially
customary and usual manner. Because of his back injury resulting from the
accident, he is rendered permanently unfit for sea service.29
In their Comment,30 the respondents argue that Department Order No. 4 and
Memorandum Circular No. 9, series of 2000, otherwise known as the POEA
Standard Terms and Conditions Governing the Employment of Filipino Seafarers
On Board Ocean-Going Vessels, shall apply since the employment contract
executed between the parties expressly stipulated so. Under Section 32 of the
POEA SEC, Grade 8 disability entitles the seafarer to a compensation equivalent
to US$16,795.00 or 33.59% of US$50,000.00.31
Further, the petitioner belatedly sought the opinion of Dr. Garduce four months
after Dr. Alegre had made a disability assessment. The petitioner did so as a
mere afterthought.32 Besides, while the findings of Dr. Alegre may be contested,
the petitioner should have indicated facts or evidence in the records to refute the
same. The petitioner failed in this respect. Thus, Dr. Garduce’s medical opinion,
which was arrived at after a day’s observation, cannot override the careful
assessment of Dr. Alegre, who had monitored the petitioner’s condition in a span
of six months.33
There is no dispute that the petitioner’s injury was work-related and that he is
entitled to disability compensation. The questions now posed before this Court
essentially relate to what are the applicable provisions to determine the (a)
petitioner’s degree of disability, and (b) amount of compensation he is entitled to.
The CBA’s existence and the
applicability of its provisions to the
instant petition have not been
established.
It has been oft-repeated that "a party alleging a critical fact must support his
allegation with substantial evidence," and "any decision based on
unsubstantiated allegation cannot stand as it will offend due process."34
In the case at bar, while the petitioner based his claims for full disability benefits
upon the CBA, he presented no more than two unauthenticated pages of the
same.35 Hence, the CBA deserves no evidentiary weight and cannot be made as
the basis for the award of disability compensation. Consequently, the first
issue36 raised herein is rendered moot, leaving the Court to resolve the petition in
the light of the provisions of the POEA SEC and relevant labor laws.
In Kestrel Shipping Co., Inc. v. Munar,37 likewise involving a seafarer who had
sustained a spinal injury and had lost two-thirds of his trunk’s lifting power, the
Court is emphatic that: Indeed, under Section 32 of the POEA-SEC, only those
injuries or disabilities that are classified as Grade 1 may be considered as total
and permanent. However, if those injuries or disabilities with a disability grading
from 2 to 14, hence, partial and permanent, would incapacitate a seafarer from
performing his usual sea duties for a period of more than 120 or 240 days,
depending on the need for further medical treatment, then he is, under legal
contemplation, totally and permanently disabled. x x x.
xxxx
x x x Section 29 of the 1996 POEA SEC itself provides that "[a]ll rights and
obligations of the parties to [the] Contract, including the annexes thereof, shall be
governed by the laws of the Republic of the Philippines, international
conventions, treaties and covenants where the Philippines is a signatory." Even
without this provision, a contract of labor is so impressed with public interest that
the New Civil Code expressly subjects it to "the special laws on labor unions,
collective bargaining, strikes and lockouts, closed shop, wages, working
conditions, hours of labor and similar subjects."
Thus, the Court has applied the Labor Code concept of permanent total disability
to the case of seafarers. x x x.
In Vergara v. Hammonia Maritime Services, Inc., this Court read the POEA-SEC
in harmony with the Labor Code and the [Amended Rules on Employee
Compensation] in interpreting in holding that: (a) the 120 days provided under
Section 20-B(3) of the POEA-SEC is the period given to the employer to
determine fitness to work and when the seafarer is deemed to be in a state of
total and temporary disability; (b) the 120 days of total and temporary disability
may be extended up to a maximum of 240 days should the seafarer require
further medical treatment; and (c) a total and temporary disability becomes
permanent when so declared by the company-designated physician within 120 or
240 days, as the case may be, or upon the expiration of the said periods without
a declaration of either fitness to work or permanent disability and the seafarer is
still unable to resume his regular seafaring duties. Quoted below are the relevant
portions of this Court’s Decision dated October 6, 2008:
x x x [T]he POEA [SEC] provides its own system of disability compensation that
approximates (and even exceeds) the benefits provided under Philippine law.
The standard terms agreed upon, as above pointed out, are intended to be read
and understood in accordance with Philippine laws, particularly, Articles 191 to
193 of the Labor Code and the applicable implementing rules and regulations in
case of any dispute, claim or grievance.
xxxx
As these provisions operate, the seafarer, upon sign-off from his vessel, must
report to the company-designated physician within three (3) days from arrival for
diagnosis and treatment. For the duration of the treatment but in no case to
exceed 120 days, the seaman is on temporary total disability as he is totally
unable to work. He receives his basic wage during this period until he is declared
fit to work or his temporary disability is acknowledged by the company tobe
permanent, either partially or totally, as his condition is defined under the POEA
[SEC] and by applicable Philippine laws. If the 120 days initial period is exceeded
and no such declaration is made because the seafarer requires further medical
attention, then the temporary total disability period may be extended up to a
maximum of 240 days, subject to the right of the employer to declare within this
period that a permanent partial or total disability already exists. The seaman may
of course also be declared fit to work at any time such declaration is justified by
his medical condition.
xxxx
As we outlined above, a temporary total disability only becomes permanent when
so declared by the company physician within the periods he is allowed to do so,
or upon the expiration of the maximum 240-day medical treatment period without
a declaration of either fitness to work or the existence of a permanent disability.
In the present case, while the initial 120-day treatment or temporary total
disability period was exceeded, the company-designated doctor duly made a
declaration well within the extended 240-day period that the petitioner was fit to
work. Viewed from this perspective, both the NLRC and CA were legally correct
when they refused to recognize any disability because the petitioner had already
been declared fit to resume his duties. In the absence of any disability after his
temporary total disability was addressed, any further discussion of permanent
partial and total disability, their existence, distinctions and consequences,
becomes a surplusage that serves no useful purpose.
Consequently, if after the lapse of the stated periods, the seafarer is still
incapacitated to perform his usual sea duties and the company-designated
physician had not yet declared him fit to work or permanently disabled, whether
total or permanent, the conclusive presumption that the latter is totally and
permanently disabled arises. On the other hand, if the company-designated
physician declares the seaman fit to work within the said periods, such
declaration should be respected unless the physician chosen by the seaman and
the doctor selected by both the seaman and his employer declare otherwise. As
provided under Section 20-B(3) of the POEA-SEC, a seafarer may consult
another doctor and in case the latter’s findings differ from those of the company-
designated physician, the opinion of a third doctor chosen by both parties may be
secured and such shall be final and binding. The same procedure should be
observed in case a seafarer, believing that he is totally and permanently
disabled, disagrees with the declaration of the company-designated physician
that he is partially and permanently disabled.
The POEA [SEC] and the CBAclearly provide that when a seafarer sustains a
work-related illness or injury while on board the vessel, his fitness or unfitness for
work shall be determined by the company-designated physician. If the physician
appointed by the seafarer disagrees with the company-designated physician’s
assessment, the opinion of a third doctor may be agreed jointly between the
employer and the seafarer to be the decision final and binding on them. Thus,
while petitioner had the right to seek a second and even a third opinion, the final
determination of whose decision must prevail must be done in accordance with
an agreed procedure. Unfortunately, the petitioner did not avail of this procedure;
hence, we have no option but to declare that the company-designated doctor’s
certification is the final determination that must prevail. x x x.
In this case, the following are undisputed: (a) when Munar filed a complaint for
total and permanent disability benefits on April 17, 2007, 181 days had lapsed
from the time hesigned-off from M/V Southern Unity on October 18, 2006; (b) Dr.
Chua issued a disability grading on May 3, 2007 or after the lapse of 197 days;
and (c) Munar secured the opinion of Dr. Chiu on May 21, 2007; (d) no third
doctor was consulted by the parties; and (e) Munar did not question the
competence and skill of the company-designated physicians and their familiarity
with his medical condition.
It may be argued that these provide sufficient grounds for the dismissal of
Munar’s complaint. Considering that the 240-day period had not yet lapsed when
the NLRC was asked to intervene, Munar’s complaint is premature and no cause
of action for total and permanent disability benefits had set in. While beyond the
120-day period, Dr. Chua’s medical report dated May 3, 2007 was issued within
the 240-day period. Moreover, Munar did not contest Dr. Chua’s findings using
the procedure outlined under Section 20-B(3) of the POEA-SEC. For being
Munar’s attending physicians from the time hewas repatriated and given their
specialization in spine injuries, the findings of Dr. Periquet and Dr. Lim constitute
sufficient bases for Dr. Chua’s disability grading. As Munar did not allege, much
less, prove the contrary, there exists no reason why Dr. Chiu’s assessment
should be preferred over that of Dr. Chua.
It must be noted, however, that when Munar filed his complaint, Dr. Chua had not
yet determined the nature and extent of Munar’s disability. Also, Munar was still
undergoing physical therapy and his spine injury had yet been fully addressed.
Furthermore, when Munar filed a claim for total and permanent disability benefits,
more than 120 days had gone by and the prevailing rule then was that
enunciated by this Court in Crystal Shipping, Inc. v. Natividad that total and
permanent disability refers to the seafarer’s incapacity to perform his customary
sea duties for more than 120 days. Particularly:
Permanent disability is the inability of a worker to perform his job for more than
120 days, regardless of whether or not he loses the use of any part of his body.
As gleaned from the records, respondent was unable to work from August 18,
1998 to February 22, 1999, at the least, or more than 120 days, due to his
medical treatment. This clearly shows that his disability was permanent.
xxxx
Petitioners tried to contest the above findings by showing that respondent was
ableto work again as a chief mate in March 2001. Nonetheless, this information
does not alter the fact that as a result of his illness, respondent was unable to
work as a chief mate for almost three years. It is of no consequence that
respondent was cured after a couple of years. The law does not require that the
illness should be incurable. What is important is that he was unable to perform
his customary work for more than 120 days which constitutes permanent total
disability. An award of a total and permanent disability benefit would be germane
to the purpose of the benefit, which is to help the employee in making ends meet
at the time when he is unable to work.
Consequently, that after the expiration of the 120-day period, Dr. Chua had not
yet made any declaration as to Munar’s fitness to work and Munar had not yet
fully recovered and was still incapacitated to work sufficed to entitle the latter to
total and permanent disability benefits.
In addition, that it was by operation of law that brought forth the conclusive
presumption that Munar istotally and permanently disabled, there is no legal
compulsion for him to observe the procedure prescribed under Section 20-B(3) of
the POEA-SEC. A seafarer’s compliance with such procedure presupposes that
the company-designated physician came up with an assessment as to his fitness
or unfitness to work before the expiration of the 120-day or 240-day periods.
Alternatively put, absent a certification from the company-designated physician,
the seafarer had nothing to contest and the law steps into conclusively
characterize his disability as total and permanent.
Applying the doctrines enunciated in Kestrel, the Court finds that the petitioner is
entitled to total and permanent disability benefits under the provisions of the
POEA SEC. It bears stressing that the Court need not even delve into the merits
of the assessments made by Dr. Alegre, on one hand, and Dr. Garduce, on the
other. This proceeds from an unalterable fact that Dr. Alegre had made the
disability assessment on January 20, 2007, or over five months from the
petitioner’s repatriation on August 17, 2006. Consequently, the rule on the 120-
day period, during which the disability assessment should have been made in
accordance with Crystal Shipping, Inc. v. Natividad,40 the doctrine then prevailing
before the promulgation of Vergaraon October 6, 2008, stands. Hence, due to
the failure of Dr. Alegre to issue a disability rating within the prescribed period, a
conclusive presumption that the petitioner is totally and permanently disabled
arose. As a result thereof, the petitioner is notlegally compelled to observe the
procedure laid down in Section 20-B(3) of the POEA SEC relative to the resort to
a third doctor. As discussed earlier, the Court need not delve into the merits of
the disability assessments made by Dr. Alegre and Dr. Garduce. However, it is
worth noting that on January 20, 2007, Dr. Alegre informed PTCI that the
petitioner was still suffering from persistent back pains. Thus, the Gabapentin
dose prescribed to the petitioner was increased to 600 milligrams per day and
physical therapy was continued.41
Gabapentin tablets are used to treat long lasting pain caused by damage to the
nerves. A variety of different diseases can cause peripheral (primarily occurring
in the legs and/or arms) neuropathic pain, such as diabetes or shingles. Pain
sensations may be described as hot, burning, throbbing, shooting, stabbing,
sharp, cramping, aching, tingling, numbness, pins and needles, etc.42
In the instant petition, Dr. Alegre’s January 20, 2007 report47 addressed to PTCI
clearly indicated that the petitioner’s persistent back pains remained unresolved.
Hence, the continuation of physical therapy and an increased Gabapentin dose
were recommended. The Court cannot disregard the fact that the petitioner was
a utility cleaner before he was injured. His tasks in the ship were predominantly
manual in nature involving a lot of moving, lifting and bending. At the time Dr.
Alegre belatedly issued the disability assessment, the petitioner could not revert
back to his customary gainful occupation without subjecting himself to serious
discomfort and pain.
Further, the Court disagrees withthe NLRC which found fault on the part of the
petitioner in refusing to undergo surgery as recommended by Dr. Alegre.
Records show that the petitioner underwent physical therapy. At the time Dr.
Alegre made the disability assessment on January 20, 2007, he still presented
physical therapy as anoption. Again, the Court quotes:
The petitioner cannot thus be faulted that he opted for physical therapy instead of
surgery. If indeed surgery was the only way for the petitioner to be able to fully
recover from his injury, he should have been categorically informed of such fact
and warned of the consequences of his choice. The petitioner did not refuse
treatment. He just availed of an option presented to him. Besides, even if he
underwent surgery, there is likewise no assurance of full recovery.
The Court also notes that nowhere is it shown in the records that the petitioner
was re-employed as a utility cleaner by PTCI or by any other manning agency
from the time of his repatriation on August 17, 2006 until the filing of the instant
petition in 2009. This, to the Court, is an eloquent proof of his permanent
disability.49
In sum, the Court finds the petitioner entitled to total and permanent disability
compensation.1âwphi1 As to the amount, the Schedule of Disability Allowances
found in Section 32 of the POEA SEC is applicable. Under the said section, a
seafarer given a Grade 1 Disability assessment is entitled to US$60,000.00
(US$50,000.00 x 120%).
As a general rule, the officers and members of a corporation are not personally
liable for acts done in the performance of their duties.53
"In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally liable
for corporate liabilities."54
In the instant petition, there was neither an allegation nor a proof offered to
establish that Garillos, as PTCI's crewing manager and official representative,
had acted beyond the scope of his authority or with malice. The general rule thus
applies and there is no ground to hold him personally liable for the monetary
awards granted to the petitioner.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
DECISION
LEONEN, J.:
Respondents were told that if they did not resign, Saudia would
terminate them all the same. The threat of termination entailed the
loss of benefits, such as separation pay and ticket discount
entitlements.12
First, whether the Labor Arbiter and the National Labor Relations
Commission may exercise jurisdiction over Saudi Arabian Airlines and
apply Philippine law in adjudicating the present dispute;
Second, it was "Saudia Jeddah" that provided the funds to pay for
respondents' salaries and benefits; and
What is clear is Saudia's statement in its own Petition that what it has
is a "Philippine Office . . . located at 4/F Metro House Building, Sen. Gil
J. Puyat Avenue, Makati City."46 Even in the position paper that Saudia
submitted to the Labor Arbiter,47 what Saudia now refers to as "Saudia
Jeddah" was then only referred to as "Saudia Head Office at Jeddah,
KSA,"48 while what Saudia now refers to as "Saudia Manila" was then
only referred to as "Saudia's office in Manila."49
II
The use of the word "may" (i.e., "may refuse impositions on its
jurisdiction"72) in the decisions shows that the matter of jurisdiction
rests on the sound discretion of a court. Neither the mere invocation
of forum non conveniens nor the averment of foreign elements
operates to automatically divest a court of jurisdiction. Rather, a court
should renounce jurisdiction only "after 'vital facts are established, to
determine whether special circumstances' require the court's
desistance."73 As the propriety of applying forum non conveniens is
contingent on a factual determination, it is, therefore, a matter of
defense.74
This court notes that in Hasegawa,76 this court stated that forum non
conveniens is not a ground for a motion to dismiss. The factual
ambience of this case however does not squarely raise the viability of
this doctrine. Until the opportunity comes to review the use of motions
to dismiss for parallel litigation, Hasegawa remains existing doctrine.
III
In contrast, this court ruled in The Manila Hotel Corp. v. National Labor
Relations Commission91 that the National Labor Relations Q
Commission was a seriously inconvenient forum. In that case, private
respondent Marcelo G. Santos was working in the Sultanate of Oman
when he received a letter from Palace Hotel recruiting him for
employment in Beijing, China. Santos accepted the offer.
Subsequently, however, he was released from employment supposedly
due to business reverses arising from political upheavals in China (i.e.,
the Tiananmen Square incidents of 1989). Santos later filed a
Complaint for illegal dismissal impleading Palace Hotel's General
Manager, Mr. Gerhard Schmidt, the Manila Hotel International
Company Ltd. (which was, responsible for training Palace Hotel's
personnel and staff), and the Manila Hotel Corporation (which owned
50% of Manila Hotel International Company Ltd.'s capital stock).
Contrary to Manila Hotel, the case now before us does not entail a
preponderance of linkages that favor a foreign jurisdiction.
First, there is no basis for concluding that the case can be more
conveniently tried elsewhere. As established earlier, Saudia is doing
business in the Philippines. For their part, all four (4) respondents are
Filipino citizens maintaining residence in the Philippines and, apart
from their previous employment with Saudia, have no other
connection to the Kingdom of Saudi Arabia. It would even be to
respondents' inconvenience if this case were to be tried elsewhere.
Second, the records are bereft of any indication that respondents filed
their Complaint in an effort to engage in forum shopping or to vex and
inconvenience Saudia.
Lastly, there is not even room for considering foreign law. Philippine
law properly governs the present dispute.
Consistent with lex loci intentionis, to the extent that it is proper and
practicable (i.e., "to make an intelligent decision"98), Philippine
tribunals may apply the foreign law selected by the parties. In fact,
(albeit without meaning to make a pronouncement on the accuracy
and reliability of respondents' citation) in this case, respondents
themselves have made averments as to the laws of Saudi Arabia. In
their Comment, respondents write:chanroblesvirtuallawlibrary
Under the Labor Laws of Saudi Arabia and the Philippines[,] it is illegal
and unlawful to terminate the employment of any woman by virtue of
pregnancy. The law in Saudi Arabia is even more harsh and strict [sic]
in that no employer can terminate the employment of a female worker
or give her a warning of the same while on Maternity Leave, the
specific provision of Saudi Labor Laws on the matter is hereto quoted
as follows:chanroblesvirtuallawlibrary
"An employer may not terminate the employment of a female worker
or give her a warning of the same while on maternity leave." (Article
155, Labor Law of the Kingdom of Saudi Arabia, Royal Decree No.
M/51.)99cralawlawlibrary
All told, the considerations for assumption of jurisdiction by Philippine
tribunals as outlined in Bank of America, NT&SA100 have been satisfied.
First, all the parties are based in the Philippines and all the material
incidents transpired in this jurisdiction. Thus, the parties may
conveniently seek relief from Philippine tribunals. Second, Philippine
tribunals are in a position to make an intelligent decision as to the law
and the facts. Third, Philippine tribunals are in a position to enforce
their decisions. There is no compelling basis for ceding jurisdiction to a
foreign tribunal. Quite the contrary, the immense public policy
considerations attendant to this case behoove Philippine tribunals to
not shy away from their duty to rule on the
case.chanRoblesvirtualLawlibrary
IV
It is also clear that respondents exerted all efforts to' remain employed
with Saudia. Each of them repeatedly filed appeal letters (as much as
five [5] letters in the case of Rebesencio109) asking Saudia to
reconsider the ultimatum that they resign or be terminated along with
the forfeiture of their benefits. Some of them even went to Saudia's
office to personally seek reconsideration.110
"In termination cases, the burden of proving just or valid cause for
dismissing an employee rests on the employer."114 In this case, Saudia
makes much of how respondents supposedly completed their exit
interviews, executed quitclaims, received their separation pay, and
took more than a year to file their Complaint.115 If at all, however,
these circumstances prove only the fact of their occurrence, nothing
more. The voluntariness of respondents' departure from Saudia is non
sequitur.
1. What are your main reasons for leaving Saudia? What company
are you joining?
Others
Having been compelled to litigate to seek reliefs for their illegal and
unjust dismissal, respondents are likewise entitled to attorney's fees in
the amount of 10% of the total monetary award.130
VI
(1) Full backwages and all other benefits computed from the respective
dates in which each of the respondents were illegally terminated
until the finality of this Decision;
(2) Separation pay computed from the respective dates in which each
of the respondents commenced employment until the finality of
this Decision at the rate of one (1) month's salary for every year of
service, with a fraction of a year of at least six (6) months being
counted as one (1) whole year;
(3) Moral damages in the amount of P100,000.00 per respondent;
(4) Exemplary damages in the amount of P200,000.00 per respondent;
and
(5) Attorney's fees equivalent to 10% of the total award.
SO ORDERED.chanroblesvirtuallawlibrary
DECISION
II (Section 6) - - Sabotage
Ms. Manarpiis,
Also, your attendance record showed that you have been absent
without official leave (AWOL) since August 3, 2000 up to date.
A notice of AWOL dated September 14, 2000 has been sent to you but
you refused to accept the same, much less, refused to act on it.
In a petition for certiorari filed with the CA, respondents argued that
the subsequent termination of petitioner on the grounds of dishonesty,
loss of confidence and abandonment, after TPI was able to regain
financial viability, was made in view of the fact that commission of the
said offenses surfaced only during the audit investigation conducted
after notice of cessation of business operation was sent to the
employees. Despite advice for her to continue reporting for work after
August 31, 2000, the effectivity date of the intended closure,
petitioner just stopped doing so and instead filed the complaint for
illegal dismissal and likewise failed to turn over all company
documents and records in her possession. They also discovered that
petitioner put up her own company “Vita VSI Scents,” enticing clients
to buy the same products they used to purchase from TPI.
By Decision dated March 24, 2010, the CA reversed the NLRC and
ruled that petitioner was validly dismissed:ChanRoblesVirtualawlibrary
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
dated January 25, 2008 and the Resolution dated September 22, 2008
of the National Labor Relations Commission are
hereby REVERSED and SET ASIDE. Resultantly, Essencia Manarpiis’
complaint for illegal dismissal against Texan Philippines, Inc., Richard
Tan and Catherine Realubin-Tan is hereby DISMISSED for lack of
merit. No costs.
SO ORDERED.16
Petitioner filed a motion for reconsideration but it was denied by the
CA.
Under the Rules of Court and settled doctrine, a petition for review on
certiorari under Rule 45 of the Rules of Court is limited to questions of
law. As a rule, the findings of fact of the CA are final and conclusive,
and this Court will not review them on
appeal.20chanRoblesvirtualLawlibrary
Considering that the findings of facts and the conclusions of the CA are
contrary to those of the LA and the NLRC, we find it necessary to
evaluate such findings.
On the issue of illegal dismissal, both the LA and NLRC found no just
or authorized cause for the termination of petitioner’s employment.
The NLRC upheld the LA’s ruling that petitioner’s dismissal was not
valid, viz:ChanRoblesVirtualawlibrary
As between the above, conflicting allegations, We find the version of
the complainant more credible. Record of the instant case would
provide that other than respondents’ bare allegations that complainant
was instructed to continue working even beyond 31 August 2000, no
evidence was presented to substantiate the same. If respondents
could easily issue a notice of business closure to all its employees, and
at the same time, immediately require the complainant to surrender all
company properties assigned to her, We could not understand why
they could not easily issue another letter, this time, intended only for
the complainant informing her that her employment was still
necessary.
In the instant case, respondents may have presented before the Labor
Arbiter its Statement of Income for the year 1999. While its
preparation may be in compliance with the requirements of the Bureau
of Internal Revenue for taxation purposes, based on the jurisprudence
provided above, the same would not suffice for purposes of
respondents’ defense in the instant case. In their appeal, respondents
alleged that on the basis of the audited Statement of Income and
Retained Earnings For the Year Ending 31 December 2000, the
company incurred a net loss of almost half a million pesos. Assuming
the same to be true since we cannot find a copy of said statement
attached to [the] record, it would appear that the company had
attained a better position in year 2000 as compared to year 1999
when they incurred a net loss of more than Two Million Pesos.
Furthermore, said evidence is already immaterial considering that the
company’s intended closure did not actually take effect.
We have laid down the two elements which must concur for a valid
abandonment, viz: (1) the failure to report to work or absence without
valid or justifiable reason, and (2) a clear intention to sever the
employer-employee relationship, with the second element as the more
determinative factor being manifested by some overt
acts.27 Abandonment as a just ground for dismissal requires
the deliberate, unjustified refusal of the employee to perform his
employment responsibilities. Mere absence or failure to work, even
after notice to return, is not tantamount to
abandonment.28chanRoblesvirtualLawlibrary
The Decision dated June 28, 2001 of the Labor Arbiter in NLRC Case
No. 00-08-04110-2000, as affirmed by the Decision dated January 25,
2008 of the National Labor Relations Commission in NLRC CA No.
029806-01, is hereby REINSTATED.
No pronouncement as to costs.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court filed by Philippine Communications Satellite Corporation
(PHILCOMSAT) and PHILCOMSAT Holdings Corporation (PHC) [petitioners]
against respondents, the Sandiganbayan and the Presidential Commission on
Good Government (PCGG). Petitioners are assailing the Sandiganbayan's
Resolution1 promulgated on 3 May 2012 dismissing their complaint in Civil Case
No. SB-12-CVL-0001, and the Resolution2 promulgated on 14 August 2012
denying their motion for reconsideration.
The Facts
Pending the PSE’s final approval of PHC’s application for listing of the shares,
the PCGG on 1 March 2005, through its then Chairman Camilo L. Sabio
(Chairman Sabio), made a written request to suspend the listing of the increase
in PHC’s capital stock citing as reason the need to settle the conflicting claims of
the two sets of board of directors of the Philippine Overseas Telecommunication
Corporation (POTC) and PHILCOMSAT.9
In a letter10 dated 22 March 2005, the PSE informed the PCGG that the PSE
Listing Committee deferred action on the company’s listing application and
instead referred the matter to the PSE General Counsel to ascertain the
applicability of the provisions on disqualifications for listing as provided under the
PSE Revised Listing Rules.
On 7 June 2005, the PCGG sent another letter11 to the PSE reiterating its
request to defer the listing of PHC shares.
Immediately thereafter, the new directors elected POTC’s new set of officers:
Immediately after, at the meeting of the new and unified Board of Directors of
PHILCOMSAT, the following were elected officers:
x x x x13
SO ORDERED.19
The Sandiganbayan held that, based on the allegations in the complaint, the
action was one for specific performance since it sought to have PCGG withdraw
its objection to the listing of the increase in PHC’s capital stock at the PSE.
Following Section 1920 of Batas Pambansa Blg.129 (B.P. 129), as amended by
Republic Act No. 7691 (R.A. 7691), the Regional Trial Court (RTC) has exclusive
jurisdiction over the case. It said:
In our considered view, the allegations in the complaint show that it is primarily
one for specific performance as it prays that the PCGG be directed to withdraw
its objection to the listing of PHILCOMSAT’s shares in PHC, hence, incapable of
pecuniary estimation and within the RTC’s jurisdiction.21
The Sandiganbayan also ruled that the case was a "dispute among its directors,"
and thus, was an intra-corporate dispute, viz:22
The determination of whether or not the PCGG should withdraw its request to
defer the listing of the PHILCOMSAT shares until the conflicting claims between
the two sets of board of directors of POTC and PHILCOMSAT is settled, is an
intra-corporate controversy. (Emphasis in the original) On 14 August 2012, the
Sandiganbayan denied petitioners’ motion for reconsideration. It reiterated its
earlier ruling that it did not have jurisdiction over the controversy since it was an
intra-corporate dispute.
In plaintiffs’ complaint, it was stated that: "The Republic of the Philippines is the
34.9% owner of POTC, which wholly owns PHILCOMSAT, which in turn, owns
81% of PHC. As such, the Republic of the Philippines, with 28.7% indirect
ownership in PHC, also its largest single beneficial owner, continues to sustain
the incalculable loss of holding illiquid or unmarketable shares in a publicly listed
company." Evidently, while the PCGG may not be a stockholder, director, officer,
member or even associate of the plaintiff corporations, it bears emphasis that the
Commission has an interest in the PHC shares prompting the PCGG to request
the PSE to suspend the listing of the SEC approved increase in capital stock of
PHC. The Commission’s interest in the aforesaid shares determines the "nature
of the question under controversy" in the instant case and consequently, the
reiteration of this Court’s pronouncement in the assailed Resolution of having no
jurisdiction over the subject matter of the instant case.23
The Issue
Petitioners are now before the Court on a petition for review on certiorari under
Rule 45 raising this sole assignment of error:
The Sandiganbayan erred in dismissing the case a quo for lack of jurisdiction on
[the] ground that the action allegedly involves an intra-corporate controversy.24
Petitioners’ arguments
Petitioners argue that the allegations in the complaint do not qualify as an intra-
corporate controversy because "not a single element of an intra-corporate
controversy exists in this case."25
Petitioners claim that, first, the cause of action in this case – to compel PCGG to
withdraw its objection to the listing of PHILCOMSAT’s shares in PHC – is not an
intra-corporate dispute,26 since PCGG is not a stockholder, director, officer,
member or even associate of the plaintiff corporation.27
Second, petitioners insist that the "subject matter of the case a quo, that is, to
have respondent PCGG withdraw its objections to the listing of [PHILCOMSAT’s]
shares in PHC, does not fall in any of the cases that may be considered intra-
corporate controversy, as enumerated in Section 5 of PD 902-A."28 It argues that
"the issue in this case does not even involve POTC and/or the shares that the
Republic owns therein to the extent of thirty five percent (35%). The issue
specifically pertains to petitioner [PHILCOMSAT’s] shares in petitioner PHC
where the respondent PCGG, through abuse of authority, objected to the listing
in the Philippine Stock Exchange. While the government (Republic of the
Philippines) owns 35% of POTC, the latter has a separate and distinct legal
personality with petitioner PHILCOMSAT and PHC. x x x. Respondent PCGG,
which is not even the registered owner of a single PHILCOMSAT share has no
personality to meddle in PHC’s affairs and block the listing of PHILCOMSAT’s
share in the stock exchange. The twin element of corporate relationship and
intra-corporate issues were never met in the complaint."29
Third, petitioners state that PCGG has ceased to have a valid and justifiable
reason for blocking the listing of the increase in PHC’s capital stock because "the
appointment of new government nominees and the stockholders’ meetings of
POTC, PHILCOMSAT and PHC in 2007 paved the way for unified boards and
erased whatever alleged uncertainty that existed previously on who has control
over these corporations."30
More importantly, with its 7 May 2008 En Banc Resolution No. 2008-009, the
PCGG itself has recognized the valid election of the POTC, PHILCOMSAT and
PHC boards and, therefore, the basis for its objection is no longer obtaining.31
Lastly, petitioners argue that the PCGGis a co-equal body with the RTC and
since co-equal bodies have no power to control the other, the RTC cannot
compel the PCGG to follow its order.32
On the other hand, the PCGG, through the Office of the Solicitor General, raised
the following arguments in its Comment:33
The PCGG contends that "the controversy does not emanate from, nor does it
relate to any functions of the PCGG of recovering ill-gotten wealth, or any
incident arising from, or incidental to such duty."34 Rather, the PCGG posits that
the acts complained of are in the nature of an intra-corporate controversy. It
avers that "the nature of petitioners’ claim refers to the enforcement of the
parties’ rights under the Corporation Code and internal rules of the corporation,
particularly affecting the propriety of publicly listing in the Philippine Stock
Exchange (PSE) of the 790 million shares of PHILCOMSAT with PHC."35 The
PCGG emphasized that "the matter of compelling the PCGG x x x to withdraw its
objection regarding the listing of shares in PHC, which objection is an exercise of
ownership rights, is an intra-corporate controversy and outside the jurisdiction of
the respondent court."36
Intra-corporate controversy
Under the relationship test, the existence of any of the following relationships
makes the conflict intra-corporate: (1) between the corporation, partnership or
association and the public; (2) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders,
partners or associates themselves.37
On the other hand, the nature of the controversy test dictates that "the
controversy must not only be rooted in the existence of an intra-corporate
relationship, but must as well pertain to the enforcement of the parties’ correlative
rights and obligations under the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation."38
A combined application of the relationship test and the nature of the controversy
test has become the norm in determining whether a case is an intra-corporate
controversy,39 to be "heard and decided by the [b]ranches of the RTC specifically
designated by the Court to try and decide such cases."40
Relationship test
The PCGG was created under Executive Order No. 1 (E.O. 1) to assist the
President in:
(c) The adoption of safeguards to ensure that the above practices shall not
be repeated in any manner under the new government, and the institution
of adequate measures to prevent the occurrence of corruption.41
In the discharge of its vital task "to recover the tremendous wealth plundered
from the people by the past regime in the most execrable thievery perpetrated in
all history," or "organized pillage" (to borrow a phrase from the articulate Mr. Blas
Ople), the Commission was vested with the ample power and authority
(a) x x x
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which
wholly owns PHILCOMSAT, which in turn owns 81% of PHC.45 The Republic,
then, has an interest in the proper operations of the PHC, however indirect this
interest may seem to be.
Chairman Sabio, while himself not a stockholder of the subject corporations, was
acting as head of the PCGG, which is the agency tasked to adopt safeguards so
that incidents of graft and corruption, as well as cases of abuse of "powers,
authority, influence, connections or relationship" in these corporations are
eliminated.46
The nature of the controversy test examines the controversy in relation to the
"enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the
corporation."47
The controversy in the present case stems from the act of Chairman Sabio in
requesting the PSE to suspend the listing of PHC’s increase in capital stock
because of still unresolved issues on the election of the POTC’s and
PHILCOMSAT’s respective boards of directors.1âwphi1
The act of Chairman Sabio in asking the SEC to suspend the listing of PHC’s
shares was done in pursuit of protecting the interest of the Republic of the
Philippines, a legitimate stockholder in PHC’s controlling parent company, POTC.
The character of the shares held by the PCGG/Republic, on whose behalf the
PCGG Chairman is presumed to be acting, is irrelevant to Chairman Sabio’s
actions. Any shareholder, harboring any apprehensions or concerns, could have
done the same or posed the same objection. It was an act that had no relation to
any proceeding or question of ill-gotten wealth or sequestration. The PCGG was
merely protecting the rights and interest of the Republic of the Philippines.
From the foregoing, it is clear that the dispute in the present case is an intra-
corporate controversy.
As such, it is clear that the jurisdiction lies with the regular courts and not with the
Sandiganbayan.
Petitioners, however, further argue that the case must be decided by the
Sandiganbayan because the RTC is co-equal to the PCGG and therefore would
have no authority to issue an order to the latter.49
Under Section 2 of Executive Order No. 14, the Sandiganbayan has exclusive
and original jurisdiction over all cases regarding "the funds, moneys, assets and
properties illegally acquired by Former President Ferdinand E. Marcos, Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees," civil or criminal, including incidents
arising from such cases. The Decision of the Sandiganbayan is subject to review
on certiorari exclusively by the Supreme Court.
In the exercise of its functions, the PCGG is a co-equal body with the regional
trial courts and co-equal bodies have no power to control the other. The regional
trial courts and the Court of Appeals have no jurisdiction over the PCGG in the
exercise of its powers under the applicable Executive Orders and Section 26,
Article XVIII of the 1987 Constitution and, therefore, may not interfere with and
restrain or set aside the orders and actions of the PCGG.50
Further:
The issue of whether or not the Regional Trial Courts have jurisdiction over the
Presidential Commission on Good Government in the exercise of the latter’s
powers and functions under the applicable Executive Orders and Section 26,
Article XVIII of the 1987 Constitution has been laid to rest in PCGG vs. Hon.
Emmanuel G. Peña, et al., G.R. No. 77663, April 12, 1988 where Mr. Chief
Justice Claudio Teehankee articulated the opinion of an almost unanimous court
as follows:
As the Court has already conclusively ruled, the RTC is co-equal to the PCGG
only in relation to cases falling under the latter’s function under the applicable
Executive Orders, specifically Section 2 of E.O. 14, and Section 26, Article XVIII
of the 1987 Constitution.
Note that in this case, the acts complained of do not pertain to the PCGG’s
function under the aforementioned provisions of law and the Constitution, i.e., it
is not a case involving "the Funds, Moneys, Assets and Properties Illegally
Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business
Associates, Dummies, Agents or Nominees, whether civil or criminal, x x x" nor
can it be considered an "[incident] arising from, incidental to, or related to"52 such
cases.
SO ORDERED.
DECISION
LEONEN, J.:
The assailed Decision of the Court of Appeals reversed and set aside
the Order3 dated October 1, 2003 of the Regional Trial Court, Makati
City, reinstated the Stay Order issued by the Regional Trial Court on
June 4, 2003, gave due course to La Savoie's Petition for Corporate
Rehabilitation, and remanded the case to the Regional Trial Court for
further proceedings.4 The Regional Trial Court's June 4, 2003 Stay
Order stayed the enforcement of all claims, monetary or otherwise,
and whether in court or otherwise, against La Savoie Development
Corporation.
The proceedings before the Regional Trial Court were initially held in
abeyance as La Savoie failed to attach to its Petition some of the
requirements under Rule 4, Section 2 of the Interim Rules.9 With La
Savoie's compliance and finding its "petition to be sufficient in form
and substance,"10 then Regional Trial Court Judge Estela Perlas-
Bernabe issued the Stay Order dated June 4, 2003 staying the
enforcement of all claims against La Savoie. The entirety of this Order
reads:chanroblesvirtuallawlibrary
ORDER
The initial hearing on the petition is set on July 22, 2003 at 8:30
o'clock in the morning at the 3rd Floor, Gusali ng Katarungan, F. Zobel
St., Makati City.
All creditors and interested parties including the Securities and
Exchange Commission are directed to file and serve on petitioner a
verified comment on or opposition to the petition with supporting
affidavits and documents, not later than ten (10) days before the date
of the initial hearing. Failure to do so will bar them from participating
in the proceedings. Copies of the petition and its annexes may be
secured from the court within such time as to enable them to file their
comment on or opposition to the petition and to prepare for its initial
hearing.
SO ORDERED.
ESTELA PERLAS-BERNABE
[sgd.]
Judge11
Following the issuance of the June 4, 2003 Stay Order, La Savoie's
creditors — Planters Development Bank, Philippine Veterans Bank, and
Robinsons Savings Bank — filed their Comments and/or Oppositions.12
Home Guaranty Corporation noted that through the "La Savoie Asset
Pool Formation and Trust Agreement"16 (Trust Agreement), La Savoie
obtained financing for some of its projects through a securitization
process in which Planters Development Bank as nominal issuer issued
PI50 million in asset participation certificates dubbed as the "La Savoie
Development Certificates"17 (LSDC certificates) to be sold to investors.
The projects financed by these certificates consisted of the
development of real properties in General Trias, Cavite; Sto. Tomas,
Batangas; Los Banos, Laguna; and Quezon City. The same properties
were conveyed in trust by La Savoie, as trustor, to Planters
Development Bank, as trustee, and constituted into the La Savoie
Asset Pool (Asset Pool).18
The redemption of the LSDC certificates upon maturity and the interest
payments on them were "backed/collateralized by the assets that were
conveyed by [La Savoie] to the Trust."19 Moreover, the LSDC
certificates were covered by a guaranty extended by Home Guaranty
Corporation through a "Contract of Guaranty"20 entered into by Home
Guaranty Corporation with La Savoie and Planters Development Bank.
In the Decision43 dated June 21, 2005, the Court of Appeals Special
Twelfth Division reversed and set aside the Regional Trial Court's
October 1, 2003 Order, reinstated the Stay Order, gave due course to
the Petition for Rehabilitation, and remanded the case to the trial court
for further proceedings.
Resolved Further That, the said authority shall include but not be
limited to, the verification of Complaints, Petitions, Answer, Reply and
other initiatory or responsive pleadings as the circumstances may
warrant. . . .54cralawlawlibrary
II
La Savoie pointed out that (as of the time of the filing of its Comment)
another case between Home Guaranty Corporation and La Savoie,
docketed as Civil Case No. 05314, was pending before the Makati City
Regional Trial Court.55
III
....
....
Section 4.5. Nominal Issuer. The TRUSTEE shall act as nominal issuer
only of all LSDCs. In no case shall the TRUSTEE be liable for the
payment of any amount due to the holder of the LSDC. The TRUSTEE
shall be free from any liability in the event that the Asset Pool is not
sufficient for the redemption of all the LSDCs. In the event of the non-
payment of the LSDC, the LSDC holder's exclusive recourse shall be to
claim against the HIGC guarantee. The TRUSTEE shall not be
responsible for the failure of HIGC to pay any amount due to any
holder of the LSDC.69cralawlawlibrary
These LSDC certificates were "backed" or secured by "real estate
properties and the products and results of their planned development."
More specifically, Section 3.1 of the Trust Agreement provides for the
establishment of the Asset Pool in which La Savoie "convey[ed],
assign[ed], delivered] all its rights and interests in the real estate
properties ... to the TRUSTEE for the present and future holders of
LSDCs." The third preambular clause and Section 3.1 of the Trust
Agreement read:chanroblesvirtuallawlibrary
WHEREAS, the LANDOWNER/DEVELOPER has agreed to convey the
real estate properties of the PROJECT to a TRUSTEE to form the La
Savoie Project (LSP) Asset Pool which shall be held by the TRUSTEE for
the pro rata and pro indiviso benefit of the holders of the LSDCs to the
extent defined in this Agreement and, residually for the benefit of the
LANDOWNER/DEVELOPER;70
....
The following words and phrases used in this Agreement shall have the
respective meanings hereunder indicated unless the contrary clearly
appears from the context:chanroblesvirtuallawlibrary
....
....
Section 2.4. The Home Insurance and Guaranty Corporation. The roles
and responsibilities of the HIGC shall be as
follows:chanroblesvirtuallawlibrary
2.4.1Provide guaranty coverage for the LSDCs in accordance with its
policies and as provided for in its Contract of Guaranty executed
by the parties.
2.4.2Act as the Financial Controller in the implementation of the
PROJECTS involved in accordance with the Operations and
Accounting Manual as approved by the Governing Board.
2.4.3Designate its representative in the Governing Board who shall act
as the Chairman thereof.74
Section 3.4 of the Trust Agreement provides that in the event that a
call is made on Home Guaranty Corporation for its guaranty, Planters
Development Bank shall convey to the former the Asset
Pool:chanroblesvirtuallawlibrary
Section 3.4. Conveyance to HIGC. Express authority is hereby granted
by the LANDOWNER/DEVELOPER to the TRUSTEE that in the event of
call upon the HIGC guaranty for unredeemed LSDCs and in order to
effect the redemption of the same by the latter, to make the absolute
conveyance to HIGC of the entire Asset Pool, subject to the
reservations regarding joint-venturers [sic] interests as defined in
Section 3.1, a and b above and subject further to the provision of the
aforementioned Contract of Guaranty.75cralawlawlibrary
This conveyance shall be on the strength of the special power of
attorney executed by La Savoie in favor of Planters Development
Bank, in accordance with Section 2.1.6 of the Trust
Agreement:chanroblesvirtuallawlibrary
Section 2.1. - The LANDOWNER/DEVELOPER shall:
2.1.6 Execute and deliver to the TRUSTEE an irrevocable Special Power
of Attorney a Secretary's Certificate per enclosed Annex G giving the
TRUSTEE the full power and authority to make the absolute
conveyance of the entire LSP Asset Pool in favor of the HIGC in the
event of call upon the HIGC guaranty for unredeemed LSDCs and in
order to effect the redemption of the same by the HIGC in accordance
with the provisions of the Contract of Guaranty.76cralawlawlibrary
In sum, these contractual provisions evince the following relations
Thereafter, the Regional Trial Court issued its June 4, 2003 Stay Order
staying "the enforcement of all claims, whether for money or
otherwise, and whether such enforcement is by court action or
otherwise, against [La Savoie], its guarantors and sureties not
solidarity liable with it."80 It also "prohibited [La Savoie] from making
any payment of its liabilities outstanding as of the date of the filing of
the petition on April 25, 2003."81
The issuance of the June 4, 2003 Stay Order was in accordance with
Rule 4, Section 6 of this court's November 21, 2000 Resolution in A.M.
No. 00-8-10-SC, otherwise known as the Interim Rules of Procedure
on Corporate Rehabilitation (Interim Rules). Though subsequently
replaced in 2013 by the Financial Rehabilitation Rules of
Procedure,82 the Interim Rules was in effect at the time of the
incidents relevant to this case and which then governed "petitions for
rehabilitation filed by corporations, partnerships, and associations
pursuant to Presidential Decree No. 902-A, as.amended."
The filing of La Savoie's Appeal did not restrain the effectivity of the
October 1, 2003 Order. It is true thai generally, an appeal stays the
judgment or final order appealed from.86 Rehabilitation proceedings,
however, are not bound by procedural rules spelled out in the Rules of
Court. The Interim Rules, not the Rules of Court, was the procedural
law, which (at the time of the pivotal incidents in this case) governed
rehabilitation proceedings. In Rule 3, Section 5, the Interim Rules
explicitly carved an exception to the general principle that an appeal
stays the judgment or final order appealed from. It explicitly requires
the issuance by the appellate court of an order enjoining or restraining
the order appealed from.
Per the records, the Court of Appeals did not issue an injunctive writ or
a temporary restraining order. Neither did La Savoie specifically pray
for its issuance in the Appellant's Brief it filed before the Court of
Appeals. The prayer of this Brief reads:chanroblesvirtuallawlibrary
WHEREFORE, Petitioner-Appellant most respectfully pray [sic] that the
Order dated October 1, 2003, dismissing the Petition BE SET ASIDE
and after due consideration a judgment be rendered giving due course
to the Petition for rehabilitation and declaring the herein petitioner-
appellant in a state of suspension of payments, and reinstating the
Stay Order and finally, approving the Proposed Rehabilitation Plan.
Other relief and remedies are deemed just and equitable under the
premises are likewise prayed for.
RESPECTFULLY SUBMITTED.87cralawlawlibrary
Thus, the October 1, 2003 Order, lifting the restrictions on the
payment of claims against La Savoie, remained in effect. La Savoie's
creditors were then free to enforce their claims. Conversely, La Savoie
and "its guarantors and sureties not solidarity liable with it"88 were no
longer restrained from effecting payment.
Specifically, Home Guaranty Corporation as guarantor was
capacitated, in accordance with Sections 12 and 13 of the Contract of
Guaranty to effect payment to the holders of the LSDC certificates.
Having established that the Stay Order was lifted and that this lifting
remained in force and was not restrained, we turn to La Savoie's
contention that the conveyance to Home Guaranty Corporation of the
Asset Pool is in violation of the rule against preference of creditors.
La Savoie cites Article 206789 of the Civil Code and argues that with
Home Guaranty Corporation's payment of the LSDC certificates'
redemption value, Home Guaranty Corporation was subrogated into
the rights of La Savoie's creditors (i.e., the certificate holders). It
asserts that "effectively, petitioner HGC is already the creditor of
respondent La Savoie"90 and that as creditor, it cannot be given a
preference over the assets of La Savoie, something that is "prohibited,
in rehabilitation proceedings."91
During rehabilitation receivership, the assets are held in trust for the
equal benefit of all creditors to preclude one from obtaining an
advantage or preference over another by the expediency of an
attachment, execution or otherwise. For what would prevent an alert
creditor, upon learning of the receivership, from rushing posthaste to
the courts to secure judgments for the satisfaction of its claims to the
prejudice of the less alert creditors.
Apart from these, the trial court's October 1, 2003 Order lifted the
June 4, 2003 Stay Order. This was significant not only with respect to
the freedom it afforded to La Savoie's creditors to (in the meantime
that the lifting of the Stay Order was not restrained) enforce their
claims but similarly because it established a context that removed this
case from the strict applicability of the rule being cited by La Savoie.
Viewed solely through the lens of the Trust Agreement and the
Contract of Guaranty, the transfer made to Home Guaranty
Corporation on the strength of the Deed of Conveyance appears valid
and binding. However, we find that its execution is in violation of a
fundamental principle in the law governing credit transactions. We find
the execution of a Deed of Conveyance without resorting to foreclosure
to be indicative of pactum commissorium. Hence, it is void and
ineffectual and does not serve to vest ownership in Home Guaranty
Corporation.
Art. 2137. The creditor does not acquire the ownership of the real
estate for non-payment of the debt within the period agreed upon.
Every stipulation to the contrary shall be void. But the creditor may
petition the court for the payment of the debt or the sale of the real
property. In this case, the Rules of Court on the foreclosure of
mortgages shall apply.
In Garcia v. Villar,99 this court discussed the elements of pactum
commissorium:chanroblesvirtuallawlibrary
The following are the elements of pactum commissorium:
On the other hand, implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as matters
of intent or which are superinduced on the transaction by operation of
law as matters of equity, independently of the particular.intention of
the parties. In turn, implied trusts are either resulting or constructive
trusts. These two are differentiated from each other as
follows:chanroblesvirtuallawlibrary
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or
interest and are presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his
legal title for the benefit of another. On the other hand, constructive
trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary
to intention against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in
equity and good conscience, to hold.104 (Emphasis supplied)
Articles 1450, 1454, 1455, and 1456 of the Civil Code provide
examples of constructive trusts:chanroblesvirtuallawlibrary
Art. 1450. If the price of a sale of property is loaned or paid by one
person for the benefit of another and the conveyance is made to the
lender or payor to secure the payment of the debt, a trust arises by
operation of law in favor of the person to whom the money is loaned
or for whom it is paid. The latter may redeem the property and compel
a conveyance thereof to him.
In Lopez, this court held that the factual milieu of that case placed it
within the contemplation of Article 1456 of the Civil Code:
The provision on implied trust governing the factual milieu of this case
is provided in Article 1456 of the Civil Code, which states:
So, too, this case falls squarely under Article 1456 of the Civil Code.
Home Guaranty Corporation acquired the properties comprising the
Asset Pool by mistake or through the ineffectual transfer (i.e., for
being pactum commissorium) made by the original trustee, Planters
Development Bank.
Two key points are established from the preceding discussions. First,
the Court of Appeals' June 21, 2005 Decision restored La Savoie's
status as a corporation under receivership. Second, with all but a
constructive trust created between Home Guaranty Corporation and La
Savoie, the properties comprising the Asset Pool remain within the
dominion of La Savoie.
SO ORDERED.chanroblesvirtuallawlibrary
DECISION
LEONEN, J.:
Subic Bay Golf Course, also known as Binictican Valley Golf Course,
was operated by Subic Bay Metropolitan Authority (SBMA) under the
Bases Conversion Development Authority (BCDA).5 Universal
International Group of Taiwan (UIG), a Taiwanese corporation, was
chosen to implement the plan to privatize the golf
course.6cralawrednad
On May 25, 1995, SBMA and UIG entered into a Lease and
Development Agreement. Under the agreement, SBMA agreed to lease
the golf course to UIG for 50 years, renewable for another 25
years.7UIG agreed to "develop, manage and maintain the golf course
and other related facilities within the complex[.]"8 Later, Universal
International Group Development Corporation (UIGDC) succeeded to
the interests of UIG on the golf course development.9cralawrednad
Villareal and Filart also claimed that despite SBGCCI's and UIGDC's
failure to deliver the promised amenities, they started to charge them
monthly dues. They also never received any billing statement from
them until they were sent a demand notice to pay the alleged back
dues of P39,000.00 within five (5) days. They were threatened that
their shares amounting to P740,000.00 and paid off in December 1996
would be auctioned off if their alleged back dues would not be
paid.18 Villareal and Filart prayed for relief from the "terrible situation
[they found themselves] in."19 They also prayed that their letter be
accepted "as a formal complaint against Universal International Group
Development Corporation for breach of promise/contract with its
investors who put in hard-earned money believing that they would
deliver what their brochures promised to deliver."20cralawrednad
In their Comment,21 SBGCCI and UIGDC averred that they had already
substantially complied with their commitment to provide the members
a world-class golf and country club.22 The construction of the golf
course substantially met international standards.23 Other proposed
project developments such as the construction of villas and residential
condominium-hotels were not included in the rights purchased with
member shares.24 They also denied that they failed to send monthly
billing statements to Filart and Villareal.25cralawredcralawrednad
SBGCCI and UIGDC also stressed that SBMA, under its Contract of
Lease, was the one duty-bound to complete the golf course and
amenities. It would be in breach of contract if it failed to complete the
golf course and the amenities. Insofar as SBGCCI's commitments were
concerned, it was able to fully comply with its
obligations.26cralawrednad
There is a driving
range with roof and
7 berths and one
(1) tee house in
hole # 3.
The construction of
the additional 9-
hole course has not
yet started.
Construction/renovation of Before November The clubhouse has
Clubhouse with the following 1996 a dining area,
facilities: P192,400,000 function room, 6
VIP rooms, sport
1. dining areas shop, one (1)
2. function rooms restaurant and men
3. indoor and outdoor tennis & ladies locker
courts rooms. It has no
4. 25-meter swimming pool sauna and massage
5. gyms rooms.
6. saunas and massage room
7. sport shops Beside the
clubhouse is a
Condominiums, Residential swimming pool with
Villas, 250-bedroom hotel and a no water and one
conference center (1) tennis court,
[sic] that are both
poorly maintained.
There is [sic]
none.28
In the July 1, 2003 Order, the Securities and Exchange Commission's
Corporation Finance Department gave due course to Villareal and
Filart's letter-complaint:29
WHEREFORE, upon consideration of the foregoing, the complaint of
REGINA S. FILART and MARGARITA G. VILLAREAL is hereby given DUE
COURSE.
SO ORDERED.38
The Securities and Exchange Commission ruled that the Corporation
Finance Department's proceedings were administrative in nature. It
was only conducted to determine if SBGCCI and UIGDC violated the
Securities and Exchange Commission's rules and regulations. While
Villareal and Filart's letter-complaint alleged intra-corporate matters, it
also alleged matters pertaining to SBGCCI and UIGDC's compliance
with the prospectus and registration statements. The Securities and
Exchange Commission has the authority to investigate possible acts of
abuse of franchise and violations of its rules and regulations. It also
has the power to impose appropriate administrative sanctions. The
Corporation Finance Department only exercised these
powers.39cralawrednad
On SBGCCI and UIGDC's allegation that they were not given due
process, the Securities and Exchange Commission ruled that
suspension of permit to sell securities does not require a full-blown
hearing. In any case, SBGCCI and UIGDC were served notice and
given an opportunity to present their case. They were even able to file
their Comment on the letter-complaint on January 6,
2003.41cralawrednad
SBGCCI and UIGDC filed a Petition for Review45 of the Securities and
Exchange Commission's February 10, 2004 Decision before the Court
of Appeals.46 They argued that the letter-complaint filed by Villareal
and Filart involved an intra-corporate dispute that was under the
jurisdiction of the Regional Trial Court and not the Securities and
Exchange Commission.47 They also argued that the Securities
Regulation Code does not grant the Securities and Exchange
Commission the power to order the refund of payment for shares of
stock.48cralawrednad
On July 31, 2007, the Court of Appeals declared void the February 10,
2004 Decision of the Securities and Exchange Commission insofar as it
ordered the refund of the purchase price of Filart's and Villareal's
investments.49 Thus:cralawlawlibrary
WHEREFORE, the February 10, 2004 Decision of the Securities and
Exchange Commission in CFD-AA-Case No. 08-03-36, affirming the
July 1, 2003 Order of the Corporate Finance Department, insofar as it
ordered the refund of the purchase price of the shares of stock of
petitioner SBGCCI, is hereby declared NULL and VOID for lack of
jurisdiction.
SO ORDERED.50
The Court of Appeals found that the case involved an intra-corporate
controversy. The Securities and Exchange Commission acted in excess
of its jurisdiction when it ordered UIGDC and SBGCCI to refund
Villareal and Filart the amount they paid for SBGCCI shares of stock.
The authority to exercise powers necessary to carry out the objectives
of the Securities and Exchange Commission does not include the
authority to refund investments. This power has been transferred to
the Regional Trial Court. The Securities and Exchange Commission
should have limited its exercise of power to issuing an order imposing
a fine, to amend the prospectus, and to suspend the Certificate of
Registration and Permit to Sell Securities to the Public.51cralawrednad
The Securities and Exchange Commission points out that Villareal and
Filart had been demanding from SBGCCI and UIGDC the return of their
investments. Its Corporation Finance Department already directed
SBGCCI and UIGDC to amend their prospectus and registration
statements to comply with the Securities Regulation Code. However,
SBGCCI and UIGDC failed to comply.62cralawrednad
In their Comment,63 SBGDCC and UIGDC insist that the case involved
an intra-corporate dispute over which only the Regional Trial Court has
jurisdiction.64 The Securities and Exchange Commission has no
authority to order the return of payments made by Villareal and
Filart.65 Even assuming that the Securities and Exchange Commission
has jurisdiction over intra-corporate cases, there should first be a
disagreement over prospectus amendments before paid contributions
can be refunded.66cralawrednad
....
The nature of the controversy test requires that the action involves the
enforcement of corporate rights and obligations.
Courts and tribunals must consider both the parties' relationship and
the nature of the controversy to determine whether they should
assume jurisdiction over a case. In Medical Plaza Makati Condominium
Corporation v. Cullen:71
[T]he controversy must not only be rooted in the existence of an intra-
corporate relationship, but must as well pertain to the enforcement of
the parties' correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the
corporation. In other words, jurisdiction should be determined by
considering both the relationship of the parties as well as the nature of
the question involved.72(Citations omitted)
This case is an intra-corporate dispute, over which the Regional Trial
Court has jurisdiction. It involves a dispute between the corporation,
SBGCCI, and its shareholders, Villareal and Filart.
This case also involves corporate rights and obligations. The nature of
the action — whether it involves corporate rights and obligations — is
determined by the allegations and reliefs in the
complaint.73cralawrednad
Villareal and Filart's right to a refund of the value of their shares was
based on SBGCCI and UIGDC's alleged failure to abide by their
representations in their prospectus. Specifically, Villareal and Filart
alleged in their letter-complaint that the world-class golf course that
was promised to them when they purchased shares did not
materialize. This is an intra-corporate matter that is under the
designated Regional Trial Court's jurisdiction. It involves the
determination of a shareholder's rights under the Corporation Code or
other intra-corporate rules when the corporation or association fails to
fulfill its obligations.
However, even though the Complaint filed before the Securities and
Exchange Commission contains allegations that are intra-corporate in
nature, it does not necessarily oust the Securities and Exchange
Commission of its regulatory and administrative jurisdiction to
determine and act if there were administrative violations committed.
a. The issuer:
i. Has been judicially declared insolvent;
ii. Has violated any of the provisions of this Code, the rules
promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection
with the offering for which a registration statement has
been filed;
....
....
..
.
d. Regulate, investigate or supervise the activities of persons to
ensure compliance;
..
.
f. Impose sanctions for the violation of laws and the rules, regulations
and orders issued pursuant thereto;
..
.
i. Issue cease and desist orders to prevent fraud or injury to the
investing public;
..
.
m. Suspend, or revoke, after proper notice and hearing the franchise
or certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law; and
n. Exercise such other powers as may be provided by law as well as
those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted the
Commission to achieve the objectives and purposes of these laws.81
The Securities and Exchange Commission's approval of securities
registrations signals to the public that the securities are valid. It
provides the public with basis for relying on the representations of
corporations that issue securities or financial instruments.
....
SO ORDERED.chanrobles virtuallawlibrary
DECISION
BRION, J.:
These assailed CA rulings annulled the June 27, 2006 decision4 and
October 30, 2006 order5 of the Regional Trial Court of Makati, Branch
64 (trial court), which directed respondent Jose V. Dueñas (Dueñas) to
pay Five Million Pesos (P5 Million) to petitioner George C. Fong (Fong),
and imposed a six percent (6%) annual interest on this amount.
Factual Antecedents
The parties agreed that Fong would contribute Thirty Two Million and
Five Hundred Thousand Pesos (P32.5 Million) in cash while Dueñas
would contribute all his Danton and Bakcom shares which he valued at
P32.5 Million.8 Fong required Dueñas to submit the financial
documents supporting the valuation of these shares.
Dear Jojit,
We know that our decision will somewhat upset the overall plans. But
it will probably be more problematic for us in the long run if we
continue full speed. We have put our money down in trust and
good faith despite the much delayed financials. We continue to
believe in your game plan and capabilities to achieve the desired goals
for subject undertaking. Please permit us instead to be just a modest
silent investor now with a take out plan when time and price is right.
Since Dueñas did not pay, Fong filed a complaint against him for
collection of a sum of money and damages18on April 24, 1998.
In its June 27, 2006 decision, the trial court ruled in favor of Fong and
held that a careful examination of the complaint shows that although it
was labeled as an action for collection of a sum of money, it was
actually an action for rescission.19chanrobleslaw
The trial court noted that Dueñas’ failure to furnish Fong with the
financial documents on the valuation of the Danton and Bakcom
shares, as well as the almost one year delay in the incorporation of
Alliance, caused Fong to rescind the joint venture
agreement.20 According to the trial court, these are adequate and
acceptable reasons for rescission.
The trial court also held that Dueñas erroneously invested Fong’s cash
contributions in his two companies, Danton and Bakcom. The signed
receipts,21 presented as evidence, expressly provided that each
remittance should be applied as advance subscription to Fong’s
shareholding in Alliance. Thus, Dueñas’ investment of the money in
Danton and Bakcom was clearly unauthorized and contrary to the
parties’ agreement.
Fong filed a partial motion for reconsideration from the trial court’s
June 27, 2006 decision and asked for the imposition of a six percent
(6%) annual interest, computed from the date of extrajudicial demand
until full payment of the award. The trial court granted this prayer in
its October 30, 2006 order.23chanrobleslaw
Dueñas responded to the trial court’s ruling through an appeal with the
CA, which granted the appeal and annulled the trial court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter evidenced his intention
to convert his cash contributions from “advances” to the proposed
corporation’s shares, to mere “investments.” Thus, contrary to the trial
court’s ruling, Dueñas correctly invested Fong’s P5 Million contribution
to Bakcom and Danton. This did not deviate from the parties’ original
agreement as eventually, the shares of these two companies would
form part of Alliance’s capital.24chanrobleslaw
Lastly, the CA held that the June 13, 1997 letter showed that Fong
knew all along that he could not immediately ask for the return of his
P5 Million investment. Thus, whether the action filed was a complaint
for collection of a sum of money, or rescission, it must still
fail.25chanrobleslaw
The Petition
Fong submits that the CA erred when it ruled that his June 13, 1997
letter showed his intent to convert his contributions from advance
subscriptions to Alliance’s shares, to investments in Dueñas’ two
companies. Contrary to the CA’s findings, the receipts and the letter
expressly mentioned that his contributions should all be treated as his
share subscription to Alliance.26chanrobleslaw
At the outset, the Court notes that the parties’ joint venture
agreement to incorporate a company that would hold the shares of
Danton and Bakcom and that would serve as the business vehicle for
their food enterprise, is a valid agreement. The failure to reduce the
agreement to writing does not affect its validity or enforceability as
there is no law or regulation which provides that an agreement to
incorporate must be in writing.
With this as premise, we now address the related issues raised by the
parties.
The body rather than the title of the complaint determines the
nature of the action.
xxxx
Reciprocal obligations are those which arise from the same cause, in
which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent on the obligation of the
other.36chanrobleslaw
For his part, Dueñas explained that he could not immediately return
the P5 Million since he had invested it in his two companies. He found
nothing irregular in this as eventually, the Danton and Bakcom shares
would form part of Alliance’s capital.
The parties never agreed that Fong would invest his money in Danton
and Bakcom. Contrary to Dueñas’ submission, Fong’s understanding
was that his money would be applied to his shareholdings in Alliance.
As shown in Fong’s June 13, 1997 letter, this fact remained to be true
even after he limited his contribution to P5
Million, viz:chanRoblesvirtualLawlibrary
Dear Jojit,
Under these circumstances, the Court agrees with the trial court that
Dueñas violated his agreement with Fong. Aside from unilaterally
applying Fong’s contributions to his two companies, Dueñas
also failed to deliver the valuation documents of the Danton
and Bakcom shares to prove that the combined values of their
capital contributions actually amounted to P32.5 Million.
In his June 13, 1997 letter, Fong expressly informed Dueñas that he
would be limiting his cash contribution from P32.5 Million to P5 Million
because of the following reasons which we quote
verbatim:chanRoblesvirtualLawlibrary
Despite these gray areas, the fact that both Fong and Dueñas
substantially contributed to the non-incorporation of Alliance
and to the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the parties first
violated the agreement, we apply the second part of Article 1192
which states: “if it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and
each shall bear his own damages.”
In these lights, the Court holds that the joint venture agreement
between Fong and Dueñas is deemed extinguished through
rescission under Article 1192 in relation with Article 1191 of
the Civil Code. Dueñas must therefore return the P5 Million that Fong
initially contributed since rescission requires mutual restitution.44After
rescission, the parties must go back to their original status
before they entered into the agreement. Dueñas cannot keep
Fong’s contribution as this would constitute unjust enrichment.
SO ORDERED.cralawlawlibrary
DECISION
LEONEN, J.:
The Court of Appeals affirmed the Decision4 of the Regional Trial Court,
Branch 62 of Makati City in Civil Case No. 99-1407. The Regional Trial
Court rendered judgment in favor of U-Land Airlines, Co., Ltd. (U-
Land) and ordered the rescission of the Memorandum of
Agreement5 between Wellex and U-Land.6
U-Land Airlines Co. Ltd. (U-Land) “is a corporation duly organized and
existing under the laws of Taiwan, registered to do business . . . in the
Philippines.”10 It is engaged in the business of air transportation in
Taiwan and in other Asian countries.11
(c) U-LAND shall enter into a joint development agreement with PEC .
. . [; and]
(d) U-LAND shall be given the option to acquire from WELLEX shares
of stock of EXPRESS SAVINGS BANK (“ESB”) up to 40% of the
outstanding capital stock of ESB . . . under terms to be mutually
agreed.16
Both parties agreed that the purchase price of APIC shares and PEC
shares would be paid upon the execution of the share purchase
agreement and Wellex’s delivery of the stock certificates covering the
shares of stock. The transfer of APIC shares and PEC shares to U-Land
was conditioned on the full remittance of the final purchase price as
reflected in the share purchase agreement. Further, the transfer was
conditioned on the approval of the Securities and Exchange
Commission of the issuance of the shares of stock and the approval by
the Taiwanese government of U-Land’s acquisition of these shares of
stock.20
The purchase price for the Subject Shares as reflected in the SHPA
shall be paid in full upon execution of the SHPA against delivery of the
Subject Shares. The parties may agree on such other terms and
conditions governing the acquisition of the Subject Shares to be
provided in a separate instrument.
U-Land agreed to remit the sum of US$3 million not later than May 22,
1998. This sum was to serve as initial funding for the development
projects that Wellex and U-Land were to undertake pursuant to the
joint development agreement. In exchange for the US$3 million,
Wellex would deliver stock certificates covering 57,000,000 PEC shares
to U-Land.28
Finally, Wellex and U-Land agreed that if they were unable to agree on
the terms of the share purchase agreement and the joint development
agreement within 40 days from signing, then the First Memorandum of
Agreement would cease to be effective.33
9. Validity. - In the event the parties are unable to agree on the terms
of the SHPA and/or the JDA within forty (40) days from date hereof (or
such period as the parties shall mutually agree), this Memorandum of
Agreement shall cease to be effective and the parties released from
their respective undertakings herein, except that WELLEX shall refund
the US$3.0 million provided under Section 4 within three (3) days
therefrom, otherwise U-LAND shall have the right to recover on the
57,000,000 PEC shares delivered to U-LAND under Section 4.35
- and -
W I T N E S S E T H: That -
The 40-day period lapsed on June 25, 1998.45 Wellex and U-Land were
not able to enter into any share purchase agreement although drafts
were exchanged between the two.
Despite these transactions, Wellex and U-Land still failed to enter into
the share purchase agreement and the joint development agreement.
In the letter56 dated July 22, 1999, 10 months57 after the last formal
communication between the two parties, U-Land, through counsel,
demanded the return of the US$7,499,945.00.58 This letter was sent
14 months after the signing of the First Memorandum of Agreement.
Wellex averred that, “[s]ave for a few items, [Wellex and U-Land]
virtually agreed on the terms of both [the share purchase agreement
and the joint development agreement.]”66 Wellex believed that the
parties had already “gone beyond the ‘intent’ stage of the [First
Memorandum of Agreement] and [had already] effected partial
implementation of an over-all agreement.”67 U-Land even delivered a
total of 12 post-dated checks to Wellex as payment for the APIC
shares and PEC shares.68 “[Wellex] on the other hand, had [already]
delivered to [U-Land] certificates of stock of APEC [sic] and PEC as
well as various land titles to cover actual remittances.”69 Wellex
alleged that the agreements were not finalized because U-Land was
“forced to suspend operations because of financial problems spawned
by the regional economic turmoil.”70
Wellex claims that, had the development projects pushed through, the
parties would have shared equally in the profits of these
projects.93 These projects would have yielded an income of
P2,404,948,000.00, as per the study Wellex conducted, which was
duly recognized by U-Land.94 Half of that amount, P1,202,474,000.00,
would have redounded to Wellex.95 Wellex, thus, prayed for the
rescission of the First Memorandum of Agreement and the payment of
P1,202,474,000 in damages for loss of profit.96 It prayed for the
payment of moral damages, exemplary damages, attorney’s fees, and
costs of suit.97
In its Reply,98 U-Land denied that there was an extension of the 40-
day period within which to enter into the share purchase agreement
and the joint development agreement. It also denied requesting for an
extension of the 40-day period. It further raised that there was no
provision in the First Memorandum of Agreement that required it to
remit payments for Wellex’s shares of stock in APIC and PEC within the
40-day period. Rather, the remittances were supposed to begin upon
the execution of the share purchase agreement.99
As for the remittance of the US$3 million, U-Land stated that the
issuance of this amount on May 22, 1998 was supposed to be
simultaneously made with Wellex’s delivery of the stock certificates for
57,000,000 PEC shares. These stock certificates were not delivered on
that date.100
U-Land presented Mr. David Tseng (Mr. Tseng), its President and Chief
Executive Officer, as its sole witness.104 Mr. Tseng testified that
“[s]ometime in 1997, Mr. William Gatchalian who was in Taiwan
invited [U-Land] to join in the operation of his airline
company[.]”105 U-Land did not accept the offer at that time.106 During
the first quarter of 1998, Mr. Gatchalian “went to Taiwan and invited
[U-Land] to invest in Air Philippines[.]”107 This time, U-Land alleged
that subsequent meetings were held where Mr. Gatchalian,
representing Wellex, “claimed ownership of a majority of the shares of
APIC and ownership by APIC of a majority of the shares of [APC,] a
domestic carrier in the Philippines.”108 Wellex, through Mr. Gatchalian,
offered to sell to U-Land PEC shares as well.109
According to Mr. Tseng, the parties agreed to enter into the First
Memorandum of Agreement after their second meeting.110 Mr. Tseng
testified that under this memorandum of agreement, the parties would
enter into a share purchase agreement “within forty (40) days from its
execution which [would] put into effect the sale of the shares [of
stock] of APIC and PEC[.]”111 However, the “[s]hare [p]urchase
[a]greement was not executed within the forty-day period despite the
draft . . . given [by U-Land to Wellex].”112
Mr. Tseng further testified that it was only after the lapse of the 40-
day period that U-Land discovered that Wellex needed money for the
transfer of APC shares to APIC. This allegedly shocked U-Land since
under the First Memorandum of Agreement, APIC was supposed to
own a majority of APC shares. Thus, U-Land remitted to Wellex a total
of US$7,499,945.00 because of its intent to become involved in the
aviation business in the Philippines. These remittances were confirmed
by Wellex through a confirmation letter. Despite the remittance of this
amount, no share purchase agreement was entered into by the
parties.113
Wellex presented its sole witness, Ms. Elvira Ting (Ms. Ting), Vice
President of Wellex. She admitted her knowledge of the First
Memorandum of Agreement as she was involved in its drafting. She
testified that the First Memorandum of Agreement made reference,
under its second preambular clause, to the Second Memorandum of
Agreement entered into by Wellex, APIC, and APC. She testified that
under the First Memorandum of Agreement, U-Land’s purchase of APIC
shares and PEC shares from Wellex would take place within 40 days,
with the execution of a share purchase agreement.114
Finally, Ms. Ting testified that Wellex tried to contact U-Land to have a
meeting to thresh out the problems of the First Memorandum of
Agreement, but U-Land did not reply. Instead, Wellex only received
communication from U-Land regarding their subsequent negotiations
through the latter’s demand letter dated July 22, 1999. In response,
Wellex wrote to U-Land requesting another meeting to discuss the
demands. However, U-Land already filed the Complaint for rescission
and caused the attachment against the properties of Wellex, causing
embarrassment to Wellex.119
In the Decision dated April 10, 2001, the Regional Trial Court of Makati
City held that rescission of the First Memorandum of Agreement was
proper:
Q And you are just making your statement that U-Land knew about
the intended transfer of shares from APC to APIC because of this
WHEREAS CLAUSE and the Annex to this Memorandum of Agreement?
“Q Ms. Ting, can you please tell the Court if you know who owns
shares of Air Philippines Corporation at this time?
Q Can you tell us if you know who are the other owners of the shares
of Air Philippines?
(lbid, p. 16)
That defendant represented to plaintiff that it needed the remittances
of plaintiff, even if no SPA was executed yet between the parties, to
effect the transfer of APC shares to APIC is admitted by its same
witness also in this wise:
A Yes, Sir.
Q During all these times, that remittances were made in the total
amount of more than seven million dollars, did you ever know if
plaintiff asked for evidence from your company that AIR PHILIPPINES
INTERNATIONAL CORPORATION has already acquired shares of AIR
PHILIPPINES CORPORATION?
A Yes, sir.”
This Court agrees with the lower court that appellee is the injured
party in this case, and therefore is entitled to rescission, because the
rescission referred to here is predicated on the breach of faith by the
appellant which breach is violative of the reciprocity between the
parties. It is noted that appellee has partly complied with its own
obligation, while the appellant has not. It is, therefore, the right of the
injured party to ask for rescission because the guilty party cannot ask
for rescission.
The lower court . . . correctly ruled that:
“. . . This Court agrees with plaintiff that defendant’s
misrepresentations regarding APIC’s not owning shares in APC vitiates
its consent to the MOA. Defendant’s continued misrepresentation that
it will cause the transfer of APC shares in APIC inducing plaintiff to
remit money despite the lapse of the stipulated forty day period,
further establishes plaintiff’s right to have the MOA rescinded.
Section 9 of the MOA itself provides that in the event of the non-
execution of an SPA within the 40 day period, or within the extensions
thereof, the payments made by plaintiff shall be returned to it, to wit:
“9 Validity.- In the event that the parties are unable to agree on the
terms of the SHPA and/or JDA within forty (40) days from the date
hereof (or such period as the parties shall mutually agree), this
Memorandum of Agreement shall cease to be effective and the parties
released from their respective undertakings herein, except that
WELLEX shall refund the US$3.0 million under Section 4 within three
(3) days therefrom, otherwise U-LAND shall have the right to recover
the 57,000,000 PEC shares delivered to U-LAND under Section 4.”
Clearly, the parties were not able to agree on the terms of the SPA
within and even after the lapse of the stipulated 40 day period. There
being no SPA entered into by and between the plaintiff and defendant,
defendant’s return of the remittances [of] plaintiff in the total amount
of US$7,499,945 is only proper, in the same vein, plaintiff should
return to defendant the titles and certificates of stock given to it by
defendant.122 (Citations omitted)
Petitioner’s Arguments
Petitioner Wellex raises that the Court of Appeals erred in saying that
the rescission of the First Memorandum of Agreement was proper
because petitioner Wellex itself asked for this in its Answer before the
trial court.126 It asserts that “there can be no rescission of a non-
existent obligation, such as [one] whose suspensive condition has not
yet happened[,]”127 as held in Padilla v. Spouses
Paredes.128 CitingVillaflor v. Court of Appeals129 and Spouses Agustin
v. Court of Appeals,130 it argues that “the vendor. . . has no obligation
to deliver the thing sold. . . if the buyer. . . fails to fully pay the price
as required by the contract.”131 In this case, petitioner Wellex
maintains that respondent U-Land’s remittance of US$7,499,945.00
constituted mere partial performance of a reciprocal
obligation.132 Thus, respondent U-Land was not entitled to rescission.
The nature of this reciprocal obligation requires both parties’
simultaneous fulfillment of the totality of their reciprocal obligations
and not only partial performance on the part of the allegedly injured
party.
Respondent’s Arguments
As for Suria, respondent U-land avers that this case was inapplicable
because the pertinent provision in Suria was not Article 1191 but
rescission under Article 1383 of the Civil Code.148 The “rescission”
referred to in Article 1191 referred to “resolution” of a contract due to
a breach of a mutual obligation, while Article 1384 spoke of
“rescission” because of lesion and damage.149 Thus, the rescission that
is relevant to the present case is that of Article 1191, which involves
breach in a reciprocal obligation. It is, in fact, resolution, and not
rescission as a result of fraud or lesion, as found in Articles 1381,
1383, and 1384 of the Civil Code.150
The Issue
ART. 1370. If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
(c) U-LAND shall enter into a joint development agreement with PEC to
jointly pursue property development projects in the Philippines.
(d) U-LAND shall be given the option to acquire from WELLEX shares
of stock of EXPRESS SAVINGS BANK (“ESB”) up to 40% of the
outstanding capital stock of ESB (the “ESB Shares”) under terms to be
mutually agreed.155
2. Acquisition of APIC and PEC Shares. - Within forty (40) days from
date hereof (unless extended by mutual agreement), U-LAND and
WELLEX shall execute a Share Purchase Agreement (“SHPA”) covering
the acquisition by U-LAND of the APIC Shares and PEC Shares
(collectively, the “Subject Shares”). Without prejudice to any
subsequent agreement between the parties, the purchase price for the
APIC Shares to be reflected in the SHPA shall be THIRTY CENTAVOS
(P0.30) per share and that for the PEC Shares at SIXTY FIVE
CENTAVOS (P0.65) per share.
The purchase price for the Subject Shares as reflected in the SHPA
shall be paid in full upon execution of the SHPA against delivery of the
Subject Shares. The parties may agree on such other terms and
conditions governing the acquisition of the Subject Shares to be
provided in a separate instrument.
9. Validity. - In the event the parties are unable to agree on the terms
of the SHPA and/or the JDA within forty (40) days from date hereof (or
such period as the parties shall mutually agree), this Memorandum of
Agreement shall cease to be effective and the parties released from
their respective undertakings herein, except that WELLEX shall refund
the US$3.0 million provided under Section 4 within three (3) days
therefrom, otherwise U-LAND shall have the right to recover on the
57,000,000 PEC shares delivered to U-LAND under Section 4.158
As for the PEC shares, Section 1 provides that respondent U-Land shall
purchase from petitioner Wellex “shares of stock of PHILIPPINE
ESTATES CORPORATION (‘PEC’) equivalent to at least 35% of the
outstanding capital stock of PEC, but in any case, not less than
490,000,000 shares (the ‘PEC Shares’).”160
The use of the terms “at least 35% of the outstanding capital stock of
APIC, but in any case, not less than 1,050,000,000 shares” and “at
least 35% of the outstanding capital stock of PEC, but in any case, not
less than 490,000,000 shares” means that the parties had yet to agree
on the number of shares of stock to be purchased.
Petitioner Wellex argues that the use of “upon” in Section 2162 of the
First Memorandum of Agreement means that respondent U-Land must
pay the purchase price of the shares of stock in its entirety when they
are transferred. This argument has no merit.
Article 1373 of the Civil Code provides:
It is necessary for the parties to first agree on the final purchase price
and the number of shares of stock to be purchased before respondent
U-Land is obligated to pay or remit the entirety of the purchase
price.Thus, petitioner Wellex’s argument cannot be sustained since the
parties to the First Memorandum of Agreement were clearly unable to
agree on all the terms concerning the share purchase agreement. It
would be absurd for petitioner Wellex to expect payment when
respondent U-Land did not yet agree to the final amount to be paid for
the totality of an indeterminate number of shares of stock.
The third paragraph of Section 2163 provides that the “transfer of the
Subject Shares” shall take place upon the fulfillment of certain
conditions, such as full payment of the purchase price “as reflected in
the [share purchase agreement].” The transfer of the shares of stock
is different from the execution of the share purchase agreement.
The transfer of the shares of stock requires full payment of the final
purchase price. However, that final purchase price must be reflected in
the share purchase agreement. The execution of the share purchase
agreement will require the existence of a final agreement.
In its Answer with counterclaim before the trial court, petitioner Wellex
argued that the payment of the shares of stock was to begin within the
40-day period. Petitioner Wellex’s claim is not in any of the stipulations
of the contract. Its subsequent claim that respondent U-Land was
actually required to remit a total of US$20.5 million is likewise bereft
of basis since there was no final purchase price of the shares of stock
that was agreed upon, due to the failure of the parties to execute a
share purchase agreement. In addition, the parties had yet to agree
on the final number of APIC shares and PEC shares that respondent U-
Land would acquire from petitioner Wellex.
In the event the parties are unable to agree on the terms of the SHPA
and/or the JDA within forty (40) days from date hereof (or such period
as the parties shall mutually agree), this Memorandum of Agreement
shall cease to be effective and the parties released from their
respective undertakings herein . . .164
When the 40-day period provided for in Section 9 lapsed, the efficacy
of the First Memorandum of Agreement ceased. The parties were
“released from their respective undertakings.” Thus, from June 25,
1998, the date when the 40-day period lapsed, the parties were no
longer obliged to negotiate with each other in order to enter into a
share purchase agreement.
Based on the records and the findings of the lower courts, the parties
were never able to arrive at a specific period within which they would
bind themselves to enter into an agreement. There being no other
period specified, the parties were no longer under any obligation to
negotiate and enter into a share purchase agreement. Section 9
clearly freed them from this undertaking.
II
The subsequent acts of the parties after the 40-day period were,
therefore, independent of the First Memorandum of Agreement.
Articles 1291 and 1292 of the Civil Code provides how obligations may
be modified:
In Arco Pulp and Paper Co. v. Lim,168 this court discussed the concept
of novation:
I
n the civil law setting, novatio is literally construed as to make new.
So it is deeply rooted in the Roman Law jurisprudence, the principle —
novatio non praesumitur — that novation is never presumed. At
bottom, for novation to be a jural reality, its animus must be ever
present, debitum pro debito — basically extinguishing the old
obligation for the new one.169 (Emphasis from the original omitted,
citations omitted)
After the 40-day period, the parties did not enter into any subsequent
written agreement that was couched in unequivocal terms. The
transaction of the First Memorandum of Agreement involved large
amounts of money from both parties. The parties sought to participate
in the air travel industry, which has always been highly regulated and
subject to the strictest commercial scrutiny. Both parties admitted that
their counsels participated in the crafting and execution of the First
Memorandum of Agreement as well as in the efforts to enter into the
share purchase agreement. Any subsequent agreement would be
expected to be clearly agreed upon with their counsels’ assistance and
in writing, as well.
[N]o specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine what
might constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new obligations.
. . . .
III
ART. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become evident
that the event cannot occur.
At the lapse of the 40-day period, the parties failed to enter into a
share purchase agreement. This lapse is the first circumstance
provided for in Article 1185 that gives rise to the obligation. Applying
Article 1185, the parties were then obligated to return to each other all
that they had received in order to be freed from their respective
undertakings.
However, the parties continued their negotiations after the lapse of the
40-day period. They made subsequent transactions with the intention
to enter into the share purchase agreement. Despite that, they still
failed to enter into a share purchase agreement. Communication
between the parties ceased, and no further transactions took place.
It became evident that, once again, the parties would not enter into
the share purchase agreement. This is the second circumstance
provided for in Article 1185. Thus, the obligation to free each other
from their respective undertakings remained.
IV
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when
he who demands rescission can return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
x x x x
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
[S]ince Article 1385 of the Civil Code expressly and clearly states that
“rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest,” the Court finds no justification to sustain petitioners’ position
that said Article 1385 does not apply to rescission under Article 1191.
x x x176 (Emphasis from the original, citations omitted)
The cause is the vinculum juris or juridical tie that essentially binds the
parties to the obligation. This linkage between the parties is a binding
relation that is the result of their bilateral actions, which gave rise to
the existence of the contract.
The failure of one of the parties to comply with its reciprocal prestation
allows the wronged party to seek the remedy of Article 1191. The
wronged party is entitled to rescission or resolution under Article 1191,
and even the payment of damages. It is a principal action precisely
because it is a violation of the original reciprocal prestation.
Article 1381 and Article 1383, on the other hand, pertain to rescission
where creditors or even third persons not privy to the contract can file
an action due to lesion or damage as a result of the contract. In Ong
v. Court of Appeals,181 this court defined rescission:
On the other hand, Article 1191 of the New Civil Code refers to
rescission applicable to reciprocal obligations. Reciprocal obligations
are those which arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned upon
the simultaneous fulfillment of the other. Rescission of reciprocal
obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383. Although
both presuppose contracts validly entered into and subsisting and both
require mutual restitution when proper, they are not entirely identical.
While Article 1191 uses the term “rescission,” the original term which
was used in the old Civil Code, from which the article was based, was
“resolution.” Resolution is a principal action which is based on breach
of a party, while rescission under Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381 of the New
Civil Code, which expressly enumerates the following rescissible
contracts:
The buyer, in turn, fulfilled his end of the bargain when he executed
the deed of mortgage. The payments on an installment basis secured
by the execution of a mortgage took the place of a cash payment. In
other words, the relationship between the parties is no longer one of
buyer and seller because the contract of sale has been perfected and
consummated. It is already one of a mortgagor and a mortgagee. In
consideration of the petitioners’ promise to pay on installment basis
the sum they owe the respondents, the latter have accepted the
mortgage as security for the obligation.
The situation in this case is, therefore, different from that envisioned
in the cited opinion of Justice J.B.L. Reyes. The petitioners’ breach of
obligations is not with respect to the perfected contract of sale but in
the obligations created by the mortgage contract. The remedy of
rescission is not a principal action retaliatory in character but becomes
a subsidiary one which by law is available only in the absence of any
other legal remedy. (Art. 1384, Civil Code).
VI
Respondent U-Land was already aware that APC was not a subsidiary
of APIC after the 40-day period. Still, it agreed to be bound by the
First Memorandum of Agreement by making the remittances from June
30 to September 25, 1998.198 Thus, petitioner Wellex’s failure to
inform respondent U-Land that APC was not a subsidiary of APIC when
the First Memorandum of Agreement was being executed did not
constitute fraud.
However, the absence of fraud does not mean that petitioner Wellex is
free of culpability. By failing to inform respondent U-Land that APC
was not yet a subsidiary of APIC at the time of the execution of the
First Memorandum of Agreement, petitioner Wellex violated Article
1159 of the Civil Code. Article 1159 reads:
ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
VII
VIII
Neither petitioner Wellex nor respondent U-Land stated that there was
already a transfer of ownership of the shares of stock or the land titles.
Respondent U-Land itself maintained that the delivery of the shares of
stock and the land titles were not in the nature of a pledge or
mortgage.202 It received the certificates of shares of stock and the land
titles with an understanding that the parties would subsequently enter
a share purchase agreement. There being no share purchase
agreement, respondent U-Land is obligated to return the certificates of
shares of stock and the land titles to petitioner Wellex.
The parties are bound by the 40-day period provided for in the First
Memorandum of Agreement. Adherence by the parties to Section 9 of
the First Memorandum of Agreement has the same effect as the
rescission or resolution prayed for and granted by the trial court.
SO ORDERED.
RESOLUTION
LEONEN, J.:
The rehabilitation receiver did not approve this plan and submitted
instead an amended rehabilitation plan, which the rehabilitation court
approved by order dated January 17, 2005.4 In its disposition, the
court found petitioner Pryce Corporation “eligible to be placed in a
state of corporate rehabilitation.”5 The disposition likewise identified
the assets to be held and disposed of by petitioner Pryce Corporation
and the manner by which its liabilities shall be paid and liquidated.6
xxx
With respect to BPI’s separate appeal, the Court of Appeals First (1st )
Division13 granted its petition initially and set aside the January 17,
2005 order of the rehabilitation court in its decision dated May 3,
2006.14 On reconsideration, the court issued a resolution dated May
23, 2007 setting aside its original decision and dismissing the
petition.15 BPI elevated the case to this court, docketed as G.R. No.
180316. By resolution dated January 30, 2008, the First (1st ) Division
of this court denied the petition.16 By resolution dated April 28, 2008,
this court denied reconsideration with finality.17
By resolution dated June 16, 2008, this court denied with finality the
separate motions for reconsideration filed by the parties.
The First Division of this court referred this case to the En Banc en
consulta by resolution dated June 22, 2009.21 The court En Banc, in its
resolution dated April 13, 2010, resolved to accept this case.22
By resolution dated August 6, 2013, this court granted the motion but
only for two (2) months. The registry receipts showed that counsel for
respondent China Banking Corporation and counsel for petitioner Pryce
Corporation received their copies of this resolution on September 5,
2013.24
More than two months had lapsed since September 5, 2013, but no
agreement was filed by the parties. Thus, we proceed to rule on
petitioner Pryce Corporation’s second motion for reconsideration.
First, petitioner Pryce Corporation argues that the issue on the validity
of the rehabilitation court orders is now res judicata. Petitioner Pryce
Corporation submits that the ruling in BPI v. Pryce
Corporationdocketed as G.R. No. 180316 contradicts the present case,
and it has rendered the issue on the validity and regularity of the
rehabilitation court orders as res judicata.25cralawred
In BPI v. Pryce Corporation, the Court of Appeals set aside initially the
January 17, 2005 order of the rehabilitation court.30 On
reconsideration, the court set aside its original decision and dismissed
the petition.31 On appeal, this court denied the petition filed by BPI
with finality. An entry of judgment was made for BPI v. Pryce
Corporation on June 2, 2008.32 In effect, this court upheld the January
17, 2005 order of the rehabilitation court.
Res judicata embraces two concepts: (1) bar by prior judgment35 and
(2) conclusiveness of judgment.36
Bar by prior judgment exists “when, as between the first case where
the judgment was rendered and the second case that is sought to be
barred, there is identity of parties, subject matter, and causes of
action.”37
There is no question that both cases deal with the subject matter of
petitioner Pryce Corporation’s rehabilitation. The element of identity of
causes of action also exists.
In any case, the Interim Rules or the rules in effect at the time the
petition for corporate rehabilitation was filed in 2004 adopts the cram–
down principle which “consists of two things: (i) approval despite
opposition and (ii) binding effect of the approved plan x x x.”43
In res judicata, the primacy given to the first case is related to the
principle of immutability of final judgments essential to an effective
and efficient administration of justice, viz:chanRoblesvirtualLawlibrary
x x x [W]ell–settled is the principle that a decision that has
acquired finality becomes immutable and unalterable and may
no longer be modified in any respect even if the modification is meant
to correct erroneous conclusions of fact or law and whether it will be
made by the court that rendered it or by the highest court of the land.
The reason for this is that litigation must end and terminate sometime
and somewhere, and it is essential to an effective and efficient
administration of justice that, once a judgment has become final,
the winning party be not deprived of the fruits of the verdict. Courts
must guard against any scheme calculated to bring about that result
and must frown upon any attempt to prolong the controversies.
The only exceptions to the general rule are the correction of clerical
errors, the so–called nunc pro tunc entries which cause no prejudice to
any party, void judgments, and whenever circumstances
transpire after the finality of the decision rendering its execution
unjust and inequitable.49 (Emphasis
provided)chanroblesvirtualawlibrary
Generally, the later case is the one abated applying the maxim qui
prior est tempore, potior est jure (he who is before in time is the
better in right; priority in time gives preference in law).50 However,
there are limitations to this rule as discussed in Victronics Computers,
Inc. v. Regional Trial Court, Branch 63, Makati:51
In our jurisdiction, the law itself does not specifically require that the
pending action which would hold in abatement the other must be a
pending prior action. Thus, in Teodoro vs. Mirasol, this Court
observed:chanRoblesvirtualLawlibrary
It is to be noted that the Rules do not require as a ground for dismissal
of a complaint that there is a prior pending action. They provide that
there is a pending action, not a pending prior action. The fact
that the unlawful detainer suit was of a later date is no bar to the
dismissal of the present action. We find, therefore, no error in the
ruling of the court a quo that plaintiff’s action should be dismissed on
the ground of the pendency of another more appropriate action
between the same parties and for the same cause.
In Roa–Magsaysay vs. Magsaysay, wherein it was the first case which
was abated, this Court ruled:chanRoblesvirtualLawlibrary
In any event, since We are not really dealing with jurisdiction but
mainly with venue, considering both courts concerned do have
jurisdiction over the causes of action of the parties herein against each
other, the better rule in the event of conflict between two
courts of concurrent jurisdiction as in the present case, is to
allow the litigation to be tried and decided by the court which,
under the circumstances obtaining in the controversy, would, in
the mind of this Court, be in a better position to serve the
interests of justice, considering the nature of the controversy,
the comparative accessibility of the court to the parties, having
in view their peculiar positions and capabilities, and other
similar factors. Without in any manner casting doubt as to the
capacity of the Court of First Instance of Zambales to adjudicate
properly cases involving domestic relations, it is easy to see that the
Juvenile and Domestic Relations Court of Quezon City which was
created in order to give specialized attention to family problems,
armed as it is with adequate and corresponding facilities not available
to ordinary courts of first instance, would be able to attend to the
matters here in dispute with a little more degree of expertise and
experience, resulting in better service to the interests of justice. A
reading of the causes of action alleged by the contending spouses and
a consideration of their nature, cannot but convince Us that, since
anyway, there is an available Domestic Court that can legally take
cognizance of such family issues, it is better that said Domestic Court
be the one chosen to settle the same as the facts and the law may
warrant.
We made the same pronouncement in Ramos vs.
Peralta:chanRoblesvirtualLawlibrary
Finally, the rule on litis pendentia does not require that the later
case should yield to the earlier case. What is required merely is
that there be another pending action, not a prior pending action.
Considering the broader scope of inquiry involved in Civil Case No.
4102 and the location of the property involved, no error was
committed by the lower court in deferring to the Bataan court’s
jurisdiction.
An analysis of these cases unravels the ratio for the rejection of the
priority–in–time rule and establishes the criteria to determine which
action should be upheld and which is to be abated. In Teodoro, this
Court used the criterion of the more appropriate action.We ruled
therein that the unlawful detainer case, which was filed later, was the
more appropriate action because the earlier case — for specific
performance or declaratory relief — filed by the lessee (Teodoro) in
the Court of First Instance (CFI) to seek the extension of the lease for
another two (2) years or the fixing of a longer term for it, was
“prompted by a desire on plaintiff’s part to anticipate the action for
unlawful detainer, the probability of which was apparent from the
letter of the defendant to the plaintiff advising the latter that the
contract of lease expired on October 1, 1954.” The real issue between
the parties therein was whether or not the lessee should be allowed to
continue occupying the leased premises under a contract the terms of
which were also the subject matter of the unlawful detainer case.
Consonant with the doctrine laid down in Pue vs. Gonzales and Lim Si
vs. Lim, the right of the lessee to occupy the land leased against the
lessor should be decided under Rule 70 of the Rules of Court; the fact
that the unlawful detainer case was filed later then of no moment.
Thus, the latter was the more appropriate action.
xxx
The rehabilitation court complied with the Interim Rules in its order
dated July 13, 2004 on the issuance of a stay order and appointment
of Gener T. Mendoza as rehabilitation receiver.53
The 1999 Rizal Commercial Banking Corp. v. IAC54 case provides for
the “serious situations” test in that the suspension of claims is counted
only upon the appointment of a rehabilitation receiver,55 and certain
situations serious in nature must be shown to exist before one is
appointed, viz:chanRoblesvirtualLawlibrary
Furthermore, as relevantly pointed out in the dissenting opinion, a
petition for rehabilitation does not always result in the appointment of
a receiver or the creation of a management committee. The SEC has
to initially determine whether such appointment is appropriate and
necessary under the circumstances. Under Paragraph (d), Section 6 of
Presidential Decree No. 902–A, certain situations must be shown to
exist before a management committee may be created or appointed,
such as:
Section 6 of the Interim Rules states explicitly that “[i]f the court finds
the petition to be sufficient in form and substance, it shall, not later
than five (5) days from the filing of the petition, issue an Order (a)
appointing a Rehabilitation Receiver and fixing his bond; (b) staying
enforcement of all claims x x x.”57
Compliant with the rules, the July 13, 2004 stay order was issued not
later than five (5) days from the filing of the petition on July 9, 2004
after the rehabilitation court found the petition sufficient in form and
substance.
Neither does the Interim Rules require a hearing before the issuance of
a stay order. What it requires is an initial hearing before it can give
due course to63 or dismiss64 a petition.
Nevertheless, while the Interim Rules does not require the holding of a
hearing before the issuance of a stay order, neither does it prohibit the
holding of one. Thus, the trial court has ample discretion to call a
hearing when it is not confident that the allegations in the petition are
sufficient in form and substance, for so long as this hearing is held
within the five (5)–day period from the filing of the petition — the
period within which a stay order may issue as provided in the Interim
Rules.
Rather than let struggling corporations slip and vanish, the better
option is to allow commercial courts to come in and apply the process
for corporate rehabilitation.
As a final note, this is not the first time this court was made to review
two separate petitions appealed from two conflicting decisions,
rendered by two divisions of the Court of Appeals, and originating from
the same case. In Serrano v. Ambassador Hotel, Inc.,88 we ordered
the Court of Appeals to adopt immediately a more efficient system in
its Internal Rules to avoid situations as this.
SO ORDERED.
DECISION
BERSAMIN, J.:
The Case
Antecedents
SO ORDERED.
On June 28, 2001, the SEC En Banc affirmed the findings of Hearing
Officer Querijero, except the granting of attorney’s fees to
Gardpro,10viz:
Decision of the CA
We agree with the ruling of the SEC and the Hearing Officer that the
real club member is Gardpro, and not its designated nominees/
representatives, considering the following:
1. The corporation (Gardpro) owns the Class “C” share as the by-
laws itself provides, the nominees are merely nominees or
representatives of the corporation, the latter being the real
member. (Section 2.2.2, Section 2.2.4)
As correctly held by the Hearing Officer and the SEC, the applicable
provision on the matter is section 2.2.2 of the By-Laws, the relevant
portion of which states:
“A juridical entity owning a Class “C” Common Share may, by
resolution of its board of directors or trustees, designate two (2)
nominees for regular membership to the club for each Class “C” Share
registered in its name; provided, however, that only one (1) nominee
for each Class “C” Share, as designated in the aforesaid resolution
may vote and hold office as such. The said nominee(s) or
representative(s), upon approval of the Board of Directors, may be
admitted as Regular Member(s). A transfer fee in such amount as
may be prescribed by the Board of Directors, shall be charged
for every change in the designated nominee of juridical entity.”
(Emphasis supplied)
SO ORDERED.14
Issues
I.
II.
III.
The appeal lacks merit. The CA did not err in rendering its assailed
decision against the petitioner.
1.
Replacement nominees of Gardpro
were not required to pay membership fees
Forest Hills was not authorized under its articles of incorporation and
by-laws to collect new membership fees for the replacement nominees
of Gardpro.
There is no question that Gardpro held class “C” common stocks that
entitled it to two memberships in the Club. Its nominees could be
admitted as regular members upon approval of the Board of Directors
but only one nominee for each class “C” share as designated in the
resolution could vote as such. A regular member was then entitled to
use all the facilities and privileges of the Club. In that regard, Gardpro
could only designate as its nominees/representatives its officers whose
functions and office were defined by its own by-laws.
The membership in the Club was a privilege, it being clear that the
mere purchase of a share in the Club did not immediately qualify a
juridical entity for membership. Admission for membership was still
upon the favorable action of the Board of Directors of the Club. Under
Section 2.2.7 of its by-laws, the application form was accomplished by
the chairman of the board, president or chief executive officer of the
applicant juridical entity. The designated nominees also accomplished
their respective application forms, duly proposed and seconded, and
the nominees were evaluated as to their qualifications. The nominees
automatically became ineligible for membership once they ceased to
be officers of the corporate member under its by-laws upon
certification of such loss of tenure by a responsible officer of the
corporate member.
Articles of Incorporation
xxxx
SEVENTH
xxxx
By-Laws
xxxx
The CA was also guided by Article 1374 of the Civil Code, which
declares that “[t]he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.” Verily, all stipulations of the
contract are considered and the whole agreement is rendered valid
and enforceable, instead of treating some provisions as superfluous,
void, or inoperable.
2.
The CA did not encroach upon the prerogative
of Forest Hills to determine its own rules and procedures
and to decide all questions on the construction of
its articles of incorporation and by-laws
Anent the second issue, the Court disagrees with the contention of
Forest Hills that the CA encroached upon its prerogative to determine
its own rules and procedures and to decide all issues on the
construction of its articles of incorporation and by-laws. On the
contrary, the CA acted entirely within its legal competence to decide
the issues between the parties.
3.
Intervention of the Federation of Golf Clubs
of the Philippines, Inc. as amicus curiae was not necessary
SO ORDERED.
DECISION
REYES, J.:
This is a Petition for Review1 under Rule 45 of the Rules of Court from the
Decision2 dated February 22, 2002 of the Court of Appeals (CA) in CA-G.R. CV
No. 63519 which reversed and set aside the Decision3 dated June 25, 1997 of
the Regional Trial Court (RTC) of Manila, Branch 25, in Civil Case No. 144667.
Antecedents Facts
Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-
owners of three parcels of land and the building erected thereon known as the
"Trade Center Building", which were covered by Transfer Certificates of Title
(TCT) Nos. 127778, 127779 and 127780 (subject properties) of the Register
ofDeeds of Manila. Jose’s one-half share in the subject properties were later
transferred and registered in the name of his son Reynaldo Tanjangco and
daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).
At the time material to this case,the stockholders of record of LRI were the
following:
Except for Arturo and Teresita, the rest of the stockholders were members of the
Board of Directors.5 Asuncion was LRI’s Corporate Secretary.
In a special meeting of the stockholders held on July 27, 1981, the sale of the
one-half share of LRI in the Trade Center Building was discussed:
STOCKHOLDERS PRESENT:
II. Sale of One-Half (1/2) Share of Lopez Realty, Inc. in Trade Center Building
The matter of the sale of ½ share of Lopez Realty, Inc., in the Trade Center
Building was taken up. Atty. Benjamin B. Bernardino informed the body that the
selling price is pegged at 4 Million Pesos, and the Tanjangcos are offering 3.6
Million Pesos plus 50% of the receivablesor a total of 3.8 Million Pesos payable
under the following terms:
It was finally agreed by the body that ASUNCION F. LOPEZ x x x be given the
priority to accept [equal] the TANJANGCO offer and the same to be exercised
within ten (10 accept) days. Failure on her part to act on the offer, the said offer
will be deemed accepted.6 (Emphasis in the original)
Asuncion failed to exercise her option to purchase the subject properties within
the stated period. Thus, on August 17, 1981, while Asuncion was abroad, the
remaining directors: Rosendo, Benjamin and Leo convened in a special meeting,
where the following resolution was passed and approved:8
III. Upon motion duly seconded, Mr. ARTURO F. LOPEZ had been authorized by
the Board to immediately negotiate with the Tanjangcos on the matter of the
latter’s offer to purchase ½ of the Trade Center Building and in connection there
with he is given full power and authority by the Boardto carry out the complete
termination of the sale terms and conditions as embodied in the Resolution of
July 27, 1981 and in connection therewith is likewise authorized to sign for and in
behalf of Lopez Realty Incorporated.
RESOLUTION
Series of 1981
RESOLUTION
Series of 1981
"In view of the cable of Ms. Asuncion Lopez, the [B]oard decided to postpone
[the] final action on the sale of Lopez Realty, Inc. share in Trade Center Building
to the Tanjangcosso that she can be enlightened on all proceedings of the Board
during her absence.
UNANIMOUSLY APPROVED."12
Upon Asuncion’s arrival, the Board had a meeting on September 16, 1981,
where she moved for the repeal and/or amendment of the August 17, 1981 and
August 24, 1981 Board Resolutions. While Benjamin opposed Asuncion’s
motion, the members of the Board agreed to defer action on the matter until such
time when Arturo and Asuncion have conferred or settled the matter.13
As Jose’s one-half interest in the subject properties had already been transferred
to the spouses Tanjangco,it was requested that LRI execute another deed of
sale, where the spouses Tanjangco shall be designated as buyers. Thus, on
October 5, 1981, Arturoexecuted a Deed ofSale similar to that which was
executed on August 25,1981 in favor of the spouses Tanjangco.14
The spouses Tanjangco paid LRI the amount of ₱1,800,000.00, which the latter
accepted by issuing Official Receipt No. 723.15 The spouses Tanjangco then
registered the Deed of Sale with the Register of Deeds of Manila, causing the
cancellation of TCT Nos. 127778,127779 and 127780 and the issuance of TCT
Nos. 145983, 145984 and 145985 in their name.16 Consequently, on November
4, 1981, LRI and Asuncion (herein petitioners) filed with the then Court of First
Instance of Manila, a Complaint17 for annulment of sale, cancellation of title,
reconveyance and damages with prayer for the issuance of temporary restraining
order (TRO) and/or writ of preliminary injunction against the spouses Tanjangco,
Arturo and the Registrar of Deeds of Manila. The complaint was docketed as
Civil Case No. 144667 and raffled to Branch 25.Essentially, it was alleged that
the sale is not binding on LRI as the August 17, 1981 Board Resolution,
authorizing Arturo to sell the corporation’s one-half interest in the subject
properties, is invalid for lack of notice to Asuncion. It was also alleged that the
said board resolution had already been revoked by the Board of Directors in their
September 1, 1981 and September 16, 1981 Resolutions.
On November 11, 1981, the trial court issued a TRO, enjoining the spouses
Tanjangco from paying the balance of the purchase price and Arturo from
accepting payment.18
On November 21, 1981, the spouses Tanjangco filed a motion for the production
of a copy of the board resolution authorizing Asuncion to file the complaint on
LRI’s behalf. In her Comment, Asuncion claimed that the action is a derivative
suit she initiated as LRI’s minority stockholder, for which no authorization from
LRI’s Board of Directors is necessary.20
On July 30, 1982, the stockholders of LRI had a meeting where they voted on
whether to ratify and confirm the sale of the subject properties to the spouses
Tanjangco. The minutes of such meeting state:
At this juncture, Juanito Santos moved for the ratification and confirmation of the
sale of Trade Center Building to the [spouses Tanjangco] and thereby ratifying
and confirming all minutes relative to the sale made to the [spouses Tanjangco],
and the same being seconded, it was placed to a vote amongst the stockholders
and Directors present and the votes were as follows:
After the ratification and confirmation of the sale of Trade Center Building,
Asuncion Lopez stated that she is not preparing the minutes of today’s meeting
as well as that of June 29, 1982 and prior ones, but she was reminded that if she
refuses to do what is incumbent upon her as Secretary, the same would be
prepared and if she refuses to sign, that’s up to her, for the corporation is
governed by the Board of Directors coupled by the majority of the stockholders
who ratify the acts of the Board.
That the sale of Trade Center Building in point of stockholders and in point of the
Board of Directors had been duly ratified and confirmed and likewise it was
moved and seconded that the votes will be submitted to the Securities and
Exchange Commission (SEC) in order that the said office may be properly
apprised of the situation of Lopez Realty, Inc.
There being no further business to take up, upon motion and duly seconded, the
meeting [is] adjourned.22
On February 6, 1984, the trial court issued an order, denying the spouses
Tanjangco’s, Juanito’s and Arturo’s respective motions.24
On March 1, 1985, Asuncion and Arturo filed a Joint Motion to Dismiss in SEC
Case No. 2164 on the ground that a "final settlement has been arrived at and that
they hereby waive and renounce any further claim or counterclaim that they may
have against each other x x x." This was granted by the SEC.25
During the trial, the petitioners, among others, attempted to establish that the
subject sale had not been validly ratified during the July 30, 1982 stockholders’
meeting in view of the failure to meet the required number of votes. Asuncion
testified that Juanito was not qualified to sit as a director during the said meeting
there being no evidence that he owned at least one share. Asuncion likewise
testified that Leo actually voted against the ratification of the sale, contrary to
what is stated in the minutes, which she and Leo did not sign.27
After trial on the merits, the trial court issued a Decision28 on June 25, 1997, the
dispositive portion of which reads:
1. Declaring null and void the Deed of Sale, dated 5 October 1981, signed
by defendant Arturo Lopez, in behalf of Lopez Realty[,] Inc., and
defendants Spouses Reynaldo and Maria Luisa Tanjangco, involving the
interest of Lopez Realty, Inc. in the Trade Center Building;
SO ORDERED.29
Finding the sale null and void, the trial court ruled that Arturo lacked the authority
to sell LRI’s interest on the subject properties to the spouses Tanjangco on LRI’s
behalf in view of the procedural infirmities which attended the meeting held on
August 17, 1981. Specifically:
On this issue, the Court rules in favor of the plaintiff. There is merit in plaintiff’s
contention that the 17 August 1981 meeting of the Board of Directors of Lopez
Realty was illegal. Section 53 of the Corporation Code of the Philippines
categorically provides:
"Sec. 53. Regular and Special Meeting[s] of Directors [or] Trustees — Regular
meeting of the board of directors or trustees of every corporation [shall be] held
monthly[,] unless the by-lawsprovides [sic] otherwise.
xxxx
Plaintiff alleged that no notice was sent to her prior to the 17 August 1981
meeting. The Court is inclined to give credit to this allegation considering that
defendants never contested the same. Hence, the said meeting was illegal and
the resolution adopted during the meeting would not produce the effect of binding
the corporation, Lopez Realty.30
The trial court likewise ruled thatthe sale between LRI and the spouses
Tanjangco was not validly ratified in the absence of the required number of votes.
Thus:
Notwithstanding the assertions of the defendants, the Court gives credit to
plaintiff[’s] claim. The claim, which was made under oath, has not been contested
by defendants. Besides, the copy of the minutes itself x x x corroborates it. From
a physical examination of said minutes, it appears that among the five alleged
directors present[,]only de Leon, Bernardino and Santos signed over their names
at the bottom of the minutes. Gonzalez and Rivera, whose names are also
written thereon do not have their signatures on. Since the vote of Santos does
not count, he not being qualified to sit as director, only the two votes de Leon and
Bernardino count for ratification. But that did not constitute a majority vote.
Consequently, there was no validratification of the sale of Lopez Realty’s interest
in the Trade Center Building. The sale has remained invalid and not binding upon
the corporation.31
Nonetheless, the trial court denied Asuncion’s claim for damages as there is no
legal compulsion for the spouses Tanjangco to honor a compromise agreement
that was not perfected prior to its reduction into writing. Thus:
Concerning the third issue, the Court finds no valid reason to compel defendants
to sign the alleged compromise agreement.1âwphi1 Granting that defendants
Tanjangcos did signify initially their conformity with the terms and conditions of
the compromise agreement as alleged by plaintiff, the same did not reach
maturity prior to its execution in writing. Hence, defendants did not commit
breach of contract when, afterwards, they refused to sign the compromise
agreement.32
On both parties’ appeal to the CA, the trial court’s Decision dated June 25, 1997
was reversed. In its Decision dated February 22, 2002, the CA recognized
Arturo’s authority tosell LRI’s interest on the subject properties, holding that this
Court had earlier declared the August 17, 1981 Board Resolution as valid in
Lopez Realty, Inc. v. Fontecha.33Thus:
It is to be recalled that the validity of the board meeting of August 17, 1981 has
already been challenged before the high court, albeit, on another matter. In
Lopez Realty, Inc. vs. Fontecha, 247 SCRA 183 [1995], the same plaintiffs-
appellants challenged the validity of the board resolution granting gratuity pay
and other benefits to some of the company’s employees on the ground that the
meeting was allegedly convened without prior notice to the directors. The high
court, citing American jurisprudence, ruled that the [sic] "an action of the board of
directors during a meeting, which was illegal for lack of notice, may be ratified
either expressly, by the action of the directors in subsequent legal meeting, or
impliedly, by the corporation’s subsequent course of conduct." x x x In holding
the meeting to have been valid, the same Court, among others, considered the
following circumstances: petitioner corporation did not issue any resolution
revoking or nullifying the board resolutions granting gratuity pay; and, petitioner
therein Asuncion Lopez-Gonzales was aware of the said obligations and even
acquiesced thereto by signing two of the checks for gratuity pay. In the case at
bench, it was duly established that the matter of the sale of the property to the
Tanjangcos has been taken up in the subsequent meetings of the corporation
culminating in the meeting of July 30, 1982, where the stockholders ratified and
confirmed not only the sale of Trade Center Building to the appellants
Tanjan[g]cos but also all minutes relative to the said sale. It likewise appears that
in the aforesaid July 30, 1982 meeting, appellant Gonzales was present and was
clearly outvoted by the other stockholders.34
The CA likewise ruled that whatever infirmity attended the August 17, 1981
Board Resolution was cured by ratification of the majority of the directors in the
joint stockholders and directors meeting held on July 30, 1982. Furthermore, the
CA figured that even if Juanito’s vote is disregarded, the ratification was
approved by the majority of the board, including Leo, whose signatureis nowhere
on the minutes:
"PRESENT:
xxxx
while the minutes of the meeting shows that there were instances when the
attendees were asked to vote as directors x x x.
Under Section 40 of the Corporation Code-
xxxx
the sale of the company assets requires the majority vote of the board of
directors and vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock. In the minutes of the July 30, 1982 meeting, the matter
of the sale of the subject property was put to a vote "among stockholders and
Directors present" x x x jointly assembled, hence, a joint vote. Going back to the
board of directors, even excluding the affirmative vote of Juanito Santos whose
qualification as director was questioned by appellant Gonzales, the votes of Leo
Rivera, Benjamin Bernardino and Rosendo de Leon, as directors, forms the
majority required for the ratification of the sale, as contemplated in the
abovequoted provision of the Corporation Code. Although the tally of votes did
not indicate the capacity under which the votes were taken[.] We follow the high
court’s ruling in Zamboanga Transportation Co. vs. Bachrach Motor Co.,52 Phil.
244, 259-[2]60 [1928], thus:
"We therefore conclude that when the president of the corporation, who is one
ofthe principal stockholders and at the same time its general manager, auditor,
attorney or legal adviser, is empowered by its by-laws to enter into chattel
mortgage contracts, subject to the approval of the board of directors, and enters
into such contracts with the tacit approval of two other members of the board of
directors, one of whom is alsoa principal shareholder, both of whom, together
with the president, form a majority, and said corporation takes advantage of the
benefits afforded by said contract, such acts are equivalent to an implied
ratification of said contract by the board of directors and binds the corporation
even if not formally approved by said board of directors as required by the by-
laws of the aforesaid corporation."
On the part of the stockholders, it appears that Leo Rivera, Rosendo De Leon,
Juanito Santos and Benjamin Bernardino, two of them representing two principal
stockholders, voted to ratify the sale of the property to the appellants
Tanjangcos. The cumulation of their votes constitute sixty-seven per cent [sic] or
two-thirds of the capital stock of the appellant company. The contract has thus,
been validly ratified.35
The CA nonetheless upheld the trial court’s jurisdiction over the petitioners’
complaint and Asuncion’s right to bring an action on LRI’s behalf in this wise:
Assailing the trial court’s jurisdiction over the complaint filed in the court below,
the following grounds were adduced to assail it, to wit: first, it involves an intra-
corporate controversy falling under the original and exclusive jurisdiction of the
Securities and Exchange Commission under Section 5(b) of P.D. No. 902-A; and,
second, appellant Gonzales has no legal personality to institute the case.
"The first element requires that the controversy must arise out of intracorporate
or partnership relations between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the State insofar
as it concerns their individual franchises. The second element requires that the
dispute among the parties be intrinsically connected with the regulation of the
corporation, partnership or association or dealwith the internal affairs of the
corporation, partnership or association. After all, the principal function of the SEC
is the supervision and control of corporations, partnerships and associations with
the end in view that investments in these entities may be encouraged and
protected, and their activities pursued for the promotion of economic
development." x x x Reading the title of the Complaint, dated October 31, 1981,
designated as one for annulment ofsale, cancellation of title, reconveyance and
damages with prayer for the issuance of a writ of preliminary prohibitory
injunction x x x, it is immediately apparent that the principal defendants being
sued are not "stockholders, members of associates" of the appellant Lopez
Realty, Inc., but rather vendees of the subject property. x x x In Dee vs.
Securities and Exchange Commission, 199 SCRA 238, 250 [1991], the Supreme
Court summarized Section 5 of
"In other words, in order that the SEC can take cognizance of a case, the
controversy must pertain to any of the following relationships: (a) between
corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners, members,
or officers;(c) between the corporation, partnership or association and the state
insofar as its franchise, permit or license to operate is concerned; and (d) among
the stockholders, partners or associates themselves.["] x x x
"a) the party bringing suit be a shareholder as of the time of the act or transaction
complained of; b) he has exhausted intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief butthe latter has failed
or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or
harm having been caused to the corporation and not to the particular stockholder
bringing the suit[.]" x x x Appellant Gonzales has been duly established to be a
major stockholder in appellant company and she registeredher opposition to the
sale, by cable sent on August 25, 1981, as reflected in the Minutes of the
Meeting of the Board of Directors on September 16, 1981 x x x on the ground
that the corporation would be prejudiced by the extremely low price.
The rationale for vesting the appellant Gonzales with the legal personality to file
the suit may be found in the following summary of the two leading cases on
derivative suits, Atwol vs. Merriwether, 1867, and Dodge vs. Woolsey, 1855,
respectively promulgated in England and America: "that where corporate
directors have committed a breach of trust either by their frauds, [ultra] viresacts,
or negligence, and the corporation is unable or unwilling to institute suit to
remedy the wrong, a single stockholder may institute that suit, suing on behalf of
himself and other stockholders and for the benefit of the corporation, to bring
about a redress for the wrong done directly to the corporation and indirectly to
the stockholders." x x x36
The CA also concurred with the trial court’s finding that the parties never arrived
at a perfected compromise agreement. Thus:
We are persuaded that the trial court did not commit any error in determining that
there was no perfected compromise agreement between the appellants. It is
noted that based on the aforequoted testimony, appellant Gonzales was herself
aware of the negotiation stage of the proceedings when she allowed the
appellants Tanjangcos to add conditions to the option she has chosen. The
counsel of appellant Gonzales was likewise of the same opinion when he took
the liberty of suggesting the additional provision on tax clearance, although [t]he
latter removed it upon conferring with the counsel of appellants Tanjangcos. The
aforesaid proceedings are consistent with the process of making reciprocal
concessions, characteristic of entering into a compromise. x x x Hence, in
Sanchez vs. Court of Appeals, 279 SCRA 647, 676 [1997], the High Court
acknowledged the long and tedious process of negotiations undergone by the
parties and declared, to wit: "Since this compromise agreement was the result of
a long drawn out process, with all the parties ably striving to protect their
respective interests and to come out with the best they could, there can beno
doubt that the parties entered into it freely and voluntarily. Accordingly, they
should be bound thereby. To be valid, it is merely required under the law to be
based on real claims and actually agreed upon in good faith by the parties
thereto." x x x Unfortunately, in the case at bench, the parties never came to an
agreement due to the fact that the appellants Tanjangcos backedout. x x x When
the appellants Tanjangcos "backed out" or refused tosign the final draft, there
was no meeting of the minds or actual agreement between the parties. x x x.
Resolving the claim of damages allegedly sustained when appellant Gonzales
sold some of her assets and contracted a sizable loan to cover the consideration
of the compromise agreement[.] We find no legal basis for its award. She acted
based on an optimistic expectation that the final draft of the compromise
agreement would be acceptable to the appellants Tanjangcos. Hence, she
testified that she sold her house and lot, as far back as December 1, 1987,
orlong before the alleged meeting at the chambers of Judge Paguio x x x. Upon
further questioning, she revealed that she sold it: "because even prior to March 1,
1988, we have been already negotiating about the compromise and knew
beforehand that I have to be ready, and I even thought that the price was a good
one reason why I sold it because I knew then thatit was a sacrifice price. I would
say, that it was a sacrifice price because after a few days someone who live
nearby, at the corner, came to me and was even buying the property [at] a higher
price." x x x She thus, acted based on the expectation of a settlement and not on
the alleged belief that there was already a perfected compromise agreement
between her and the appellants Tanjangcos. She even admitted that the
negotiations took some time because the parties could not come up with
agreeable terms and she herself had to do study the matter. x x x It follows then
that the sale of her properties and the loans obtained from the banks were
merely tactical errors on her part for which she has no recourse under the law.37
Arguing for the nullity of the sale and the existence of a perfected compromise
agreement, the petitionersclaim that: (a) the August 17, 1981 meeting, where the
Resolution authorizing Arturo to negotiate for the sale of the subject properties
was approved, is illegal for lack of notice to Asuncion as required under Section
50 of the Corporation Code; (b) Fontecha does not constitute res judicata insofar
as the issue on the validity of the August 17, 1981 meeting and all the resolutions
passed therein, including the grant of authority to Arturo, are concerned; (c) in
Fontecha, what was ruled as having been ratified was the resolution granting
gratuity pay to its retiring employees and there was nothing mentioned about the
resolution on the sale of the subject properties and Arturo’s authority to act on
LRI’s behalf; (d) it cannot be rightfully claimed that the August 17, 1981 Board
Resolution had been ratified as Asuncion immediately registered her objections
to its validity. The Board of Directors responded to this by issuing the September
1, 1981 and September 16, 1981 Board Resolutions that held the subject sale on
abeyance; (e) the August 17, 1981 Board Resolution merely authorized Arturo to
"negotiate" for the sale of the subject properties and the way it was worded does
not indicate that this include the authority to conclude a sale with the spouses
Tanjangco; (f) even if the July 27, 1981 and August 17, 1981 Board Resolution
are read together to support the claim of the spouses Tanjangco that Arturo had
been duly authorized to sell the subject properties, the latter acted beyond the
authority granted to him when he entered into a sale with the former the terms of
which substantially depart from those provided in the July 27, 1981 Resolutions;
(g) there was not enough votes to ratify the subject salesince Juanito’s
qualification as director had been effectively challenged and Leo actually voted
against such ratification; (h) there was a perfected compromise agreement
between the parties and there is no need for the same to be in writing for it to be
considered as such; and (i) even assuming that there was no perfected
compromise agreement, the spouses Tanjangco abused their right for having
backed out and withdrawn their offer without reason resulting in damage to
Asuncion.
On the other hand, the spouses Tanjangco assert the validity of the subject sale,
Arturo’s authority to represent LRI in such a sale and the absence of a perfected
compromise agreement, alleging that: (a) as clearly stated in the July 27, 1981
Board Resolution, the sale was perfected when Asuncion failed to match or
outdo the offer of the spouses Tanjangco within the provided period; (b) reading
the August 17, 1981 Board Resolution in conjunction with the July 27, 1981
Board Resolution, Arturo’s mandate was to carry out or implement the July27,
1981 Board Resolution and his authority was not limited to negotiating with the
sale of the subject properties; (c) the petitioners do not dispute the validity of the
July 27, 1981 Board Resolution and Asuncion’s failure to match the offer of the
spouses Tanjangco; (d) the spouses Tanjangco are buyers in good faith and they
cannot be prejudiced by the corporate squabbles among the directors and
stockholders of LRI; (e) the provisions ofthe Deed of Sale are in accordance with
the July 27, 1981 Board Resolution;(f) under the doctrine of apparent authority,
the petitioners are barred from questioning LRI’s consent to the subject sale and
Arturo’s authority to represent LRI in such transaction; (g) the spouses
Tanjangco have the right torely on the minutes of the July 27, 1981 and August
17, 1981 Board Resolutions which appear to be regular on their face; (h) SEC
Case No. 2164, a case filed by Asuncion against Arturo questioning the validity
of August 17, 1981 Board Resolution, was dismissed on joint motion of Arturo
and Asuncion on the ground that "a final settlement has been arrived at"; (i)
contrary to the petitioner’s claim, the August 17, 1981 Board Resolution had not
been revoked; (j) the sale had been ratified during July 30, 1982 meeting of the
stockholders and by LRI’s acceptance of the spouses Tanjangco’s payment; and
(k) withrespect to the compromise agreement, the evidence on record shows that
the parties never went beyond the negotiation phase.
Board Resolution
The Court agrees with the petitioners that the August 17, 1981 Board Resolution
did not give Arturo the authority to act as LRI’s representative in the subject sale,
as the meeting of the board of directors where such was passed was conducted
without giving any notice to Asuncion. Section 53 of the Corporation Code
provides for the following:
Special meetings of the board of directors or trustees may be held at any time
upon call of the president oras provided in the by-laws.
The Court took this matter up in Fontecha, involving herein parties, where it was
held that a meeting of the board of directors is legally infirm if there is failure to
comply with the requirements or formalities of the law or the corporation’s by
laws and any action taken on such meeting may be challenged as a
consequence:
The general rule is that a corporation, through its board of directors, should act in
the manner and within the formalities, if any, prescribed by its charter or by the
general law. Thus, directors must act as a body in a meeting called pursuant
tothe law or the corporation’s bylaws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder.38 However, the actions
taken in such a meeting by the directors or trustees may be ratified expressly or
impliedly. "Ratification means that the principal voluntarily adopts, confirms and
gives sanction to some unauthorized act of its agent on its behalf. It is this
voluntary choice, knowingly made, which amounts to a ratification of what was
theretofore unauthorized and becomes the authorized act of the party so making
the ratification. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ratification can be made either
expressly or impliedly. Implied ratification may take various forms — like silence
or acquiescence, acts showing approval or adoption of the act, or acceptance
and retention of benefits flowing therefrom."39
The Court's decision in Fontecha concerns the implied ratification of one of the
resolutions passed on August 17, 1981 by the board of directors of LRI despite of
the lack of notice of meeting to Asuncion. This was owing to the subsequent
actions taken therein by the stockholders, including Asuncion herself, as cited by
the CA in its decision. On the other hand, the sale of the property to the spouses
Tanjangco was ratified, not because of implied ratification as was the case in
Fontecha but through the passage of the July 30, 1982 Board Resolution.
In the present case, the ratification was expressed through the July 30, 1982
Board Resolution. Asuncion claims that the July 30, 1982 Board Resolution did
not ratify the Board Resolution dated August 17, 1981 for lack of the required
number of votes because Juanito is not entitled to vote while Leo voted "no" to
the ratification ofthe sale even if the minutes stated otherwise. Asuncion assails
the authority of Juanito to vote because he was not a director and he did not own
any share of stock which would qualify him to be one. On the contrary, Juanito
defends his right to vote as the representative of Teresita’s estate. Upon
examination of the July 30, 1982 minutes of the meeting, it can be deduced that
the meeting is a joint stockholders and directors’ meeting. The Court takes into
account that majority of the board of directors except for Asuncion, had already
approved of the sale to the spouses Tanjangco prior to this meeting. As a
consequence, the power to ratify the previous resolutions and actions of the
board of directors in this case lies inthe stockholders, not in the board of
directors. It would be absurd to require the board of directors to ratify their own
acts—acts which the same directors already approved of beforehand. Hence,
Juanito, as the administrator of Teresita’s estate even though not a director, is
entitled to vote on behalf of Teresita’s estate as the administrator thereof. The
Court reiterates its ruling in Tan v. Sycip,40 viz:
On the issue that Leo votedagainst the ratification of sale, the Court notes that
only Juanito, Benjamin and Rosendo signed the minutes of the meeting. It was
also not stated who prepared the minutes, given that Asuncion as the corporate
secretary refused to record the same. Also, it was not explained why Leo was not
able to affix his signature on the said minutes if he really voted in favor ofthe
ratification of the sale. What’s more, Leo was not presented to testify onthe
witness stand. Hence, contrary to the position adopted by the CA, only those
whose signatures appear on the minutes of the meeting can be said to have
voted in favor of the ratification. This case must be differentiated from the Court’s
ruling in People v. Dumlao, et al.42
In Dumlao, the Court ruled that the signing of the minutes by all the directors is
not a requisite and that the lack of signatures on the minutes does not mean that
the resolution was not passed by the board. However, there is a notable disparity
between the facts in Dumlaoand the instant case. In Dumlao, the corporate
secretary therein recorded, prepared and certified the correctness of the minutes
of the meeting despite the fact that not all directors signed the minutes. In this
case, it could not even be established who recorded the minutes in view of
Asuncion’s refusal to do so, as demonstrated during the cross examination of
Benjamin by the petitioners’ counsel:
Q: I am showing to you Exhibit 14, I noticed that Exhibit 14 which is the minutes
of the meeting of the stockholders on July 30, 1982 was not prepared by a
secretary but was prepared by some members of the board.
A: I cannot recall anymore. I cannot give you an opinion on that, because I will be
guessing.
A: That is why I told you I cannot be certain if it was prepared by the secretary or
members of the board. This came into existence. Eleven years ago is not a very
short period.
Q: So you cannot remember now who prepared the minutes of the meeting on
July 17, 1982? A: I cannot be accurate - - I said that.43
It is the signature of the corporate secretary, as the one who is tasked to prepare
and record the minutes, that gives the minutes of the meeting probative value
and credibility, as the Court explained in Dumlao, to wit:
The non-signing by the majority of the members of the GSIS Board of Trustees of
the said minutes does not necessarily mean that the supposed resolution was
not approved by the board. The signing of the minutes by all the members of the
board is not required. There is no provision in the Corporation Code of the
Philippines that requires that the minutes of the meeting should be signed by all
the members of the board.
The proper custodian of the books, minutes and official records of a corporation
is usually the corporate secretary. Being the custodian of corporate records, the
corporate secretary has the duty to record and prepare the minutes of the
meeting. The signature of the corporate secretary gives the minutes of the
meeting probative value and credibility. In this case, Antonio Eduardo B.
Nachura, Deputy Corporate Secretary, recorded, prepared and certified the
correctness of the minutes of the meeting of 23 April 1982; and the same was
confirmed by Leonilo M. Ocampo, Chairman of the GSIS Board of Trustees. Said
minutes contained the statement that the board approved the sale of the
properties, subject matter of this case, to respondent La’o.44 (Citations omitted
and emphasis ours)
Thus, without the certification of the corporate secretary, it is incumbent upon the
other directors or stockholders as the case may be, to submit proof that the
minutes of the meeting is accurate and reflective of what transpired during the
meeting. Conformably to the foregoing, in the absence of Asuncion’s certification,
only Juanito, Benjamin and Rosendo, whose signatures appeared on the
minutes, could be considered as to have ratified the sale to the spouses
Tanjangco.
Yet, notwithstanding the lack of Leo’s signature to prove that he indeed voted in
favor of the ratification,the results are just the same for he owns one share of
stock only. Pitted against the shares of the other stockholders who voted in favor
of ratification, Asuncion and Leo were clearly outvoted:
In sum, whatever defect there was on the sale to the spouses Tanjangco
pursuant to the August 17, 1981 Board Resolution, the same was cured through
its ratification in the July 30, 1982 Board Resolution. It is of no moment whether
Arturo was authorized to merely negotiate or to enter into a contract of sale on
behalf of LRI as all his actions in connection to the sale were expressly ratified by
the stockholders holding 67% of the outstanding capital stock.1âwphi1
In Cua, Jr. et al. v. Tan, et al.,46 the Court held that by virtue of ratification, the
acts of the board of directors become the acts of the stockholders themselves,
even if those acts were, at the outset, unauthorized:
Clearly, the acquisition by PRCI of JTH and the constitution of the JTH Board of
Directors are no longer just the acts of the majority of the PRCI Board of
Directors, but also of the majority of the PRCI stockholders. By ratification, even
an unauthorized act of an agent becomes the authorized act of the principal. To
declare the Resolution dated 26 September 2006 of the PRCI Board of Directors
null and void will serve no practical use or value, or affect any of the rights of the
parties, because the Resolution dated 7 November 2006 of the PRCI
stockholders - approving and ratifying said acquisition and the manner in which
PRCI shall constitute the JTH Board of Directors – will still remain valid and
binding.47 (Citation omitted and emphasis ours) Compromise agreement
The remaining issue is whether the spouses Tanjangco could be held liable for
damages for reneging on an alleged verbal compromise agreement.
There is no reason for the Court to disturb the unanimous findings of the CA and
the trial court that no compromise agreement was perfected between the parties.
The existence of a perfected contract is a finding of fact that the Court will not
disturb if there is substantial evidence supporting it. "Basic is the rule that factual
findings of trial courts, including their assessment of the witnesses' credibility, are
entitled to great weight and respect by this Court, particularly when the [CA]
affirms the findings."48 For this reason, the spouses Tanjangco may not be
compelled to honor a compromise agreement that never left the negotiation
phase and be held liable for the alleged damages Asuncion incurred as a result
of her attempts to comply to the provisions thereof.
WHEREFORE, the instant petition is DENIED. The Decision dated February 22,
2002 of the Court of Appeals in CA-G.R. CV No. 63519 is hereby AFFIRMED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
DECISION
LEONEN, J.:
This is a petition for review on certiorari with an application for the issuance of a
temporary restraining order and/or writ of preliminary injunction under Rule 45 of
the Rules of Court. This petition prays that the assailed orders dated May 5,
20111 and June 24, 20112 of the Regional Trial Court, Cebu City, Branch 10 in
Civil Case No. CEB-37004 be nullified and set aside and that judgment be
rendered dismissing with prejudice the complaint3 dated July 20, 2010 filed by
respondents Carlos A. Gothong Lines, Inc. ("CAGLI") and Benjamin D. Gothong.
On January 8, 1996, Aboitiz Shipping Corporation ("ASC"), principally owned by
the Aboitiz family, CAGLI, principally owned by the Gothong family, and William
Lines, Inc.("WLI"), principally owned by the Chiongbian family, entered into
anagreement (the "Agreement"),4 whereby ASC and CAGLI would transfer their
shipping assets to WLI in exchange for WLI’s shares of stock.5 WLI, in turn,
would run their merged shipping businesses and, henceforth, be known as
WG&A, Inc. ("WG&A").6
Sec. 11.06 of the Agreement required all disputes arising out of or in connection
with the Agreement tobe settled by arbitration:
11.06 Arbitration
All disputes arising out of or in connection with this Agreement including any
issue as to this Agreement’s validity or enforceability, which cannot be settled
amicably among the parties, shall be finally settled by arbitration in accordance
with the Arbitration Law (Republic Act No. 876) by an arbitration tribunal
composed of four (4) arbitrators. Each of the parties shall appoint one (1)
arbitrator, the three (3) to appoint the fourth arbitrator who shall act as Chairman.
Any award by the arbitration tribunal shall be final and binding upon the parties
and shall be enforced by judgment of the Courts of Cebu or Metro Manila.7
Among the attachments to the Agreement was Annex SL-V.8 This was a letter
dated January 8,1996, from WLI, through its President (herein respondent) Victor
S. Chiongbian addressed to CAGLI, through its Chief Executive Officer Bob D.
Gothong and Executive Vice President for Engineering (herein respondent)
Benjamin D. Gothong. On its second page, Annex SL-V bore the signatures
ofBob D. Gothong and respondent Benjamin D. Gothong by way of a conforme
on behalf of CAGLI.
This will confirm our commitment to acquire certain spare parts and materials
inventory (the "Inventories") of Company B pursuant to the Agreement.
The total aggregate value of the Inventories to be acquired shall not exceed
₱400 Million as determined after a special examination of the Inventories as
performed by SGV & Co. to be completed on or before the Closing Date under
the agreed procedures determined by the parties.
Pursuant to Annex SL-V, inventories were transferred from CAGLI to WLI. These
inventories were assessed to have a value of 514 million, which was later
adjusted to 558.89 million.12 Of the total amount of 558.89 million, "CAGLIwas
paid the amount of 400 Million."13 In addition to the payment of 400
million,petitioner Aboitiz Equity Ventures ("AEV") noted that WG&A shares with a
book value of 38.5 million were transferred to CAGLI.14
As there was still a balance, in2001, CAGLI sent WG&A (the renamed WLI)
demand letters "for the return of or the payment for the excess
[i]nventories."15 AEV alleged that to satisfy CAGLI’s demand, WLI/WG&A
returned inventories amounting to 120.04 million.16 As proof of this, AEV attached
copies of delivery receipts signed by CAGLI’s representatives as Annex "K" of
the present petition.17
Sometime in 2002, the Chiongbian and Gothong families decided to leave the
WG&A enterprise and sell their interest in WG&A to the Aboitiz family. As such, a
share purchase agreement18 ("SPA") was entered into by petitioner AEV and the
respective shareholders groups of the Chiongbians and Gothongs. In the SPA,
AEV agreedto purchase the Chiongbian group's 40.61% share and the Gothong
group's 20.66% share in WG&A’s issued and outstanding stock.19
Section 6.5 of the SPA provided for arbitration as the mode of settling any
dispute arising from the SPA. It reads:
6.5 Arbitration. Should there be any dispute arising between the parties relating
to this Agreement including the interpretation or performance hereof which
cannot beresolved by agreement of the parties within fifteen (15) days after
written notice by a party to another, such matter shall then be finally settled by
arbitration in Cebu City in accordance with the Philippine Arbitration Law.
Substantive aspects of the dispute shall be settled by applying the laws of the
Philippines. The decision of the arbitrators shall be final and binding upon the
parties hereto and the expense of arbitration (including without limitation the
award of attorney’s fees to the prevailing party) shall be paid as the arbitrators
shall determine.20
Section 6.8 of the SPA further provided that the Agreement (of January 8, 1996)
shall be deemed terminated except its Annex SL-V. It reads:
6.8 Termination of Shareholders Agreement. The Buyer and the Sellers hereby
agree that on Closing, the Agreement among Aboitiz Shipping Corporation,
Carlos A. Gothong Lines, Inc. and William Lines, Inc. dated January 8, 1996, as
the same has been amended from time to time (the "Shareholders’ Agreement")
shall all be considered terminated, except with respect to such rights and
obligations that the parties to the Shareholders’ Agreement have under a letter
dated January 8, 1996 (otherwise known as "SL-V") from William Lines, Inc. to
Carlos A. Gothong Lines, Inc. regarding certain spare parts and materials
inventory, which rights and obligations shall survive through the date prescribed
by the applicable statute of limitations.21
As part of the SPA, the parties entered into an Escrow Agreement22 whereby ING
Bank N.V.-Manila Branch was to take custody of the shares subject of the
SPA.23 Section 14.7 of the Escrow Agreement provided that all disputes arising
from it shall be settled through arbitration:
14.7 All disputes, controversies or differences which may arise by and among the
parties hereto out of, or in relation to, or in connection with this Agreement, orfor
the breach thereof shall be finally settled by arbitration in Cebu City in
accordance with the Philippine Arbitration Law. The award rendered by the
arbitrator(s) shall be final and binding upon the parties concerned. However,
notwithstanding the foregoing provision, the parties reserve the right to seek
redress before the regular court and avail of any provisional remedies in the
event of any misconduct, negligence, fraud or tortuous acts which arise from any
extra-contractual conduct that affects the ability ofa party to comply with his
obligations and responsibilities under this Agreement.24
Petitioner AEV alleged that in2008, CAGLI resumed making demands despite
having already received 120.04 million worth of excess inventories.26 CAGLI
initially made its demand to ATSC (the renamed WLI/WG&A) through a
letter27 dated February 14, 2008. As alleged by AEV, however, CAGLI
subsequently resorted to a "shotgun approach"28 and directed its subsequent
demand letters to AEV29 as well as to FCLC30 (a company related to respondent
Chiongbian).
In a reply-letter32 dated May 5, 2008, CAGLI claimed that it was unaware of the
delivery to it of the excess inventories and asked for copies of the corresponding
delivery receipts.33 CAGLI threatened that unless it received proof of payment or
return ofexcess inventories having been made on or before March 31, 1996, it
would pursue arbitration.34
In letters written for AEV (the first dated October 16, 2008 by Aboitiz and
Company, Inc.’s Associate General Counsel Maria Cristina G. Gabutina35 and
the second dated October 27, 2008 by SyCip Salazar Hernandez and
Gatmaitan36), it was noted that the excess inventories were delivered to GT Ferry
Warehouse.37 Attached to these letters were a listing and/or samples38 of the
corresponding delivery receipts. In these letters it was also noted that the amount
of excess inventories delivered (120.04 million) was actually in excess of the
value of the supposedly unreturned inventories (119.89 million).39 Thus, it was
pointed out that it was CAGLI which was liable to return the difference between
120.04 million and 119.89 million.40 Its claims not having been satisfied, CAGLI
filed on November 6, 2008 the first of two applications for arbitration ("first
complaint")41 against respondent Chiongbian, ATSC, ASC, and petitioner AEV,
before the Cebu City Regional Trial Court, Branch 20. The first complaint was
docketed as Civil Case No. CEB-34951.
On December 4, 2009, the Cebu City Regional Trial Court, Branch 20 issued an
order46 dismissing the first complaint with respect to AEV. It sustained AEV’s
assertion that there was no agreement binding AEV and CAGLI to arbitrate
CAGLI’s claim.47 Whether by motion for reconsideration, appeal or other means,
CAGLI did not contest this dismissal.
On February 26, 2010, the Cebu CityRegional Trial Court, Branch 20 issued an
order48 directing the parties remaining in the first complaint (after the discharge of
AEV) to proceed with arbitration.
On September 1, 2010, while the first complaint was still pending (n.b., it was
only on April 15, 2011 that the Cebu City Regional Trial Court, Branch 20 denied
ATSC’s motion for reconsideration assailing the allowance of CAGLI’s notice of
disallowance), CAGLI, now joined by respondent Benjamin D. Gothong, filed a
second application for arbitration ("second complaint")53 before the Cebu City
Regional Trial Court, Branch 10. The second complaint was docketed as Civil
Case No. CEB-37004 and was also in view of the return of the same excess
inventories subject of the first complaint.
On October 28, 2010, AEV filed a motion to dismiss54 the second complaint on
the following grounds:55 (1) forum shopping; (2) failure to state a cause of action;
(3) res judicata; and (4) litis pendentia.
In the first of the two (2) assailed orders dated May 5, 2011,56 the Cebu City
Regional Trial Court, Branch 10 denied AEV's motion to dismiss.
On the matter of litis pendentia, the Regional Trial Court, Branch 10 noted that
the first complaint was dismissed with respect to AEV on December 4, 2009,
while the second complaint was filed on September 1, 2010. As such, the first
complaint was no longer pending at the time of the filing of the second
complaint.57 On the matter of res judicata, the trial court noted that the dismissal
without prejudice of the first complaint "[left] the parties free to litigate the matter
in a subsequent action, as though the dismiss[ed] action had not been
commenced."58 It added that since litis pendentia and res judicata did not exist,
CAGLI could not be charged with forum shopping.59 On the matter of an
agreement to arbitrate, the Regional Trial Court, Branch 10 pointed to the SPA
as "clearly express[ing] the intention of the parties to bring to arbitration process
all disputes, if amicable settlement fails."60 It further dismissed AEV’s claim that it
was not a party to the SPA, as "already touching on the merits of the case"61 and
therefore beyond its duty "to determine if they should proceed to arbitration or
not."62
In the second assailed order63 dated June 24, 2011, the Cebu City Regional Trial
Court, Branch 10 deniedAEV's motion for reconsideration.
Aggrieved, AEV filed the present petition.64 AEV asserts that the second
complaint is barred by res judicata and litis pendentia and that CAGLI engaged in
blatant forum shopping.65 It insists that it is not bound by an agreement to
arbitrate with CAGLI and that, even assuming that it may be required to arbitrate,
it is being ordered to do so under terms that are "manifestly contrary to the . . .
agreements on which CAGLI based its demand for arbitration."66
For resolution are the following issues:
Rule 45
APPEAL BY CERTIORARITO THE SUPREME COURT
Thus, where a motion to dismiss is denied, the proper recourse is for the movant
to file an answer.74 Nevertheless, where the order denying the motion to dismiss
is tainted with grave abuse of discretion amounting to lack or excess of
jurisdiction, the movant may assail such order via a Rule 65 (i.e., certiorari,
prohibition, and/or mandamus) petition. This is expressly recognized in the third
paragraph of Rule 41, Section 1 of the Rules of Court.75 Following the
enumeration in the second paragraph of Rule 41, Section 1 of the instances
when an appeal may not be taken, the third paragraph specifies that "[in] any of
the foregoing circumstances, the aggrieved party may file an appropriate special
civil action as provided in Rule 65."76
Per these rules, AEV is in error for having filed what it itself calls a "Petition for
Review on Certiorari [Appeal by Certiorari under Rule 45 of the Rules of
Court]."77 Since AEV availed of the improper remedy, this court is well in a
position to dismiss the present petition.
Nevertheless, there have been instances when a petition for review on certiorari
under Rule 45 was treated by this court as a petition for certiorari under Rule 65.
As explained in China Banking Corporation v. Asian Construction and
Development Corporation:78
[I]n many instances, the Court has treated a petition for review on certiorariunder
Rule 45 as a petition for certiorari under Rule 65 of the Rules of Court, such as in
cases where the subject of the recourse was one of jurisdiction, or the act
complained of was perpetrated by a court with grave abuse of discretion
amounting to lack or excess of jurisdiction.79
In this case, the May 5, 2011 and June 24, 2011 orders of the Cebu City
Regional Trial Court, Branch 10 in Civil Case No. CEB-37004 are assailed for
having denied AEV’s motion todismiss despite: first, the second complaint having
been filed in a manner constituting forum shopping; second, the prior judgment
on the merits made in Civil Case No. CEB-34951, thereby violating the principle
ofres judicata; and third, the (then) pendency of Civil Case No. CEB-34951 with
respect to the parties that, unlike AEV, were not discharged from the case,
thereby violating the principle of litis pendentia. The same orders are assailed for
having allowed CAGLI’s application for arbitration to continue despite supposedly
clear and unmistakable evidence that AEV is not bound by an agreement to
arbitrate with CAGLI.
As such, the Cebu City, Regional Trial Court, Branch 10’s orders are assailed for
having been made with grave abuse of discretion amounting to lack or excess of
jurisdiction in that the Cebu City Regional Trial Court, Branch 10 chose to
continue taking cognizance of the second complaint, despite there being
compelling reasons for its dismissal and the Cebu City, Regional Trial Court
Branch 20’s desistance. Conformably, we treat the present petition as a petition
for certiorari under Rule 65 of the Rules of Court and give it due course.
The concept of and rationale against forum shopping were explained by this
court in Top Rate Construction & General Services, Inc. v. Paxton Development
Corporation:80
Equally settled is the test for determining forum shopping. As this court explained
in Yap v. Chua:82
To determine whether a party violated the rule against forum shopping, the most
important factor toask is whether the elements of litis pendentiaare present, or
whether a final judgment in one case will amount to res judicatain another;
otherwise stated, the test for determining forum shopping is whether in the two
(or more) cases pending, there is identity of parties, rights or causes of action,
and reliefs sought.83
Litis pendentia "refers to that situation wherein another action is pending between
the same parties for the same cause ofaction, such that the second action
becomes unnecessary and vexatious."84 It requires the concurrence of three (3)
requisites: "(1)the identity of parties, or at least such as representing the same
interests in both actions; (2) the identity of rights asserted and relief prayed
for,the relief being founded on the same facts; and (3) the identity of the two
cases such that judgment in one, regardless of which party issuccessful, would
amount tores judicatain the other."85
In turn, prior judgment or res judicata bars a subsequent case when the following
requisites concur: "(1) the former judgment is final; (2) it is rendered by a court
having jurisdiction over the subject matter and the parties; (3) it is a judgment or
an order on the merits; (4) there is — between the first and the second actions —
identityof parties, of subject matter, and of causes of action."86
Applying the cited concepts and requisites, we find that the complaint in Civil
Case No. CEB-37004 is barred byres judicata and constitutes forum shopping.
First, between the first and second complaints, there is identity of parties. The
first complaint was brought by CAGLI as the sole plaintiff against Victor S.
Chiongbian, ATSC, and AEV as defendants. In the second complaint, CAGLI
was joined by Benjamin D. Gothong as (co-)plaintiff. As to the defendants, ATSC
was deleted while Chiongbian and AEV were retained.
While it is true that the parties to the first and second complaints are not
absolutely identical, this court has clarified that, for purposes of forum shopping,
"[a]bsolute identity of parties is not required [and that it] is enough that there is
substantial identity of parties."87
Even as the second complaint alleges that Benjamin D. Gothong "is . . . suing in
his personal capacity,"88 Gothong failed to show any personal interest in the
reliefs sought by the second complaint. Ultimately, what is at stake in the second
complaint is the extent to which CAGLI may compel AEV and Chiongbian to
arbitrate in order that CAGLI may then recover the value of its alleged unreturned
inventories. This claim for recovery is pursuant to the agreement evinced in
Annex SL-V. Annex SL-V was entered into by CAGLI and not by Benjamin D.
Gothong. While it is true that Benjamin D. Gothong, along with Bob D. Gothong,
signed Annex SL-V, he did so only in a representative, and not in a personal,
capacity. As such, Benjamin D. Gothong cannot claim any right that personally
accrues to him on account of Annex SL-V. From this, it follows that Benjamin D.
Gothong is not a real party in interest — "one who stands to be benefitted or
injured by the judgment in the suit or the party entitled to the avails of the
suit"89 — and that his inclusion in the second complaint is an unnecessary
superfluity.
Second, there is identity in subject matter and cause of action. There is identity in
subject matter as both complaints are applications for the same relief. There is
identity in cause ofaction as both complaints are grounded on the right to be paid
for or to receive the value of excess inventories (and the supposed
corresponding breach thereof) as spelled out in Annex SL-V.
The first and second complaints are both applications for arbitration and are
founded on the same instrument — Annex SL-V. Moreover, the intended
arbitrations in both complaintscater to the sameultimate purpose, i.e., that CAGLI
may recover the value of its supposedly unreturned inventories earlier delivered
to WLI/WG&A/ATSC.
4. that pursuant to Annex SL-V, WG&A paid CAGLI ₱400 million but that
the former failed to return or pay for spare parts representing a value in
excess of ₱400 million;
5. "[t]hat on August 31, 2001, [CAGLI] wrote the WG&A through its AVP
Materials Management, Ms. Concepcion M. Magat, asking for the return of
the excess spare parts";95
6. that on September 5, 2001, WG&A’s Ms. Magat replied that the matter
is beyond her authority level and that she must elevate it to higher
management;
8. "[t]hat the issue of excess spare parts, was taken over by events, when
on July 31, 2002,"96 the Chiongbians and Gothongs entered into an
Escrow Agreement with AEV.
Third, the order dated December 4, 2009 of the Cebu City Regional Trial Court,
Branch 20, which dismissed the first complaint with respect to AEV, attained
finality when CAGLI did not file a motion for reconsideration, appealed, or, in any
other manner, questioned the order.
Fourth, the parties did not dispute that the December 4, 2009 order was issued
by a court having jurisdiction over the subject matter and the parties. Specifically
as to jurisdiction over the parties,jurisdiction was acquired over CAGLI as plaintiff
when it filed the first complaint and sought relief from the Cebu City Regional
Trial Court, Branch 20; jurisdiction over defendants AEV, ATSC, and Victor
S.Chiongbian was acquired with the service of summons upon them. Fifth, the
dismissal of the first complaint with respect to AEV was a judgment on the merits.
As explained in Cabreza, Jr. v. Cabreza:97
Prior to issuing the December 4, 2009 order dismissing the first complaint with
respect to AEV, the Cebu City Regional Trial Court, Branch 20 allowed the
parties the full opportunity to establish the facts and to ventilate their arguments
relevant to the complaint. Specifically, the Cebu City Regional Trial Court, Branch
20 admitted: 1) AEV’s motion to dismiss;101 2) CAGLI’s opposition to the motion
to dismiss;102 3) AEV’s reply and opposition;103 4) CAGLI’s rejoinder;104 and 5)
AEV’s surrejoinder.105
Following these, the Cebu City Regional Trial Court, Branch 20 arrived at the
following findings and made a definitive determination that CAGLI had no right to
compel AEV to subject itself to arbitration with respect to CAGLI’s claims under
Annex SL-V:
After going over carefully the contentions and arguments of both parties, the
court has found that no contract or document exists binding CAGLI and AEV to
arbitrate the former’s claim. The WLI Letter upon which the claim is based
confirms only the commitment of William Lines, Inc. (WLI) to purchase certain
material inventories from CAGLI. It does not involve AEV. The court has
searched in vain for any agreement or document showing that said commitment
was passed on to and assumed by AEV. Such agreement or document, if one
exists, being an actionable document, should have been attached to the
complaint. While the Agreement of January 8, 1996 and the Share Purchase
Agreement provide for arbitration of disputes, they refer to disputes arising from
or in connection with the Agreements themselves. No reference is made, as
included therein, to the aforesaid commitment of WLI or to any claim that CAGLI
may pursue based thereon or relative thereto. Section 6.8 of the Share Purchase
Agreement, cited by plaintiff CAGLI, does not incorporate therein, expressly or
impliedly, the WLI commitment above-mentioned. It only declares that the rights
and obligations of the parties under the WLI Letter shall survive even after the
termination of the Shareholder’s Agreement. It does not speak of arbitration.
Finally, the complaint does not allege the existence of a contract obliging CAGLI
and AEV to arbitrate CAGLI’s claim under the WLI Letter. Consequently, there is
no legal or factual basis for the present complaint for application for
arbitration.106 (Emphasis supplied)
In the assailed order dated May 5, 2011, the Cebu City Regional Trial Court,
Branch 10 made much of the Cebu City Regional Trial Court, Branch 20’s
pronouncement in the latter’s December 4, 2009 order that "the [first] complaint
fails to state a cause of action."107 Based on this, the Cebu City Regional Trial
Court, Branch 10 concluded that the dismissal of the first complaint was one
made without prejudice, thereby "leav[ing] the parties free to litigate the matter
ina subsequent action, as though the dismissal [sic] action had not been
commenced."108
The Cebu City Regional Trial Court, Branch 10 is in serious error. In holding that
the second complaint was not barred by res judicata, the Cebu City Regional
Trial Court, Branch 10 ignored established jurisprudence.
To reiterate, the Cebu City Regional Trial Court, Branch 20 made a definitive
determination that CAGLI had no right to compel AEV to subject itself to
arbitrationvis-a-vis CAGLI’s claims under Annex SL-V. This determination was
arrived at after due consideration of the facts established and the arguments
advancedby the parties. Accordingly, the Cebu City Regional Trial Court, Branch
20’s December 4, 2009 order constituted a judgment on the merits and operated
as res judicata on the second complaint.
In sum, the requisites for res judicata have been satisfied and the second
complaint should, thus, have been dismissed. From this, it follows that CAGLI
committed an act of forum shopping in filing the second complaint. CAGLI
instituted two suits in two regional trial court branches, albeit successively and
not simultaneously. It asked both branches to rule on the exact same cause and
to grant the exact same relief. CAGLI did so after it had obtained an unfavorable
decision (at least with respect to AEV) from the Cebu City Regional Trial Court,
Branch 20. These circumstances afford the reasonable inference that the second
complaint was filed in the hopes of a more favorable ruling.
There is no agreement
binding AEV to arbitrate
with CAGLI on the latter’s
claims arising from Annex SL-V
In this petition, not one of the parties — AEV, CAGLI, Victor S. Chiongbian, and
Benjamin D. Gothong — has alleged and/or shown that the controversy is
properly the subject of "compulsory arbitration [as] provided by statute."115 Thus,
the propriety of compelling AEV to submit itself to arbitration must necessarilybe
founded on contract.
Four (4) distinct contracts have been cited in the present petition:
2. Annex SL-V of the Agreement between CAGLI and WLI (and excluded
ASC and any other Aboitiz-controlled entity), and which confirmed WLI’s
commitment to acquire certain inventories, worth not more than 400
million, of CAGLI. Annex SL-V stated that the acquisition was "pursuant to
the Agreement."116 It did not contain an arbitration clause.
The obligation for WLI to acquire certain inventories of CAGLI and which is the
subject of the present petition was contained in Annex SL-V. It is therefore this
agreement which deserves foremost consideration. As to this particular
agreement, these points must be underscored: first, that it has no arbitration
clause; second, Annex SL-V is only between WLI and CAGLI.
For one, to say that Annex SL-V was made"pursuant to the Agreement" is merely
to acknowledge: (1) the factual context in which Annex SL-V was executed and
(2) that it was that context that facilitated the agreement embodied in it.
Absentany other clear or unequivocal pronouncement integrating Annex SL-V
into the January 8, 1996 Agreement, it would be too much of a conjecture to
jump to the conclusion that Annex SL-V is governed by the exact same
stipulations which govern the January 8, 1996 Agreement.
Likewise, a reading of the Agreement’s arbitration clause will reveal that it does
not contemplate disputes arising from Annex SL-V.
Pursuant to the January 8, 1996 Agreement, the Aboitiz group (via ASC) and the
Gothong group (viaCAGLI) became stockholders of WLI/WG&A, along with the
Chiongbiangroup (which initially controlled WLI). This continued until, pursuant to
the SPA, the Gothong group and the Chiongbian group transferred their shares
to AEV. With the SPA, AEV became a stockholder of WLI/WG&A, which was
subsequently renamed ATSC. Nonetheless, AEV’s status asATSC’s stockholder
does not subject it to ATSC’s obligations
It is basic that a corporation has a personality separate and distinct from that of
its individual stockholders. Thus, a stockholder does not automatically assume
the liabilities of the corporation of which he is a stockholder. As explained in
Philippine National Bankv. Hydro Resources Contractors Corporation:118
In fact, even the ownership by a single stockholder of all or nearly all the capital
stock of a corporation is not, in and of itself, a ground for disregarding a
corporation’s separate personality. As explained in Secosa v. Heirs of
Francisco:120
It is a settled precept in this jurisdiction that a corporation is invested by law with
a personality separate from thatof its stockholders or members. It has a
personality separate and distinct from those of the persons composing it as well
as from that of any other entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not in itself sufficient ground for disregarding the separate
corporate personality.A corporation’s authority to act and its liability for its actions
are separate and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs
of a corporation and its officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. 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. Also, the corporate entity
may be disregarded in the interest of justice in such cases asfraud that may work
inequities among members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been fraud and proof
of it. For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be
presumed.121 (Emphasis supplied)
AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV
liable for ATSC’s obligations. Moreover, the SPA does not contain any stipulation
which makes AEV assume ATSC’s obligations. It is true that Section 6.8 of the
SPA stipulates that the rights and obligations arising from Annex SL-V are not
terminated. But all that Section 6.8 does is recognize that the obligations under
Annex SL-V subsist despite the termination of the January 8, 1996 Agreement.
At no point does the text of Section 6.8 support the position that AEV steps into
the shoes of the obligor under Annex SL-V and assumes its obligations.
Neither does Section 6.5 of the SPAsuffice to compel AEV to submit itself to
arbitration. While it is true that Section 6.5 mandates arbitration as the mode for
settling disputes between the parties to the SPA, Section 6.5 does not
indiscriminatelycover any and all disputes which may arise between the parties to
the SPA. Rather, Section 6.5 is limited to "dispute[s] arising between the parties
relating tothis Agreement [i.e., the SPA]."122 To belabor the point, the obligation
which is subject of the present dispute pertains to Annex SL-V, not to the SPA.
That the SPA, in Section 6.8, recognizes the subsistence of Annex SL-Vis merely
a factual recognition. It does not create new obligations and does not alter or
modify the obligations spelled out in Annex SL-V.
AEV was drawn into the present controversy on account of its having entered
into the SPA. This SPA made AEV a stockholder of WLI/WG&A/ATSC. Even
then, AEV retained a personality separate and distinct from WLI/WG&A/ATSC.
The SPA did not render AEV personally liable for the obligations of the
corporation whose stocks it held.
On one hand, Annex SL-V does not stipulate that disputes arising from it are to
be settled via arbitration.On the other hand, the SPA requires arbitration as the
mode for settling disputes relating to it and recognizes the subsistence of the
obligations under Annex SL-V. But as a separate contract, the mere mention of
Annex SL-V in the SPA does not suffice to place Annex SL-V under the ambit of
the SPA or to render it subject to the SPA’s terms, such as the requirement to
arbitrate.
SO ORDERED.
DECISION
LEONEN, J.:
Ruling of the
Regional Trial Court
In its resolution21 dated June 15, 2005, the Regional Trial Court denied
respondent Balmores' prayer for the appointment of a receiver or the
creation of a management committee. The dispositive portion
reads:chanRoblesvirtualLawlibrary
The trial court also noted that there was a pending case filed by one
Leonardo Umale against Villamor, involving the same checks. Umale
was also claiming ownership of the checks.24 This, according to the
trial court, weakened respondent Balmores' claim that the checks were
properties of PPC.25cralawlawlibrary
The trial court also found that there was "no clear and positive
showing of dissipation, loss, wastage, or destruction of [PPC's] assets .
. . [that was] prejudicial to the interest of the minority stockholders,
parties-litigants or the general public."26 The board's failure to recover
the disputed amounts was not an indication of mismanagement
resulting in the dissipation of assets.27cralawlawlibrary
The trial court noted that PPC was earning substantial rental income
from its other sub-lessees.28cralawlawlibrary
The trial court added that the failure to implead PPC was. fatal. PPC
should have been impleaded as an indispensable party, without which,
there would be no final determination of the action.29cralawlawlibrary
Ruling of the
Court of Appeals
The Court of Appeals ruled that the case filed by respondent Balmores
with the trial court "[was] a derivative suit because there were
allegations of fraud or ultra vires acts ... by [PPC's
directors]."36cralawlawlibrary
According to the Court of Appeals, the trial court abandoned its duty to
the stockholders in a derivative suit when it refused to appoint a
receiver or create a management committee, all during the pendency
of the proceedings. The assailed order of the trial court removed from
the stockholders their right, in an intra-corporate controversy, to be
allowed the remedy of appointment of a receiver during the pendency
of a derivative suit, leaving the corporation under the control of an
outsider and its assets prone to dissipation.37 The Court of Appeals
also ruled that this amounts to "despotic, capricious, or whimsical
exercise of judicial power"38 on the part of the trial court.
Petitioners filed separate petitions for review under Rule 45, raising
the following threshold issues:chanRoblesvirtualLawlibrary
II
The fifth requisite for filing derivative suits, while not included in the
enumeration, is implied in the first paragraph of Rule 8, Section 1 of
the Interim Rules: The action brought by the stockholder or member
must be "in the name of [the] corporation or association. ..." This
requirement has already been settled in jurisprudence.
In the same case, this court enumerated the reasons for disallowing a
direct individual suit.
Respondent Balmores' action in the trial court failed to satisfy all the
requisites of a derivative suit.
An allegation that appraisal rights were not available for the acts
complained of is another requisite for filing derivative suits under Rule
8, Section 1(3) of the Interim Rules.
Neither did respondent Balmores implead PPC as party in the case nor
did he allege that he was filing on behalf of the corporation.
Individual suits are filed when the cause of action belongs to the
individual stockholder personally, and not to the stockholders as a
group or to the corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder.76 If the cause of action belongs to
a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to
protect the stockholders in the group.77cralawlawlibrary
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim
Rules of Procedure for Intra-corporate Controversies, involving devices
or schemes employed by, or acts of, the defendants as board of
directors, business associates and officers of Pasig Printing Corporation
(PPC), amounting to fraud or misrepresentation, which are
detrimental to the interest of the plaintiff as stockholder of
PPC.78 (Emphasis supplied)
His intent was also explicit from his
prayer:chanRoblesvirtualLawlibrary
Respondent Balmores did not bring the action for the benefit of the
corporation. Instead, he was alleging that the acts of PPC's directors,
specifically the waiver of rights in favor of Villamor's law firm and their
failure to take back the MC Home Depot checks from Villamor, were
detrimental to his individual interest as a stockholder. In filing an
action, therefore, his intention was to vindicate his individual
interest and not PPC's or a group of stockholders'.
III
In this case, respondent Balmores did not allege any cause of action
that is personal to him. His allegations are limited to the facts that
PPC's directors waived their rights to rental income in favor of
Villamor's law firm without consideration and that they failed to take
action when Villamor refused to turn over the amounts to PPC. These
are wrongs that pertain to PPC. Therefore, the cause of action belongs
to PPC — not to respondent Balmores or any stockholders as
individuals.
PPC will not be bound by a decision granting the application for the
appointment of a receiver or management committee. Since it was not
impleaded in the complaint, the courts did not acquire jurisdiction over
it. On this matter, it is an indispensable party, without which, no final
determination can be had.
IV
Appointment of a management
committee was not proper
When respondent Balmores filed his petition for certiorari with the
Court of Appeals, there was still a pending action in the trial court. No
less than the Court of Appeals stated that it allowed respondent
Balmores' petition under Rule 65 because the order or resolution in
question was an interlocutory one. This means that jurisdiction over
the main case was still lodged with the trial court.
SO ORDERED.
DECISION
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the review of the Decision1dated October 27, 2005 of the Court of
Appeals in CA-G.R. CV No. 81441, which affirmed the Order2 dated July 8, 2003
of the Regional Trial Court (RTC), Branch 72 of Olongapo City in Civil Case No.
03-001 dismissing the Complaint filed by herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint3 with the RTC of Olongapo City on behalf of the members of Subic
Bay Golf and Country Club, Inc. (SBGCCI) against the said country club and its
Board of Directors and officers under the provisions of Presidential Decree No.
902-A in relation to Section 5.2 of the Securities Regulation Code. The Subic Bay
Golfers and Shareholders Incorporated (SBGSI), a corporation composed of
shareholders of the defendant corporation, was also named as plaintiff. The
officers impleaded as defendants were the following: (1) itsPresident, Hu Ho Hsiu
Lien alias Susan Hu; (2) its treasurer, Hu Tsung Chieh alias Jack Hu; (3)
corporate secretary Reynald Suarez; and (4) directors Hu Tsung Hui and Hu
Tsung Tzu. The case was docketed as Civil Case No. 03-001. The complaint
alleged that the defendant corporation sold shares to plaintiffs at US$22,000.00
per share, presenting to them the Articles of Incorporation which contained the
following provision:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. Shareholders shall be entitled only to a
pro-rata share of the assets of the Club at the time of its dissolution or
liquidation.4
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay Metropolitan Authority and
The Universal International Group of Taiwan, where the golf courseand
clubhouse component thereof was assigned to the Club, the shareholders shall
not have proprietary rights or interests over the properties of the Club.5x x x.
(Emphasis supplied.)
Petitioners claimed in the Complaint that defendant corporation did not disclose
to them the above amendment which allegedly makes the shares non-
proprietary, as it takes away the rightof the shareholders to participate in the pro-
rata distribution of the assets of the corporation after its dissolution. According to
petitioners, this is in fraud of the stockholders who only discovered the
amendment when they filed a case for injunction to restrain the corporation from
suspending their rights to use all the facilities of the club. Furthermore, petitioners
alleged that the Board of Directors and officers of the corporation did not call any
stockholders’ meeting from the time of the incorporation, in violation of Section
50 of the Corporation Code and the By-Laws of the corporation. Neither did the
defendant directors and officers furnish the stockholders with the financial
statements of the corporation nor the financial report of the operation of the
corporation in violation of Section 75 of the Corporation Code. Petitioners also
claim that on August 15, 1997, SBGCCI presented to the SEC an amendment to
the By-Laws of the corporation suspending the voting rights of the shareholders
except for the five founders’ shares. Said amendment was allegedly passed
without any stockholders’ meeting or notices to the stockholders in violation of
Section 48 of the Corporation Code.
The Complaint furthermore enumerated several instances of fraud in the
management of the corporation allegedly committed by the Board of Directors
and officers of the corporation, particularly:
a. The Board of Directors and the officers of the corporation did not
indicate in its financial report for the year 1999 the amount of
₱235,584,000.00 collected from the subscription of 409 shareholders who
paid U.S.$22,000.00 for one (1) share of stock at the then prevailing rate
of ₱26.18 to a dollar. The stockholders were not informed how these funds
were spent or its whereabouts.
b. The Corporation has been collecting green fees from the patrons of the
golf course at an average sum of ₱1,600.00 per eighteen (18) holes but
the income is not reported in their yearly report. The yearly report for the
year 1999 contains the report of the Independent Public Accountant who
stated that the company was incorporated on April 1, 1996 but has not yet
started its regular business operation. The golf course has been in
operation since 1997 and as such has collected green fees from non-
members and foreigners who played golf in the club. There is no financial
report as to the income derived from these sources.
e. That the value of the shares of stock of the corporation has drastically
declined from its issued value of U.S.$22,000.00 to only Two Hundred
Thousand Pesos, (₱200,000.00) Philippine Currency. The shareholders
[have] lost in terms ofinvestment the sum estimated to be more than two
hundred thousand pesos.This loss is due to the fact that the Club is
mismanaged and the golf course is poorly maintained. Other amenities of
the Club has (sic) not yet been constructed and are not existing despite
the lapse of morethan five (5) years from the time the stocks were offered
for sale to the public. The cause of the decrease in value of the sharesof
stocks is the fraudulent mismanagement of the club.6
Alleging that the stockholders suffered damages as a result of the fraudulent
mismanagement of the corporation, petitioners prayed in their Complaint for the
following:
WHEREFORE, it is most respectfully prayed that upon the filing of this case a
temporary restraining order be issued enjoining the defendants from acting as
Officers and Board of Directors of the Corporation. After hearing[,] a writ of
preliminary injunction be issued enjoining defendants to act as Board of Directors
and Officers of the Corporation. In the meantime a Receiver be appointed by the
Court to act as such until a duly constituted Board of Directors and Officers of the
Corporation be elected and qualified.
That defendants be ordered to pay the stockholders damages in the sum of Two
Hundred Thousand Pesos each representing the decrease in value of their
shares of stocks plus the sum of ₱100,000.00 as legal expense and attorney’s
fees, as well as appearance fee of ₱4,000.00 per hearing.7
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and
SBGCCI continued to operate under a valid contract with the SBMA;14 and
(h) SBGCCI’s Board of Directors was not guilty of any mismanagement
and in fact the value of members’ shares have increased.15
Respondents further claimed by way ofdefense that petitioners failed (a) to show
that it was authorized by SBGSI to file the Complaint on the said corporation’s
behalf; (b) to comply with the requisites for filing a derivative suit and an action
for receivership; and (c) to justify their prayer for injunctive relief since the
Complaint may be considered a nuisance or harassment suit under Section 1(b),
Rule1 of the Interim Rules of Procedure for Intra-Corporate
Controversies.16 Thus, they prayed for the dismissal of the Complaint.
On July 8, 2003, the RTC issued an Order dismissing the Complaint. The RTC
held that the action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for the benefit of the two
petitioners. This is apparentfrom the caption of the case which reads Nestor
Ching, Andrew Wellington and the Subic Bay Golfers and Shareholders, Inc., for
and in behalf of all its members as petitioners. This is also shown in the
allegations of the petition[.] x x x.
On the bases of these allegations of the petition, the Court finds that the case is
a derivative suit. Being a derivative suit in accordance with Rule 8 of the Interim
Rules, the stockholders and members may bring an action in the name of the
corporation or association provided that he (the minority stockholder) exerted all
reasonable efforts and allege[d] the same with particularity in the complaint to
exhaust of (sic) all remedies available under the articles of incorporation, by-laws
or rules governing the corporation or partnership to obtain the reliefs he desires.
An examination of the petition does not show any allegation that the petitioners
applied for redress to the Board of Directors of respondent corporation there
being no demand, oralor written on the respondents to address their complaints.
Neither did the petitioners appl[y] for redress to the stockholders of the
respondent corporation and ma[k]e an effort to obtain action by the stockholders
as a whole. Petitioners should have asked the Board of Directors of the
respondent corporation and/or its stockholders to hold a meeting for the taking up
of the petitioners’ rights in this petition.17
The RTC held that petitioners failed to exhaust their remedies within the
respondent corporation itself. The RTC further observed that petitioners Ching
and Wellington were not authorized by their co-petitioner Subic Bay Golfers and
Shareholders Inc. to filethe Complaint, and therefore had no personality to file the
same on behalf ofthe said shareholders’ corporation. According to the RTC, the
shareholdings of petitioners comprised of two shares out of the 409 alleged
outstanding shares or 0.24% is an indication that the action is a nuisance or
harassment suit which may be dismissed either motu proprio or upon motion in
accordance with Section 1(b) of the Interim Rules of Procedure for Intra-
Corporate Controversies.18
Petitioners Ching and Wellington elevated the case to the Court of Appeals,
where it was docketed as CA-G.R. CV No. 81441. On October 27, 2005, the
Court of Appeals rendered the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue
that the Complaint they filed with the RTC was not a derivative suit. They claim
that they filed the suit in their own right as stockholders against the officers and
Board of Directors of the corporation under Section 5(a) of Presidential
DecreeNo. 902-A, which provides:
In the alternative, petitioners allege that if this Court rules that the Complaint is a
derivative suit, it should nevertheless reverse the RTC’s dismissal thereof on the
ground of failure to exhaust remedies within the corporation. Petitioners cite
Republic Bank v. Cuaderno19 wherein the Court allowed the derivative suit even
without the exhaustion of said remedies as it was futile to do so since the Board
ofDirectors were all members of the same family. Petitioners also point out that in
Cuadernothis Court held that the fact that therein petitioners had only one share
of stock does not justify the denial of the relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of intra-
corporate remedies on petitioners’ part, they claim that they filed in Court a case
for Injunction docketed as Civil Case No. 103-0-01, to restrain the corporation
from suspending their rights to use all the facilities of the club, on the ground that
the club cannot collect membership fees until they have completed the amenities
as advertised when the shares of stock were sold to them. They allegedly asked
the Club to produce the minutes of the meeting of the Board of Directors allowing
the amendments of the Articles of Incorporation and By-Laws. Petitioners
likewise assail the dismissal of the Complaint for being a harassment ornuisance
suit before the presentation of evidence. They claim that the evidence they were
supposed to present will show that the members of the Board of Directors are not
qualified managers of a golf course.
On the issue of whether the Complaint is indeed a derivative suit, we are mindful
of the doctrine that the nature of an action, as well as which court or body has
jurisdiction over it, isdetermined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein.20
We have also held that the body rather than the title of the complaint determines
the nature of an action.21
In Cua, Jr. v. Tan,22 the Court previously elaborated on the distinctions among a
derivative suit, anindividual suit, and a representative or class suit:
xxxx
Indeed, the Court notes American jurisprudence to the effect that a derivative
suit, on one hand, and individual and class suits, on the other, are mutually
exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s derivative suit seeks to
recover for the benefit of the corporation and its whole body of shareholders
when injury is caused to the corporation that may not otherwise be redressed
because of failureof the corporation to act. Thus, ‘the action is derivative, i.e., in
the corporate right, if the gravamen of the complaint is injury to the corporation,
or to the whole body of its stock and property without any severance or
distribution among individual holders, or it seeks to recover assets for the
corporation or to prevent the dissipation of its assets.’ x x x. In contrast, "a
directaction [is one] filed by the shareholder individually (or on behalf of a classof
shareholders to which he or she belongs) for injury to his or her interestas a
shareholder. x x x. [T]he two actions are mutually exclusive: i.e., the right of
action and recovery belongs to either the shareholders (direct action) *651 or the
corporation(derivative action)." x x x.
The reliefs sought in the Complaint, namely that of enjoining defendants from
acting as officers and Board of Directors of the corporation, the appointment of a
receiver, and the prayer for damages in the amount of the decrease in the value
of the sharesof stock, clearly show that the Complaint was filed to curb the
alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners
do not accrue to a single shareholder or a class of shareholders but to the
corporation itself.
At this point, we should take note that while there were allegations in the
Complaint of fraud in their subscription agreements, such as the
misrepresentation of the Articles of Incorporation, petitioners do not pray for the
rescission of their subscription or seekto avail of their appraisal rights. Instead,
they ask that defendants be enjoined from managing the corporation and to pay
damages for their mismanagement. Petitioners’ only possible cause of action as
minority stockholders against the actions of the Board of Directors is the common
law right to file a derivative suit. The legal standing of minority stockholders to
bring derivative suits is not a statutory right, there being no provision in the
Corporation Code or related statutes authorizing the same, but is instead a
product of jurisprudence based on equity. However, a derivative suit cannot
prosper without first complying with the legal requisites for its institution.24
(2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
The RTC dismissed the Complaint for failure to comply with the second and
fourth requisites above.
Upon a careful examination of the Complaint, this Court finds that the same
should not have been dismissed on the ground that it is a nuisance or
harassment suit. Although the shareholdings of petitioners are indeed only two
out of the 409 alleged outstanding shares or 0.24%, the Court has held that it is
enough that a member or a minority of stockholders file a derivative suit for and
in behalf of a corporation.25
With regard, however, to the second requisite, we find that petitioners failed to
state with particularity in the Complaint that they had exerted all reasonable
efforts to exhaust all remedies available under the articles of incorporation, by-
laws, and laws or rules governing the corporation to obtain the relief they desire.
The Complaint contained no allegation whatsoever of any effort to avail of intra-
corporate remedies. Indeed, even if petitioners thought it was futile to exhaust
intra-corporate remedies, they should have stated the same in the Complaint and
specified the reasons for such opinion. Failure to do so allows the RTC to
dismiss the Complaint, even motu proprio, in accordance with the Interim Rules.
The requirement of this allegation in the Complaint is not a useless formality
which may be disregarded at will.1âwphi1 We ruled in Yu v. Yukayguan26:
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 81441 which affirmed the Order of the
Regional Trial Court (RTC) of Olongapo City dismissing the Complaint filed
thereon by herein petitioners is AFFIRMED.
SO ORDERED.
DECISION
BRION, J.:
These assailed CA rulings annulled and set aside: a) the July 29, 2003
order4 of the Regional Trial Court of Olongapo, Br. 75 (RTC Olongapo),
which directed the issuance of a writ of execution in Civil Case No.
582-0-90, against respondent Subic Water and Sewerage Co., Inc.
(Subic Water); b) the July 31, 2003 writ of execution5 subsequently
issued by the same court; and c) the October 7, 2003 order6 of RTC
Olongapo, denying Subic Water’s special appearance with motion to
reconsider order dated July 29, 2003 and to quash writ of execution
dated July 31, 2003.7cralawred
Factual Antecedents
On May 25, 1973, Presidential Decree No. 1988 (PD 198) took effect.
This law authorized the creation of local water districts which may
acquire, install, maintain and operate water supply and distribution
systems for domestic, industrial, municipal and agricultural
uses.9cralawred
(a) pay the amount of P26,798,223.70 plus legal interests from the
filing of the Complaint to actual full payment;
(b) pay the amount of its in lieu share representing three percent of
the defendant’s gross receipts from water sales starting 1981 up to
present;
(c) pay the amount of P1,000,000 as moral damages; and
(d) pay the cost of suit and other litigation expenses.”13
To finally settle their money claims against each other, petitioner and
OCWD entered into a compromise agreement20 on June 4, 1997. In
this agreement, petitioner and OCWD offset their respective claims
and counterclaims. OCWD also undertook to pay to petitioner its net
obligation amounting to P135,909,467.09, to be amortized for a period
of not exceeding twenty-five (25) years at twenty-four percent (24%)
per annum.21cralawred
Almost four years later, on May 30, 2003, the petitioner, through its
new counsel, filed a notice of appearance with urgent
motion/manifestation28 and prayed again for the issuance of a writ of
execution against OCWD. A certain Atty. Segundo Mangohig, claiming
to be OCWD’s former counsel, filed a manifestation alleging that
OCWD had already been dissolved and that Subic Water is now the
former OCWD.29cralawred
Because of this assertion, Subic Water also filed a manifestation
informing the trial court that as borne out by the articles of
incorporation and general information sheet of Subic Water x x x
defendant OCWD is not Subic Water.30 The manifestation also
indicated that OCWD was only a ten percent (10%) shareholder of
Subic Water; and that its 10% share was already in the process of
being transferred to petitioner pursuant to the Deed of Assignment
dated November 24, 1997.31cralawred
The trial court granted the motion for execution and directed its
issuance against OCWD and/or Subic Water. Because of this
unfavorable order, Subic Water filed a special appearance with motion
to: (1) reconsider order dated July 29, 2003; and (2) quash writ of
execution dated July 31, 2003.32cralawred
The trial court denied Subic Water’s special appearance, motion for
reconsideration, and its motion to quash. Subic Water then filed a
petition for certiorari33 with the CA, imputing grave abuse of discretion
amounting to lack or excess of jurisdiction to RTC Olongapo for issuing
its July 29, 2003 and October 7, 2003 orders as well as the writ of
execution dated July 31, 2003.
The CA found that the writ of execution dated July 31, 200335 did not
comply with Section 6, Rule 39 of the Rules of Court, to
wit:chanRoblesvirtualLawlibrary
The CA further remarked that while it was true that a motion for
execution was filed by petitioner on May 7, 1999, and the same was
granted by the trial court in its July 23, 1999 order,37 no writ of
execution was actually issued.
The Petition
Also, the petitioner asserted that although Subic Water was not a
party in the case, it could still be subjected to a writ of execution,
since it was identified as OCWD’s co-maker and successor-in-interest
in the compromise agreement.40cralawred
xxxx
The petitioner received the CA’s assailed resolution denying its motion
for reconsideration on January 9, 2006. Following Rule 45, Section 2
of the Rules of Court,48 the petitioner had until January 24, 2006 to file
its petition for review. It could have even filed a motion for a 30-day
extension of time, a motion that this Court grants for justifiable
reasons.49 But all of these, it failed to do. Thus, the assailed CA
rulings became final and executory and could no longer be the subject
of an appeal.
Under Rule 39, Section 6,50 a judgment creditor has two modes in
enforcing the court’s judgment. Execution may be either through
motion or an independent action.
On May 7, 1999, within the five-year period from the trial court’s
judgment, petitioner filed its motion for the issuance of a writ of
execution. However, despite the grant of the motion, the court did not
issue an actual writ. It was only on May 30, 2003 that petitioner filed a
second motion to ask again for the writ’s issuance. By this time, the
allowed five-year period for execution by motion had already lapsed.
As will be discussed below, since the second motion was filed beyond
the five-year prescriptive period set by the Rules, then the writ of
execution issued by the trial court on July 31, 2003 was null and void
for having been issued by a court already ousted of its jurisdiction.
xxxx
The petitioner also argued that Subic Water could be held solidarily
liable under the writ of execution since it was identified as OCWD’s co-
maker in the compromise agreement. The petitioner’s basis for this is
the following provision of the agreement:chanRoblesvirtualLawlibrary
4. Both parties also request that Subic Water, Philippines which took
over the operations of the defendant Olongapo City Water District be
made as co-maker for the obligation herein above-cited.59 [emphasis
supplied]
As the rule stands, solidary liability is not presumed. This stems from
Art. 1207 of the Civil Code, which
provides:chanRoblesvirtualLawlibrary
In the present case, the joint and several liability of Subic Water and
OCWD was nowhere clear in the agreement. The agreement simply
and plainly stated that petitioner and OCWD were only
requestingSubic Water to be a co-maker, in view of its assumption of
OCWD’s water operations. No evidence was presented to show that
such request was ever approved by Subic Water’s board of directors.
Mr. Noli Aldip signed the compromise agreement purely in his own
capacity. Moreover, the compromise agreement did not expressly
provide that Subic Water consented to become OCWD’s co-maker. As
worded, the compromise agreement merely provided that both parties
[also] request Subic Water, Philippines, which took over the
operations of Olongapo City Water District be made as co-maker [for
the obligations above-cited]. This request was never forwarded to
Subic Water’s board of directors. Even if due notification had been
made (which does not appear in the records), Subic Water’s board
does not appear to have given any approval to such request. No
document such as the minutes of Subic Water’s board of directors’
meeting or a secretary’s certificate, purporting to be an authorization
to Mr. Aldip to conform to the compromise agreement, was ever
presented. In effect, Mr. Aldip’s act of signing the compromise
agreement was outside of his authority to undertake.
Since Mr. Aldip was never authorized and there was no showing that
Subic Water’s articles of incorporation or by-laws granted him such
authority, then the compromise agreement he signed cannot bind
Subic Water. Subic Water cannot likewise be made a surety or even a
guarantor for OCWD’s obligations. OCWD’s debts under the
compromise agreement are its own corporate obligations to petitioner.
Under this corporate reality, Subic Water cannot be held liable for
OCWD’s corporate obligations in the same manner that OCWD cannot
be held liable for the obligations incurred by Subic Water as a separate
entity. The corporate veil should not and cannot be pierced unless it is
clearly established that the separate and distinct personality of the
corporation was used to justify a wrong, protect fraud, or perpetrate a
deception.66cralawred
SO ORDERED.
DECISION
LEONEN, J.:
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision
and October 5, 2006 resolution. The Court of Appeals affirmed the trial court's
decision holding that petitioners, as director, should submit themselves as parties
tothe arbitration proceedings between BF Corporation and Shangri-La
Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court
against Shangri-Laand the members of its board of directors: Alfredo C. Ramos,
Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III,
and Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11, 1989 and May 30,
1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along EDSA.2
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise between the
Owner or the Project Manager on his behalf and the Contractor, either during the
progress or after the completion or abandonment of the Works as to the
construction of this Contract or as to any matter or thing of whatsoever nature
arising there under or inconnection therewith (including any matter or thing left by
this Contract to the discretion of the Project Manager or the withholding by the
Project Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30(5)(a) of these
Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or
33 of these Conditions), the owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these efforts then
such dispute or difference shall be referred to arbitration in accordance with the
rules and procedures of the Philippine Arbitration Law.
(6) The award of such Arbitrators shall be final and binding on the parties. The
decision of the Arbitrators shall be a condition precedent to any right of legal
action that either party may have against the other. . . .12 (Underscoring in the
original)
In the November 18, 1993 order, the Regional Trial Court denied the motion to
suspend proceedings.14
After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos,
Rufo B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed a petition for
certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and
ordered the submission of the dispute to arbitration.18
On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation’s complaint.25 According to the
trial court, Shangri-La’s directors were interested parties who "must also be
served with a demand for arbitration to give them the opportunity to ventilate their
side of the controversy, safeguard their interest and fend off their respective
positions."26 Petitioners’ motion for reconsideration ofthis order was denied by
the trial court on January 19, 2005.27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave
abuse of discretion in the issuance of orders compelling them to submit to
arbitration proceedings despite being third parties to the contract between
Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’
petition for certiorari. The Court of Appeals ruled that ShangriLa’s directors were
necessary parties in the arbitration proceedings.30 According to the Court of
Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their
acts in representation of the party to the contract pursuant to Art. 31 of the
Corporation Code, and that as directors of the defendant corporation, [they], in
accordance with Art. 1217 of the Civil Code, stand to be benefited or injured by
the result of the arbitration proceedings, hence, being necessary parties, they
must be joined in order to have complete adjudication of the controversy.
Consequently, if [they were] excluded as parties in the arbitration proceedings
and an arbitral award is rendered, holding [Shangri-La] and its board of directors
jointly and solidarily liable to private respondent BF Corporation, a problem will
arise, i.e., whether petitioners will be bound bysuch arbitral award, and this will
prevent complete determination of the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits."32
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006
Court of Appeals decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the
arbitration proceedings, pursuant to the arbitration clause provided in the contract
between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations.36 The corporation is a separate being, and nothing justifies BF
Corporation’s allegation that they are solidarily liable with Shangri-La.37Neither
did they bind themselves personally nor did they undertake to shoulder Shangri-
La’s obligations should it fail in its obligations.38 BF Corporation also failed to
establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF
Corporation and Shangri-La.40Provisions including arbitration stipulations should
bind only the parties.41 Based on our arbitration laws, parties who are strangers
to an agreement cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the
autonomy of parties in resolving their disputes.43 Compelling them to submit to
arbitration is against this purpose and may be tantamount to stipulating for the
parties.44
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with
petitioners that Shangri-La’sdirectors, being non-parties to the contract, should
not be made personally liable for Shangri-La’s acts.46 Since the contract was
executed only by BF Corporation and Shangri-La, only they should be affected
by the contract’s stipulation.47 BF Corporation also failed to specifically allege the
unlawful acts of the directors that should make them solidarily liable with Shangri-
La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the
parties should undergo arbitration "clearly contemplated the inclusion of the
directors of the corporation[.]"49 BF Corporation also argued that while petitioners
were not parties to the agreement, they were still impleaded under Section 31 of
the Corporation Code.50Section 31 makes directors solidarily liable for fraud,
gross negligence, and bad faith.51 Petitioners are not really third parties to the
agreement because they are being sued as Shangri-La’s representatives, under
Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded for their
solidary liability, they are necessary parties to the arbitration proceedings.53 The
full resolution of all disputes in the arbitration proceedings should also be done in
the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that
the Arbitral Tribunal had already promulgated its decision on July 31, 2007.55 The
Arbitral Tribunal denied BF Corporation’s claims against them.56Petitioners stated
that "[they] were included by the Arbitral Tribunal in the proceedings conducted . .
. notwithstanding [their] continuing objection thereto. . . ."57 They also stated that
"[their] unwilling participation in the arbitration case was done ex abundante ad
cautela, as manifested therein on several occasions."58 Petitioners informed the
court that they already manifested with the trial court that "any action taken on
[the Arbitral Tribunal’s decision] should be without prejudice to the resolution of
[this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective
memoranda. Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and
Benjamin C. Ramos reiterated their arguments that they should not be held liable
for Shangri-La’s default and made parties to the arbitration proceedings because
only BF Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their
solidary liability under Section 31 of the Corporation Code. Shangri-La added that
their exclusion from the arbitration proceedings will result in multiplicity of suits,
which "is not favored in this jurisdiction."60 It pointed out that the case had
already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the
correctness of the Arbitral Tribunal’s award and not the part absolving Shangri-
La’s directors from liability.62
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding
effect on BF Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues
so that principles may be established for the guidance of the bench, bar, and the
public. In De la Camara v. Hon. Enage,66 this court disregarded the fact that
petitioner in that case already escaped from prison and ruled on the issue of
excessive bails:
While under the circumstances a ruling on the merits of the petition for certiorari
is notwarranted, still, as set forth at the opening of this opinion, the fact that this
case is moot and academic should not preclude this Tribunal from setting forth in
language clear and unmistakable, the obligation of fidelity on the part of lower
court judges to the unequivocal command of the Constitution that excessive bail
shall not be required.67
This principle was repeated in subsequent cases when this court deemed it
proper to clarify important matters for guidance.68
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was
approved as early as 1949. It was later institutionalized by the approval of
Republic Act No. 876,70 which expressly authorized, made valid, enforceable,
and irrevocable parties’ decision to submit their controversies, including
incidental issues, to arbitration. This court recognized this policy in Eastboard
Navigation, Ltd. v. Ysmael and Company, Inc.:71
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have
due regard to the policy of the law in favor of arbitration.Where action is
commenced by or against multiple parties, one or more of whomare parties who
are bound by the arbitration agreement although the civil action may continue as
to those who are not bound by such arbitration agreement. (Emphasis supplied)
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate ofincorporation;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
Because a corporation’s existence is only by fiction of law, it can only exercise its
rights and powers through itsdirectors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
Petitioners are also correct that arbitration promotes the parties’ autonomy in
resolving their disputes. This court recognized in Heirs of Augusto Salas, Jr. v.
Laperal Realty Corporation79 that an arbitration clause shall not apply to persons
who were neither parties to the contract nor assignees of previous parties, thus:
A submission to arbitration is a contract. As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and
heirs. But only they.80 (Citations omitted)
The provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract and is itself a contract. As a rule,
contracts are respected as the law between the contracting parties and produce
effect as between them, their assigns and heirs. Clearly, only parties to the
Agreement . . . are bound by the Agreement and its arbitration clause as they are
the only signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air
Terminals Co., Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
When corporate veil is pierced, the corporation and persons who are normally
treated as distinct from the corporation are treated as one person, such that
when the corporation is adjudged liable, these persons, too, become liable as if
they were the corporation.
Among the persons who may be treatedas the corporation itself under certain
circumstances are its directors and officers. Section 31 of the Corporation Code
provides the instances when directors, trustees, or officers may become liable for
corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
Solidary liability with the corporation will also attach in the following instances:
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and
tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus,
the courts or tribunals must first determine whether circumstances exist towarrant
the courts or tribunals to disregard the distinction between the corporation and
the persons representing it. The determination of these circumstances must be
made by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those persons
whose personalities are impliedly the sameas the corporation. This is because
when the court or tribunal finds that circumstances exist warranting the piercing
of the corporate veil, the corporate representatives are treated as the corporation
itself and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere aggregation of
persons undertaking a business under the collective name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice orbad faith on their part in directing the affairs of the
corporation, complainants are effectively alleging that the directors and the
corporation are not acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the directors’ acts
or omissions.90 They are alleging that contracts executed by the corporation are
contracts executed by the directors. Complainants effectively pray that the
corporate veilbe pierced because the cause of action between the corporation
and the directors is the same.
In that case, complainants have no choice but to institute only one proceeding
against the parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a
single cause of action is prohibited. Institution of more than one suit for the same
cause of action constitutes splitting the cause of action, which is a ground for the
dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more
than one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more suits are
instituted on the basis of the same cause of action, the filing of one or a judgment
upon the merits in any one is available as a ground for the dismissal of the
others. (4a)
However, when the courts disregard the corporation’s distinct and separate
personality from its directors or officers, the courts do not say that the
corporation, in all instances and for all purposes, is the same as its directors,
stockholders, officers, and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or representing it.
Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for all
damages to erring corporate officials who participated in the corporation’s illegal
acts. This is done so that the legal fiction cannot be used to perpetrate illegalities
and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the
piercing of the corporate veil, parties who are normally treated as distinct
individuals should be made to participate in the arbitration proceedings in order
to determine ifsuch distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation
failed to prove the existence of circumstances that render petitioners and the
other directors solidarily liable. It ruled that petitioners and Shangri-La’s other
directors were not liable for the contractual obligations of Shangri-La to BF
Corporation. The Arbitral Tribunal’s decision was made with the participation of
petitioners, albeit with their continuing objection. In view of our discussion above,
we rule that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May
11, 2006 and resolution of October 5, 2006 are AFFIRMED.
SO ORDERED.