G.R. No.

L-30646 January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents.

Attorney-General Jaranilla for petitioner.

Jose Abreu for respondents.

JOHNSON, J.:

This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the Philippine Islands,
praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph
poles of said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando, Province of La Union,
with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for public service between said
municipalities.

The only question raised by the petition is whether the dependant company is required to provide and equip its telegraph poles with
crosspieces to carry six telegraph wires of the Government, or whether it is only required to furnish poles with crosspieces sufficient to carry
four wires only.

It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four telegraph wires and that they do
now carry four telegraph wires, by virtue of an agreement between the respondents and the Bureau of the Posts of the Philippine
Government. It is admitted that the poles and not sufficient to carry six telegraph wires.

The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and was adopted by the
United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:

The railroad corporation shall establish along the whole length of the road a telegraph line for the use of the railroad. The posts of
this line may be used for Government wires and shall be of sufficient length and strength and equipped with sufficient crosspiece to
carry the number of wires which the Government may consider necessary for the public service. The establishment, protection, and
maintenance of the wires and stations necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p. 247.)

The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts for its telegraph wires, of
sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires which the Government may consider
necessary for the public service, and that six wires are now necessary for the public service.

The respondents answered by a general and special defense. In their special defense they contend that section 84 of Act No. 1459 has been
repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under
the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company four wires only. Act No. 1510 is the
charter of the Manila Railroad Company. It was adopted by the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8,
of said Act No. 1510 provides:

8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph, telephone, and electrical
transmission lines over said railways for the use of the railways and their business, and also, with the approval of the Secretary of
War, for public service and commercial purposes but these latter privileges shall be subject to the following provisions:

In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad Company) shall erect and
maintain poles with sufficient space thereon to permit the Philippine Government, at the expense of said Government, to place,
operate, and maintain four wires for telegraph, telephone, and electrical transmission for any Government purposes between the
termini of the lines of railways main or branch; and the Philippine Government reserves to itself the right to construct, maintain, and
operate telegraph, telephone, or electrical transmission lines over the right of way of said railways for commercial military, or
government purposes, without unreasonably interfering with the construction, maintenance, and operation by the grantee of its
railways, telegraph, telephone, and electrical transmission lines.

To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is applicable to the Manila
Railroad Company, or whether the manila Railroad Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said, Act
No. 1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company and
constitute a contract between it and the Government.

Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and the Governmemnt, it would
seem that the company is governd by its contract and not by the provisions of any general law upon questions covered by said contract. From
a reading of the said charter or contract it would be seen that there is no indication that the Government intended to impose upon said
company any other conditions as obligations not expressly found in said charter or contract. If that is true, then certainly the Government
cannot impose upon said company any conditions or obligations found in any general law, which does not expressly modify said contract.

Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which did not have a special
charter contract. Act No. 1510 applies only to the Manila Railroad Company, one of the respondents, and being a special charter of said
company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable to railraods in general.
The special charter (Act No. 1510) had the effect of superseding the general Corporation Law upon all matters covered by said special
charter. Said Act, inasmuch as it contained a special provision relating to the erection of telegraph and telephone poles, and the number of
wires which the Government might place thereon, superseded the general law upon that question.

Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company and the state; and
the state and the grantee of a charter are equally bound by its provisions. For the state to impose an obligation or a duty upon the
respondent company, which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of said contract between
the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires which the Government may place upon
the poles of the company are different and more enerous than the provisions of the charter upon the same question. Therefore, to allow the
plaintiff to require of the respondent company a compliance with said section 84 of Act No. 1459, would be to require of the respondent
company and the performance of an obligation which is not imposed upon it by its charter. The charter of a corporation is a contract between
three parties: (a) it is a contract between the state and the corporation to which the charter is granted; (b) it is a contact between the
stockholders and the state and (c) it is also a contract between the corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494
and cases cited.)

The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No. 1510, the respondents are
obliged to comply with the special provision above mentioned, contained in Act No. 1459. We must answer that question in the native. Both
laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the question before us, while Act No. 1459 is
not applicable.

The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to the remedy prayed for. The
prayer of the petition must, therefore, be denied. And without any finding as to costs, it is so ordered.
G.R. No. 41570 September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,

vs.
RURAL TRANSIT CO., LTD., respondent-appellee.

L. D. Lockwood for appellant.

Ohnick and Opisso for appellee.

BUTTE, J.:

This case is before us on a petition for review of an order of the Public Service Commission entered December 21, 1932, granting to the Rural
Transit Company, Ltd., a certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and
Tuguegarao in the Province of Cagayan, and additional trips in its existing express service between Manila Tuguegarao.

On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company Service Commission an application
in which it is stated in substance that it is the holder of a certificate or public convenience to operate a passenger bus service between Manila
and Tuguegarao; that it is the only operator of direct service between said points and the present authorized schedule of only one trip daily is
not sufficient; that it will be also to the public convenience to grant the applicant a certificate for a new service between Tuguegarao and
Ilagan.

On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application alleging in substance that as to
the service between Tuguegarao and Ilagan, the oppositor already holds a certificate of public convenience and is rendering adequate and
satisfactory service; that the granting of the application of the Rural Transit Company, Ltd., would not serve public convenience but would
constitute a ruinous competition for the oppositor over said route.

After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural Transit Company, Ltd., and ordered
that the certificate of public convenience applied for be "issued to the applicant Rural Transit Company, Ltd.," with the condition, among
others, that "all the other terms and conditions of the various certificates of public convenience of the herein applicant and herein
incorporated are made a part hereof."

On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and reconsideration in which it called the
commission's attention to the fact that there was pending in the Court of First Instance of Manila case N. 42343, an application for the
voluntary dissolution of the corporation, Rural Transit Company, Ltd. Said motion for reconsideration was set down for hearing on March 24,
1933. On March 23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was verified by M.
Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the above entitled case." Upon the hearing of the motion
for reconsideration, the commission admitted without objection the following documents filed in said case No. 42343 in the Court of First
Instance of Manila for the dissolution of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the
said Court of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.

At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest making the
application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the Bachrach Motor Company, Inc., using
name of the Rural Transit Company, Ltd., as a trade name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious
and confusing, as may be seen from the following:

Q. Will you please answer the question whether it is the Bachrach Motor Company operating under the trade name of the
Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its own name this application was filed?

A. The Bachrach Motor Company is the principal stockholder.

Q. Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

JUEZ. Puede contestar.

A. I do not know what the legal construction or relationship existing between the two.

JUDGE. I do not know what is in your mind by not telling the real applicant in this case?

A. It is the Rural Transit Company, Ltd.

JUDGE. As an entity by itself and not by the Bachrach Motor Company?

A. I do not know. I have not given that phase of the matter much thought, as in previous occassion had not necessitated.

JUDGE. In filing this application, you filed it for the operator on that line? Is it not!

A. Yes, sir.

JUDGE. Who is that operator?

A. The Rural Transit Company, Ltd.

JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?

A. I cannot say.

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of the Philippine Islands.
 JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the certificates and the Rural
Transit Company, Ltd., is operating without any certificate.

JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the Rural Transit
Company, Ltd., is not an operator, everything will be turned down.

JUDGE. My question was, when you filed this application you evidently made it for the operator?

A. Yes, sir.

JUDGE. Who was that operator you had in mind?

A. According to the status of the ownership of the certificates of the former Rural Transit Company, the operator was the
operator authorized in case No. 23217 to whom all of the assets of the former Rural Transit Company were sold.

JUDGE. Bachrach Motor Company?

A. All actions have been prosecuted in the name of the Rural Transit Company, Ltd.

JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit Company, Ltd.?

A. Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in the name of one
party but the real owner is another party.

ESPELETA. We object to that petition.

JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.

The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the application of the Rural Transit
Company, Ltd. It may be a matter of some surprise that the commission did not on its own motion order the amendment of the application by
substituting the Bachrach Motor Company, Inc., as the applicant. However, the hearing proceeded on the application as filed and the decision
of December 2, 1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be issued in its name, in the
face of the evidence that the said corporation was not the real party in interest. In its said decision, the commission undertook to meet the
objection by referring to its resolution of November 26, 1932, entered in another case. This resolution in case No. 23217 concludes as follows:

Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural Transit Co., Ltd.," as
its trade name in all the applications, motions or other petitions to be filed in this commission in connection with said business and
that this authority is given retroactive effect as of the date, of filing of the application in this case, to wit, April 29, 1930.

We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one corporation to assume the
name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name. The
incorporators "constitute a body politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation is therefore essential to its
existence. It cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business.
The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of another
corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade
name the name of another corporation, this practice would result in confusion and open the door to frauds and evasions and difficulties of
administration and supervision. The policy of the law expressed in our corporation statute and the Code of Commerce is clearly against such a
practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205
Illinois [Appellate Courts], 428, 434.)

The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural
Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of December 21, 1932, at its face as granting a
certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground
that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.

In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not see how we can assess costs
against said respondent, Rural Transit Company, Ltd.
G.R. No. 137592 December 12, 2001

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC.,petitioner,
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent.

YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7, 1997 1 and the Resolution dated February 16, 19992 of the Court of
Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the Securities and Exchange and Commission (SEC) in SEC-AC No. 539.3

Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of
Truth),4 is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members
of respondent corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious
society or corporation, namedIglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.

On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name, which petition was docketed as SEC Case No. 1774. On May 4, 1988, the SEC rendered judgment
in favor of respondent, ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to
another name that is not similar or identical to any name already used by a corporation, partnership or association registered with the
Commission.5No appeal was taken from said decision.

It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25, 1980 of petitioner
corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. The acronym "H.S.K." stands for Haligi at
Saligan ng Katotohanan.6

On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-4704, praying that petitioner be
compelled to change its corporate name and be barred from using the same or similar name on the ground that the same causes confusion
among their members as well as the public.

Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an
answer, petitioner was declared in default and respondent was allowed to present its evidence ex parte.

On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name. The dispositive portion thereof reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent herein).

Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner herein) is hereby
MANDATED to change its corporate name to another not deceptively similar or identical to the same already used by the Petitioner,
any corporation, association, and/or partnership presently registered with the Commission.

Let a copy of this Decision be furnished the Records Division and the Corporate and Legal Department [CLD] of this Commission for
their records, reference and/or for whatever requisite action, if any, to be undertaken at their end.

SO ORDERED.7

Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision dated March 4, 1996, the SEC En
Banc affirmed the above decision, upon a finding that petitioner's corporate name was identical or confusingly or deceptively similar to that of
respondent's corporate name.8

Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals rendered the assailed decision
affirming the decision of the SEC En Banc. Petitioner's motion for reconsideration was denied by the Court of Appeals on February 16, 1992.

Hence, the instant petition for review, raising the following assignment of errors:

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL
DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE CASE AT BAR AND INSTEAD
RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE CIVIL CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION,
THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS SINCE
PRESCRIBED PRIOR TO ITS INSTITUTION.

III

THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN
THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO THE INSTANT CASE.

IV

THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE ON RELIGIOUS
FREEDOM, THEREBY FAILING TO APPLY THE SAME TO PROTECT PETITIONER'S RIGHTS.9

Invoking the case of Legarda v. Court of Appeals,10 petitioner insists that the decision of the Court of Appeals and the SEC should be set aside
because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in failing to file an answer after its motion to dismiss was
denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based on the rule that any act performed
by a lawyer within the scope of his general or implied authority is regarded as an act of his client.11 An exception to the foregoing is where the
reckless or gross negligence of the counsel deprives the client of due process of law. 12 Said exception, however, does not obtain in the
present case.

In Legarda v. Court of Appeals, the effort of the counsel in defending his client's cause consisted in filing a motion for extension of time to file
answer before the trial court. When his client was declared in default, the counsel did nothing and allowed the judgment by default to become
final and executory. Upon the insistence of his client, the counsel filed a petition to annul the judgment with the Court of Appeals, which
denied the petition, and again the counsel allowed the denial to become final and executory. This Court found the counsel grossly negligent
and consequently declared as null and void the decision adverse to his client.

The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to dismiss on the ground of lack of
cause of action. When his client was declared in default for failure to file an answer, Atty. Garaygay moved for reconsideration and lifting of
the order of default.13 After judgment by default was rendered against petitioner corporation, Atty. Garaygay filed a motion for extension of
time to appeal/motion for reconsideration, and thereafter a motion to set aside the decision. 14

Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that led to the rendition of a judgment by
default against petitioner, his efforts were palpably real, albeit bereft of zeal. 15

Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals, is untenable. Its failure to raise
prescription before the SEC can only be construed as a waiver of that defense.16 At any rate, the SEC has the authority to de-register at all
times and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent
confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public.17

Section 18 of the Corporation Code provides:

Corporate Name. — No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is
patently deceptive, confusing or is contrary to existing laws. When a change in the corporate name is approved, the Commission
shall issue an amended certificate of incorporation under the amended name.

Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:

(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company,
the proposed name must contain two other words different from the name of the company already registered;

Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent,
may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the
name.18

Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to their registered name, to wit:
"Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which, petitioner argues, effectively distinguished it from respondent corporation.

The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as correctly observed by the SEC, merely
descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the Philippines. These words can
hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent. This
is especially so, since both petitioner and respondent corporations are using the same acronym — H.S.K.;19 not to mention the fact that both
are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by
petitioner stands for "Haligi at Saligan ng Katotohanan."20

Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the dominant words "IGLESIA NG
DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to respondent's corporate name, thus making
it even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to
the members of respondent corporation.21

Significantly, the only difference between the corporate names of petitioner and respondent are the wordsSALIGAN and SUHAY. These words
are synonymous — both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal
Textile Mills, Inc.,22 where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of "reasonable care and observation" confusion may arise.

Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification under the generic word rule.
We agree with the Court of Appeals' conclusion that a contrary ruling would encourage other corporations to adopt verbatim and register an
existing and protected corporate name, to the detriment of the public.

The fact that there are other non-stock religious societies or corporations using the names Church of the Living God, Inc., Church of God
Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and other similar names, is of no consequence. It does
not authorize the use by petitioner of the essential and distinguishing feature of respondent's registered and protected corporate name.23

We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its corporate name is not a violation of its
constitutionally guaranteed right to religious freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines
in the approval of partnership and corporate names, namely its undertaking to manifest its willingness to change its corporate name in the
event another person, firm, or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it.
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed decision of the Court of Appeals is
AFFIRMED in toto. SO ORDERED.
G.R. No. L-28351 July 28, 1977

UNIVERSAL MILLS CORPORATION, petitioner,

vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.

Emigdio G. Tanjuatco for petitioner.

Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.

BARREDO, J.:

Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079, entitled In the Matter of the Universal Textile
Mills, Inc. vs. Universal Mills Corporation, a petition to have appellant change its corporate name on the ground that such name is
"confusingly and deceptively similar" to that of appellee, which petition the Commission granted.

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for which it was
issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was registered in this Commission
on October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and
production of hosieries and wearing apparel of all kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its
name to Universal Mills Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963.

The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's spinning mills in Pasig, Rizal.
Petitioner alleged that as a result of this fire and because of the similarity of respondent's name to that of herein complainant, the news items
appearing in the various metropolitan newspapers carrying reports on the fire created uncertainty and confusion among its bankers, friends,
stockholders and customers prompting petitioner to make announcements, clarifying the real Identity of the corporation whose property was
burned. Petitioner presented documentary and testimonial evidence in support of this allegation.

On the other hand, respondent's position is that the names of the two corporations are not similar and even if there be
some similarity, it is not confusing or deceptive; that the only reason that respondent changed its name was because it
expanded its business to include the manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's name is
dominant and prominent enough to distinguish the two. It further argues that petitioner failed to present evidence of
confusion or deception in the ordinary course of business; that the only supposed confusion proved by complainant arose
out of an extraordinary occurrence — a disastrous fire. (pp. 16-&17, Record.)

Upon these premises, the Commission held:

From the facts proved and the jurisprudence on the matter, it appears necessary under the circumstances to enjoin the
respondent Universal Mills Corporation from further using its present corporate name. Judging from what has already
happened, confusion is not only apparent, but possible. It does not matter that the instance of confusion between the two
corporate names was occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this Commission
to prevent such confusion at all times and under all circumstances not only for the purpose of protecting the corporations
involved but more so for the protection of the public.

In today's modern business life where people go by tradenames and corporate images, the corporate name becomes the
more important. This Commission cannot close its eyes to the fact that usually it is the sound of all the other words
composing the names of business corporations that sticks to the mind of those who deal with them. The word "textile" in
Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other entities with similar names from the mind of
the public especially so, if the business they are engaged in are the same, like in the instant case.

This Commission further takes cognizance of the fact that when respondent filed the amendment changing its name to
Universal Mills Corporation, it correspondingly filed a written undertaking dated June 5, 1963 and signed by its President,
Mr. Mariano Cokiat, promising to change its name in the event that there is another person, firm or entity who has
obtained a prior right to the use of such name or one similar to it. That promise is still binding upon the corporation and its
responsible officers. (pp. 17-18, Record.)

It is obvious that the matter at issue is within the competence of the Securities and Exchange Commission to resolve in the first instance in
the exercise of the jurisdiction it used to possess under Commonwealth Act 287 as amended by Republic Act 1055 to administer the
application and enforcement of all laws affecting domestic corporations and associations, reserving to the courts only conflicts of judicial
nature, and, of course, the Supreme Court's authority to review the Commissions actuations in appropriate instances involving possible denial
of due process and grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of any constitutional right, all that We
are called upon to determine is whether or not the order of the Commission enjoining petitioner to its corporate name constitutes, in the light
of the circumstances found by the Commission, a grave abuse of discretion.

We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and capricious. Clearly, it has rational basis. The corporate
names in question are not Identical, but they are indisputably so similar that even under the test of "reasonable care and observation as the
public generally are capable of using and may be expected to exercise" invoked by appellant, We are apprehensive confusion will usually
arise, considering that under the second amendment of its articles of incorporation on August 14, 1964, appellant included among its primary
purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had been engaged for more than a
decade ahead of petitioner. Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion.
Since respondent is not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has acted in good faith, but
We cannot perceive why of all names, it had to choose a name already being used by another firm engaged in practically the same business
for more than a decade enjoying well earned patronage and goodwill, when there are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and, more importantly, any degree of confusion in the mind of the public which could
mislead even its own customers, existing or prospective. Premises considered, there is no warrant for our interference.
As this is purely a case of injunction, and considering the time that has elapsed since the facts complained of took place, this decision should
not be deemed as foreclosing any further remedy which appellee may have for the protection of its interests.

WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed. Costs against petitioners.
G.R. No. 122174 October 3, 2002

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES CORPORATION OF THE
PHILIPPINES, respondents.

AUSTRIA-MARTINEZ, J.:

Filed before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals in CA-
G.R. SP No. 35056, denying due course and dismissing the petition filed by Industrial Refractories Corp. of the Philippines (IRCP).

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on October 13, 1976 for the purpose of engaging
in the business of manufacturing, producing, selling, exporting and otherwise dealing in any and all refractory bricks, its by-products and
derivatives. On June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade.

Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name "Synclaire Manufacturing Corporation". It
amended its Articles of Incorporation on August 23, 1985 to change its corporate name to "Industrial Refractories Corp. of the Philippines". It
is engaged in the business of manufacturing all kinds of ceramics and other products, except paints and zincs.

Both companies are the only local suppliers of monolithic gunning mix.1

Discovering that petitioner was using such corporate name, respondent RCP filed on April 14, 1988 with the Securities and Exchange
Commission (SEC) a petition to compel petitioner to change its corporate name on the ground that its corporate name is confusingly similar
with that of petitioner’s such that the public may be confused or deceived into believing that they are one and the same corporation.2

The SEC decided in favor of respondent RCP and rendered judgment on July 23, 1993 with the following dispositive portion:

"WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondent declaring the latter’s corporate name
‘Industrial Refractories Corporation of the Philippines’ as deceptively and confusingly similar to that of petitioner’s corporate name
‘Refractories Corporation of the Philippines’. Accordingly, respondent is hereby directed to amend its Articles of Incorporation by deleting the
name ‘Refractories Corporation of the Philippines’ in its corporate name within thirty (30) days from finality of this Decision. Likewise,
respondent is hereby ordered to pay the petitioner the sum of P50,000.00 as attorney’s fees."3

Petitioner appealed to the SEC En Banc, arguing that it does not have any jurisdiction over the case, and that respondent RCP has no right to
the exclusive use of its corporate name as it is composed of generic or common words.4

In its Decision dated July 23, 1993, the SEC En Banc modified the appealed decision in that petitioner was ordered to delete or drop from its
corporate name only the word "Refractories".5

Petitioner IRCP elevated the decision of the SEC En Banc through a petition for review on certiorari to the Court of Appeals which then
rendered the herein assailed decision. The appellate court upheld the jurisdiction of the SEC over the case and ruled that the corporate names
of petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that respondent RCP has established its prior right to use
the word "Refractories" as its corporate name.6 The appellate court also found that the petition was filed beyond the reglementary period.7

Hence, herein petition which we must deny.

Petitioner contends that the petition before the Court of Appeals was timely filed. It must be noted that at the time the SEC En Banc rendered
its decision on May 10, 1994, the governing rule on appeals from quasi-judicial agencies like the SEC was Supreme Court Circular No. 1-
91. As provided therein, the remedy should have been a petition for review filed before the Court of Appeals within fifteen (15) days from
notice, raising questions of fact, of law, or mixed questions of fact and law.8 A motion for reconsideration suspends the running of the period.9

In the case at bench, there is a discrepancy between the dates provided by petitioner and respondent. Petitioner alleges the following dates of
receipt and filing:10

June 10, 1994 Receipt of SEC’s Decision dated May 10, 1994

June 20, 1994 Filing of Motion for Reconsideration

September 1, 1994 Receipt of SEC’s Order dated August 3, 1994 denying petitioner’s motion for reconsideration

September 2, 1994 Filing of Motion for extension of time

September 6, 1994 Filing of Petition

Respondent RCP, however, asserts that the foregoing dates are incorrect as the certifications issued by the SEC show that petitioner received
the SEC’s Decision dated May 10, 1994 on June 9, 1994, filed the motion for reconsideration via registered mail on June 25, 1994, and
received the Order dated August 3, 1994 on August 15, 1994.11 Thus, the petition was filed twenty-one (21) days beyond the reglementary
period provided in Supreme Court Circular No. 1-91.12
If reckoned from the dates supplied by petitioner, then the petition was timely filed. On the other hand, if reckoned from the dates provided
by respondent RCP, then it was filed way beyond the reglementary period. On this score, we agree with the appellate court’s finding that
petitioner failed to rebut respondent RCP’s allegations of material dates of receipt and filing. 13 In addition, the certifications were executed by
the SEC officials based on their official records14 which enjoy the presumption of regularity.15 As such, these are prima facie evidence of the
facts stated therein.16 And based on such dates, there is no question that the petition was filed with the Court of Appeals beyond the fifteen
(15) day period. On this ground alone, the instant petition should be denied as the SEC En Banc’s decision had already attained finality and
the SEC’s findings of fact, when supported by substantial evidence, is final.17

Nevertheless, to set the matters at rest, we shall delve into the other issues posed by petitioner.

Petitioner’s arguments, substantially, are as follows: (1) jurisdiction is vested with the regular courts as the present case is not one of the
instances provided in P.D. 902-A; (2) respondent RCP is not entitled to use the generic name "refractories"; (3) there is no confusing
similarity between their corporate names; and (4) there is no basis for the award of attorney’s fees.18

Petitioner’s argument on the SEC’s jurisdiction over the case is utterly myopic. The jurisdiction of the SEC is not merely confined to the
adjudicative functions provided in Section 5 of P.D. 902-A, as amended.19 By express mandate, it has absolute jurisdiction, supervision and
control over all corporations.20 It also exercises regulatory and administrative powers to implement and enforce the Corporation Code,21 one
of which is Section 18, which provides:

"SEC. 18. Corporate name. -- No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name."

It is the SEC’s duty to prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so
for the protection of the public, and it has authority to de-register at all times and under all circumstances corporate names which in its
estimation are likely to generate confusion.22 Clearly therefore, the present case falls within the ambit of the SEC’s regulatory powers.23

Likewise untenable is petitioner’s argument that there is no confusing or deceptive similarity between petitioner and respondent RCP’s
corporate names. Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is "identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws". The policy behind the foregoing prohibition is to avoid fraud upon the public that will have occasion to deal with the
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over
corporation.24

Pursuant thereto, the Revised Guidelines in the Approval of Corporate and Partnership Names25 specifically requires that: (1) a corporate
name shall not be identical, misleading or confusingly similar to one already registered by another corporation with the Commission;26 and (2)
if the proposed name is similar to the name of a registered firm, the proposed name must contain at least one distinctive word different from
the name of the company already registered.27

As held in Philips Export B.V. vs. Court of Appeals,28 to fall within the prohibition of the law, two requisites must be proven, to wit:

(1) that the complainant corporation acquired a prior right over the use of such corporate name;

and

(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of any existing corporation or to any other
name already protected by law; or (c) patently deceptive, confusing or contrary to existing law.

As regards the first requisite, it has been held that the right to the exclusive use of a corporate name with freedom from infringement by
similarity is determined by priority of adoption.29 In this case, respondent RCP was incorporated on October 13, 1976 and since then has
been using the corporate name "Refractories Corp. of the Philippines". Meanwhile, petitioner was incorporated on August 23, 1979 originally
under the name "Synclaire Manufacturing Corporation". It only started using the name "Industrial Refractories Corp. of the Philippines" when
it amended its Articles of Incorporation on August 23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the
prior registrant, respondent RCP has acquired the right to use the word "Refractories" as part of its corporate name.

Anent the second requisite, in determining the existence of confusing similarity in corporate names, the test is whether the similarity is such
as to mislead a person using ordinary care and discrimination and the Court must look to the record as well as the names
themselves.30 Petitioner’s corporate name is "Industrial Refractories Corp. of the Phils.", while respondent’s is "Refractories Corp. of the
Phils." Obviously, both names contain the identical words "Refractories", "Corporation" and "Philippines". The only word that distinguishes
petitioner from respondent RCP is the word "Industrial" which merely identifies a corporation’s general field of activities or operations. We
need not linger on these two corporate names to conclude that they are patently similar that even with reasonable care and observation,
confusion might arise.31 It must be noted that both cater to the same clientele, i.e.¸ the steel industry. In fact, the SEC found that there were
instances when different steel companies were actually confused between the two, especially since they also have similar product
packaging.32 Such findings are accorded not only great respect but even finality, and are binding upon this Court, unless it is shown that it
had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel a contrary conclusion had such evidence
been properly appreciated. 33 And even without such proof of actual confusion between the two corporate names, it suffices that confusion is
probable or likely to occur.34

Refractory materials are described as follows:

"Refractories are structural materials used at high temperatures to [sic] industrial furnaces. They are supplied mainly in the form of brick of
standard sizes and of special shapes. Refractories also include refractory cements, bonding mortars, plastic firebrick, castables, ramming
mixtures, and other bulk materials such as dead-burned grain magneside, chrome or ground ganister and special clay."35

While the word "refractories" is a generic term, its usage is not widespread and is limited merely to the industry/trade in which it is used, and
its continuous use by respondent RCP for a considerable period has made the term so closely identified with it. 36 Moreover, as held in the
case of Ang Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng Dios kay Cristo Jesus,
Haligi at Suhay ng Katotohanan, petitioner’s appropriation of respondent's corporate name cannot find justification under the generic word
rule. 37 A contrary ruling would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to the
detriment of the public.38
Finally, we find the award of P50,000.00 as attorney's fees to be fair and reasonable. Article 2208 of the Civil Code allows the award of
such fees when its claimant is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In this case,
despite its undertaking to change its corporate name in case another firm has acquired a prior right to use such name, 39 it refused to do so,
thus compelling respondent to undergo litigation and incur expenses to protect its corporate name.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED.
G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF
CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES,
LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC.,
respondents.

Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.

Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.

Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS

1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO
THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF
GEOGRAPHIC NAMES TO THE WORD "LYCEUM". — The Articles of Incorporation of a corporation must, among other things, set out the name
of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section 18.
Corporate name. — No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate
of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name
which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations.
We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to
that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion
and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be
confused with the Lyceum of the Philippines.

2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. — It is claimed, however,
by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word, although originally
a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of
secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to
use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or
tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following
terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because
geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his
article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product."
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of
time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at
least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the
negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an
article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one
producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean
that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. . . . No
evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the
disputed word for a long period of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum'
for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the
appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence
presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the
allegations of the appellant in its first two assigned errors must necessarily fail." We agree with the Court of Appeals. The number alone of the
private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity
essential for applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth
shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using
"Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with
the SEC because they have not adopted the corporate form of organization.

3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO
ANOTHER CORPORATE ENTITY'S NAME. — petitioner institution is not entitled to a legally enforceable exclusive right to use the word
"Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given
corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the
presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is
juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with
each other.

DECISION

FELICIANO, J p:

Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the
SEC on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational
institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their
respective names.

Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of their original
SEC registration being set out below opposite their respective names:

Western Pangasinan Lyceum — 27 October 1950

Lyceum of Cabagan — 31 October 1962

Lyceum of Lallo, Inc. — 26 March 1972

Lyceum of Aparri — 28 March 1972

Lyceum of Tuao, Inc. — 28 March 1972

Lyceum of Camalaniugan — 28 March 1972

The following private respondents were declared in default for failure to file an answer despite service of summons:

Buhi Lyceum;

Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:

1. The Lyceum of Malacanay;

2. The Lyceum of Marbel; and

3. The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to serve summons
upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu proprio change its corporate name
to "Pamantasan ng Araullo."

The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding (SEC-Case
No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or
identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of
petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum,"
the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC
also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to
change its name to another name "not similar or identical [with]" the names of previously registered entities.

The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No. L-46595. In a Minute
Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on
21 October 1977. 2

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find using the word
"Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became
clear that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary
right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word
"Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word
"Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word.

On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En
Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En
Banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another,
especially in view of the fact that the campuses of petitioner and those of the private respondents were physically quite remote from each
other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the
questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.

Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare decisis as to
apply to this case and in not holding that said Resolution bound subsequent determinations on the right to exclusive use of the word Lyceum.

2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than petitioner.

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the exclusion of others. 5

We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the Resolution of the Court in G.R.
No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare
decisis pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case.
The Minute Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation
Code establishes a restrictive rule insofar as corporate names are concerned:

"SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or
confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws,"
is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to
that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion
and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be
confused with the Lyceum of the Philippines.

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient
Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus
frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became
associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum"
generally refers to a school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language, the
word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently
use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other
places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college. It may be (though this is a question of
fact which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear
that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate names. Since
"Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution.

It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that
that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents
herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names
sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular
trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated
in the following terms:

" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or
otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that
trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." 12

The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of
time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at
least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the
negative:

"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the
market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article
was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name
or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. Consequently, the same
doctrine or principle cannot be made to apply where the evidence did not prove that the business (of the plaintiff) has continued for so long a
time that it has become of consequence and acquired a good will of considerable value such that its articles and produce have acquired a
well-known reputation, and confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs. Wellington Department
Store, Inc., 92 Phil. 448).

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No evidence was ever presented
in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the
appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of
time. Nevertheless, its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the evidence tend to convey
that the cross-claimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant started using the same
word in its corporate name. Furthermore, educational institutions of the Roman Catholic Church had been using the same or similar word like
'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word
'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified with its educational institution that confusion will
surely arise in the minds of the public if the same word were to be used by other educational institutions.

In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did
not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been
using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise
if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied)

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of
the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be
noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17)
years before the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc.
rather than the petitioner institution.

In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records before the SEC in
accordance with the provisions of R.A. No. 62, which records had been destroyed during World War II, Western Pangasinan Lyceum should be
deemed to have lost all rights it may have acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum,
Inc. registered with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or not Western Pangasinan
Lyceum, Inc. must be deemed to have lost its rights under its original 1933 registration, appears to us to be quite secondary in importance;
we refer to this earlier registration simply to underscore the fact that petitioner's use of the word "Lyceum" was neither the first use of that
term in the Philippines nor an exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the
Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part
of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because
they have not adopted the corporate form of organization.

We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its
corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate
name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of
"Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with
the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of Appeals, the Petition for
Review is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as
to costs. SO ORDERED.
G.R. No. 100468 May 6, 1997

LAUREANO INVESTMENT & DEVELOPMENT CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and BORMAHECO, INC., respondents.

PANGANIBAN, J.:

May a plaintiff/petitioner which purports to be a corporation validly bring suit under a name other than that registered with the Securities and
Exchange Commission?

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner seeks the reversal of the Decision 1 of the Court of
Appeals 2 in CA-G.R. SP No. 22763, promulgated on February 28, 1991, which resolved the above question in the negative; and its
Resolution 3 promulgated on June 10, 1991, denying petitioner's motion for reconsideration. The assailed Decision upheld the following
questioned orders of the Regional Trial Court of Makati, Branch 141: 4 (1) the Order dated September 8, 1989, ruling that "Lideco
Corporation" (the name under which herein petitioner represented itself before the trial court) lacked personality to intervene; 5 (2) the Order
dated May 7, 1990, denying the motion of petitioner to take the place of "Lideco Corporation" as party-intervenor and adopt the latter's
complaint in intervention and other pleadings;6 and (3) the Order dated August 8, 1990, which denied the motion for reconsideration of
petitioner. 7

The Facts

The antecedents of this petition are summarized by the Respondent Court as follows:

The records show that spouses Reynaldo Laureano and Florence Laureano are majority stockholders of petitioner
Corporation who entered into a series of loan and credit transactions with Philippine National Cooperative Bank (PNCB for
short). To secure payment of the loans, they executed Deeds of Real Estate Mortgage dated December 11, 1962, January
9, 1963, July 2, 1963 and September 5, 1964, for the following amounts: P100,000.00, P20,000.00, P70,000.00 and
P13,424.04, respectively. In view of their failure to pay their indebtedness, PNCB applied for extrajudicial foreclosure of
the real estate mortgages. The bank was the purchaser of the properties in question in the foreclosure sale and titles
thereof were consolidated in PNCB's name on February 20, 1984. PNCB did not secure a writ of possession nor did it file
ejectment proceedings against the Laureano spouses, because there were then pending cases, such as . . . involving the
titles of ownership of subject two lots, which are situated at Bel-Air Subdivision[,] Makati, Metro Manila.

Private respondent Bormaheco, Inc. became the successor of the obligations and liabilities of PNCB over subject lots by
virtue of a Deed of Sale/Assignment on September 26, 1988 wherein Bormaheco bought from PNCB under a bulk sale 114
titled and untitled properties including the two parcels of land in question, formerly registered in the name of the Laureano
spouses. Transfer Certificate of Title Nos. 157724 and 157725 over the lots in question were issued on October 12, 1988 in
the name of Bormaheco.

Five (5) days after securing titles over the said properties, Bormaheco filed an "Ex-Parte Petition for the Issuance of Writ of
Possession of Lots 4 and 5, Block 4 situated at Bel-Air Village, Makati, Metro Manila and embraced in TCT Nos. 157724 and
157725 of the Registry of Deeds of Makati, Metro Manila," docketed as LRC Case No. M-1530 before respondent Court.
Petitioner Corporation filed on January 18, 1989 its Motion for Intervention and to Admit Attached Complaint in
Intervention in said case. After an exchange of pleadings, respondent Court issued its order dated February 9, 1988, which
reads:

There being a prima facie showing in the attached complaint in intervention that herein intervenor
LIDECO CORPORATION has an interest which may eventually and adversely be affected in whatever
decision the Court may render in the instant case; to enable the parties concerned to properly ventilate
and litigate all the issues involving the subject property thereby avoid multiplicity of suits, and in the
interest of justice, the Motion for Intervention, filed by LIDECO CORPORATION is hereby GRANTED; and
the attached complaint in intervention ADMITTED.

On July 26, 1989, respondent Bormaheco filed its Motion to Strike out the Complaint in Intervention and all related
pleadings filed by LIDECO Corporation. The motion was granted in the first questioned order dated September 8, 1989,
which reads:

xxx xxx xxx

On the instant motion, the records show that LIDECO Corporation appeared thru counsel and filed its
complaint in intervention, representing therein that it is a corporation duly organized and registered in
accordance with law.

The Corporation Code explicitly provides that the use of the word corporation presupposes that an
entity is duly registered (with the SEC) in accordance with law.

Intervening in the instant petition, with the use of the name LIDECO Corporation, the latter, in effect,
represents to this court that it is a corporation whose personality is distinct and separate from its
stockholders and/or any other corporation bearing different names. Hence, herein intervenor LIDECO
Corporation and LAUREANO INVESTMENT AND DEVELOPMENT CORPORATION, to the mind of this Court,
are two (2) separate and distinct entities. Inasmuch as the documents in support of its complaint in
intervention — tax declarations — are in the names of Laureano Investment and Development
Corporation, and it appearing that LIDECO Corporation is not a corporation or partnership duly
organized and registered with the SEC, there is, therefore, no way whatsoever that LIDECO
Corporation's interests will be adversely affected by the outcome of the instant case.

WHEREFORE, for intervenor's lack of personality to intervene in the instant proceedings, petitioner's
motion to strike out complaint in intervention is hereby GRANTED.

Accordingly, all pleadings filed relative thereto are ordered expunged from the records.

xxx xxx xxx

 After the issuance of the above-cited order, petitioner Corporation filed on October 4, 1989, its Urgent Motion to Substitute
Party Intervenor and to Adopt Complaint in Intervention and All Pleadings. An opposition thereto was filed by
BORMAHECO, after which the lower court issued its second questioned order quoted below:

xxx xxx xxx

The court has painstakingly examined the two (2) tax declarations and has found out that the said tax declarations refer to
two houses erected on Lot 3, Block 4 and Lot 3, Block 4 of the Bel-Air Village, Makati, Metro Manila. On the other hand, the
subject matter of the instant petition are Lot 4, Block 4 and Lot 5, Block 4 of Bel-Air Village, Makati, Metro Manila. Clearly,
therefore, the properties upon which the herein movant-corporation has interests refer to properties different from those
subject of the instant petition.

Not only that. As correctly pointed out by the petitioner, the afore-mentioned tax declarations according to the records of
the Makati Assessor's Office were canceled on July 22, 1982 or five (5) years, two (2) months and four (4) days before the
petitioner (BORMAHECO) purchased from the Philippine National Cooperative Bank the two (2) lots and the improvements
found thereon evidenced by the copies of Tax Declaration Nos. A-002-00512 and 6103 attached as Annexes A and B
respectively to the petitioner's rejoinder dated October 26, 1989.

The movant-corporation not having shown documentary evidence showing that it has interest on the two lots subject of
the complaint and the improvements found therein, it has, therefore, no personality to file the instant motion. . . .

There is yet another reason why the motion should not be granted. The movant corporation's request to be substituted as
party intervenor is not one of the instances provided for in Sec. 20, Rule 3 of the Rules of Court. Substitution of party
litigant may be requested in the following:

(a) When a party dies and the claim is not extinguished, upon proper motion, the Honorable Court may order the legal
representative of the deceased to appear and to be substituted for the deceased within the period of thirty (30) days or
within such time as may be granted. (Sec. 17, Rule 3, Rules of Court)

(b) In case of any transfer of interest, upon motion, the Honorable Court may direct the person to whom the interest is
transferred to be substituted in the action or joined with the original party. (Sec. 20, Rule 30 [should be Rule 3], supra.)

which is not so in the case.

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the motions under consideration are hereby
DENIED.

A Motion for Reconsideration of the above-cited order was

denied by respondent Court in its third questioned order dated August 8, 1990, . . . 8

In likewise denying the petition of Laureano Investment and Development Corporation (petitioner corporation), Respondent Court
ratiocinated:

Petitioner Corporation contends that respondent Bormaheco's motion to strike out the complaint in intervention and all
related pleadings filed by LIDECO Corporation was based on misleading and confusing assertions that LIDECO Corporation
is not a registered corporation despite its admission and/or use of the word LIDECO as acronym for Laureano Investment
and Development Corporation. The contention is untenable. BORMAHECO has shown that LIDECO Corporation is not
organized and existing under Philippine laws. Neither has it been registered with the Securities and Exchange Commission.
In support of said claim, BORMAHECO presented a certification to the effect that the records of the Commission do not
show the registration of LIDECO, INC. either as a corporation or as partnership.

Petitioner also contends that the motion . . . should have been denied outright because it was filed in bad faith and without
legal and factual basis. On the contrary, from the very first motion and pleading filed by petitioner in LRC No. M-1530
pending before respondent Court, it is very clear that the intervenor therein is LIDECO Corporation. Nowhere in its
complaint does it appear that LIDECO Corporation is the brevity or acronym for Laureano Investment and Development
Corporation. The claim that Lideco Corporation is the name of a corporation which is duly registered and organized in
accordance with law has been belied by the absence of SEC record showing the registration of Lideco, Inc. either as
corporation or as a partnership. It was only when intervenor (petitioner herein) filed its opposition to the motion to strike
out that it clarified that Lideco Corporation is the acronym for Laureano Investment and Development Corporation.

xxx xxx xxx

Moreover, even assuming that Lideco Corporation and Laureano Investment and Development Corporation are one and the
same, it was found by respondent Court that the properties being claimed by petitioner are different from those for which
private respondent is seeking the issuance of a writ of possession; hence, the complaint in intervention was correctly
dismissed. 9

In conclusion, the appellate court said:

We, therefore, fail to see the alleged grave abuse of discretion on the part of respondent Court in issuing the questioned
orders, as they were issued after the Court had considered the arguments of the parties and the evidence on record.
Clearly, the lower court acted within its authority and sound discretion in issuing the said orders. 10

Petitioner's motion for reconsideration of the above ruling was, as earlier stated, denied by Respondent Court in its Resolution 11
promulgated
on June 10, 1991. Hence, this petition.

Issues

Petitioner raises for resolution the following questions:

1. Whether Respondent Bormaheco, Inc. is estopped from contesting the legal personality to sue of "Lideco Corporation";
2. Whether bad faith attended the filing of private respondent's motion to strike out the complaint in intervention and related pleadings. 12

Petitioner contends that private respondent is estopped from, and is in bad faith for, denying its knowledge that "Lideco Corporation" and
Laureano Investment and Development Corporation are one and the same entity since it has previously used LIDECO as an acronym for the
latter corporation.

Private respondent submitted a lengthy (sixty-page) amended comment 13 to the petition, giving a detailed background to the instant case
including various actions allegedly commenced by the Spouses Laureano questioning the foreclosure of the subject properties. In sum,
Bormaheco, Inc. maintains that Respondent Court did not commit reversible error in disallowing "Lideco Corporation" to intervene for the
reason that said entity did not satisfy the essential requisites for being a party to an action, to wit: (1) natural or juridical personality; (2)
legal capacity to sue or be sued, i.e., having all the qualifications and none of the disqualifications provided for by law; and (3) real interest in
the subject matter of the action. 14

Private respondent adds that petitioner corporation is merely an alter ego of the Laureano spouses who have lost their rights over the subject
properties in favor of Bormaheco's predecessor-in-interest, the Philippine National Cooperative Bank (PNCB), by virtue of extrajudicial
foreclosures. Petitioner's motion to intervene in the case below is just another ploy of the spouses to prevent subsequent owners from
effectively exercising their rights of ownership over the properties.

Private respondent also filed before us a motion 15 to declare petitioner as engaged in forum shopping and to resolve the instant petition. In
support of its motion, private respondent enumerates a string of civil actions allegedly commenced by the Laureano spouses before the trial
court as well as petitions before the appellate court concerning the properties in question. As a result, Bormaheco claims, an "issue which
could have been laid to rest in 1967 is still being litigated." Furthermore, in an omnibus motion 16 filed on February 11, 1997, private
respondent claims that it is being unduly deprived of rental income by as much as P40,000.00 a month for each property, or a total of eight
million pesos since 1988. On the other hand, it claims to have been assessed for and to have actually paid real estate taxes and Bel-Air
Village Association dues since such date

The Court's Ruling

The petition is not meritorious.

Petitioner's Issues:

Estoppel

Petitioner contends that it was private respondent which first made use of LIDECO as a shorter term for Laureano Investment and
Development Corporation when it filed its first motion to strike dated January 9, 1989, 17 prior to the filing by "Lideco Corporation" of its
motion for intervention and complaint in intervention 18 on January 18, 1989. Hence, private respondent should be considered estopped from
denying that petitioner and "Lideco Corporation" are one and the same corporation.

The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. vs. Court of Appeals 19:

Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, to act
upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.
(footnotes omitted)

We elaborated in Maneclang vs. Baun 20 :

In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated
to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the
other party; and (c) knowledge, actual or constructive of the actual facts." (citing Kalalo vs. Luz, 34 SCRA 337, 1974)

Examining the records of the case, we observe that the motion 21 adverted to indeed made use of LIDECO as an acronym for Laureano
Investment and Development Corporation. But said motion distinctly specified that LIDECO was the shorter term for Laureano Investment
and Development Corporation. It is obvious that no false representation or concealment can be attributed to private respondent. Neither can
it be charged with conveying the impression that the facts are other than, or inconsistent with, those which it now asserts since LIDECO, as
an acronym, is clearly different from "Lideco Corporation" which represented itself as a corporation duly registered and organized in
accordance with law. 22 Nor can it be logically inferred that petitioner relied or acted upon such representation of private respondent in
thereafter referring to itself as "Lideco Corporation;" for petitioner is presumed to know by which name it is registered, and the legal
provisions on the use of its corporate name.

Section 1, Rule 3 of the Rules of Court provides that only natural or juridical persons or entities authorized by law may be parties to a civil
action. Under the Civil Code, a corporation has a legal personality of its own (Article 44), and may sue or be sued in its name, in conformity
with the laws and regulations of its organization (Article 46). 23Additionally, Article 36 of the Corporation Code similarly provides:

Art. 36. Corporate powers and capacity. — Every corporation incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

. . . (emphasis supplied)

As the trial and appellate courts have held, "Lideco Corporation" had no personality to intervene since it had not been duly registered as a
corporation. If petitioner legally and truly wanted to intervene, it should have used its corporate name as the law requires and not another
name which it had not registered. Indeed, as the Respondent Court found, nowhere in the motion for intervention and complaint in
intervention does it appear that "Lideco Corporation" stands for Laureano Investment and Development Corporation. Bormaheco, Inc., thus,
was not estopped from questioning the juridical personality of "Lideco Corporation," even after the trial court had allowed it to intervene in
the case.

Granting arguendo that the name "Lideco Corporation" could be used by petitioner corporation in its motion, there is an even more cogent
reason for denying the petition. The trial court concluded, and we have no reason to disagree, that the intervention of Lideco or petitioner
corporation was not proper because neither had any legal interest in the subject of litigation. The evidence (tax declarations) attached to the
petition for intervention and the complaint for intervention pertained to properties not being litigated in the instant case. Lideco and petitioner
corporation both claimed to have an interest in two houses constructed in Lot 3, Block 4 in Bel Air Village, Makati.24 The subject matter of the
instant petition, on the other hand, are Lots 4 and 5, Block 4, of Bel Air Village. This factual finding was affirmed by the Court of Appeals.

Since the conclusion of the trial and appellate courts is based on facts, and since the Supreme Court is not a trier of facts — our function not
being to examine and evaluate the evidence presented to the concerned tribunal which formed the basis of its questioned decision, resolution
or order 25 — it is clear that we cannot review such holding. We note further that petitioner has failed to show that the factual findings of the
trial and appellate courts were arbitrary and/or constituted one of the exceptions allowing review by this Court. 26

Bad Faith

(B)ad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; . . .
bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. 27

Other than its bare allegations that private respondent acted in bad faith, petitioner failed to show that the former acted consciously and
deliberately to achieve a dishonest purpose or moral obliquity, or was motivated by ill will. Rather, as discussed above, no false
representation was contrived nor concealment made by private respondent. Neither did it deliberately convey facts other than, or inconsistent
with, what it now asserts and upon which petitioner had relied or acted upon due to the representations of private respondent. Hence, we
hold that petitioner failed to demonstrate that private respondent acted in bad faith in filing its assailed second motion.

Private Respondent's Issue:

Forum Shopping

Private respondent, in turn, accuses petitioner and/or its chairman of the board and majority stockholder, Reynaldo Laureano, of forum
shopping, alleging that both have improperly instituted a string of cases through deliberate splitting of causes of action thereby trifling with
the courts and abusing their processes.

There is forum shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than appeal
or certiorari) in another, 28 raising identical causes of action, subject matter, and issues. 29However, private respondent, other than the
enumeration in its motion 30 of the case number and titles, nature of the actions and decisions therein, failed to substantiate its allegations. It
did not show convincingly that the cases enumerated had identical causes of action, subject matter and issues. From its bare assertions, the
Court cannot intelligently make a valid finding of whether petitioner, indeed, engaged in forum shopping. In any event, a ruling on this issue
is not necessary to the final resolution of the entire case.

WHEREFORE, premises considered, the petition is hereby DENIED for its failure to show any reversible error on the part of Respondent Court.
The questioned Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.
G.R. No. 117890 September 18, 1997

PISON-ARCEO AGRICULTURAL and DEVELOPMENT CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and NATIONAL FEDERATION OF SUGAR WORKERS-FOOD and GENERAL TRADE
(NFSW-FGT)/JESUS PASCO, MARTIN BONARES, EVANGELINE PASCO, TERESITA NAVA, FELIXBERTO NAVA, JOHNNY GARRIDO,
EDUARDO NUÑEZ and DELMA NUÑEZ, respondents.

PANGANIBAN, J.:

In the proceedings before the labor arbiter, only the unregistered trade name of the employer-corporation and its administrator/manager
were impleaded and subsequently held liable for illegal dismissal, backwages and separation pay. On appeal, however, the National Labor
Relations Commission motu proprio included the corporate name of the employee as jointly and severally liable for the workers' claims.
Because of such inclusion, the corporation now raises of due process and jurisdiction before this Court.

The Case

Assailed in this petition for certiorari under Rule 65 of the Rules of Court is the Decision 1 of Public Respondent National Labor Relations
Commission 2 in NLRC Case No. V-0334-92 3 promulgated on September 27, 1993 and its Resolution 4 promulgated on September 12, 1994
denying reconsideration. Affirming the decision 5dated September 2, 1992 of Executive Labor Arbiter Oscar S. Uy, the impugned NLRC
Decision disposed thus: 6

WHEREFORE, judgment is hereby rendered affirming the decision of Executive Labor Arbiter Oscar S. Uy, dated September
2, 1992, subject to the amendments and modification stated above and ordering the respondent-appellant, Jose Edmundo
Pison and the respondent Pison-Arceo Agricultural and Development Corporation to pay jointly and severally the claims for
backwages and separation pay of the complainant-appellees in the above-entitled case, except the claims of Danny Felix
and Helen Felix, in the amount specified below:

Name Backwages Separation Pay Total

1. Jesus Pasco P14,729.00 P12,818.06 P27,547.06

2. Evangeline 14,729.00 12,874.81 27,603.81

Pasco

3. Martin Bonares 14,729.00 9,035.06 23,764.06

4. Mariolita Bonares 14,729.00 8,455.00 23,184.00

5. Felixberto Nava 14,729.00 13,505.31 28,234.31

6. Teresita Nava 14,729.00 3,417.31 18,146.31

7. Johnny Garrido 8,489.00 4,463.94 12,952.94

8. Eduardo Nuñez 8,489.00 11,399.44 19,888.44

9. Delma Nuñez 8,489.00 9,507.94 17,996.94

In addition, the respondent-appellant and the respondent corporation are ordered to pay attorney's fees equivalent to ten
(10%) percent of the total award.

The dispositive portion of the assailed Resolution, on the other hand, reads: 7

WHEREFORE, the decision in question is hereby modified in the sense that the monetary award of Mariolita Bonares be
[sic] deleted. Except for such modification, the rest of the decision stands.

Arguing that the National Labor Relations Commission did not have jurisdiction over it because it was not a party before the labor arbiter,
petitioner elevated this matter before this Court via a petition forcertiorari under Rule 65.

Acting on petitioner's prayer 8, this Court (First Division) issued on January 18, 1995 a temporary restraining order enjoining the respondents
from executing the assailed Decision and Resolution.

The Facts

As gathered from the complaint 9 and other submissions of the parties filed with Executive Labor Arbiter Oscar S. Uy, the facts of the case are
as follows:

Together with Complainants Danny and Helen Felix, private respondents — Jesus Pasco, Evangeline Pasco, Martin Bonares, Teresita Nava,
Felixberto Nava, Johnny Garrido, Eduardo Nuñez and Delma Nuñez, all represented by Private Respondent National Federation of Sugar
Workers-Food and General Trade (NSFW-FGT) — filed on June 13, 1988 a complaint for illegal dismissal, reinstatement, payment of
backwages and attorney's fees against "Hacienda Lanutan/Jose Edmundo Pison." Complainants alleged that they were previously employed as
regular sugar farm workers of Hacienda Lanutan in Talisay, Negros Occidental. On the other hand, Jose Edmundo Pison claimed that he was
merely the administrator of Hacienda Lanutan which was owned by Pison-Arceo Agricultural and Development Corporation.

As earlier stated, the executive labor arbiter rendered on September 2, 1992 a decision in favor of the workers-complainants, the dispositive
portion of which reads:
 WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Jose Edmundo Pison/Hda. Lanutan,
Talisay, Negros Occidental, to PAY the following complainants their backwages (one year) plus separation pay in the
following amounts, to wit:

BACKWAGES SEPARATION PAY TOTAL

1. J. Pasco P14,729.00 P12,818.06 P27,547.06

2. E. Pasco 14,729.00 12,784.81 27,603.81

3. Bonares 14,729.00 8,404.56 23,133.56

4. F. Nava 14,729.00 13,505.31 28,234.31

5. T. Nava 14,729.00 3,427.31 18,146.31

6. J. Garrido 8,489.00 4,463.94 12,952.94

7. E. Nuñez 8,489.00 11,399.44 19,888.44

8. D. Nuñez 8,489.00 9,507.94 17,996.94

plus ten percent (10%) of the total award as attorney's fees in the amount of P17,550.34 or in the total amount of ONE
HUNDRED NINETY THREE THOUSAND FIFTY THREE AND 71/100 (P193,053.71), all these amounts to be deposited with
this Office within ten (10) days from receipt of this decision. The claim of complainants Danny and Helen Felix are hereby
DENIED for lack of merit.

In affirming the decision of the executive labor arbiter, public respondent ordered "respondent-appellant, Jose Edmundo Pison and the
respondent Pison-Arceo Agricultural and Development Corporation to pay jointly and severally the claims for backwages and separation pay"
of private respondents. The motion for reconsideration dated October 14, 1993 was apparently filed by Jose Edmundo Pison for and on his
own behalf only. However, Pison did not elevate his case before this Court. The sole petitioner now before us is Pison-Arceo Agricultural and
Development Corporation, the owner of Hacienda Lanutan.

The Issue

Petitioner submits only one issue for our resolution: 10

Public Respondent NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it included motu
proprio petitioner corporation as a party respondent and ordered said corporation liable to pay jointly and severally, with
Jose Edmundo Pison the claims of private respondents.

In essence, petitioner alleges deprivation of due process.

The Court's Ruling

The petition lacks merit.

Petitioner contends that it was never served any summons; hence, public respondent did not acquire jurisdiction over it. It argues that "from
the time the complaint was filed before the Regional Arbitration Branch No. VI up to the time the said case was appealed by Jose Edmundo
Pison to the NLRC, Cebu, petitioner Corporation was never impleaded as one of the parties . . . ." It was only in the public respondent's
assailed Decision of September 27, 1993 "that petitioner Corporation was wrongly included as party respondent without its knowledge."
Copies of the assailed Decision and Resolution were not sent to petitioner but only to Jose Edmundo Pison, on the theory that the two were
one and the same. Petitioner avers that Jose Edmundo Pison, "is only a minority stockholder" of Hacienda Lanutan, which in turn is one of the
of business of petitioner. 11 Petitioner further argues that it did not "voluntarily appear before said tribunal" and that it was not "given (any)
opportunity to be heard", 12 thus, the assailed Decision and Resolution in this case are void "for having been issued without jurisdiction." 13

In its memorandum, petitioner adds that Eden vs. Ministry of Labor and Employment, 14 cited by public respondent, does not apply to this
case. In Eden, "petitioners were duly served with notices of hearings, while in the instant case, the petitioner was never summoned nor was
served with notice of hearings as a respondent in the case." 15

At the outset, we must stress that in quasi-judicial proceedings, procedural rules governing service of summons are not strictly construed.
Substantial compliance thereof is sufficient. 16 Also, in labor cases, punctilious adherence to stringent technical rules may be relaxed in the
interest of the working man; it should not defeat the complete and equitable resolution of the rights and obligations of the parties. This Court
is ever mindful of the underlying spirit and intention of the Labor Code to ascertain the facts of each case speedily and objectively without
regard to technical rules of law and procedure, all in the interest of due process. 17Furthermore, the Labor Code itself, as amended by RA
6715, 18 provides for the specific power of the Commission to correct, amend, or waive any error, defect or irregularity whether in the
substance or in the form of the proceedings before it 19 under Article 218 (c) as follows:

(c) To conduct investigation for the determination of a question, matter or controversy within its jurisdiction, proceed to
hear and determine the disputes in the absence of any party thereto who has been summoned or served with notice to
appear, conduct its proceedings or any part thereof in public or in private, adjourn its hearings to any time and place, refer
technical matters or accounts to an expert and to accept his report as evidence after hearing of the parties upon due
notice, direct parties to be joined in or excluded from the proceedings, correct, amend, or waive any error, defect or
irregularity whether in substance or in form, give all such directions as it may deem necessary or expedient in the
determination of the dispute before it, and dismiss any matter or refrain from further hearing or from determining the
dispute or part thereof, where it is trivial or where further proceedings by the Commission are not necessary or desirable; .
. . (Emphasis supplied.)

In this case, there are legal and factual reasons to hold petitioner jointly and severally liable with Jose Edmundo Pison.
 Jurisdiction Acquired Over Petitioner

Consistent with the foregoing principles applicable to labor cases, we find that jurisdiction was acquired over the petitioner. There is no
dispute that Hacienda Lanutan, which was owned SOLELY by petitioner, was impleaded and was heard. If at all, the non-inclusion of the
corporate name of petitioner in the case before the executive labor arbiter was a mere procedural error which did not at all affect the
jurisdiction of the labor tribunals. 20 Petitioner was adequately represented in the proceedings conducted at the regional arbitration branch by
no less than Hacienda Lanutan's administrator, Jose Edmundo Pison, who verified and signed his/Hacienda Lanutan's position paper and other
pleadings submitted before the labor arbiter. It can thus be said that petitioner, acting through its corporate officer Jose Edmundo Pison,
traversed private respondents' complaint and controverted their claims. Further rebutted by petitioner are the following findings of public
respondent: 21

It should further be noted that two responsible employees of the said corporation, namely, Teresita Dangcasil, the
secretary of the administrator/manager, and Fernando Gallego, the hacienda overseer, had submitted their affidavits, both
dated July 20, 1988, as part of the evidence for the respondent, and that, as shown by the records, the lawyer who
appeared as the legal counsel of the respondent-appellant, specifically, Atty. Jose Ma. Torres, of the Torres and Valencia
Law Office in Bacolod City, (Rollo, p. 17) was also the legal counsel of the said corporation. (Rollo, p. 23)

Also, it is undisputed that summons and all notices of hearing were duly served upon Jose Edmundo Pison. Since Pison is the administrator
and representative of petitioner in its property (Hacienda Lanutan) and recognized as such by the workers therein, we deem the service of
summons upon him as sufficient and substantial compliance with the requirements for service of summons and other notices in respect of
petitioner corporation. Insofar as the complainants are concerned, Jose Edmundo Pison was their employer and/or their employer's
representative. In view of the peculiar circumstances of this case, we rule that Jose Pison's knowledge of the labor case and effort to resist
can be deemed knowledge and action of the corporation. Indeed, to apply the normal precepts on corporate fiction and the technical rules on
service of summons would be to overturn the bias of the Constitution and the laws in favor of labor.

Hence, it is fair to state that petitioner, through its administrator and manager, Jose Edmundo Pison, was duly notified of the labor case
against it and was actually afforded an opportunity to be heard. That it refused to take advantage of such opportunity and opted to hide
behind its corporate veil will not shield it from the encompassing application of labor laws. As we held in Bautista vs. Secretary of Labor and
Employment: 22

Moreover, since the proceeding was not judicial but merely administrative, the rigid requirements of procedural laws were
not strictly enforceable. It is settled that —

While the administrative tribunals exercising quasi-judicial powers are free from the rigidity of certain
procedural requirements they are bound by law and practice to observe the fundamental and essential
requirements of due process in justiciable cases presented before them. However, the standard of due
process that must be met in administrative tribunals allows a certain latitude as long as the element of
fairness is not ignored. (fn: Adamson & Adamson, Inc. vs. Amores, 152 SCRA 237).

xxx xxx xxx

It is of course also sound and settled rule that administrative agencies performing quasi-judicial
functions are unfettered by the rigid technicalities of procedure observed in the courts of law, and this is
so that disputes brought before such bodies may be resolved in the most expeditious and inexpensive
manner possible. (fn: Rizal Workers Union vs. Ferrer-Calleja, 186 SCRA 431).

Given all these circumstances, we feel that the lack of summons upon the petitioners is not sufficient justification for
annulling the acts of the public respondents.

Contrary to petitioner's contention, the principles laid down in Eden are to relevant to this case. In that case, a religious organization,
SCAFI, 23 denied responsibility for the monetary claims of several employees, as these were filed against SCAPS 24 and its officer in charge —
the employees believed that SCAPS was their employer. In rejecting such defense, this Court ruled: 25

With regard to the contention that SCAPS and SCAFI are two different entities, this lacks merit. The change from SCAPS to
SCAFI was a mere modification, if not rectification of the caption as to respondent in the MOLE case, when it was pointed
out in the complainant's position paper that SCAPS belongs to or is integral with SCAFI as gleaned from the brochure,
Annex "A" of said position paper, which is already part of the records of the case and incorporated in the Comment by way
of reference. The brochure stated that SCAPS is the implementing and service arm of SCAFI, with Bishop Gaviola as
National Director of SCAPS and Board Chairman of SCAFI, both their address: 2655 F.B. Harrison, St., Pasay City. Thus,
the real party in interest is SCAFI, more so because it has the juridical personality that can sue and be sued. The change in
caption from SCAPS to SCAFI however does not absolve SCAPS from liability, for SCAFI includes SCAPS, SCAPS — the arm,
SCAFI, — the organism to which the arm is an integral part of the rise and fall of SCAPS, and vice-versa. Thus, SCAFI has
never been a stranger to the case. Jurisprudence is to the effect that:

An action may be entertained, notwithstanding the failure to include an indispensable party where it
appears that the naming of the party would be a formality. (Baguio vs. Rodriguez, L-11078, May 27,
1959)

Comparable to Eden, Hacienda Lanutan is an arm of petitioner, the organism of which it is an integral part. Ineluctably, the real party in
interest in this case is petitioner, not "Hacienda Lanutan" which is merely its non-juridical arm. In dealing with private respondents, petitioner
represented itself to be "Hacienda Lanutan." Hacienda Lanutan is roughly equivalent to its trade name or even nickname oralias. The names
may have been different, but the IDENTITY of the petitioner is not in dispute. Thus, it may be sued under the same by which it made itself
known to the workers.
 Liability of Jose Edmundo Pison

Jose Edmundo Pison did not appeal from the Decision of public respondent. It thus follows that he is bound by the said judgment. A party who
has not appealed an adverse decision cannot obtain from the appellate court any affirmative relief other than those granted, if there is any, in
the decision of the lower court or administrative body. 26

WHEREFORE, premises considered, the petition is hereby DISMISSED, for its failure to show grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the National Labor Relations Commission. The assailed Decision and Resolution are AFFIRMED. The
temporary restraining order issued on January 19, 1995 is hereby LIFTED. Cost against petitioner.

SO ORDERED.
G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,

vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.

Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

BARREDO, J.:

Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila — dismissing the action in its Civil Case No. 48925 —
brought by the herein plaintiff-appellant Philippine First Insurance Co., Inc. to the Court of Appeals which could, upon finding that the said
appeal raises purely questions of law, declared itself without jurisdiction to entertain the same and, in its resolution dated 15 July 1966,
certified the records thereof to this Court for proper determination.

The antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to as follows:

According to the complaint, plaintiff was originally organized as an insurance corporation under the name of 'The Yek Tong
Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation originally presented before the Security and Exchange
Commissioner and acknowledged before Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name of the
corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of incorporation were
amended pursuant to a certificate of the Board of Directors dated March 8, 1961 changing the name of the corporation to
'Philippine First Insurance Co., Inc.'.

The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the name of 'The Yek
Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, a
promissory note for P5,000.00 in favor of the China Banking Corporation payable within 30 days after the date of the
promissory note with the usual banking interest; that the plaintiff agreed to act as such co-maker of the promissory note
upon the application of the defendant Maria Carmen Hartigan, CGH, who together with Antonio F. Chua and Chang Ka Fu,
signed an indemnity agreement in favor of the plaintiff, undertaking jointly and severally, to pay the plaintiff damages,
losses or expenses of whatever kind or nature, including attorney's fees and legal costs, which the plaintiff may sustain as
a result of the execution by the plaintiff and co-maker of Maria Carmen Hartigan, CGH, of the promissory note above-
referred to; that as a result of the execution of the promissory note by the plaintiff and Maria Carmen Hartigan, CGH, the
China Banking Corporation delivered to the defendant Maria Carmen Hartigan, CGH, the sum of P5,000.00 which said
defendant failed to pay in full, such that on August 31, 1961 the same was. renewed and as of November 27, 1961 there
was due on account of the promissory note the sum of P4,559.50 including interest. The complaint ends with a prayer for
judgment against the defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per
annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.

Although O. Engkee was made as party defendant in the caption of the complaint, his name is not mentioned in the body
of said complaint. However, his name Appears in the Annex A attached to the complaint which is the counter indemnity
agreement supposed to have been signed according to the complaint by Maria Carmen Hartigan, CGH, Antonio F. Chua and
Chang Ka Fu.

In their answer the defendants deny the allegation that the plaintiff formerly conducted business under the name and style
of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the execution of the indemnity agreement but they
claim that they signed said agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of
the plaintiff. They likewise admit that they failed to pay the promissory note when it fell due but they allege that since their
obligation with the China Banking Corporation based on the promissory note still subsists, the surety who co-signed the
promissory note is not entitled to collect the value thereof from the defendants otherwise they will be liable for double
amount of their obligation, there being no allegation that the surety has paid the obligation to the creditor.

By way of special defense, defendants claim that there is no privity of contract between the plaintiff and the defendants
and consequently, the plaintiff has no cause of action against them, considering that the complaint does not allege that the
plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has acquired
the rights of the latter. The parties after the admission of Exhibit A which is the amended articles of incorporation and
Exhibit 1 which is a demand letter dated August 16, 1962 signed by the manager of the loans and discount department of
the China Banking Corporation showing that the promissory note up to said date in the sum of P4,500.00 was still unpaid,
submitted the case for decision based on the pleadings.

Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed the action with costs against
the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:

... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution by this Court are as
follows:

(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity agreement signed by the
defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and

(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement prosper without plaintiff
having yet paid the amount due under said promissory note.

In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the Philippines First
Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved the original corporation by a process of
dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive, of our Corporation Law). Moreover, said
change of name, amounting to a dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not appear to have
been effected with the written note or assent of stockholders representing at least two-thirds of the subscribed capital
stock of the corporation, a voting proportion required not only for the dissolution of a corporation but also for any
amendment of its articles of incorporation (Secs. 18 and 62, Corporation Law). Furthermore, such change of corporate
name appears to be against public policy and may be effected only by express authority of law (Red Line Transportation
Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen Brewing
Co. vs. Wallace, 125 NE 714), but there is nothing in our corporation law authorizing the change of corporate name in this
jurisdiction.
 In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to Philippines
pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid, that would mean that the original corporation,
the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved and of no further existence since March 8, 1961, so
that on May 15, 1961, the date the indemnity agreement, Annex A, was executed, said original corporation bad no more
power to enter into any agreement with the defendants, and the agreement entered into by it was ineffective for lack of
capacity of said dissolved corporation to enter into said agreement. At any rate, even if we hold that said change of name
is valid, the fact remains that there is no evidence showing that the new entity, the Philippine First Insurance Co., Inc. has
with the consent of the original parties, assumed the obligations or was assigned the rights of action in the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other words, there is no evidence of conventional
subrogation of the Plaintiffs in the rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity
agreement (Arts. 1300, 1301, New Civil Code). without such subrogation assignment of rights, the herein plaintiff has no
cause of action against the defendants, and is, therefore, not the right party in interest as plaintiff.

Last, but not least, assuming that the said change of name was legal and operated to dissolve the original corporation, the
dissolved corporation, must pursuant to Sec. 77 of our corporation law, be deemed as continuing as a body corporate for
three (3) years from March 8, 1961 for the purpose of prosecuting and defending suits. It is, therefore, the Yek Tong Lin
Fire & Marine Insurance Co., Ltd. that is the proper party to sue the defendants under said indemnity agreement up to
March 8, 1964.

Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b) formulated above.

WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.

In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid, but said motion was denied on
December 3, 1962 in an order worded thus:

The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to consider in rendering our
decision of October 6, 1962. However, it gives us an opportunity to amplify our decision as regards the question of change
of name of a corporation in this jurisdiction.

We find nothing in our Corporation Law authorizing a change of name of a corporation organized pursuant to its provisions.
Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to the Articles of Incorporation of a corporation only
as to matters other than its corporate name. Once a corporation is organized in this jurisdiction by the execution and
registration of its Articles of Incorporation, it shall continue to exist under its corporate name for the lifetime of its
corporate existence fixed in its Articles of Incorporation, unless sooner legally dissolved (Sec. 11, Corp. Law). Significantly,
change of name is not one of the methods of dissolution of corporations expressly authorized by our Corporation Law. Also
significant is the fact that the power to change its corporate name is not one of the general powers conferred on
corporations in this jurisdiction (Sec. 13, Corp. Law). The enumeration of corporate powers made in our Corporation Law
implies the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is obvious, in this
connection, that change of name is not one of the powers necessary to the exercise of the powers conferred on
corporations by said Sec. 13 (see Sec. 14, Corp. Law).

To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by amendment of its Articles of
Incorporation is to indulge in judicial legislation. We have examined the cases cited in Volume 13 of American
Jurisprudence in support of the proposition that the general power to alter or amend the charter of a corporation
necessarily includes the power to alter the name of a corporation, and find no justification for said conclusion arrived at by
the editors of American Jurisprudence. On the contrary, the annotations in favor of plaintiff's view appear to have been
based on decisions in cases where the statute itself expressly authorizes change of corporate name by amendment of its
Articles of Incorporation. The correct rule in harmony with the provisions of our Corporation Law is well expressed in an
English case as follows:

After a company has been completely register without defect or omission, so as to be incorporated by
the name set forth in the deed of settlement, such incorporated company has not the power to change
its name ... Although the King by his prerogative might incorporate by a new name, and the newly
named corporation might retain former rights, and sometimes its former name also, ... it never appears
to be such an act as the corporation could do by itself, but required the same power as created the
corporation. (Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59 E.C.L. 839).

The contrary view appears to represent the minority doctrine, judging from the annotations on decided cases on the
matter.

The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly approving the Amended,
Articles of Incorporation on May 26, 1961. We regret that we cannot in good conscience lend approval to this action of the
Securities and Exchange Commissioner. We find no justification, legal, moral, or practical, for adhering to the view taken
by the Securities and Exchange Commissioner that the name of a corporation in the Philippines may be changed by mere
amendment of its Articles of Incorporation as to its corporate name. A change of corporate name would serve no useful
purpose, but on the contrary would most probably cause confusion. Only a dubious purpose could inspire a change of a
corporate. name which, unlike a natural person's name, was chosen by the incorporators themselves; and our Courts
should not lend their assistance to the accomplishment of dubious purposes.

WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for lack of merit.

In this appeal appellant contends that —

THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN OUR CORPORATION LAW
AUTHORIZING THE CHANGE OF CORPORATE NAME;

II

THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME APPEARS TO BE AGAINST PUBLIC
POLICY;
 III

THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE LEGAL EFFECT OF DISSOLVING
THE ORIGINAL CORPORATION:

IV

THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG LIN FIRE & MARINE INSURANCE
CO., LTD. IS OF DUBIOUS VALIDITY;

THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT PARTY INTEREST TO SUE
DEFENDANTS-APPELLEES;

IV

THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.

Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however, revolves around only one
question. May a Philippine corporation change its name and still retain its original personality and individuality as such?

The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be stated in the Articles of
Incorporation of any corn corporation is its name, but it is only one among many matters equally if not more important, that must be stated
therein. Thus, it is also required, for example, to state the number and names of and residences of the incorporators and the residence or
location of the principal office of the corporation, its term of existence, the amount of its capital stock and the number of shares into which it
is divided, etc., etc.

On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:

Sec. 18. — Any corporation may for legitimate corporate purpose or purposes, amend its articles of incorporation by a
majority vote of its board of directors or trustees and the vote or written assent of two-thirds of its members, if it be a
nonstock corporation or, if it be a stock corporation, by the vote or written assent of the stockholders representing at least
two-thirds of the subscribed capital stock of the corporation Provided, however, That if such amendment to the articles of
incorporation should consist in extending the corporate existence or in any change in the rights of holders of shares of any
class, or would authorize shares with preferences in any respect superior to those of outstanding shares of any class, or
would restrict the rights of any stockholder, then any stockholder who did not vote for such corporate action may, within
forty days after the date upon which such action was authorized, object thereto in writing and demand Payment for his
shares. If, after such a demand by a stockholder, the corporation and the stockholder cannot agree upon the value of his
share or shares at the time such corporate action was authorized, such values all be ascertained by three disinterested
persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus
chosen. The findings of the appraisers shall be final, and if their award is not paid by the corporation within thirty days
after it is made, it may be recovered in an action by the stockholder against the corporation. Upon payment by the
corporation to the stockholder of the agreed or awarded price of his share or shares, the stockholder shall forthwith
transfer and assign the share or shares held by him as directed by the corporation: Provided, however, That their own
shares of stock purchased or otherwise acquired by banks, trust companies, and insurance companies, should be disposed
of within six months after acquiring title thereto.

Unless and until such amendment to the articles of incorporation shall have been abandoned or the action rescinded, the
stockholder making such demand in writing shall cease to be a stockholder and shall have no rights with respect to such
shares, except the right to receive payment therefor as aforesaid.

A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of the
corporate assets which would remain after such payment would be at least equal to the aggregate amount of its debts and
liabilities and the aggregate par value and/or issued value of the remaining subscribed capital stock.

A copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the
corporation and a majority of the board of directors or trustees, shall be filed with the Securities and Exchange
Commissioner, who shall attach the same to the original articles of incorporation, on file in his office. From the time of
filing such copy of the amended articles of incorporation, the corporation shall have the same powers and it and the
members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been
embraced in the original articles of incorporation: Provided, however, That should the amendment consist in extending the
corporate life, the extension shall not exceed 50 years in any one instance. Provided, further, That the original articles and
amended articles together shall contain all provisions required by law to be set out in the articles of incorporation: And
provided, further, That nothing in this section shall be construed to authorize any corporation to increase or diminish its
capital stock or so as to effect any rights or actions which accrued to others between the time of filing the original articles
of incorporation and the filing of the amended articles.

The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of ten pesos for filing said copy of the amended
articles of incorporation. Provided, however, That when the amendment consists in extending the term of corporate existence, the Securities
and Exchange Commissioner shall be entitled to collect and receive for the filing of its amended articles of incorporation the same fees
collectible under existing law for the filing of articles of incorporation. The Securities & Exchange Commissioner shall not hereafter file any
amendment to the articles of incorporation of any bank, banking institution, or building and loan association unless accompanied by a
certificate of the Monetary Board (of the Central Bank) to the effect that such amendment is in accordance with law. (As further amended by
Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337 and R.A. No. 3531.)

It can be gleaned at once that this section does not only authorize corporations to amend their charter; it also lays down the procedure for
such amendment; and, what is more relevant to the present discussion, it contains provisos restricting the power to amend when it comes to
the term of their existence and the increase or decrease of the capital stock. There is no prohibition therein against the change of name. The
inference is clear that such a change is allowed, for if the legislature had intended to enjoin corporations from changing names, it would have
expressly stated so in this section or in any other provision of the law.

No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very existence of a corporation. The general rule as to
corporations is that each corporation shall have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in
this respect designates the corporation in the same manner as the name of an individual designates the person." 1 Since an individual has the
right to change his name under certain conditions, there is no compelling reason why a corporation may not enjoy the same right. There is
nothing sacrosanct in a name when it comes to artificial beings. The sentimental considerations which individuals attach to their names are
not present in corporations and partnerships. Of course, as in the case of an individual, such change may not be made exclusively. by the
corporation's own act. It has to follow the procedure prescribed by law for the purpose; and this is what is important and indispensably
prescribed — strict adherence to such procedure.

Local well known corporation law commentators are unanimous in the view that a corporation may change its name by merely amending its
charter in the manner prescribed by law. 2 American authorities which have persuasive force here in this regard because our corporation law
is of American origin, the same being a sort of codification of American corporate law, 3 are of the same opinion.

A general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of the
corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut. Aid
Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.

xxx xxx xxx

Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the capital stock of a corporation, it is
provided that 'such agreement may be amended in any other particular, excepting as provided in the following section',
which relates to a decrease of the capital stock This section has been held to authorize a change in the name of a
corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and
English Annotated Cases, p. 1239.)

Fletcher, a standard authority on American an corporation law also says:

Statutes are to be found in the various jurisdictions dealing with the matter of change in corporate names. Such statutes
have been subjected to judicial construction and have, in the main, been upheld as constitutional. In direct terms or by
necessary implication, they authorize corporations new names and prescribe the mode of procedure for that purpose. The
same steps must be taken under some statutes to effect a change in a corporate name, as when any other amendment of
the corporate charter is sought .... When the general law thus deals with the subject, a corporation can change its name
only in the manner provided. (6 Fletcher, Cyclopedia of the Law of Private Corporations, 1968 Revised Volume, pp. 212-
213.) (Emphasis supplied)

The learned trial judge held that the above-quoted proposition are not supported by the weight of authority because they are based on
decisions in cases where the statutes expressly authorize change of corporate name by amendment of the articles of incorporation. We have
carefully examined these authorities and We are satisfied of their relevance. Even Lord Denman who has been quoted by His Honor from In
Reg. v. Registrar of Joint Stock Cos. 10, Q.B., 59 E.C.L. maintains merely that the change of its name never appears to be such an act as the
corporation could do for itself, but required ;the same Power as created a corporation." What seems to have been overlooked, therefore, is
that the procedure prescribes by Section 18 of our Corporation Law for the amendment of corporate charters is practically identical with that
for the incorporation itself of a corporation.

In the appealed order of dismissal, the trial court, made the observation that, according to this Court in Red Line Transportation Co. v. Rural
Transit Co., Ltd., 60 Phil, 549, 555, change of name of a corporation is against public policy. We must clarify that such is not the import of
Our said decision. What this Court held in that case is simply that:

We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one
corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the
Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires
each to adopt and certify a distinctive name. The incorporators 'constitute a body politic and corporate under the name
stated in the certificate.' (Section 11, Act No. 1459, as amended.) A corporation has the power 'of succession by its
corporate name.' (Section 13, ibid.) The name of a corporation is therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law
gives a corporation no express or implied authority to assume another name that is unappropriated; still less that of
another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at
pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and open
the door to frauds and evasions and difficulties of administration and supervision. The policy of the law as expressed our
corporation statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. — Colonial Press
vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts],
428, 434.)

In other words, what We have held to be contrary to public policy is the use by one corporation of the name of another corporation as its
trade name. We are certain no one will disagree that such an act can only "result in confusion and open the door to frauds and evasions and
difficulties of administration and supervision." Surely, the Red Line case was not one of change of name.

Neither can We share the posture of His Honor that the change of name of a corporation results in its dissolution. There is unanimity of
authorities to the contrary.

An authorized change in the name of a corporation has no more effect upon its identity as a corporation than a change of
name of a natural person has upon his identity. It does not affect the rights of the corporation or lessen or add to its
obligations. After a corporation has effected a change in its name it should sue and be sued in its new name .... (13 Am.
Jur. 276-277, citing cases.)

A mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect the identity of the corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or incurred by it. Indeed, it has been said that a change of name by a
corporation has no more effect upon the identity of the corporation than a change of name by a natural person has upon
the identity of such person. The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original one, but remains and continues to be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed. ... (6 Fletcher, Cyclopedia of the Law of Private Corporations,
224-225, citing cases.)

The change in the name of a corporation has no more effect upon its identity as a corporation than a change of name of a
natural person has upon his identity. It does not affect the rights of the corporation, or lessen or add to its obligations.

England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.

United States. — Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.

Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham Lumber Co. v. Sims, 157 Ala.
595, 48 So. 84.
 Connecticut. — Trinity Church v. Hall, 22 Com. 125.

Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co. v. Miller, 43 Ill. 199;Reading v.
Wedder, 66 III. 80.

Indiana. — Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.

Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177 Ky. 251, 78 S. W. 138.

Maryland. — Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of error dismissed, 177 U.S. 170, 20
S. Ct. 573, 44 U.S. (L. ed.) 720.

Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.

Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York First Soc of M.E. Church v. Brownell, 5 Hun
464.

Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.

South Carolina. — South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.

Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar Tobacco Co. v. Hoen,105 Va. 327, 54 S.E. 309.

Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.

Wisconsin. — Racine Country Bank v. Ayers, 12 Wis. 512.

The fact that the corporation by its old name makes a format transfer of its property to the corporation by its new name
does not of itself show that the change in name has affected a change in the identity of the corporation. Palfrey v.
Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation organized as a state bank afterwards
becomes a national bank by complying with the provisions of the National Banking Act, and changes its name accordingly,
has no effect on its right to sue upon obligations or liabilities incurred to it by its former name. Michigan Ins. Bank v.
Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.) 162.

A deed of land to a church by a particular name has been held not to be affected by the fact that the church afterwards
took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211.

A change in the name of a corporation is not a divestiture of title or such a change as requires a regular transfer of title to
property, whether real or personal, from the corporation under one name to the same corporation under another
name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and English Annotated Cases 1242-1243.)

As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the name of a corporation is no more the
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.

Having arrived at the above conclusion, We have agree with appellant's pose that the lower court also erred in holding that it is not the right
party in interest to sue defendants-appellees. 4 As correctly pointed out by appellant, the approval by the stockholders of the amendment of
its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on
March 8, 1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of the Corporation Law,
earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the president and the
secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities & Exchange Commissioner",
and it is only from the time of such filing, that "the corporation shall have the same powers and it and the members and stockholders thereof
shall thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of incorporation." It goes
without saying then that appellant rightly acted in its old name when on May 15, 1961, it entered into the indemnity agreement, Annex A,
with the defendant-appellees; for only after the filing of the amended articles of incorporation with the Securities & Exchange Commission on
May 26, 1961, did appellant legally acquire its new name; and it was perfectly right for it to file the present case In that new name on
December 6, 1961. Such is, but the logical effect of the change of name of the corporation upon its actions.

Actions brought by a corporation after it has changed its name should be brought under the new name although for the
enforcement of rights existing at the time the change was made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So.
670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor of Frederick County School, 7 Gill & J (Md.)
388; Delaware, etc., R. Co. v. Trick, 23 N. J. L. 321; Northumberland Country Bank v. Eyer, 60 Pa. St. 436; Wilson v.
Chesapeake etc., R. Co., 21 Gratt (Va.) 654.

The change in the name of the corporation does not affect its right to bring an action on a note given to the corporation
under its former name. Cumberland College v. Ish, 22. Cal. 641; Northwestern College v. Schwagler, 37 Ia. 577. (19
American and English Annotated Cases 1243.)

In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take this opportunity, however, to express the
Court's feeling that it is apparent that appellee's position is more technical than otherwise. Nowhere in the record is it seriously pretended
that the indebtedness sued upon has already been paid. If appellees entertained any fear that they might again be made liable to Yek Tong
Lin Fire & Marine Insurance Co. Ltd., or to someone else in its behalf, a cursory examination of the records of the Securities & Exchange
Commission would have sufficed to clear up the fact that Yek Tong Lin had just changed its name but it had not ceased to be their creditor.
Everyone should realize that when the time of the courts is utilized for cases which do not involve substantial questions and the claim of one
of the parties, therein is based on pure technicality that can at most delay only the ultimate outcome necessarily adverse to such party
because it has no real cause on the merits, grave injustice is committed to numberless litigants whose meritorious cases cannot be given all
the needed time by the courts. We address this appeal once more to all members of the bar, in particular, since it is their bounden duty to the
profession and to our country and people at large to help ease as fast as possible the clogged dockets of the courts. Let us not wait until the
people resort to other means to secure speedy, just and inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further proceedings consistent herewith
With costs against appellees.
G.R. No. 93073 December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled
"Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant",
which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory
notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank, ordering
defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo
Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest thereon at
16% per annum from the dates indicated, to wit:

Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid;
under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the promissory
note (Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under the promissory note (Exhibit "E"),
the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of
P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with
interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.

Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment
Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of
P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid

Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff
bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid.

Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12%
per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully
paid.

All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for reasonable
attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above
stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge.

With costs against the defendants.

SO ORDERED. 1

From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was
that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should
not be held personally liable for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters
Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas
is solidarity liable with Shozo Yamaguchi on each of the nine notes.

We find merit in this appeal.

From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1,
1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine
promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:

___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC
PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency...

On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed
names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit
proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6

of WORLDWIDE GARMENT MFG. CORP.

These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of defendant and private respondent.

On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation.

On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory
notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch
Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer
and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended
Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf
of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed
his signature.

In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily
liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following
reasons:

The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. 3 By
signing the notes, the maker promises to pay to the order of the payee or any holder 4according to the tenor thereof. 5 Based on the above
provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he
cannot escape liability arising therefrom.

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally
liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes
them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each
of the co-signers is deemed to have made an independent singular promise to pay the notes in full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the
presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and
several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to
a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for
his proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin
Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi
and Pinch Manufacturing Corporation as solidary debtors.

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the
liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not affect to the liability of private
respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, private respondent Fermin
Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.

Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change
of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality
of the original corporation.

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect changed. 10

A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect
on the identity of the corporation, or on its property, rights, or liabilities. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or
incurred. 12

As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by
officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change
of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents
if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as
follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from personal liability.

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the
name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be
permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability. 13

On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule otherwise. A
careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by
commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank
spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date.
The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant
to this case, thus:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the person in possesion
thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a reasonable time...

Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as determined by the trial
court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony
that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures
as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. We
take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the
banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but
read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as
per agreement. The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he
claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16%
to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of
money, goods or credit and court judgemets thereon, only in the absence of any stipulation between the parties.

In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at
any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per
annum.

This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way
of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of
damages. 15 This fine distinction was not taken into consideration by the appellate court, which instead made a general statement that the
interest rate be at 12% per annum.

Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law, the appellate
court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on
interest rates. 16

In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the decision of the
respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered
declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16%
interest per annum from the dates indicated, to wit:

Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under
promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the promissory note denominated
as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D, the
amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of
P86,130.31 with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from
November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November
27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note
marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for
not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo.

With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly and solidarity
liable with defendants for the amounts found, by the Court a quo. With costs against private respondent. SO ORDERED.
G.R. No. L-15429 December 1, 1919

UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.

Kincaid and Perkins for petitioners.

Attorney-General Paredes for respondent.

JOHNSON, J.:

The purpose of this action is to obtain the writ of mandamus to require the respondent to file and register, upon the payment of the lawful
fee, articles of incorporation, and to issue to the petitioners as the incorporators of a certain corporation to be known as "Siuliong y
Compañia, Inc.," a certificate under the seal of the office of said respondent, certifying that the articles of incorporation have been duly filed
and registered in his office in accordance with the law.

To the petition the respondent demurred and the cause was finally submitted upon the petition and demurrer.

The important facts necessary for the solution of the question presented, which are found in the petition, may be stated as follows:

1. That prior to the presentation of the petition the petitioners had been associated together as partners, which partnership was known as
"mercantil regular colectiva, under the style and firm name of "Siuliong y Cia.;"

2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong y Cia.," desired to dissolve said partnership
and to form a corporation composed of the same persons as incorporators, to be known as "Siulong y Compañia, Incorporada;"

3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the partnership theretofore known as Siuliong
& Co., and (b) to continue said business with some of its objects or purposes;

4. That an examination of the articles of incorporation of the said "Siuliong y Compañia, Incorporada" (Exhibit A) shows that it is to be
organized for the following purposes:

(a) The purchase and sale, importation and exportation, of the products of the country as well as of foreign countries;

(b) To discount promissory notes, bills of exchange, and other negotiable instruments;

(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades mercantiles e industriales [joint account of
mercantile and industrial associations]," and of all classes of mercantile documents; "comisiones [commissions];" "consignaciones
[consignments];"

(d) To act as agents for life, marine and fire insurance companies; lawphi1.net

(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of same];" and

(f) To purchase and sell industrial and mercantile establishments.

While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and continue the business, with some of its
objects or purposes, of Siuliong & Co., it will be found upon an examination of the purposes enumerated in the proposed articles of
incorporation of "Siuliong y Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y Cia." have been omitted. For
example, the articles of partnership of "Siuliong y Cia." gave said company the authority to purchase and sell all classes "de fincas rusticas y
urbanas [of rural and city real estate]" as well as the right to act as agents for the establishment of any other business which it might esteem
convenient for the interests of "la compañia [the company]." (Exhibit C).

The respondent in his argument in support of the demurrer contends (a) that the proposed articles of incorporation presented for file and
registry permitted the petitioners to engage in a business which had for its end more than one purpose; (b) that it permitted the petitioners
to engage in the banking business, and (c) to deal in real estate, in violation of the Act of Congress of July 1, 1902.

The petitioners, in reply to said argument of the respondent, while insisting that said proposed articles of incorporation do not permit it to
enter into the banking business nor to engage in the purchase and sale of real estate in violation of said Act of Congress, expressly renounced
in open court their right to engage in such business under their articles of incorporation, even though said articles might be interpreted in a
way to authorize them to so to do. That renouncement on the part of the petitioners eliminates from the purposes of said proposed
corporation (of "Siuliong y Cia., Inc.") any right to engage in the banking business as such, or in the purchase and sale of real estate.

We come now to the consideration of the principal question raised by the respondent, to wit: that the proposed articles of incorporation of
"Siuliong y Cia., Inc.," permits it to engage in a business with more than one purpose.

If upon an examination of the articles of incorporation we find that its purpose is to engage in a business with butone principal purpose, then
that contention of the respondent will have been answered and it will be unnecessary to discuss at length the question whether or not a
corporation organized for commercial purposes in the Philippine Islands can be organized for more than one purpose.

The attorney for the respondent, at the time of the argument, admitted in open court that corporations in the Philippine Islands might be
organized for both the "importation and exportation" of merchandise and that there might be no relation between the kind of merchandise
imported with the class of merchandise exported.

Referring again to be proposed articles of incorporation, a copy of which is united with the original petition and marked Exhibit A, it will be
seen that the only purpose of said corporation are those enumerated in subparagraphs (a), (b), (c), (d), (e) and ( f ) of paragraph 4 above.
While said articles of incorporation are somewhat loosely drawn, it is clear from a reading of the same that the principal purpose of said
corporation is to engage in amercantile business, with the power to do and perform the particular acts enumerated in said subparagraphs
above referred to.

Without discussing or deciding at this time whether a corporation organized under the laws of the Philippine Islands may be organized for
more than one purpose, we are of the opinion and so decide that a corporation may be organized under the laws of the Philippine Islands
for mercantile purposes, and to engage in such incidental business as may be necessary and advisable to give effect to, and aid in, the
successful operation and conduct of the principal business.1awphi1.net

In the present case we are fully persuaded that all of the power and authority included in the articles of incorporation of "Siuliong y Cia.,
Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental to the principal purpose of said proposed incorporation, to
wit: "mercantile business." The purchase and sale, importation and exportation of the products of the country, as well as of foreign countries,
might make it necessary to purchase and discount promissory notes, bills of exchange, bonds, negotiable instruments, stock, and interest in
other mercantile and industrial associations. It might also become important and advisable for the successful operation of the corporation to
act as agent for insurance companies as well as to buy, sell and equip boats and to buy and sell other establishments, and industrial and
mercantile businesses.

While we have arrived at the conclusion that the proposed articles of incorporation do not authorize the petitioners to engage in a business
with more than one purpose, we do not mean to be understood as having decided that corporations under the laws of the Philippine Islands
may not engage in a business with more than one purpose. Such an interpretation might work a great injustice to corporations organized
under the Philippine laws. Such an interpretation would give foreign corporations, which are permitted to be registered under the laws here
and which may be organized for more than one purpose, a great advantage over domestic corporations. We do not believe that it was the
intention of the legislature to give foreign corporations such an advantage over domestic corporations.

Considering the particular purposes and objects of the proposed articles of incorporation which are specially enumerated above, we are of the
opinion that it contains nothing which violates in the slightest degree any of the provisions of the laws of the Philippine Islands, and the
petitioners are, therefore, entitled to have such articles of incorporation filed and registered as prayed for by them and to have issued to them
a certificate under the seal of the office of the respondent, setting forth that such articles of incorporation have been duly filed in his office.
(Sec. 11, Act No. 1459.)

Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so ordered.
G.R. No. L-23606 July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.

Office of the Solicitor General for respondent.

SANCHEZ, J.:

To the question — May a corporation extend its life by amendment of its articles of incorporation effected during the three-year statutory
period for liquidation when its original term of existence had already expired? — the answer of the Securities and Exchange Commissioner
was in the negative. Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply as Alhambra) was duly incorporated
under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.

Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to carry on the business of Alhambra.

On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of its liquidation.

On June 20, 1963 — within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enacted into law. It amended
Section 18 of the Corporation Law; it empowered domestic private corporations to extend their corporate life beyond the period fixed by the
articles of incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible
term of such corporations was fifty years.

On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its articles of incorporation to
extend its corporate life for an additional fifty years, or a total of 100 years from its incorporation.

On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital stock, voted to approve the
foregoing resolution. The "Fourth" paragraph of Alhambra's articles of incorporation was thus altered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of incorporation, and for an
additional period of fifty (50) years thereafter.

On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and secretary and a majority of its
board of directors, were filed with respondent Securities and Exchange Commission (SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel with the ruling that Republic
Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the said corporation, for the reason that its term of existence had
already expired when the said law took effect in short, said law has no retroactive effect."

On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the amended articles of incorporation.

On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.

Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1

1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take note of the old and the new
statutes as they are framed. Section 18, prior to and after its modification by Republic Act 3531, covers the subject of amendment of the
articles of incorporation of private corporations. A provision thereof which remains unaltered is that a corporation may amend its articles of
incorporation "by a majority vote of its board of directors or trustees and ... by the vote or written assent of the stockholders representing at
least two-thirds of the subscribed capital stock ... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said amendment beyond the time fixed in the
original articles: ...

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate existence. Thus incorporated
into the structure of Section 18 are the following:

... Provided, however, That should the amendment consist in extending the corporate life, the extension shall not exceed fifty years
in any one instance: Provided, further, That the original articles, and amended articles together shall contain all provisions required
by law to be set out in the articles of incorporation: ...

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made its attempt to extend its
corporate existence, its original term of fifty years had already expired (January 15, 1962); it was in the midst of the three-year grace period
statutorily fixed in Section 77 of the Corporation Law, thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years
after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of
enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for
the purpose of continuing the business for which it was established.2

Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body corporate for three years has for
its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined from "continuing the business for which it was
established". The liquidation of the corporation's affairs set forth in Section 77 became necessary precisely because its life had ended. For this
reason alone, the corporate existence and juridical personality of that corporation to do business may no longer be extended.

Worth bearing in mind, at this juncture, is the basic development of corporation law.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became legally dead for all
purposes. Statutory authorizations had to be provided for its continuance after dissolution "for limited and specified purposes incident to
complete liquidation of its affairs".3 Thus, the moment a corporation's right to exist as an "artificial person" ceases, its corporate powers are
terminated "just as the powers of a natural person to take part in mundane affairs cease to exist upon his death". 4 There is nothing left but to
conduct, as it were, the settlement of the estate of a deceased juridical person.

2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of extension may be made. But
even with a superficial knowledge of corporate principles, it does not take much effort to reach a correct conclusion. For, implicit in Section 77
heretofore quoted is that the privilege given to prolongcorporate life under the amendment must be exercised before the expiry of the term
fixed in the articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong corporate life was
inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation to amend its articles of incorporation. (For,
the manner of prolongation is through an amendment of the articles.) And it should be clearly evident that under Section 77 no corporation in
a state of liquidation can act in any way, much less amend its articles, "for the purpose of continuing the business for which it was
established".

All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so, Alhambra was still in the
process of liquidation. It is surely impermissible for us to stretch the law — that merely empowers a corporation to act in liquidation — to
inject therein the power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all of the statutory conditions
precedent must be complied with in order that the extension may be effectuated. And, generally these conditions must be complied with, and
the steps necessary to effect the extension must be taken,during the life of the corporation, and before the expiration of the term of existence
as original fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So
where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that time. And, similarly, the
filing and recording of a certificate of extension after that time cannot relate back to the date of the passage of a resolution by the
stockholders in favor of the extension so as to save the life of the corporation. The contrary is true, however, and the doctrine of relation will
apply, where the delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a wrongful refusal on his part
to receive it. And statutes in some states specifically provide that a renewal may be had within a specified time before or after the time fixed
for the termination of the corporate existence".5

The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky.6There, pronouncement was
made as follows:

... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of incorporation, it may be
thereafter continued to act for the purpose of closing up its business, but for no other purpose. The corporate life of the Home
Building Association expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to act for the purpose
of closing up its business, but for no other purpose. The proposed amendment was not made until January 16, 1908, or nearly three
years after the corporation expired by the terms of the articles of incorporation. When the corporate life of the corporation was
ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of the association had expired
to revivify the dead body, and to make that relate back some two years and eight months. In other words, the association for two
years and eight months had only existed for the purpose of winding up its business, and, after this length of time, it was proposed
to revivify it and make it a live corporation for the two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time may be extended by the
court, but under this provision it has uniformly been held that when the time was expired, there is nothing to extend, and that the
appeal must be dismissed... So, when the articles of a corporation have expired, it is too late to adopt an amendment extending the
life of a corporation; for, the corporation having expired, this is in effect to create a new corporation ..."7

True it is, that the Alabama Supreme Court has stated in one case.8 that a corporation empowered by statute torenew its corporate existence
may do so even after the expiration of its corporate life, provided renewal is taken advantage of within the extended statutory period for
purposes of liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at bar for at least two reasons: First.
That case was a suit for mandamus to compel a former corporate officer to turn over books and records that came into his possession and
control by virtue of his office. It was there held that such officer was obliged to surrender his books and records even if the corporation had
already expired. The holding on the continued existence of the corporation was a mere dictum. Second. Alabama's law is different.
Corporations in that state were authorized not only to extend but also to renew their corporate existence.That very case defined the word
"renew" as follows; "To make new again; to restore to freshness; to make new spiritually; to regenerate; to begin again; to recommence; to
resume; to restore to existence, to revive; to re-establish; to recreate; to replace; to grant or obtain an extension of Webster's New
International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9

On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter and the grant of a new one. To
renew a charter is to revive a charter which has expired, or, in other words, "to give a new existence to one which has been forfeited, or
which has lost its vitality by lapse of time". To "extend" a charter is "to increase the time for the existence of one which would otherwise
reach its limit at an earlier period".10Nowhere in our statute — Section 18, Corporation Law, as amended by Republic Act 3531 — do we find
the word "renew" in reference to the authority given to corporations to protract their lives. Our law limits itself to extension of corporate
existence. And, as so understood, extension may be made only before the term provided in the corporate charter expires.

Alhambra draws attention to another case11 which declares that until the end of the extended period for liquidation, a dissolved corporation
"does not become an extinguished entity". But this statement was obviously lifted out of context. That case dissected the question whether or
not suits can be commenced by or against a corporation within its liquidation period. Which was answered in the affirmative. For, the
corporation still exists for the settlement of its affairs.

People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the corporation amended its articles to extend its
existence at a time when it had no legal authority yet, it adopted the amended articles later on when it had the power to extend its life and
during its original term when it could amend its articles.

The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the purview of the law. It says that
before cessation of its corporate life, it could not have extended the same, for the simple reason that Republic Act 3531 had not then become
law. It must be remembered that Republic Act 3531 took effect on June 20, 1963, while the original term of Alhambra's existence expired
before that date — on January 15, 1962. The mischief that flows from this theory is at once apparent. It would certainly open the gates for all
defunct corporations — whose charters have expired even long before Republic Act 3531 came into being — to resuscitate their corporate
existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now reading as follows: 1äwphï1.ñët

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation, formed for a limited
period under the provisions of its articles of incorporation, may extend its corporate existence for a period not exceeding fifty years
in any one instance by amendment to its articles of incorporation on or before the expiration of the term so fixed in said articles ...

To be observed is that the foregoing statute — unlike Republic Act 3531 — expressly authorizes domestic insurance corporations to extend
their corporate existence "on or before the expiration of the term" fixed in their articles of incorporation. Republic Act 1932 was approved on
June 22, 1957, long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out, must have been aware of Republic Act
1932 when it passed Republic Act 3531. Since the phrase "on or before", etc., was omitted in Republic Act 3531, which contains no similar
limitation, it follows, according to Alhambra, that it is not necessary to extend corporate existence on or before the expiration of its original
term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no relevance. We have already said,
in the face of a familiar precept, that a defunct corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 — now in dispute. Its first paragraph states that "Republic Act
No. 1932 allows the automatic extension of the corporate existence of domestic life insurance corporations upon amendment of their articles
of incorporation on or before the expiration of the terms fixed by said articles". The succeeding lines are decisive: "This is a good law, a sane
and sound one. There appears to be no valid reason why it should not be made to apply to other private corporations.13

The situation here presented is not one where the law under consideration is ambiguous, where courts have to put in harness extrinsic aids
such as a look at another statute to disentangle doubts. It is an elementary rule in legal hermeneutics that where the terms of the law are
clear, no statutory construction may be permitted. Upon the basic conceptual scheme under which corporations operate, and with Section 77
of the Corporation Law particularly in mind, we find no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by directing
attention to Republic Act 1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that such obscurity be
explained. This, we dare say, cannot be done.

The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized with each other. 14 So harmonizing, the
conclusion is clear that Section 18 of the Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate
existence, is to be read in the same light as Republic Act 1932. Which means that domestic corporations in general, as with domestic
insurance companies, can extend corporate existence only on or before the expiration of the term fixed in their charters.

5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases for this posture are that Republic Act 3531
is a remedial statute, and that extension of corporate life is beneficial to the economy.

Alhambra's stance does not induce assent. Expansive construction is possible only when there is something to expand. At the time of the
passage of Republic Act 3531, Alhambra's corporate life had already expired. It had overstepped the limits of its limited existence. No life
there is to prolong.

Besides, a new corporation — Alhambra Industries, Inc., with but slight change in stockholdings15 — has already been established. Its
purpose is to carry on, and it actually does carry on,16 the business of the dissolved entity. The beneficial-effects argument is off the mark.

The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that, instead of the new corporation (Alhambra
Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up; and that the
old corporate name cannot be retained fully in its exact form.17 What is important though is that the word Alhambra, the name that counts [it
has goodwill], remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November 18, 1963, and its order of September 8, 1964,
both here under review, are hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.
G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant,

vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.

B. C. Padua for petitioner and appellant.

Pablo S. Reyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla Radio System to
prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on
March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch
office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery,
the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and
causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the
complaint on the grounds that it states no cause of action and that the venue is improperly laid. The New Cagayan Grocery
interposed an opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September 18, 1963,
denied the motion to dismiss for lack of merit and set the case for hearing.1äwphï1.ñët

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First Instance praying that the
City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground of improper venue. The respondents
filed a motion to dismiss the petition but this was opposed by the petitioner. Later, the motion was submitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its principal office or
in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager of its branch office in said city.
In other words, the court upheld the authority of the city court to take cognizance of the case.1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principal office.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section 1 of Rule 4 of the
New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written
contract, then in the municipality where the defendant or any of the defendants resides or may be served with summons." (Emphasis
supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is established. Since it is not
disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in the City of
Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the principle that the
appellant may also be served with summons in that city where it maintains a branch office. This Court has already held in the case of Cohen
vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply when the defendant resides in
the Philippines for, in such case, he may be sued only in the municipality of his residence, regardless of the place where he may be found and
served with summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person
can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The
fact that it maintains branch offices in some parts of the country does not mean that it can be sued in any of these places. To allow an action
to be instituted in any place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the
corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the venue of an action is
not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the venue in
this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue shall be laid properly. With
costs against the respondents-appellees.
G.R. No. L-56763 December 15, 1982

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,

vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal, Pasig Branch XXI and COURT
OF APPEALS, respondents.

Abraham D. Cana for petitioners.

Alberto A. Domingo for private respondent.

AQUINO, J:

This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy and Universal Parts
Supply Corporation in the Court of First Instance of Rizal, Pasig Branch XXI, a complaint for the collection of P288,534.58 plus interest,
attorney's fees and litigation expenses (Civil Case No. 34302).

It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts Supply, is a resident of Fuentebella
Subdivision, Bacolod City and that his co-defendant, Universal Parts Supply Corporation, allegedly controlled by Sy, is doing business in
Bacolod City.

Curiously enough, there is no allegation in the complaint as to the office or place of business of plaintiff Tyson Enterprises, Inc., a firm
actually doing business at 1024 Magdalena, now G. Masangkay Street, Binondo, Manila (p. 59, Rollo).

What is alleged is the postal address or residence of Dominador Ti, the president and general manager of plaintiff firm, which is at 26 Xavier
Street, Greenhills Subdivision, San Juan, Rizal. The evident purpose of alleging that address and not mentioning the place of business of
plaintiff firm was to justify the filing of the suit in Pasig, Rizal instead of in Manila.

Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file their answer and later a motion for a bill
of particulars. The latter motion was denied. Then, they filed a motion to dismiss on the ground of improper venue.

They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiffs or any of the plaintiffs resides, at the election of the
plaintiff."

To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties expressly submit to the jurisdiction of the
Courts of the City of Manila for any legal action arising out of" the transaction which stipulation is quoted in paragraph 4 of plaintiff's
complaint.

The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the objection based on improper venue because
they had previously filed a motion for a bill of particulars which was not granted. The trial court denied the motion to dismiss on the ground
that by filing a motion for a bill of particulars the defendants waived their objection to the venue. That denial order was assailed in a petition
for certiorari and prohibition in the Court of Appeals which issued on July 29, 1980 a restraining order, enjoining respondent judge from
acting on the case. He disregarded the restraining order (p. 133, Rollo).

The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties did not intend Manila as the exclusive
venue of the actions arising under their transactions and that since the action was filed in Pasig, which is near Manila, no useful purpose
would be served by dismissing the same and ordering that it be filed in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775). That decision was
appealed to this Court.

There is no question that the venue was improperly laid in this case. The place of business of plaintiff Tyson Enterprises, Inc., which for
purposes of venue is considered as its residence (18 C.J.S 583; Clavecilla Radio system vs. Antillon, L-22238, February 18, 1967, 19 SCRA
379), because a corporation has a personality separate and distinct from that of its officers and stockholders.

Consequently, the collection suit should have been filed in Manila, the residence of plaintiff corporation and the place designated in its sales
invoice, or it could have been filed also in Bacolod City, the residence of defendant Sy.

We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the petitioners, waived their objection to the
improper venue. As the trial court proceeded in defiance of the Rules of Court in not dismissing the case, prohibition lies to restrain it from
acting in the case (Enriquez vs. Macadaeg, 84 Phil. 674).

Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a motion to dismiss it is deemed waived"
and it can no longer be pleaded as an affirmative defense in the answer (Sec. 5, Rule 16).

In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper venue. That motion was seasonably filed
(Republic vs. Court of First Instance of Manila, L-30839, November 28, 1975, 68 SCRA 231, 239). The fact that they filed a motion for a bill of
particulars before they filed their motion to dismiss did not constitute a waiver of their objection to the venue.

It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of a defendant to object to the venue of
the action at the time of entering his appearance in the action shall be deemed a waiver on his part of all objection to the place or tribunal in
which the action is brought" is not found in the Rules of Court.

And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not objected to prior to the trial, it is deemed
waived" is not reproduced in the present Rules of Court.

To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to improper venue should be raised in a motion
to dismiss seasonably filed and, if not so raised, then the said objection is waived. Section 4 does not provide that the objection based on
improper venue should be interposed by means of a special appearance or before any pleading is filed.

The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and
evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted
freedom to choose the court where he may file his complaint or petition.
The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some ulterior motivation in choosing to file a
case in a particular court even if not allowed by the rules on venue.

As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's jurisdiction over the subject matter
but to give it effective facility "in righteous action", "to facilitate and promote the administration of justice" or to insure "just judgments" by
means of a fair hearing. If that objective is not achieved, then "the administration of justice becomes incomplete and unsatisfactory and lays
itself open to grave criticism." (Manila Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)

The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of denial because in that case the
defendants, before filing a motion to dismiss on the ground of improper venue, interposed a demurrer on the ground that the complaint does
not state a cause of action. Then, they filed a motion for the dissolution of an attachment, posted a bond for its dissolution and later filed a
motion for the assessment of the damages caused by the attachment. All those acts constituted a submission to the trial court's jurisdiction
and a waiver of the objection based on improper venue under section 377 of the Code of Civil Procedure.

The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the defendant in the Court of First Instance of
Rizal on the assumption that he was a resident of Pasay City because he had a house there. Upon receipt of the summons, the defendant filed
a motion to dismiss based on improper venue. He alleged under oath that he was a resident of Iloilo City.

This Court sustained the dismissal of the complaint on the ground of improper venue, because the defendant was really a resident of Iloilo
City. His Pasay City residence was used by his children who were studying in Manila. Same holding in Casilan vs. Tomassi, 90 Phil. 765; Corre
vs. Corre, 100 Phil. 321; Calo vs. Bislig Industries, Inc., L-19703, January 30, 1967, 19 SCRA 173; Adamos vs. J. M. Tuason, Co., Inc.,. L-
21957, October 14, 1968, 25 SCRA 529.

Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila Manuel F. Portillo, a resident of Caloocan
City, for the recovery of a sum of money, the trial court erred in not granting Portillo's motion to dismiss the complaint on the ground of
improper venue This Court issued the writ of prohibition to restrain the trial court from proceeding in the case (Portillo vs. Judge Reyes and
Ramirez, 113 Phil. 288).

WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss are reversed and set
aside. The writ of prohibition is granted. Civil Case No. 34302 should be considered dismissed without prejudice to refiling - it in the Court of
First Instance of Manila or Bacolod City at the election of plaintiff which should be allowed to withdraw the documentary evidence submitted in
that case. All the proceedings in said case, including the decision, are also set aside. Costs against Tyson Enterprises, Inc. SOORDERED.
G.R. No. 9321 September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants,

vs.
MANUEL DE YRIARTE, respondent-appellee.

Modesto Reyes for appellants.

Attorney-General Villamor for appellee.

MORELAND, J.:

This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive Bureau to file a certain articles
of incorporation.

The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to, upon the ground that
the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not
registerable.

The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the division of archives
to receive and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the persons named
in the articles. The court below found in favor of the defendant and refused to order the registration of the articles mentioned, maintaining ad
holding that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the articles and the
legality of the object of the proposed corporation. This appeal is taken from that judgment.

The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation for registration, to
decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purpose of the proposed corporation.

It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has no authority to pass
upon the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this proposition and we
are of the opinion that it is not sound.

Section 6 of the Corporation Law reads in part as follows:

Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a private
corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks if the Executive
Bureau articles of incorporation duly executed and acknowledged before a notary public, . . . .

Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the administration of his
office, determine questions of law. We are of the opinion that it is the duty of the division of archives, when articles of incorporation are
presented for registration, to determine whether the objects of the corporation as expressed in the articles are lawful. We do not believe that,
simply because articles of incorporation presented foe registration are perfect in form, the division of archives must accept and register them
and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the articles.
We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and thereby put the seal of
approval of the Government upon, a corporation which was organized for base of immoral purposes. That such corporation might later, if it
sought to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should have been
created in the first instance. It seems to us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the
objects and purposes of the corporation before it issues a certificate of incorporation.

It having determined that the division of archives, through its officials, has authority to determine not only the sufficiency as to form of the
articles of incorporation offered for registration, but also the lawfulness of the purposes of leads us to the determination of the question
whether or not the chief of the division of archives, who is the representative thereof and clothed by it with authority to deal subject
to mandamus in the performance of his duties.

We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with the law. While we have
held that defendant has power to pass upon the lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of
his duties, determine the question of law whether or not those purposes are lawful and embraced within that class concerning which the law
permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the
contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise
discretion in receiving and registering articles of incorporation. He may exercise judgment — that is, the judicial function — in the
determination of the question of law referred to, but he may not use discretion. The question whether or not the objects of a proposed
corporation are lawful is one that can be decided one way only. If he err in the determination of that question and refuse to file articles which
should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will be ordered to file the articles.
This is the same kind of determination which a court makes when it decides a case upon the merits, the court makes when it decides a case
upon the merits. When a case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law,
there is only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has
discretion in the resolution of a question, then, within certain limitations, he may decide the question either way and still be right. Discretion,
it may be said generally, is a faculty conferred upon a court or other official by which he may decide a question either way and still be right.
The power conferred upon the division of archives with respect to the registration of articles of incorporation is not of that character. It is of
the same character as the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly.

If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be
corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but
decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for.

The next question leads us to the determination of whether or not the purposes of the corporation as stated in the articles of incorporation are
lawful within the meaning of the Corporation Law.

The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize and regulate the
management, disposition, administration and control which the barrio of Pulo or San Miguel or its inhabitants or residents have over the
common property of said residents or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural products of
the said property for institutions, foundations, and charitable works of common utility and advantage to the barrio or its inhabitants."

The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or San Miguel, which
have no local government of their own but are governed by the municipality of Pasig through its municipal president and council. The
president and members of the municipal council are elected by a general vote of the municipality, the qualified electors of all the barrios
having the right to participate.
The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality. The various barrios
of the municipality have no right to own or hold property, they not being recognized as legal entities by any law. The residents of the barrios
participate in the advantages which accrue to the municipality from public property and receive all the benefits incident to residence in a
municipality organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to the general
government or the province, it belongs to the municipality of Pasig and the sole authority to manage and administer the same resides in that
municipality. Until the present laws upon the subject are charged no other entity can be the owner of such property or control or administer
it.

The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a
corporation which will become the owner of and have the right to control and administer any property belonging to the municipality of Pasig
found within the limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived
of the property which they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate
corporation, would take over the ownership, administration, and control of that portion of the municipal territory within its limits. This would
disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller municipalities entirely independent of the original
municipality.

What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly repugnant to the provisions
of the Municipal Code and the governments of municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.)

The judgment appealed from is affirmed, with costs against appellants.

G.R. No. L-45911 April 11, 1979

JOHN GOKONGWEI, JR., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS,
EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.

De Santos, Balgos & Perez for petitioner.

Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos

Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.

R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases
filed by petitioner with the Securities and Exchange Commission, as follows:

SEC CASE NO 1375

On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission
(SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and
damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation
as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas,
Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation,
basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of
respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares
at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of
P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended
that the Board acted without authority and in usurpation of the power of the stockholders.

As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the
authority of the Board ceased to exist.

As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in
1961, there being six (6) new directors.

As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of
respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents
purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are
null and void. 1

As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a
director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing
other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was allowed because the
questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or
antagonistic business; that the portion of the amended bylaws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be
submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable
and oppressive.

It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that
individual respondents be made to pay damages, in specified amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for
Production and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records
despite request made by petitioner for production of certain documents enumerated in the request, and that respondent corporation had been
attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so.
Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the
management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel
International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e)
lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest.

The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others that the motion has no
legal basis; that the demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence
sought cannot be determined until the issues are joined, that it fails to show good cause and constitutes continued harrasment, and that
some of the information sought are not part of the records of the corporation and, therefore, privileged.

During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto
filed their answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken
by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid and legal because the power to "amend, modify,
repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that
contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or adopt new by-laws is determined
in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise said
delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its
repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in
Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that petitioner is estopped from
questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made on the
basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject only to the condition that the
by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be
precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal
interests over t I hat of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board
should not be interfered with: That the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of
criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed
that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of
preliminary injunction was likewise on various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and
stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in
business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding
amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent
(corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and
controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and
thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support
from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of
SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board
of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected
respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next
annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated.

As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against
petitioner.

Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the
respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed
to intervene as oppositors and they accordingly filed their oppositions-intervention to the petition.

On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing
Order No. 26, Series of 1977, stating, in part as follows:

Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it
is hereby ordered:

1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-
movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held
on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is
material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant
entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in
the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and
photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission.
Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any
inspection thereof shall require the prior permission of this Commission;

2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses,
compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel
International, Inc. and/or its successors-in- interest, the Petition to produce and inspect the same is hereby DENIED, as
petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect
said documents;

3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and
inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and
amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and

4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of
the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc.,
until after the hearing on the merits of the principal issues in the above-entitled case.

This Order is immediately executory upon its approval. 2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders'
meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This
prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged
reason that by calling a special stockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity of the
amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion,
petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's
application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment, a temporary restraining order be
issued, restraining respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents.

On February 10, 1977, respondent Commission issued an order denying the motion for issuance of temporary restraining order. After receipt
of the order of denial, respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On
February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent
Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been
scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for
production of record had not yet been resolved.

In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with
respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter,
respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation
disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not
come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,
petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private
respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's
irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not
heard prior to the date of the stockholders' meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court.

SEC. CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and
businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with
respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as
well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages.

On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual
respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as
early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave
them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977.

Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following:

6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to
invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the
Corporation has been organized, and ratification of the investments thereafter made pursuant thereto.

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same
be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however,
cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders'
meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding,
no action has been taken up to the date of the filing of the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its
discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or
limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross
derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents
pending before it.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner
from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing
the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the
amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the
matters complained of in the instant petition.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9,
1977, the respondent Commission served upon petitioner copies of the following orders:

(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of
the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying
the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to
declare respondents in contempt and to nullify the stockholders' meeting;

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he
should not sit as such if elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment
of Item 6 of the Agenda for the annual stockholders' meeting; and

(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent
Commission denying petitioner's motion for summary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without
circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in
violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its
Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing , and (3) that the
respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention.

It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be
ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases
No. 1375 and 1423 on the merits.

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit
for the following reasons:

(1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel
Corporation, it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the
Consolidated Foods Corporation, which corporations are engaged in business directly and substantially competing with the allied businesses of
respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated investments.
Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that
competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and
plans;

(2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business
competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own
private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a
competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint
of trade;
(3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding
competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to
preserve itself;

(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he
failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April
29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant
petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and

(5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted
on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed.

On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the
reason, among others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of
respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the order of respondent
Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed,
voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and
Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these
issues before the Supreme Court is premature.

Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court
because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention
of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the
discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case
moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested
rights.

Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order
issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450
and 451 in SEC Case No. 1375.

In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the
annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by
petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial
of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know,
deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones
directly affected." It was alleged that the main petition has, therefore, become moot and academic.

On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of
respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the
respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit."
(Reno, pp. 927-928.)

Petitioner, in his memorandum, submits the following issues for resolution;

(1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election
to the Board of Directors are valid and reasonable;

(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San
Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and

(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual
Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in
violation of section 17-1/2 of the Corporation Law.

Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved —

It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic
validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether
or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the
provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it
is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied
due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ...
approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only
entail delay rather than serve the ends of justice."

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping
with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no
root or branch to bear the seeds of future ligiation", citingGayong v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that
this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the
time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because
the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal.

It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved,
invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies.

It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving
nor root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the
merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand of the
case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this Court, finding that the main issue is one of law, resolved to
decide the case on the merits "because public interest demands an early disposition of the case", and in Republic v. Central Surety and
Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where
this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of
justice would not be subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where
the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based upon said
evidence, to decide the case on its merits. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of
law is involved. 8a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be
determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were
adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly
pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended
by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a
beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting
held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

II

Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are
valid and reasonable —

The validity or reasonableness of a by-law of a corporation in purely a question of law. 9 Whether the by-law is in conflict with the law of the
land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of law. 10 This rule is
subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have exercised their authority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent
them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a
person of his choice as director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a
competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and
undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of
reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to
confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel
Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a
combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the
consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a
corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him,
control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina
Corporation — 738,647 shares; (c) CFC Corporation — 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of
San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or
controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that
petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly
controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are
engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in
which SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are
enumerated in its Board Resolution dated April 28, 1978, thus:

Product Line Estimated Market Share Total

1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than
20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed
chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the
prevailing market factors.

It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales
amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC,
which product line represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills
recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales
amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC,
product sales of more than P849 million.

According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning
23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of
Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18,
1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he by-laws in
question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945
shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and
ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the
outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9,
1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding
shares. voted against petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW

Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a
measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board
may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue — whether
or not respondent San Miguel Corporation could, as a measure of self- protection, disqualify a competitor from nomination and election to its
Board of Directors.
It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate
the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its
affairs. 12 At common law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary
and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it,
every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling
provision in its charter or in general law, such power of self-government being essential to enable the corporation to accomplish the purposes
of its creation. 13

In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and
compensation of directors, officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30
of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock
corporation of which he is a director ... " InGovernment v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law
requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as
security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its
by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. "

NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR

Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and
that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law." 15 To this extent, therefore, the stockholder may be considered to have "parted with his personal
right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to
the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the
corporation and the stockholders is infringed ... by any act of the former which is authorized by a majority ... ." 16

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or
restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand
payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact
that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be
subject to amendment, alteration and modification. 17

It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered
is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority.

A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS

Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their
character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the
management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is
one of trust." 18 "The ordinary trust relationship of directors of a corporation and stockholders", according to Ashaman v. Miller, 19 "is not a
matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and
hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof * * *.

Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the directors of corporations, thus:

A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself
first and his cestuis second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of
the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against
serving two masters ... He cannot utilize his inside information and strategic position for his own preferment. He cannot
violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate
rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power
may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the
equitable limitation that it may not be exercised for the aggrandizement, preference or advantage of the fiduciary to the
exclusion or detriment of the cestuis.

And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:

... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if
personally interested in the cause. No more can a director. Human nature is too weak -for this. Take whatever statute
provision you please giving power to stockholders to choose directors, and in none will you find any express prohibition
against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by
mere implication the existence of such a salutary power

... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning
would apply to disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in
her husband's affairs, and his suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and
dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous
and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is
perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not the
action of the Board is authorized and sanctioned by law. ... . 22

These principles have been applied by this Court in previous cases. 23

AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR
IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID

It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders
ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is
antagonistic to the other corporation is valid."24 This is based upon the principle that where the director is so employed in the service of a
rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is
good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only
qualification, and therefore the corporation was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in
the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for
the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with
that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a
director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which
he is an officer or director. 26

It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private
interests." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products,
and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its
products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the
corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 28

The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the
fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances,
of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for
protection. 30

It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential
information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and
development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of
a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate
interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly,
where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to
discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his
personal concerns.

Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid and reasonable an amendment to the by-laws of
a bank, requiring that its directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking
corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus:

... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely
be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum
disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California.
The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information
which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to
attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential
conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office
discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity
for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed.

In McKee the Court further listed qualificational by-laws upheld by the courts, as follows:

(1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which
competes with the subject corporation.

(2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or
association which competes with the subject corporation,

(3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association
which compete with the subject corporation.

(4) A director shall be of good moral character as an essential qualification to holding office.

(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.)

These are not based on theorical abstractions but on human experience — that a person cannot serve two hostile masters without detriment
to one of them.

The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel
Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and
reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be
inconsistent with petitioner's primary motive in running for board membership — which is to protect his investments in San Miguel
Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity
to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by Oleck: 31 "The
law win not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the
company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite
policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be
said to have fulfilled their duty of fealty to the corporation."

Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may
well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director
such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the
director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation
where he sits as director.

Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation
would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the
strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge
to his advantage. 32

There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law
prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall
regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall
be snowed."
Article 186 of the Revised Penal Code also provides:

Art. 186. Monopolies and combinations in restraint of trade. —The penalty of prision correccional in its minimum period or
a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon:

1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the
form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the
market.

2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other
person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or
making use of any other artifice to restrain free competition in the market.

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an
importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or
retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production,
processing, assembling or importation of such merchandise or object of commerce or with any other persons not so
similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price
in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed,
assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced,
processed, or imported merchandise or object of commerce is used.

There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade. 33

Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by
improving the consumers' effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered
competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of
our economic resources, the lowest prices and the highest quality ... ." 34 they operate to forestall concentration of economic power. 35 The
law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature
of the contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. 36

The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other
jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to
control prices to the detriment of the public. 37 In short, it is the concentration of business in the hands of a few. The material consideration in
determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude
competition when desired. 38Further, it must be considered that the Idea of monopoly is now understood to include a condition produced by
the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the qualification
of interest or management, or it may be thru agreement and concert of action. It is, in brief, unified tactics with regard to prices. 39

From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the
Board of respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence
of a combination or conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the defendants
conformed to the arrangements, 41 and what is to be considered is what the parties actually did and not the words they used. For instance,
the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by
virtue of their business and location of operation, competitors so that the elimination of competition between them would constitute violation
of any provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an
individual simultaneously acts as a director of two or more competing corporations. A common director of two or more competing
corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to
aid one corporation at the expense of another, thereby stifling competition. This situation has been aptly explained by Travers, thus:

The argument for prohibiting competing corporations from sharing even one director is that theinterlock permits the
coordination of policies between nominally independent firms to an extent that competition between them may be
completely eliminated. Indeed, if a director, for example, is to be faithful to both corporations, some accommodation must
result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that would
injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without depriving A
of his best judgment. If the firms really do compete — in the sense of vying for economic advantage at the expense of the
other — there can hardly be any reason for an interlock between competitors other than the suppression of
competition. 43 (Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By
means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations ... to
the detriment of the small ones dependent upon them and to the injury of the public. 44

Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and
inventories may lead to control of production for the purpose of controlling prices.

Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of
competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated, The competitor
could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the
consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in
restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between
companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of
compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's
costs in various industries and regions in the country win enable the former to practice price discrimination. CFC-Robina can segment the
entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every
market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it
competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of
opportunity to buy goods of the highest possible quality at the lowest prices.

Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of
SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any
stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely
for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of incorporations ... ."

Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the
by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-
law was being applied in a discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause
of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared
ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification.
Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to
the Board of Directors of another corporation is valid and reasonable.

In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to
protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which
reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who
are authorized to make by-laws and who have expressed their authority. 45

Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to
be misplaced. This power, but is very nature, is subject to certain well established limitations. One of these is inherent in the very convert and
definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each
possessing, in substantially similar if not Identical degree, certain characteristics essential to the business sought. It means an independent
endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to
secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial
duplication of an isolated or non-characteristics activity. 47 It is, therefore, obvious that not every person or entity engaged in business of the
same kind is a competitor. Such factors as quantum and place of business, Identity of products and area of competition should be taken into
consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same markets for similar
products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain the validity of
the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement
of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the
disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the
stockholders. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the
Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by
the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a
settled principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or
is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or misapplication of the corporation
assets, a court of equity has the power to grant appropriate relief. 50

III

Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel
International Inc., a fully owned subsidiary of San Miguel Corporation —

Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of
SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and
information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for
use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a
breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a listing of the
salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of
the US $100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January
1975 to May 1976, with deletions of sensitive data, which deletions were not objected to by petitioner.

Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are
handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having
started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal
guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would
amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9.4 million; and
(4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up
of breweries by SMI

These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the afore-mentioned documents. 51

Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and
minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours."

The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a ownership. 52 This right is predicated upon the necessity of self-protection. It is generally held by
majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him
with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 53 In other words,
the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to
the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to examine the books of the corporation must
be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify
curiosity, or for speculative or vexatious purposes. The weight of judicial opinion appears to be, that on application for mandamus to enforce
the right, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking
inspection. 56 Thus, it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good
faith or is used to the detriment of the corporation." 57 But the "impropriety of purpose such as will defeat enforcement must be set up the
corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the
stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or
motive. 58 It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the
manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of
others." 59

While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such
stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.

Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns
approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding
company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the corporations may
be required to be produced for examination, 60 and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all
incontents and purposes, the records of the parent even though subsidiary was not named as a party. 61 mandamus was likewise held proper
to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the
relation of principal or agent or something similar thereto. 62

On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation
domiciled and with its books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it
owned a vast majority of the stock of the subsidiary. 63Likewise, inspection of the books of an allied corporation by stockholder of the parent
company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of "persons
having an interest."64

In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of
the corporation included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control
in its office in New York."

In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used
the same offices and had Identical officers and directors.

In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation
"had been attempting to suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled
to copies of some documents which for some reason or another, respondent corporation is very reluctant in revealing to the petitioner
notwithstanding the fact that no harm would be caused thereby to the corporation." 67 There is no question that stockholders are entitled to
inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the
corporation, and generally take an account of the stewardship of the officers and directors. 68

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its
control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to
inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent
corporation's possession and control.

IV

Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment
of corporate funds in a foreign corporation

Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority
of the stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the
charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders.

Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should
not be thwarted but encouraged.

Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other
than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the
corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and
not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at
least two-thirds of the voting power is necessary. 69

As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as
its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made
in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for
the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of
SMI in Bermuda as a tax free reorganization.

Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the
issues was the legality of an investment made by Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of
2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The
lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the
investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the power of the
Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said:

"j. Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish is purpose as stated
in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire,
hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of
stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish
the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such
shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural
or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining
corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly
in any line of commerce of combination in restraint of trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967
Ed., p. 89) (Emphasis supplied.)

40. Power to invest corporate funds. — A private corporation has the power to invest its corporate funds "in any other
corporation or business, or for any purpose other than the main purpose for which it was organized, provide that 'its board
of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation
entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for
that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other
agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its
articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259).

Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a
corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other
agents. 70 This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate
transaction or contract which is within the corporate powers, but which is defective from a supported failure to observe in its execution the.
requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting
power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset.
"Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not illegal and void ab initio, but are not merely within the scope of
the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders.

Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate
purpose. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual
meeting of May 10, 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act, considering the
common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors, officers and
managers.

WHEREFORE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San
Miguel International, Inc., as specified by him.

On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo,
Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss
the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as
director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation,
whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to
this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws shall not apply to
petitioner.

The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of
respondent corporation as moot.

Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of
section 13(5) of the Corporation Law to petitioner.

Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result.

Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against
the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary
jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6,
1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's
disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court.

In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the
books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended
by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs.
R. No. 91478 February 7, 1991

ROSITA PEÑA petitioner,

vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN
BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT,respondents.

Cesar L. Villanueva for petitioner.

Martin N. Roque for private respondents.

GANCAYCO, J.:

The validity of the redemption of a foreclosed real property is the center of this controversy.

The facts as found by the respondent court are not disputed.

A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314,
4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the
amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the
said properties were awarded to Rosita Peña as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy
Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23).
The certificate of sale was registered on October 29, 1974 (Exh. G).

On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its
right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of
Assignment for and in behalf of PAMBUSCO in favor of any interested party . . ." (Exh. 24). Consequently, on March 18, 1975,
Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh.
25). The latter then redeemed the said properties and a certificate of redemption dated August 15, 1975 was issued in his favor by
Sheriff Zabat upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office
of the Provincial Sheriff of Pampanga (Exh. 26).

A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of
plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of P140,000.00 (Exh. F).

On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos.
4314, 4315 and 4316 and a Notice of a pending consulta was also annotated on the same titles concerning the Allied Trading case
entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of the aforesaid lots in the name of
the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Peña, the
resolution of the PAMBUSCO's board of directors assigning its redemption rights to any interested party, the deed of assignment
PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well
as the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants were all annotated on the
same certificates of title likewise on August 18, 1975. Also, on the same date, the Office of the Provincial Sheriff of San Fernando,
Pampanga informed defendant-appellee by registered mail "that the properties under TCT Nos. 4314, 4315 and 4316 . . . . were all
redeemed by Mr. Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may now get her money at the Sheriffs Office (Exh. J
and J-1).

On September 8, 1975, Peña wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of
assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the
lots in question (Exh. 27).

On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs.
PAMBUSCO, et al., ordered the Register of Deeds of Pampanga . . . to desist from registering or noting in his registry of property . .
. any of the following documents under contract, until further orders:

(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its
Board of Directors in favor of defendant Marcelino Enriquez;

(b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated
August 15, 1975;

(c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap. (Original
Record, p. 244)

On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that "the levy on attachment in
favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the
name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved" (Exh. G).

Meanwhile, defendant Peña, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the
ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;" hence
she "will now refuse to receive the redemption money . . . (Exh. 28).

On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking payment of back rentals in the amount of P42,750.00 "for the use and
occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga," and informing her of an increase in monthly
rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D).

In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of
the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol
Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap
was also annotated on TCT No. 4315 on June 16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was
cancelled on the same date.

No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed
without prejudice.
 Despite the foregoing, defendant-appellee Peña remained in possession of the lots in question hence, the spouses Yap were
prompted to file the instant case. 1

The antecedents of the present petition are as follows:

Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer
Certificate of Title (TCT) Nos. 148983-R, 148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to
recover possession over the subject lands from defendants Rosita Peña and Washington Distillery on the ground that being
registered owners, they have to enforce their right to possession against defendants who have been allegedly in unlawful possession
thereof since October 1974 "when the previous owners assigned (their) right to collect rentals . . . in favor of plaintiffs" (Record, p.
5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the
allegations in the complaint) up to December 1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a month from
January 1979 until the defendants finally vacate the . . . premises in question with interest at the legal rate (Record, p. 61).

In their answer, defendants Rosita Peña and Washington Distillery denied the material allegations of the complaint and by way of an
affirmative and special defense asserted that Peña is now the legitimate owner of the subject lands for having purchased the same
in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid redemption having been effected within
the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties under a
deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the
properties in question by redeeming the same on August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed
in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was that since the deed
of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors
and, for being without any valuable consideration, it could not have had any legal effect; hence, all the acts which flowed from it and
all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect.

Further, it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject
properties with the Register of Deeds to be issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case
No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his registry
of property . . . any of the above-mentioned documents under contest, until further orders. (Record, p. 11).

For its part, defendant Washington Distillery stated that it has never occupied the subject lots hence they should not have been
impleaded in the complaint.

The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino
Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of
these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that
TCT Nos. 148983-R, 148984-R and 148985-R, covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof,
corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Peña.

Thereafter, the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO, Jesus Domingo,
Joaquin Briones, Salvador Bernardez (as members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff
Edgardo Zabat of Pampanga. All these third-party defendants, how ever, were declared as in default for failure to file their answer,
except Edgardo Zabat who did file his answer but failed to appear at the pre-trial.

After trial, a decision was rendered by the court in favor of the defendants-appellees, to wit:

WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs
against the defendants and declaring as null and void the following:

(a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974 assigning the PAMBUSCO's
right of redemption concerning the parcels involved herein

(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to the resolution
referred to in the preceding paragraph;

(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino
Enriquez concerning these parcels;

(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning
the same parcels and

(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of Pampanga in the name of the plaintiffs also
covering these parcels.

Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of
defendant Rosita Peña the corresponding certificate of final sale involving the parcels bought by her in the auction sale of
October 25, 1974 for which a certificate of sale had been issued to her.

Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the
defendants/third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney's fees plus costs. 2

Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a
decision was rendered on June 20, 1989, the dispositive part of which reads as follows:

WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Peña is hereby
ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of
P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month thereafter, until appellee finally vacate (sic)
the premises with interest at the legal rate.

SO ORDERED.3

A motion for reconsideration filed by the appellee was denied in a resolution dated December 27, 1989.
Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors:

First Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE
VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS.

Second Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY
OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE
SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.

Third Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19
NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF
RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH
1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR
DONATIONS.

Sixth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN
FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE
PURCHASERS IN BAD FAITH.

Seventh Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT.4

The petition is impressed with merit.

First, the preliminary issues.

The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the matter falls within the jurisdiction of the
Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void.

In Philex Mining Corporation vs. Reyes, 5

this Court held that it is the fact of relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear
and decide intra-corporate disputes; that unless the controversy has arisen between and among stockholders of the corporation, or between
the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party
who is neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC.

In Union Glass & Container Corporation vs. Securities and Exchange Commission, 6 this Court defined the relationships which are covered
within "intra-corporate disputes" under Presidential Decree No. 902-A, as amended, as follows:

Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following
relationships (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or
association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the
state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates
themselves.

In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of PAMBUSCO. Consequently, the issue of the validity
of the series of transactions resulting in the subject properties being registered in the names of respondents Yap may be resolved only by the
regular courts.

Respondent court held that petitioner being a stranger to the questioned resolution and series of succeeding transactions has no legal
standing to question their validity.

In Teves vs. People's Homesite and Housing Corporation, 7

this Court held:

We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a
party in the deed, or because she is obliged principally or subsidiarily under the deed, but because she has an interest that is
affected by the deed. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract may
exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can
show the detriment which would positively result to him from the contract in which he had no intervention, Indeed, in the case now
before Us, the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and
between defendant PHHC and defendant Melisenda L. Santos. We believe that the plaintiff should be given a chance to present
evidence to establish that she suffered detriment and that she is entitled to relief. (Emphasis supplied.)
There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in
the name of respondent Yap spouses adversely affected the rights of petitioner to the said properties. Consequently, petitioner has the legal
standing to question the validity of said resolution and transactions.

As to the question of validity of the board resolution of respondent PAMBUSCO adopted on November 19, 1974, Section 4, Article III of the
amended by-laws of respondent PAMBUSCO, provides as follows:

Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days
before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings
shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity
of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of
any special meeting; Provided at least four Directors are present. (Emphasis supplied.) 8

The trial court in finding the resolution void held as follows:

On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared
invalid it having been approved in a meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which
attendance is short of the number required by the by-laws of the corporation.

xxx xxx xxx

In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of
PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely:
Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom.

As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the
members of the Board of Directors who were the only ones present at the said meeting, the deed of assignment subsequently
executed in favor of Marcelino Enriquez pursuant to this resolution also becomes null and void. . . . 9

However, the respondent court overturning said legal conclusions of the trial court made the following disquisition:

It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-laws would apply only in case of a failure
to notify the members of the board of directors on the holding of a special meeting, . . . .

In the instant case, however, there was no proof whatsoever, either by way of documentary or testimonial evidence, that there was
such a failure or irregularity of notice as to make the aforecited provision apply. There was not even such an allegation in the
Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board of
directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the
board resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the
Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring the nullity of the subject board
resolution must be set aside for lack of proof.

Moreover, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special
meeting should make all the acts of the board therein null and void ab initio. A cursory reading of the subject provision, as
aforequoted, would show that its framers only intended to make voidable a board meeting held without the necessary compliance
with the attendance requirement in the by-laws. Just the use of the word "invalidate" already denotes a legal imputation of validity
to the questioned board meeting absent its invalidation in the proceedings prescribed by the corporation's by-laws and/or the
general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it
does not follow that the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity
of the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid.
Considering that the subject special board meeting has not been declared void in a proper proceeding, nor even in the trial by the
court below, there is no reason why the acts of the board in the said special meeting should be treated as void AB. initio. . . . 10

The Court disagrees.

The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in
effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its
directors and officers must comply. 11

Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by
virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws
hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of
respondent PAMBUSCO.

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater
number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any
number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the
corporation; all that the attending directors could do is to adjourn. 12

Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as evidenced by a letter of the SEC to
said corporation dated April 17, 1980. 13 Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group
of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only
remaining asset of the corporation in favor of a former corporate officer.

As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of
respondent PAMBUSCO in the latest general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951. 14 Similarly,
the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were among the
stockholders of respondent PAMBUSCO. 15

Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be
directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of an and/or substantially all properties of the
corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the
voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a
subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of
the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code.
It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining
asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by
virtue of the questioned resolution was not approved by the required number of stockholders under the law, the said resolution, as well as the
subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption, should be struck down as
null and void.

Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the
consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services
rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a
donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance
must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form
and such step must be noted in both instruments. 16

Non-compliance with this requirement renders the donation null and void. 17 Since undeniably the deed of assignment dated March 8, 1975 in
question, 18 shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus
void ab initio and of no force and effect.

WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution
dated December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of
the trial court. SO ORDERED.
G.R. No. 117188 August 7, 1997

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,

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

ROMERO, J.:

May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the
Corporation Code, result in its automatic dissolution?

This is the issue raised in this petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the decision of the Home
Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners Association (LGVHA) as the
sole homeowners' association in Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City that was owned and
developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas homeowners (North) Association
Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South
Association).

LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas. It was registered with
the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole homeowners' organization in the said subdivision
under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first president was Victorio V.
Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.

Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. 2 To the officers' consternation, they
discovered that there were two other organizations within the subdivision — the North Association and the South Association. According to
private respondents, a non-resident and Soliven himself, respectively headed these associations. They also discovered that these associations
had five (5) registered homeowners each who were also the incorporators, directors and officers thereof. None of the members of the LGVHAI
was listed as member of the North Association while three (3) members of LGVHAI were listed as members of the South Association. 3 The
North Association was registered with the HIGC on February 13, 1989 under Certificate of Registration No. 04-1160 covering Phases West II,
East III, West III and East IV. It submitted its by-laws on December 20, 1988.

In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by
the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the association's
activities. Apparently, this information resulted in the registration of the South Association with the HIGC on July 27, 1989 covering Phases
West I, East I and East II. It filed its by-laws on July 26, 1989.

These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAI's
certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the
North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI.

On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC Hearing Officer Danilo C.
Javier who disposed of HIGC Case No. RRM-5-89 as follows:

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

The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the Board 4 dismissed the appeal
for lack of merit.

Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not LGVHAI's failure to file its
by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of LGVHAI. Second, whether
or not two homeowners' associations may be authorized by the HIGC in one "sprawling subdivision." However, in the Decision of August 23,
1994 being assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.

In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation commences to have corporate
existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its
official seal. The requirement for the filing of by-laws under Section 46 of the Corporation Code within one month from official notice of the
issuance of the certificate of incorporation presupposes that it is already incorporated, although it may file its by-laws with its articles of
incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said:

We also find nothing in the provisions cited by the petitioner, i.e., Section 46 and 22, Corporation Code, or in any other provision of
the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the period prescribed therein, may be interpreted
as a mandatory provision, particularly because of the use of the word "must," its meaning cannot be stretched to support the
argument that automatic dissolution results from non-compliance.

We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to adopt and file the by-
laws within the required period. Thus, Section 46 and other related provisions of the Corporation Code are to be construed with
Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed
therein. Among the grounds stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125).
Such suspension or revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A
refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or
suspend the certificates of registration or homeowners association. (Section 2 [a], E.O. 535, series 1979, transferred the powers
and authorities of the SEC over homeowners associations to the HIGC.)

We also do not agree with the petitioner's interpretation that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and
that the latter is invalid because it contravenes the former. There is no basis for such interpretation considering that these two
provisions are not inconsistent with each other. They are, in fact, complementary to each other so that one cannot be considered as
invalidating the other.
The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it continued to be the
duly registered homeowners' association in the Loyola Grand Villas. More importantly, the South Association did not dispute the fact that
LGVHAI had been organized and that, thereafter, it transacted business within the period prescribed by law.

On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC has the authority to order the holding of a referendum
to determine which of two contending associations should represent the entire community, village or subdivision.

Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for resolution the first issue it had
raised before the Court of Appeals, i.e., whether or not the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of
the Corporation Code had the effect of automatically dissolving the said corporation.

Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of by-laws, noncompliance therewith would result in
"self-extinction" either due to non-occurrence of a suspensive condition or the occurrence of a resolutory condition "under the hypothesis that
(by) the issuance of the certificate of registration alone the corporate personality is deemed already formed." It asserts that the Corporation
Code provides for a "gradation of violations of requirements." Hence, Section 22 mandates that the corporation must be formally organized
and should commence transaction within two years from date of incorporation. Otherwise, the corporation would be deemed dissolved. On the
other hand, if the corporation commences operations but becomes continuously inoperative for five years, then it may be suspended or its
corporate franchise revoked.

Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for non-filing of the by-
laws. However, it insists that no sanction need be provided "because the mandatory nature of the provision is so clear that there can be no
doubt about its being an essential attribute of corporate birth." To petitioner, its submission is buttressed by the facts that the period for
compliance is "spelled out distinctly;" that the certification of the SEC/HIGC must show that the by-laws are not inconsistent with the Code,
and that a copy of the by-laws "has to be attached to the articles of incorporation." Moreover, no sanction is provided for because "in the first
place, no corporate identity has been completed." Petitioner asserts that "non-provision for remedy or sanction is itself the tacit proclamation
that non-compliance is fatal and no corporate existence had yet evolved," and therefore, there was "no need to proclaim its demise." 6 In a
bid to convince the Court of its arguments, petitioner stresses that:

. . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication — its compulsion is integrated
in its very essence — MUST is always enforceable by the inevitable consequence — that is, "OR ELSE". The use of the word MUST in
Sec. 46 is no exception — it means file the by-laws within one month after notice of issuance of certificate of registration OR ELSE.
The OR ELSE, though not specified, is inextricably a part of MUST . Do this or if you do not you are "Kaput". The importance of the
by-laws to corporate existence compels such meaning for as decreed the by-laws is "the government" of the corporation. Indeed,
how can the corporation do any lawful act as such without by-laws. Surely, no law is indeed to create chaos. 7

Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does not provide sanctions for
non-filing of by-laws. For the petitioner, it is "not proper to assess the true meaning of Sec. 46 . . . on an unauthorized provision on such
matter contained in the said decree."

In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not mandatory. They point to
P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio
v. Intermediate Appellate Court, 8 private respondents contend that Section 6(I) of that decree provides that non-filing of by-laws is only a
ground for suspension or revocation of the certificate of registration of corporations and, therefore, it may not result in automatic dissolution
of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a
corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate existence and juridical
personality of a corporation begins from the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the
by-laws have not yet been filed, a corporation may be considered a de facto corporation. To emphasize the fact the LGVHAI was registered as
the sole homeowners' association in the Loyola Grand Villas, private respondents point out that membership in the LGVHAI was an
"unconditional restriction in the deeds of sale signed by lot buyers."

In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the word " must" in Section 46 of the
Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied to this case,
this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and regulations to implement
the Corporation Code can "rise above and change" the substantive provisions of the Code.

The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:

Sec. 46. Adoption of by-laws. — Every corporation formed under this Code, must within one (1) month after receipt of official notice
of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its
government not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or of at least a majority of the members, in the case of non-stock
corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in
the principal office of the corporation, subject to the stockholders or members voting for them and shall be kept in the principal
office of the corporation, subject to inspection of the stockholders or members during office hours; and a copy thereof, shall be filed
with the Securities and Exchange Commission which shall be attached to the original articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case,
such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission,
together with the articles of incorporation.

In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the
by-laws are not inconsistent with this Code.

The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that
such by-laws or amendments are in accordance with law.

As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of
the word "must" in this section Ordinarily, the word "must" connotes an imperative act or operates to impose a duty which may be
enforced. 9 It is synonymous with "ought" which connotes compulsion or mandatoriness. 10 However, the word "must" in a statute, like
"shall," is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret
"shall" as the context or a reasonable construction of the statute in which it is used demands or requires. 11 This is equally true as regards the
word "must." Thus, if the languages of a statute considered as a whole and with due regard to its nature and object reveals that the
legislature intended to use the words "shall" and "must" to be directory, they should be given that meaning. 12

In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating:
 MR. FUENTEBELLA. Thank you, Mr. Speaker.

On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must immediately be
filed within one month after the issuance? In other words, would this be mandatory or directory in character?

MR. MENDOZA. This is mandatory.

MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation to file these by-laws
within one month?

MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the consequences of violations of
any provision of this Code. One such consequences is the dissolution of the corporation for its inability, or perhaps, incurring certain
penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to file the by-laws within
one month. Supposing the corporation was late, say, five days, what would be the mandatory penalty?

MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the corporation. Perhaps, as in the
case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is brought, one takes into account the gravity
of the violation committed. If the by-laws were late — the filing of the by-laws were late by, perhaps, a day or two, I would suppose
that might be a tolerable delay, but if they are delayed over a period of months — as is happening now — because of the absence of
a clear requirement that by-laws must be completed within a specified period of time, the corporation must suffer certain
consequences. 13

This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the
intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides
the answer to the issue propounded by petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum
statutum), 14 Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word "must" in
the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to
incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws
"within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation. By-laws
may be necessary for the "government" of the corporation but these are subordinate to the articles of incorporation as well as to the
Corporation Code and related statutes. 15 There are in fact cases where by-laws are unnecessary to corporate existence or to the valid
exercise of corporate powers, thus:

In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation
or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the
government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt
by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation
which would otherwise be valid. 16 (Emphasis supplied.)

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been adopted the corporation
may not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them.
This would seem to follow as a matter of principle from the office and functions of by-laws. Viewed in this light, the adoption of by-
laws is a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a
corporation may impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes.
And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and
adopt by-laws and specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the
existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power
essential to its corporate life, or to the validity of any of its acts. 17

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same
within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent
provisions on the jurisdiction of the SEC of which state:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx xxx xxx

(1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships
or associations, upon any of the grounds provided by law, including the following:

xxx xxx xxx

5. Failure to file by-laws within the required period;

xxx xxx xxx

In the exercise of the foregoing authority and jurisdiction of the Commission or by a Commissioner or by such other bodies, boards,
committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty
(30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of
procedures to govern the proceedings, hearings and appeals of cases falling with its jurisdiction.

The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for
review in accordance with the pertinent provisions of the Rules of Court.

Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolutionsimply because the
incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise"
of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In
other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took
effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted
supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari
materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes
as to form a uniform system of jurisprudence. 18

As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns
and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," 19 by-laws are
indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an
orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the
automatic dissolution of a corporation.

In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v.Intermediate Appellate
Court, 20 as follows:

. . . . Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a
ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the
corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works
within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the
Corporation Code, expressly declared that "every corporation formed under this Act, must within one month after the filing of the
articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be
given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A.
Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or
revocation of the certificate of registration of corporations.

Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD 902-A, the SEC is
empowered to "suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation" on
the ground inter alia of "failure to file by-laws within the required period." It is clear from this provision that there must first of all be
a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation
but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time
may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm.

It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate
personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not
prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under
Section 19 of the Corporation Code, a Corporation commences its corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This
may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted "within one
month after receipt of official notice of the issuance of its certificate of incorporation." 21

That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the
specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1989. 22 With
respect to homeowners associations, the HIGC shall "exercise all the powers, authorities and responsibilities that are vested on the Securities
and Exchange Commission . . . , the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding." 23

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED.
This Decision is immediately executory. Costs against petitioner. SO ORDERED.
G.R. No. 108905 October 23, 1997

GRACE CHRISTIAN HIGH SCHOOL, petitioner,

vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

MENDOZA, J.:

The question for decision in this case is the right of petitioner's representative to sit in the board of directors of respondent Grace Village
Association, Inc. as a permanent member thereof. For fifteen years — from 1975 until 1989 — petitioner's representative had been
recognized as a "permanent director" of the association. But on February 13, 1990, petitioner received notice from the association's
committee on election that the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to continue as an
unelected member of the board. As the board denied petitioner's request to be allowed representation without election, petitioner brought an
action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was
subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's
appeals board. Hence this petition for review based on the following contentions:

1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village
Association;

2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and
binding; and

3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the
Association without the benefit of election is allowed under the law. 1

Briefly stated, the facts are as follows:

Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace
Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners,
lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of
the committee on election, respectively, in 1990, when this suit was brought.

As adopted in 1968, the by-laws of the association provided in Article IV, as follows:

The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year
at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the
Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and
have qualified. 2

It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as
follows: 3

VI. ANNUAL MEETING

The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year.
Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has
acquired thru his monthly membership fees onlycomputed on a ratio of TEN (P10.00) PESOS for one vote.

The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen
(14) highest number of votes shall be declared and proclaimed elected until their successors are elected and
qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.

This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the
board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the association's
committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by
members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen
(15) members of the Board," and "it is undemocratic for a person or entity to hold office in perpetuity." 4 For this reason, Tan was told that
"the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously
tolerated in the past elections should be reexamined." Following this advice, notices were sent to the members of the association that the
provision on election of directors of the 1968 by-laws of the association would be observed.

Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections,
claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of
1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board." 5

As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the
board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion
of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof:

The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen
(14) highest number of votes shall be declared and proclaimed elected until their successors are elected and
qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.

It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that
in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to
the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68).

Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition
for mandamus was merely "a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or
HIGC." It argued that "the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association
and not the proposed amended by-laws." 6

In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the association was estopped from questioning the
by-laws. 7
A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of
directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and
a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the
board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-
laws to be effective.

On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's action. The hearing officer held that the
amended by-laws, upon which petitioner based its claim, "[was] merely a proposed by-laws which, although implemented in the past, had not
yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in the meeting held on April
17, 1990, the directors of the association declared "the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . .
. null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the association is to operate until such time
that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and
approved by the pertinent government agency." The hearing officer rejected petitioner's contention that it had acquired a vested right to a
permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that
departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to
say that "allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the
registered by-laws of respondent association." 8

The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of
the SEC based on §92 of the Corporation Code which reads:

§92. Election and term of trustees. — Unless otherwise provided in the articles of incorporation or the by-laws, the board
of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of
the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of
trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to
fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period.

The HIGC appeals board denied claims that the school "[was] being deprived of its right to be a member of the Board of Directors of
respondent association," because the fact was that "it may nominate as many representatives to the Association's Board as it may
deem appropriate." It said that "what is merely being upheld is the act of the incumbent directors of the Board of correcting a long
standing practice which is not anchored upon any legal basis." 9

Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the
HIGC. The Court of Appeals held that there was no valid amendment of the association's by-laws because of failure to comply with the
requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special
meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws provides: 10

The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the
purpose, may alter, amend, change or adopt any new by-laws.

This provision of the by-laws actually implements §22 of the Corporation Law (Act No. 1459) which provides:

§22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock,
may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The
owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may
delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however,
That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be
considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a
regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not
hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless
accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law.

The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these
provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were
duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the
proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends: 11

Considering, therefore, that the "agents" or committee were duly authorized to draft the amended by-laws and the acts
done by the "agents" were in accordance with such authority, the acts of the "agents" from the very beginning were lawful
and binding on the homeowners (the principals) per sewithout need of any ratification or adoption. The more has the
amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of
the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized "agents" but
express approval and confirmation of what the "agents" did pursuant to the authority granted to them.

Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner:

The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the
Association themselves and this grant has been implemented by members of the board themselves all through the years.
Outside the present membership of the board, not a single member of the Association has registered any desire to remove
the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away
such right of the petitioner, it would be the individual members of the Association through a referendum and not the
present board some of the members of which are motivated by personal interest.

Petitioner disputes the ruling that the provision in question, giving petitioner's representative a permanent seat in the board of the
association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected
members of boards of directors of corporations. Referring to §92 of the present Corporation Code, petitioner says:

It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the
board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is
even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above
provisions [are] not even mandatory.

Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock
corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there
is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as
in the instant case.
 If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the
laws of the Philippines.

One example is the Plus XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of
Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically
sits as the Chairman of the Board of Trustees, again without need of any election.

Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this
corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year
without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.

It is actually §§28 and 29 of the Corporation Law — not §92 of the present law or §29 of the former one — which require members of the
boards of directors of corporations to be elected. These provisions read:

§28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be
exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five
nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the
members of the corporation: Provided, however, That in corporations, other than banks, in which the United States has or
may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended,
and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the
President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among
the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added)

§29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined,
directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter
the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members
if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on
the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks' notice of the
election of directors must be given by publication in some newspaper of general circulation devoted to the publication of
general news at the place where the principal office of the corporation is established or located, and by written notice
deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each
member, at his last known place of residence. If there be no newspaper published at the place where the principal office of
the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks
immediately preceding the election in at least three public places, in the place where the principal office of the corporation
is established or located. (Emphasis added)

The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980, 12 similarly provides:

§23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be electedfrom among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are
elected and qualified. (Emphasis added)

These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of
corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in
the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as
long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the
board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only
in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary,
appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain
validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.
For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail
because no provision of the by-laws can be adopted if it is contrary to law. 13

It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was
contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of
directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered
ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise
to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the existence of the
association." 14

Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that
jurisdiction over this case is exclusively vested in the HIGC.
But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman.
The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be
elected and it would be none the worse for doing so. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED.
G.R. No. L-26649 July 13, 1927

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-General), plaintiff,
vs.
EL HOGAR FILIPINO, defendant.

Attorney-General Jaranilla and Solicitor-General Reyes for plaintiff.

Fisher, DeWitt, Perkins and Brady; Camus, Delgado and Recto and Antonio Sanz for defendant.
Wm. J. Rohde as amicus curiae.

STREET, J.:

This is a quo warranto proceeding instituted originally in this court by the Government of the Philippine Islands on the relation of the
Attorney-General against the building and loan association known as El Hogar Filipino, for the purpose of depriving it of its corporate
franchise, excluding it from all corporate rights and privileges, and effecting a final dissolution of said corporation. The complaint enumerates
seventeen distinct causes of action, to all of which the defendant has answered upon the merits, first admitting the averments of the first
paragraph in the statement of the first cause of action, wherein it is alleged that the defendant was organized in the year 1911 as a building
and loan association under the laws of the Philippine Islands, and that, since its organization, the corporation has been doing business in the
Philippine Islands, with its principal office in the City of Manila. Other facts alleged in the various causes of action in the complaint are either
denied in the answer or controverted in legal effect by other facts.

After issue had been thus joined upon the merits, the attorneys entered into an elaborate agreement as to the fact, thereby removing from
the field of dispute such matters of fact as are necessary to the solution of the controversy. It follows that we are here confronted only with
the legal questions arising upon the agreed statement.

On March 1, 1906, the Philippine Commission enacted what is known as the Corporation Law (Act No. 1459) effective upon April 1 of the
same year. Section 171 to 190, inclusive, of this Act are devoted to the subject of building and loan associations, defining their objects
making various provisions governing their organization and administration, and providing for the supervision to be exercised over them.
These provisions appear to be adopted from American statutes governing building and loan associations and they of course reflect the ideals
and principles found in American law relative to such associations. The respondent, El Hogar Filipino, was apparently the first corporation
organized in the Philippine Islands under the provisions cited, and the association has been favored with extraordinary success. The articles of
incorporation bear the date of December 28, 1910, at which time capital stock in the association had been subscribed to the amount of
P150,000 of which the sum of P10,620 had been paid in. Under the law as it then stood, the capital of the Association was not permitted to
exceed P3,000,000, but by Act No. 2092, passed December 23, 1911, the statute was so amended as to permit the capitalization of building
and loan associations to the amount of ten millions. Soon thereafter the association took advantage of this enactment by amending its articles
so as to provide that the capital should be in an amount not exceeding the then lawful limit. From the time of its first organization the number
of shareholders has constantly increased, with the result that on December 31, 1925, the association had 5,826 shareholders holding 125,750
shares, with a total paid-up value of P8,703,602.25. During the period of its existence prior to the date last above-mentioned the association
paid to withdrawing stockholders the amount of P7,618,257,.72; and in the same period it distributed in the form of dividends among its
stockholders the sum of P7,621,565.81.

First cause of action. — The first cause of action is based upon the alleged illegal holding by the respondent of the title to real property for a
period in excess of five years after the property had been bought in by the respondent at one of its own foreclosure sales. The provision of
law relevant to the matter is found in section 75 of Act of Congress of July 1, 1902 (repeated in subsection 5 of section 13 of the Corporation
Law.) In both of these provisions it is in substance declared that while corporations may loan funds upon real estate security and purchase
real estate when necessary for the collection of loans, they shall dispose of real estate so obtained within five years after receiving the title.

In this connection it appears that in the year 1920 El Hogar Filipino was the holder of a recorded mortgage upon a tract of land in the
municipality of San Clemente, Province of Tarlac, as security for a loan of P24,000 to the shareholders of El Hogar Filipino who were the
owners of said property. The borrowers having defaulted in their payments, El Hogar Filipino foreclosed the mortgage and purchased the land
at the foreclosure sale for the net amount of the indebtedness, namely, the sum of P23,744.18. The auction sale of the mortgaged property
took place November 18, 1920, and the deed conveying the property to El Hogar Filipino was executed and delivered December 22, 1920. On
December 27, 1920, the deed conveying the property to El Hogar Filipino was sent to the register of deeds of the Province of Tarlac, with the
request that the certificate of title then standing in the name of the former owners be cancelled and that a new certificate of title be issued in
the name of El Hogar Filipino. Said deed was received in the office of the register of deeds of Tarlac on December 28, 1920, together with the
old certificate of title, and thereupon the register made upon the said deed the following annotation:

The foregoing document was received in this office at 4.10 p. m., December 28, 1920, according to entry 1898, page 50 of Book
One of the Day Book and registered on the back of certificate of title No. 2211 and its duplicate, folio 193 of Book A-10 of the
register of original certificate. Tarlac, Tarlac, January 12, 1921. (Sgd.) SILVINO LOPEZ DE JESUS, Register of Deeds.

For months no reply was received by El Hogar Filipino from the register of deeds of Tarlac, and letters were written to him by El Hogar Filipino
on the subject in March and April, 1921, requesting action. No answer having been received to these letters, a complaint was made by El
Hogar Filipino to the Chief of the General Land Registration Office; and on May 7, 1921, the certificate of title to the San Clemente land was
received by El Hogar Filipino from the register of deeds of Tarlac.

On March 10, 1921, the board of directors of El Hogar Filipino adopted a resolution authorizing Vicente Bengzon, an agent of the corporation,
to endeavor to find a buyer for the San Clemente land. On July 27, 1921, El Hogar Filipino authorized one Jose Laguardia to endeavor to find
a purchaser for the San Clemente land for the sum of P23,000 undertaking to pay the said Laguardia a commission of 5 per centum of the
selling price for his services, but no offers to purchase were obtained through this agent or through the agent Bengzon. In July, 1923, plans
of the San Clemente land were sent to Mr. Luis Gomez, Mr. J. Gonzalez and Mr. Alfonso de Castelvi, as prospective purchasers, but no offers
were received from them. In January, 1926, the agent not having succeeded in finding a buyer, the San Clemente land was advertised for
sale by El Hogar Filipino in El Debate, La Vanguardia and Taliba, three newspapers of general circulation in the Philippine Islands published in
the City of Manila. On March 16, 1926, the first offer for the purchase of the San Clemente land was received by El Hogar Filipino. This offer
was made to it in writing by one Alcantara, who offered to buy it for the sum of P4,000, Philippine currency, payable P500 in cash, and the
remainder within thirty days. Alcantara's offer having been reported by the manager of El Hogar Filipino to its board of directors, it was
decided, by a resolution adopted at a meeting of the board held on March 25, 1926, to accept the offer, and this acceptance was
communicated to the prospective buyer. Alcantara was given successive extensions of the time, the last of which expired April 30, 1926,
within which to make the payment agreed upon; and upon his failure to do so El Hogar Filipino treated the contract with him as rescinded,
and efforts were made at once to find another buyer. Finally the land was sold to Doña Felipa Alberto for P6,000 by a public instrument
executed before a notary public at Manila, P. I., on July 30, 1926.

Upon consideration of the facts above set forth it is evident that the strict letter of the law was violated by the respondent; but it is equally
obvious that its conduct has not been characterized by obduracy or pertinacity in contempt of the law. Moreover, several facts connected with
the incident tend to mitigate the offense. The Attorney-General points out that the respondent acquired title on December 22, 1920, when the
deed was executed and delivered, by which the property was conveyed to it as purchaser at its foreclosure sale, and this title remained in it
until July 30, 1926, when the property was finally sold to Felipa Alberto. The interval between these two conveyances is thus more than five
years; and it is contended that the five year period did not begin to run against the respondent until May 7, 1921, when the register of deeds
of Tarlac delivered the new certificate of title to the respondent pursuant to the deed by which the property was acquired. As an equitable
consideration affecting the case this contention, though not decisive, is in our opinion more than respectable. It has been held by this court
that a purchaser of land registered under the Torrens system cannot acquire the status of an innocent purchaser for value unless his vendor is
able to place in his hands an owner's duplicate showing the title of such land to be in the vendor (Director of Lands vs. Addison, 49, Phil., 19;
Rodriguez vs. Llorente, G. R. No. 266151). It results that prior to May 7, 1921, El Hogar Filipino was not really in a position to pass an
indefeasible title to any purchaser. In this connection it will be noted that section 75 of the Act of Congress of July 1, 1902, and the similar
provision in section 13 of the Corporation Law, allow the corporation "five years after receiving the title," within which to dispose of the
property. A fair interpretation of these provisions would seem to indicate that the date of the receiving of the title in this case was the date
when the respondent received the owner's certificate, or May 7, 1921, for it was only after that date that the respondent had an unequivocal
and unquestionable power to pass a complete title. The failure of the respondent to receive the certificate sooner was not due in any wise to
its fault, but to unexplained delay on the part of the register of deeds. For this delay the respondent cannot be held accountable.

Again, it is urged for the respondent that the period between March 25, 1926, and April 30, 1926, should not be counted as part of the five-
year period. This was the period during which the respondent was under obligation to sell the property to Alcantara, prior to the rescission of
the contract by reason of Alcantara's failure to make the stipulated first payment. Upon this point the contention of the respondent is, in our
opinion, well founded. The acceptance by it of Alcantara's offer obligated the respondent to Alcantara; and if it had not been for the default of
Alcantara, the effective sale of the property would have resulted. The respondent was not at all chargeable with the collapse of these
negotiations; and hence in any equitable application of the law this period should be deducted from the five-year period within which the
respondent ought to have made the sale. Another circumstance explanatory of the respondent's delay in selling the property is found in the
fact that it purchased the property for the full amount of the indebtedness due to it from the former owner, which was nearly P24,000. It was
subsequently found that the property was not salable for anything like that amount and in the end it had to be sold for P6,000,
notwithstanding energetic efforts on the part of the respondent to find a purchaser upon better terms.

The question then arises whether the failure of the respondent to get rid of the San Clemente property within five years after it first acquired
the deed thereto, even supposing the five-year period to be properly counted from that date, is such a violation of law as should work a
forfeiture of its franchise and require a judgment to be entered for its dissolution in this action of quo warranto. Upon this point we do not
hesitate to say that in our opinion the corporation has not been shown to have offended against the law in a manner that should entail a
forfeiture of its charter. Certainly no court with any discretion to use in the matter would visit upon the respondent and its thousands of
shareholders the extreme penalty of the law as a consequence of the delinquency here shown to have been committed.

The law applicable to the case is in our opinion found in section 212 of the Code of Civil Procedure, as applied by this court in Government of
the Philippine Islands vs. Philippine Sugar Estates Development Co. (38 Phil., 15). This section (212), in prescribing the judgment to be
rendered against a corporation in an action of quo warranto, among other things says:

. . . When it is found and adjudged that a corporation has offended in any matter or manner which does not by law work as a
surrender or forfeiture, or has misused a franchise or exercised a power not conferred by law, but not of such a character as to work
a surrender or forfeiture of its franchise, judgment shall be rendered that it be outset from the continuance of such offense or the
exercise of such power.

This provision clearly shows that the court has a discretion with respect to the infliction of capital punishment upon corporation and that there
are certain misdemeanors and misuses of franchises which should not be recognized as requiring their dissolution. In Government of the
Philippine Islands vs. Philippine Sugar Estates Development Co. (38 Phil., 15), it was found that the offending corporation had been largely
(though indirectly) engaged in the buying and holding or real property for speculative purposes in contravention of its charter and contrary to
the express provisions of law. Moreover, in that case the offending corporation was found to be still interested in the properties so purchased
for speculative at the time the action was brought. Nevertheless, instead of making an absolute and unconditional order for the dissolution of
the corporation, the judgment of ouster was made conditional upon the failure of the corporation to discontinue its unlawful conduct within six
months after final decision. In the case before us the respondent appears to have rid itself of the San Clemente property many months prior
to the institution of this action. It is evident from this that the dissolution of the respondent would not be an appropriate remedy in this case.
We do not of course undertake to say that a corporation might not be dissolved for offenses of this nature perpetrated in the past, especially
if its conduct had exhibited a willful obduracy and contempt of law. We content ourselves with holding that upon the facts here before us the
penalty of dissolution would be excessively severe and fraught with consequences altogether disproportionate to the offense committed.

The evident purpose behind the law restricting the rights of corporations with respect to the tenure of land was to prevent the revival of the
entail (mayorazgo) or other similar institution by which land could be fettered and its alienation hampered over long periods of time. In the
case before us the respondent corporation has in good faith disposed of the piece of property which appears to have been in its hands at the
expiration of the period fixed by law, and a fair explanation is given of its failure to dispose of it sooner. Under these circumstances the
destruction of the corporation would bring irreparable loss upon the thousand of innocent shareholders of the corporation without any
corresponding benefit to the public. The discretion permitted to this court in the application of the remedy of quo warranto forbids so radical a
use of the remedy.

But the case for the plaintiff supposes that the discretion of this court in matters like that now before us has been expressly taken away by
the third section of Act No. 2792, and that the dissolution of the corporation is obligatory upon the court a mere finding that the respondent
has violated the provision of the Corporation Law in any respect. This makes necessary to examine the Act last above-mentioned with some
care. Upon referring thereto, we find that it consists of three sections under the following style:

No. 2792. — An Act to amend certain sections of the Corporation Law, Act Numbered Fourteen hundred and fifty-nine, providing for
the publication of the assets and liabilities of corporations registering in the Bureau of Commerce and Industry, determining the
liability of the officers of corporations with regard to the issuance of stock or bonus, establishing penalties for certain things, and for
other purposes.

The first two section contain amendments to the Corporation Law with respect to matters with which we are not here concurred. The third
section contains anew enactment to be inserted as section 190 (A) in the corporation Law immediately following section 190. This new section
reads as follows:

SEC. 190. (A). Penalties. — The violation of any of the provisions of this Act and its amendments not otherwise penalized therein,
shall be punished by a fine of not more than one thousand pesos, or by imprisonment for not more than five years, or both, in the
discretion of the court. If the violation being proved, be dissolved by quo warranto proceedings instituted by the Attorney-General or
by any provincial fiscal, by order of said Attorney-General: Provided, That nothing in this section provided shall be construed to
repeal the other causes for the dissolution of corporation prescribed by existing law, and the remedy provided for in this section
shall be considered as additional to the remedies already existing.

The contention for the plaintiff is to the effect that the second sentence in this enactment has entirely abrogated the discretion of this court
with respect to the application of the remedy of qou warranto, as expressed in section 212 of the Code of Civil Procedure, and that it is now
mandatory upon us to dissolved any corporation whenever we find that it has committed any violation of the Corporation Law, however
trivial. In our opinion in this radical view of the meaning of the enactment is untenable. When the statute says, "If the violation is committed
by a corporation, the same shall, upon such violation being proved, be dissolved by quo warranto proceedings . . .," the intention was to
indicate that the remedy against the corporation shall be by action of quo warranto. There was no intention to define the principles governing
said remedy, and it must be understood that in applying the remedy the court is still controlled by the principles established in immemorial
jurisprudence. The interpretation placed upon this language in the brief of the Attorney-General would be dangerous in the extreme, since it
would actually place the life of all corporate investments in the official. No corporate enterprise of any moment can be conducted perpetually
without some trivial misdemeanor against corporate law being committed by some one or other of its numerous employees. As illustrations of
the preposterous effects of the provision, in the sense contended for by the Attorney-General, the attorneys for the respondent have called
attention to the fact that under section 52 of the Corporation Law, a business corporation is required to keep a stock book and a transfer book
in which the names of stockholders shall kept in alphabetical order. Again, under section 94, railroad corporations are required to cause all
employees working on passenger trains or at a station for passengers to wear a badge on his cap or hat which will indicate his office. Can it
be supposed that the Legislature intended to penalize the violation of such provisions as these by dissolution of the corporation involved?
Evidently such could not have been the intention; and the only way to avoid the consequence suggested is to hold, as we now hold, that the
provision now under consideration has not impaired the discretion of this court in applying the writ of quo warranto.

Another way to put the same conclusion is to say that the expression "shall be dissolved by quo warrantoproceedings" means in effect, "may
be dissolved by quo warranto proceedings in the discretion of the court." The proposition that the word "shall" may be construed as "may",
when addressed by the Legislature to the courts, is well supported in jurisprudence. In the case of Becker vs. Lebanon and M. St. Ry.
Co., (188 Pa., 484), the Supreme Court of Pennsylvania had under consideration a statute providing as follows:

It shall be the duty of the court . . . to examine, inquire and ascertain whether such corporation does in fact posses the right or
franchise to do the act from which such alleged injury to private rights or to the rights and franchises of other corporations results;
and if such rights or franchises have not been conferred upon such corporations, such courts, it exercising equitable power, shall, by
injunction, at suit of the private parties or other corporations, restrain such injurious acts.

In an action based on this statute the plaintiff claimed injunctive relief as a matter of right. But this was denied the court saying:

Notwithstanding, therefore, the use of the imperative "shall" the injunction is not to be granted unless a proper case for injunction
be made out, in accordance with the principles and practice of equity. The word "shall" when used by the legislature to a court, is
usually a grant of authority and means "may", and even if it be intended to be mandatory it must be subject to the necessary
limitation that a proper case has been made out for the exercise of the power.

Other authorities amply sustain this view (People vs. Nusebaum, 66 N. Y. Supp., 129, 133; West Wisconsin R. Co.vs. Foley, 94 U. S., 100,
103; 24 Law. Ed., 71; Clancy vs. McElroy, 30 Wash., 567; 70 Pac., 1095; State vs. West, 3 Ohio State, 509, 511; In re Lent, 40 N. Y. Supp.,
570, 572; 16 Misc. Rep., 606; Ludlow vs. Ludlow's Executors, 4 N. J. Law [1 Sothard], 387, 394; Whipple vs. Eddy, 161 Ill., 114;43 N. E.,
789, 790; Borkheim vs. Fireman's Fund Ins. Co., 38 Cal., 505, 506; Beasley vs. People, 89 Ill., 571, 575; Donnelly vs. Smith, 128 Iowa, 257;
103 N. W., 776).

But section 3 of Act No. 2792 is challenged by the respondent on the ground that the subject-matter of this section is not expressed in the
title of the Act, with the result that the section is invalid. This criticism is in our opinion well founded. Section 3 of our organic law (Jones Bill)
declares, among other things, that "No bill which may be enacted into law shall embrace more than one subject, and that subject shall be
expressed in the title of the bill." Any law or part of a law passed by the Philippine Legislature since this provision went into effect and
offending against its requirement is necessarily void.

Upon examining the entire Act (No. 2792), we find that it is directed to three ends which are successively dealt with in the first three sections
of the Act. But it will be noted that these three matters all relate to the Corporation Law; and it is at once apparent that they might properly
have been embodied in a single Act if a title of sufficient unity and generality had been prefixed thereto. Furthermore, it is obvious, even upon
casual inspection, that the subject-matter of each of the first two sections is expressed and defined with sufficient precision in the title. With
respect to the subject-matter of section 3 the only words in the title which can be taken to refer to the subject-matter of said section are
these, "An Act . . . establishing penalties for certain things, and for other purposes." These words undoubtedly have sufficient generality to
cover the subject-matter of section 3 of the Act. But this is not enough. The Jones Law requires that the subject-matter of the bill "shall be
expressed in the title of the bill."

When reference is had to the expression "establishing penalties for certain things," it is obvious that these words express nothing. The
constitutional provision was undoubtedly adopted in order that the public might be informed as to what the Legislature is about while bills are
in process of passage. The expression "establishing penalties for certain things" would give no definite information to anybody as to the
project of legislation intended under this expression. An examination of the decided cases shows that courts have always been indulgent of
the practices of the Legislature with respect to the form and generality of title, for if extreme refinements were indulged by the courts, the
work of legislation would be unnecessarily hampered. But, as has been observed by the California court, there must be some reasonable limit
to the generality of titles that will be allowed. The measure of legality is whether the title is sufficient to give notice of the general subject of
the proposed legislation to the persons and interests likely to be affected.

In Lewis vs. Dunne (134 Cal., 291), the court had before it a statute entitled "An Act to revise the Code of Civil Procedure of the State of
California, by amending certain sections, repealing others, and adding certain new sections." This title was held to embrace more than one
subject, which were not sufficiently expressed in the title. In discussing the question the court said:

* * * It is apparent that the language of the title of the act in question, in and of itself, express no subject whatever. No one could
tell from the title alone what subject of legislation was dealt with in the body of the act; such subject so far as the title of the act
informs us, might have been entirely different from anything to be found in the act itself.

We cannot agree with the contention of some of respondent's counsel — apparently to some extent countenanced by a few
authorities — that the provision of the constitution in question can be entirely avoided by the simple device of putting into the title
of an act words which denote a subject "broad" enough to cover everything. Under that view, the title, "An act concerning the laws
of the state," would be good, and the convention and people who framed and adopted the constitution would be convicted of the
folly of elaborately constructing a grave constitutional limitation of legislative power upon a most important subject, which the
legislature could at once circumvent by a mere verbal trick. The word "subject" is used in the constitution embrace but "one subject"
it necessarily implies — what everybody knows — that there are numerous subjects of the legislation, and declares that only one of
these subjects shall embraced in any one act. All subjects cannot be conjured into one subject by the mere magic of a word in a
title.

In Rader vs. Township of Union (39 N. J. L., 509, 515), the Supreme Court of New Jersey made the following observation:

* * * It is true, that it may be difficult to indicate, by a formula, how specialized the title of a statute must be; but it is not difficult
to conclude that it must mean something in the way of being a notice of what is doing. Unless it does not enough that it embraces
the legislative purpose — it must express it; and where the language is too general, it will accomplish the former, but not the latter.
Thus, a law entitled "An act for a certain purpose," would embrace any subject, but would express none, and, consequently, it would
not stand the constitutional test.

The doctrine properly applicable in matters of this kind is, we think, fairly summed up in a current repository of jurisprudence in the following
language:

* * * While it may be difficult to formulate a rule by which to determine the extent to which the title of a bill must specialize its
object, it may be safely assumed that the title must not only embrace the subject of proposed legislation, but also express it clearly
and fully enough to give notice of the legislative purpose. (25 R. C. L., p. 853.)
In dealing with the problem now before us the words "and for other purposes "found at the end of the caption of Act No. 2792, must be laid
completely out of consideration. They express nothing, and amount to nothing as a compliance with the constitutional requirement to which
attention has been directed. This expression "(for other purposes") is frequently found in the title of acts adopted by the Philippine
Legislature; and its presence in our laws is due to the adoption by our Legislature of the style used in Congression allegation. But it must be
remembered that the legislation of Congress is subject to no constitutional restriction with respect to the title of bills. Consequently, in
Congressional legislation the words "and for other purposes" at least serve the purpose of admonishing the public that the bill whose heading
contains these words contains legislation upon other subjects than that expressed in the title. Now, so long as the Philippine Legislature was
subject to no restriction with respect to the title of bills intended for enactment into general laws, the expression "for other purposes" could
be appropriately used in titles, not precisely for the purpose of conveying information as to the matter legislated upon, but for the purpose ad
admonishing the public that any bill containing such words in the title might contain other subjects than that expressed in the definitive part
of the title. But, when congress adopted the Jones Law, the restriction with which we are now dealing became effective here and the words
"for other purposes" could no longer be appropriately used in the title of legislative bills. Nevertheless, the custom of using these words has
still been followed, although they can no longer serve to cover matter not germane to the bill in the title of which they are used. But the
futility of adding these words to the style of any act is now obvious (Cooley, Const. Lims., 8th ed., p. 302)

In the brief for the plaintiff it is intimated that the constitutional restriction which we have been discussing is more or less of a dead letter in
this jurisdiction; and it seems to be taken for granted that no court would ever presume to hold a legislative act or part of a legislative act
invalid for non-compliance with the requirement. This is a mistake; and no utterance of this court can be cited as giving currency to any such
notion. On the contrary the discussion contained in Central Capiz vs. Ramirez (40 Phil., 883), shows that when a case arises where a violation
of the restriction is apparent, the court has no alternative but to declare the legislation affected thereby to be invalid.

Second cause of action. — The second cause of action is based upon a charge that the respondent is owning and holding a business lot, with
the structure thereon, in the financial district of the City of Manila is excess of its reasonable requirements and in contravention of subsection
5 of section 13 of the corporation Law. The facts on which this charge is based appear to be these:

On August 28, 1913, the respondent purchased 1,413 square meters of land at the corner of Juan Luna Street and the Muelle de la Industria,
in the City of Manila, immediately adjacent to the building then occupied by the Hongkong and Shanghai Banking Corporation. At the time the
respondent acquired this lot there stood upon it a building, then nearly fifty years old, which was occupied in part by the offices of an
importing firm and in part by warehouses of the same firm. The material used in the construction was Guadalupe stone and hewn timber, and
the building contained none of the facilities usually found in a modern office building.

In purchase of a design which had been formed prior to the purchase of the property, the directors of the El Hogar Filipino caused the old
building to be demolished; and they erected thereon a modern reinforced concrete office building. As at first constructed the new building was
three stories high in the main, but in 1920, in order to obtain greater advantage from the use of the land, an additional story was added to
the building, making a structure of four stories except in one corner where an additional story was place, making it five stories high over an
area of 117.52 square meters. It is admitted in the plaintiffs brief that this "noble and imposing structure" — to use the words of the
Attorney-General — "has greatly improved the aspect of the banking and commercial district of Manila and has greatly contributed to the
movement and campaign for the Manila Beautiful." It is also admitted that the competed building is reasonably proportionate in value and
revenue producing capacity to the value of the land upon which it stands. The total outlay of the respondent for the land and the
improvements thereon was P690,000 and at this valuation the property is carried on the books of the company, while the assessed valuation
of the land and improvements is at P786,478.

Since the new building was completed the respondent has used about 324 square meters of floor space for its own offices and has rented the
remainder of the office space in said building, consisting of about 3,175 square meters, to other persons and entities. In the second cause of
action of the complaint it is supposed that the acquisition of this lot, the construction of the new office building thereon, and the subsequent
renting of the same in great part to third persons, are ultra vires acts on the part of the corporation, and that the proper penalty to be
enforced against it in this action is that if dissolution.

With this contention we are unable to agree. Under subsection 5 of section 13 of the Corporation Law, every corporation has the power to
purchase, hold and lease such real property as the transaction of the lawful business of the corporation may reasonably and necessarily
require. When this property was acquired in 1916, the business of El Hogar Filipino had developed to such an extent, and its prospects for the
future were such as to justify its directors in acquiring a lot in the financial district of the City of Manila and in constructing thereon a suitable
building as the site of its offices; and it cannot be fairly said that the area of the lot — 1,413 square meters — was in excess of its reasonable
requirements. The law expressly declares that corporations may acquire such real estate as is reasonably necessary to enable them to carry
out the purposes for which they were created; and we are of the opinion that the owning of a business lot upon which to construct and
maintain its offices is reasonably necessary to a building and loan association such as the respondent was at the time this property was
acquired. A different ruling on this point would compel important enterprises to conduct their business exclusively in leased offices — a result
which could serve no useful end but would retard industrial growth and be inimical to the best interests of society.

We are furthermore of the opinion that, inasmuch as the lot referred to was lawfully acquired by the respondent, it is entitled to the full
beneficial use thereof. No legitimate principle can discovered which would deny to one owner the right to enjoy his (or its) property to the
same extent that is conceded to any other owner; and an intention to discriminate between owners in this respect is not lightly to be imputed
to the Legislature. The point here involved has been the subject of consideration in many decisions of American courts under statutes even
more restrictive than that which prevails in this jurisdiction; and the conclusion has uniformly been that a corporations whose business may
properly be conducted in a populous center may acquire an appropriate lot and construct thereon an edifice with facilities in excess of its own
immediate requirements.

Thus in People vs. Pullman's Palace-Car Co. (175 Ill., 125; 64 L. R. A., 366), it appeared that the respondent corporation owned and
controlled a large ten-story business block in the City of Chicago, worth $2,000,000, and that it occupied only about one-fourth thereof for its
own purposes, leasing the remainder to others at heavy rentals. The corporate charter merely permitted the holding of such real estate by the
respondent as might be necessary for the successful prosecution of its business. An attempt was made to obtain the dissolution of the
corporation in a quo warranto proceeding similar to that now before us, but the remedy was denied.

In Rector vs. Hartford Deposit Co., a question was raised as to the power of the Deposit Company to erect and own a fourteen-story building
— containing eight storerooms, one hundred suites of offices, and one safety deposit vault, under a statute authorizing the corporation to
possess so much real estate "as shall be necessary for the transaction of their business." The court said:

That the appellee company possessed ample power to acquire real property and construct a building thereon for the purpose of
transacting therein the legitimate business of the corporation is beyond the range of debate. Nor is the contrary contended, but the
insistence is that, under the guise of erecting a building for corporate purposes, the appellee company purposely constructed a much
larger building than its business required, containing many rooms intended to be rented to others for offices and business purposes,
— among them, the basement rooms contracted to be leased to the appellant, — and that in so doing it designedly exceeded its
corporate powers. The position off appellant therefore is that the appellee corporation has flagrantly abused its general power to
acquire real estate and construct a building thereon . . . It was within the general scope of the express powers of the appellee
corporation to own and possess a building necessary for its proper corporate purposes. In planning and constructing such a building,
as was said in People vs. Pullman's Palace Car Co., supra, the corporation should not necessarily be restricted to a building
containing the precise number of rooms its then business might require, and no more, but that the future probable growth and
volume of its business might be considered and anticipated, and a larger building, and one containing more rooms than the present
volume of business required be erected, and the rooms not needed might be rented by the corporation, — provided, of course, such
course should be taken in good faith, and not as a mere evasion of the public law and the policy of the state relative to the
ownership of real estate by corporations. In such state of case the question is whether the corporation has abused or excessively
 and unjustifiably used the power and authority granted it by the state to construct buildings and own real estate necessary for its
corporate purposes.

In Home savings building Association vs. Driver (129 Ky., 754), one of the questions before the court was precisely the same as that now
before us. Upon this the Supreme Court of Kentucky said:

The third question is, has the association the right to erect, remodel, or own a building of more than sufficient capacity to
accommodate its own business and to rent out the excess? There is nothing in the Constitution, charter of the association, or
statutes placing any limitation upon the character of a building which a corporation may erect as a home in which to conduct its
business. A corporation conducting a business of the character of that in which appellant is engaged naturally expects its business to
grow and expand from time to time, and, in building a home it would be exercising but a short-sighted judgment if it did not make
provision for the future by building a home large enough to take care of its expanding business, and hence, even if it should build a
house larger and roomier than its present needs or interests require, it would be acting clearly with the exercise of its corporate
right and power. The limitation which the statute imposes is that proper conduct of its business, but it does not attempt to place any
restriction or limitation upon the right of the corporation or association as to the character of building it shall erect on said real
estate; and, while the Constitution and the statutes provide that no corporation shall engage in any business other than that
expressly authorized by its charter, we are of opinion that, in renting out the unoccupied and unused portions of the building so
erected, the association could not be said to engaged in any other business than that authorized by its charter. The renting of the
unused portions of the building is a mere incident in the conduct of its real business. We would not say that a building association
might embark in the business of building houses and renting or leasing them, but there is quite a difference in building or renting a
house in which to conduct its own business and leasing the unused portion thereof for the time being, or until such time as they may
be needed by the association, and in building houses for the purpose of renting or leasing them. The one might properly be said to
be the proper exercise of a power incident to the conduct of its legitimate business, whereas the other would be a clear violation of
that provision of the statute which denies to any corporation the right to conduct any business other than that authorized by its
charter. To hold otherwise would be to charge most of the banking institutions, trust companies and other corporations, such as title
guaranty companies, etc., doing with violating the law; for it is known that there are few of such institutions that do not, at times,
rent out or lease the unneeded portions of the building occupied by them as homes. We do not think that in so doing they are
violating any provisions of the law, but that the renting out of the unused or unoccupied portions of their buildings is but an incident
in the conduct of their business.

In Wingert vs. First National Bank of Hagerstown, Md. (175 Fed., 739, 741), a stockholder sought to enjoin the bank from building a six-story
building owned by the bank in the commercial district of Hagerstown of which only the first story was to be used by the bank, the remaining
stories to be rented out for offices and places of business, on the theory that such action was ultra vires and in violation of the provisions of
the national banking act confining such corporations to the holding, only, of such real estate "as shall be necessary for its immediate
accommodation in the transaction of its business."

The injunction was denied, the court adopting the opinion of the lower court in which the following was said:

'The other ground urged by the complainant is that the proposed action is violative of the restriction which permits a national bank
to hold only such real estate as shall be necessary for its immediate accommodation in the transaction of its business, and that,
therefore, the erection of a building which will contain offices not necessary for the business of the bank is not permitted by the law,
although that method of improving the lot may be the most beneficial use that can be made of it. It is matter of common knowledge
that the actual practice of national banks is to the contrary. Where ground is valuable, it may probably be truly said that the
majority of national bank buildings are built with accommodations in excess of the needs of the bank for the purpose of lessening
the bank's expense by renting out the unused portion. If that were not allowable, many smaller banks in cities would be driven to
become tenants as the great cost of the lot would be prohibitive of using it exclusively for the banking accommodation of a single
bank. As indicative of the interpretation of the law commonly received and acted upon, reference may be made to the reply of the
Comptroller of the Currency to the injury by the bank in this case asking whether the law forbids the bank constructing such a
building as was contemplated.

'The reply was follows: "Your letter of the 9th instant received, stating that the directors contemplate making improvements in the
bank building and inquiring if there is anything in the national banking laws prohibiting the construction of a building which will
contain floors for offices to be rented out by the bank as well as the banking room. Your attention is called to the case of Brown vs.
Schleier, 118 Fed., 981 [55 C. C. A, 475], in which the court held that: 'If the land which a national bank purchases or leases for the
accommodation of its business is very valuable it may exercise the same rights that belong to other landowners of improving it in a
way that will yield the largest income, lessen its own rent, and render that part of its funds which are invested in realty most
productive.'" This seems to be the common sense interpretation of the act of Congress and is the one which prevails.'

It would seem to be unnecessary to extend the opinion by lengthy citations upon the point under consideration, butBrown vs. Schleier (118
Fed., 981), may be cited as being in harmony with the foregoing authorities. In dealing with the powers of a national bank the court, in this
case, said:

When an occasion arises for an investment in real property for either of the purposes specified in the statute the national bank act
permits banking associations to act as any prudent person would act in making an investment in real estate, and to exercise the
same measure of judgment and discretion. The act ought not to be construed in such as way as to compel a national bank, when it
acquires real property for a legitimate purpose, to deal with it otherwise than a prudent land owner would ordinarily deal with such
property.

In the brief of the Attorney-General reliance is place almost entirely upon two Illinois cases, namely Africani Home Purchase and Loan
Association vs. Carroll (267 Ill., 380), and First Methodist Episcopal Church of Chicago vs. Dixon (178 Ill., 260). In our opinion these cases are
either distinguishable from that now before us, or they reflect a view of the law which is incorrect. At any rate the weight of judicial opinion is
so overwhelmingly in favor of sustaining the validity of the acts alleged in the second cause of action to have been done by the respondent in
excess of its powers that we refrain from commenting at any length upon said cases. The ground stated in the second cause of action is in our
opinion without merit.

Third cause of action. — Under the third cause of action the respondent is charged with engaging in activities foreign to the purposes for
which the corporation was created and not reasonable necessary to its legitimate ends. The specifications under this cause of action relate to
three different sorts of activities. The first consist of the administration of the offices in the El Hogar building not used by the respondent itself
and the renting of such offices to the public. As stated in the discussion connected with the second cause of action, the respondent uses only
about ten per cent of the office space in the El Hogar building for its own purposes, and it leases the remainder to strangers. In the years
1924 and 1925 the respondent received as rent for the leased portions of the building the sums of P75,395.06 and P58,259.27, respectively.
The activities here criticized clearly fall within the legitimate powers of the respondent, as shown in what we have said above relative to the
second cause of action. This matter will therefore no longer detain us. If the respondent had the power to acquire the lot, construct the edifice
and hold it beneficially, as there decided, the beneficial administration by it of such parts of the building as are let to others must necessarily
be lawful.

The second specification under the third cause of action has reference to the administration and management of properties belonging to
delinquent shareholders of the association. In this connection it appears that in case of delinquency on the part of its shareholders in the
payment of interest, premium, and dues, the association has been accustomed (pursuant to clause 8 of its standard mortgage) to take over
and manage the mortgaged property for the purpose of applying the income to the obligations of the debtor party. For these services the
respondent charges a commission at the rate of 2½ per centum on sums collected. The case for the government supposes that the only
remedy which the respondent has in case of default on the part of its shareholders is to proceed to enforce collection of the whole loan in the
manner contemplated in section 185 of the Corporation Law. It will be noted, however, that, according to said section, the association may
treat the whole indebtedness as due, "at the option of the board of directors," and this remedy is not made exclusive. We see no reason to
doubt the validity of the clause giving the association the right to take over the property which constitutes the security for the delinquent debt
and to manage it with a view to the satisfaction of the obligations due to the debtor than the immediate enforcement of the entire obligation,
and the validity of the clause allowing this course to be taken appears to us to be not open to doubt. The second specification under this
cause of action is therefore without merit, as was true of the first.

The third specification under this cause of action relates to certain activities which are described in the following paragraphs contained in the
agreed statements of facts:.

El Hogar Filipino has undertaken the management of some parcels of improved real estate situated in Manila not under mortgage to
it, but owned by shareholders, and has held itself out by advertisement as prepared to do so. The number of properties so managed
during the years 1921 to 1925, inclusive, was as follows:

1921 eight properties

1922 six properties

1923 ten properties

1924 fourteen properties

1925 fourteen properties.

This service is limited to shareholders; but some of the persons whose properties are so managed for them became shareholders
only to enable them to take advantage thereof.

The services rendered in the management of such improved real estate by El Hogar Filipino consist in the renting of the same, the
payment of real estate taxes and insurance for the account of the owner, causing the necessary repairs for upkeep to be made, and
collecting rents due from tenants. For the services so rendered in the management of such properties El Hogar Filipino receives
compensation in the form of commissions upon the gross receipts from such properties at rates varying from two and one-half per
centum to five per centum of the sums so collected, according to the location of the property and the effort involved in its
management.

The work of managing real estate belonging to non-borrowing shareholders administered by El Hogar Filipino is carried on by the
same members of the staff who attend to the details of the management of properties administered by the manager of El Hogar
Filipino under the provisions of paragraph 8 of the standard mortgage form, and of properties bought in on foreclosure of mortgage.

The practice described in the passage above quoted from the agreed facts is in our opinion unauthorized by law. Such was the view taken by
the bank examiner of the Treasury Bureau in his report to the Insular Treasurer on December 21, 1925, wherein the practice in question was
criticized. The administration of property in the manner described is more befitting to the business of a real estate agent or trust company
than to the business of a building and loan association. The practice to which this criticism is directed relates of course solely to the
management and administration of properties which are not mortgaged to the association. The circumstance that the owner of the property
may have been required to subscribe to one or more shares of the association with a view to qualifying him to receive this service is of no
significance. It is a general rule of law that corporations possess only such express powers. The management and administration of the
property of the shareholders of the corporation is not expressly authorized by law, and we are unable to see that, upon any fair construction
of the law, these activities are necessary to the exercise of any of the granted powers. The corporation, upon the point now under the
criticism, has clearly extended itself beyond the legitimate range of its powers. But it does not result that the dissolution of the corporation is
in order, and it will merely be enjoined from further activities of this sort.

Fourth cause of action. — It appears that among the by laws of the association there is an article (No. 10) which reads as follows:

The board of directors of the association, by the vote of an absolute majority of its members, is empowered to cancel shares and to
return to the owner thereof the balance resulting from the liquidation thereof whenever, by reason of their conduct, or for any other
motive, the continuation as members of the owners of such shares is not desirable.

This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly
declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of
liquidation of the corporation or of forfeiture of the stock for delinquency. It is agreed that this provision of the by-laws has never been
enforced, and in fact no attempt has ever been made by the board of directors to make use of the power therein conferred. In November,
1923, the Acting Insular Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its by-laws and expressing the view
that said article was invalid. It was therefore suggested that the article in question should be eliminated from the by-laws. At the next
meeting of the board of directors the matter was called to their attention and it was resolved to recommend to the shareholders that in their
next annual meeting the article in question be abrogated. It appears, however, that no annual meeting of the shareholders called since that
date has been attended by a sufficient number of shareholders to constitute a quorum, with the result that the provision referred to has no
been eliminated from the by-laws, and it still stands among the by-laws of the association, notwithstanding its patent conflict with the law.

It is supposed, in the fourth cause of action, that the existence of this article among the by-laws of the association is a misdemeanor on the
part of the respondent which justifies its dissolution. In this view we are unable to concur. The obnoxious by-law, as it stands, is a mere
nullity, and could not be enforced even if the directors were to attempt to do so. There is no provision of law making it a misdemeanor to
incorporate an invalid provision in the by-laws of a corporation; and if there were such, the hazards incident to corporate effort would
certainly be largely increased. There is no merit in this cause of action.

Fifth cause of action. — In section 31 of the Corporation Law it is declared that, "at all elections of directors there must be present, either in
person or by representative authorized to act by written proxy, the owners of the majority of the subscribed capital stock entitled to vote. . .
." Conformably with this requirement it is declared in article 61 of the by-laws of El Hogar Filipino that, "the attendance in person or by proxy
of shareholders owning one-half plus one of the shareholders shall be necessary to constitute a quorum for the election of directors. At the
general annual meetings of the El Hogar Filipino held in the years 1911 and 1912, there was a quorum of shares present or represented at
the meetings and directors were duly elected accordingly. As the corporation has grown, however, it has been fond increasingly difficult to get
together a quorum of the shareholders, or their proxies, at the annual meetings; and with the exception of the annual meeting held in 1917,
when a new directorate was elected, the meetings have failed for lack of quorum. It has been foreseen by the officials in charge of the
respondent that this condition of affairs would lead to embarrassment, and a special effort was made by the management to induce a
sufficient number of shareholders to attend the annual meeting for February, 1923. In addition to the publication of notices in the
newspapers, as required by the by-laws, a letter of notification was sent to every shareholder at his last known address, together with a blank
form of proxy to be used in the event the shareholder could not personally attend the meeting. Notwithstanding these special efforts the
meeting was attended only by shareholders, in person and by proxy, representing 3,889 shares, out of a total of 106,491 then outstanding
and entitled to vote.

Owing to the failure of a quorum at most of the general meetings since the respondent has been in existence, it has been the practice of the
directors to fill vacancies in the directorate by choosing suitable persons from among the stockholders. This custom finds its sanction in article
71 of the by-laws, which reads as follows:

ART. 71. The directors shall elect from among the shareholders members to fill the vacancies that may occur in the board of
directors until the election at the general meeting.

The person thus chosen to fill vacancies in the directorate have, it is admitted, uniformly been experienced and successful business and
professional men of means, enjoying earned incomes of from P12,000 to P50,000 per annum, with an annual average of P30,000 in addition
to such income as they derive from their properties. Moreover, it appears that several of the individuals constituting the original directorate
and persons chosen to supply vacancies therein belong to prominent Filipino families, and that they are more or less related to each other by
blood or marriage. In addition to this it appears that it has been the policy of the directorate to keep thereon some member or another of a
single prominent American law firm in the city.

It is supposed in the statement of the fifth cause of action in the complaint that the failure of the corporation to hold annual meetings and the
filling of vacancies in the directorate in the manner described constitute misdemeanors on the part of the respondent which justify the
resumption of the franchise by the Government and dissolution of the corporation; and in this connection it is charge that the board of
directors of the respondent has become a permanent and self perpetuating body composed of wealthy men instead of wage earners and
persons of moderate means. We are unable to see the slightest merit in the charge. No fault can be imputed to the corporation on account of
the failure of the shareholders to attend the annual meetings; and their non-attendance at such meetings is doubtless to be interpreted in
part as expressing their satisfaction of the way in which things have been conducted. Upon failure of a quorum at any annual meeting the
directorate naturally holds over and continues to function until another directorate is chosen and qualified. Unless the law or the charter of a
corporation expressly provides that an office shall become vacant at the expiration of the term of office for which the officer was elected, the
general rule is to allow the officer to holdover until his successor is duly qualified. Mere failure of a corporation to elect officers does not
terminate the terms of existing officers nor dissolve the corporation (Quitman Oil Company vs. Peacock, 14 Ga. App., 550; Jenkins vs. Baxter,
160 Pa. State, 199; New York B. & E. Ry. Co. vs. Motil, 81 Conn., 466; Hatch vs. Lucky Bill Mining Company, 71 Pac., 865; Youree vs. Home
Town Matual Ins. Company, 180 Missouri, 153; Cassell vs. Lexington, H. and P. Turnpike Road Co., 10 Ky. L. R., 486). The doctrine above
stated finds expressions in article 66 of the by-laws of the respondent which declares in so many words that directors shall hold office "for the
term of one year on until their successors shall have been elected and taken possession of their offices."

It result that the practice of the directorate of filling vacancies by the action of the directors themselves is valid. Nor can any exception be
taken to then personality of the individuals chosen by the directors to fill vacancies in the body. Certainly it is no fair criticism to say that they
have chosen competent businessmen of financial responsibility instead of electing poor persons to so responsible a position. The possession of
means does not disqualify a man for filling positions of responsibility in corporate affairs.

Sixth cause of action. — Under the sixth cause of action it is alleged that the directors of El Hogar Filipino, instead of serving without pay, or
receiving nominal pay or a fixed salary, — as the complaint supposes would be proper, — have been receiving large compensation, varying in
amount from time to time, out of the profits of the respondent. The facts relating to this cause of action are in substance these:

Under section 92 of the by-laws of El Hogar Filipino 5 per centum of the net profit shown by the annual balance sheet is distributed to the
directors in proportion to their attendance at meetings of the board. The compensation paid to the directors from time to time since the
organization was organized in 1910 to the end of the year 1925, together with the number of meetings of the board held each year, is
exhibited in the following table:

Compensation Number of Rate per

Year paid directors meetings meeting
as a whole held as a whole

1911 .................................. P 4,167.96 25 P 166.71

1912 .................................. 10,511.87 29 362.47

1913 .................................. 15,479.29 27 573.30

1914 .................................. 19,164.72 27 709.80

1915 .................................. 24,032.85 25 961.31

1916 .................................. 27,539.50 28 983.55

1917 .................................. 31,327.00 26 1,204.88

1918 .................................. 32,858.35 20 1,642.91

1919 .................................. 36,318.78 21 1,729.46

1920 .................................. 63,517.01 28 2,268.46

1921 .................................. 36,815.33 25 1,472.61

1922 .................................. 43,133.73 25 1,725.34

1923 .................................. 39,773.61 27 1,473.09

1924 .................................. 38,651.92 26 1,486.61

1925 .................................. 35,719.27 26 1,373.81

It will be note that the compensation above indicated as accruing to the directorate as a whole has been divided among the members actually
present at the different meetings. As a result of this practice, and the liberal measure of compensation adopted, we find that the attendance
of the membership at the board meetings has been extraordinarily good. Thus, during the years 1920 to 1925, inclusive, when the board was
composed of nine members, the attendance has regularly been eight meeting with the exception of two years when the average attendance
was seven. It is insisted in the brief for the Attorney-General that the payment of the compensation indicated is excessive and prejudicial to
he interests of the shareholders at large. For the respondent, attention is directed to the fact that the liberal policy adopted by the association
with respect to the compensation of the directors has had highly beneficial results, not only in securing a constant attendance on the part of
the membership, but in obtaining their intelligent attention to the affairs of the association. Certainly, in this connection, the following words
from the report of the government examiners for 1918 to the Insular Treasurer contain matter worthy of consideration:
The management of the association is entrusted to men of recognized ability in financial affairs and it is believed that they have long foreseen
all possible future contingencies and that under such men the interests of the stockholders are duly protected. The steps taken by the
directorate to curtail the influx of unnecessary capital into the association's coffers, as mentioned above, reveals how the men at grasp the
situation and to apply the necessary remedy as the circumstances were found in the same excellent condition as in the previous examination.

In so far as this court is concerned the question here before us is not one concerning the propriety and wisdom of the measure of
compensation adopted by the respondent but rather the question of the validity of the measure. Upon this point there can, it seems to us, be
no difference of intelligent opinion. The Corporation Law does not undertake to prescribe the rate of compensation for the directors of
corporations. The power to fixed the compensation they shall receive, if any, is left to the corporation, to be determined in its by-laws(Act No.
1459, sec. 21). Pursuant to this authority the compensation for the directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as
already stated. The justice and property of this provision was a proper matter for the shareholders when the by-laws were framed; and the
circumstance that, with the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would
probably be necessary to secure adequate service from them is matter that cannot be corrected in this action; nor can it properly be made a
basis for depriving the respondent of its franchise, or even for enjoining it from compliance with the provisions of its own by-laws. If a
mistake has been made, or the rule adopted in the by-laws meeting to change the rule. The remedy, if any, seems to lie rather in publicity
and competition, rather than in a court proceeding. The sixth cause of action is in our opinion without merit.

Seventh cause of action. — It appears that the promoter and organizer of El Hogar Filipino was Mr. Antonio Melian, and in the early stages of
the organization of the association the board of directors authorized the association to make a contract with him with regard to the services
him therefor. Pursuant to this authority the president of the corporation, on January 11, 1911, entered into a written agreement with Mr.
Melian, which is reproduced in the agreed statement of facts and of which the important clauses are these:

1. The corporation "El Hogar Filipino Sociedad Mutua de Construccion y Prestamos," and on its behalf its president, Don Antonio R.
Roxas, hereby confers on Don Antonio Melian the office of manager of said association for the period of one year from the date of
this contract.

2. Don Antonio Melian accepts said office and undertakes to render the services thereto corresponding for the period of one year, as
prescribed by the by-laws of the corporation, without salary.

3. Don Antonio Melian furthermore undertakes to pay for his own account, all the expenses incurred in the organization of the
corporation.

4. Don Antonio Melian further undertakes to lend to the corporation, without interest the sum of six thousand pesos (P6,000),
Philippine Currency, for the purpose of meeting the expense of rent, office supplies, etcetera, until such time as the association has
sufficient funds of its own with which to return this loan:Provided, nevertheless, That the maximum period thereof shall not exceed
three (3) years.

5. Don Antonio Melian undertakes that the capital of the association shall amount to the sum of four hundred thousand pesos
(P400,000), Philippine currency, par value, during the first year of its duration.

6. In compensation of the studies made and services rendered by Don Antonio Melian for its organization, the expenses incurred by
him to that end, and in further consideration of the said loan of six thousand pesos (P6,000), and of the services to be rendered by
him as manager, and of the obligation assumed by him that the nominal value of the capital of the association shall reach the sum
of four hundred thousand pesos (P400,000) during the first year of its duration, the corporation 'El Hogar Filipino Sociedad Mutua de
Construccion y Prestamos' hereby grants him five per centum (5%) of the net profits to be earned by it in each year during the
period fixed for the duration of the association by its articles of incorporation; Provided, that this participation in the profits shall be
transmitted to the heirs of Señor Melian in the event of his death;And provided further, that the performance of all the obligations
assumed by Señor Melian in favor of the association, in accordance with this contract, shall and does constitute a condition
precedent to the acquisition by Señor Melian of the right to the said participation in the profits of the association, unless the non-
performance of such obligations shall be due to a fortuitous event or force majeure.

In conformity with this agreement there was inserted in section 92 of the by-laws of the association a provision recognizing the rights of
Melian, as founder, to 5 per centum of the net profits shown by the annual balance sheet, payment of the same to be made to him or his
heirs during the life of the association. It is declared in said article that this portion of the earnings of the association is conceded to him in
compensation for the studies, work and contributions made by him for the organization of El Hogar Filipino and the performance on his part of
the contract of January 11, 1911, above quoted. During the whole life of the association, thus far, it has complied with the obligations
assumed by it in the contract above- mentioned; and during the years 1911 to 1925, inclusive, it paid to him as founder's royalty the sum of
P459,011.19, in addition to compensation received from the association by him in to remuneration of services to the association in various
official capacities.

As a seventh cause of action it is alleged in the complaint that this royalty of the founder is "unconscionable, excessive and out of all
proportion to the services rendered, besides being contrary to and incompatible with the spirit and purpose of building and loan associations."
It is not alleged that the making of this contract was beyond the powers of the association (ultra vires); nor it alleged that it is vitiated by
fraud of any kind in its procurement. Nevertheless, it is pretended that in making and observing said contract the respondent committed an
offense requiring its dissolution, or, as is otherwise suggested, that the association should be enjoined from performing the agreement.

It is our opinion that this contention is entirely without merit. Stated in its true simplicity, the primary question here is whether the making of
a (possibly) indiscreet contract is a capital offense in a corporation, — a question which answers itself. No possible doubt exists as to the
power of a corporation to contract for services rendered and to be rendered by a promoter in connection with organizing and maintaining the
corporation. It is true that contracts with promoters must be characterized by good faith; but could it be said with certainty, in the light of
facts existing at the time this contract was made, that the compensation therein provided was excessive? If the amount of the compensation
now appears to be a subject of legitimate criticism, this must be due to the extraordinary development of the association in recent years.

If the Melian contract had been clearly ultra vires — which is not charged and is certainly untrue — its continued performance might
conceivably be enjoined in such a proceeding as this; but if the defect from which it suffers is mere matter for an action because Melian is not
a party. It is rudimentary in law that an action to annul a contract cannot be maintained without joining both the contracting parties as
defendants. Moreover, the proper party to bring such an action is either the corporation itself, or some shareholder who has an interest to
protect.

The mere fact that the compensation paid under this contract is in excess of what, in the full light of history, may be considered appropriate is
not a proper consideration for this court, and supplies no ground for interfering with its performance. In the case of El Hogar Filipino vs.
Rafferty (37 Phil., 995), which was before this court nearly ten years ago, this court held that the El Hogar Filipino is contract with Mr. Melian
did not affect the association's legal character. The inference is that the contract under consideration was then considered binding, and it
occurred to no one that it was invalid. It would be a radical step indeed for a court to attempt to substitute its judgment for the judgment of
the contracting parties and to hold, as we are invited to hold under this cause of action, that the making of such a contract as this removes
the respondent association from the pale of the law. The majority of the court is of the opinion that our traditional respect for the sanctity of
the contract obligation should prevail over the radical and innovating tendencies which find acceptance with some and which, if given full rein,
would go far to sink legitimate enterprise in the Islands into the pit of populism and bolshevism. The seventh count is not sustainable.
Eight cause of action. — Under the fourth cause of action we had case where the alleged ground for the revocation of the respondent's charter
was based upon the presence in the by-laws of article 10 that was found to be inconsistent with the express provisions of law. Under the eight
cause of action the alleged ground for putting an end to the corporate life of the respondent is found in the presence of other articles in the
by-laws, namely, articles 70 and 76, which are alleged to be unlawful but which, as will presently be seen, are entirely valid. Article 70 of the
by-laws in effect requires that persons elected to the board of directors must be holders of shares of the paid up value of P5,000 which shall
be held as security may be put up in the behalf of any director by some other holder of shares in the amount stated. Article 76 of the by-laws
declares that the directors waive their right as shareholders to receive loans from the association.

It is asserted, under the eight cause of action, that article 70 is objectionable in that, under the requirement for security, a poor member, or
wage-earner, cannot serve as director, irrespective of other qualifications and that as a matter of fact only men of means actually sit on the
board. Article 76 is criticized on the ground that the provision requiring directors to renounce their right to loans unreasonably limits their
rights and privileges as members. There is nothing of value in either of theses suggestions. Section 21 of the Corporation Law expressly gives
the power to the corporation to provide in its by-laws for the qualifications of directors; and the requirement of security from them for the
proper discharge of the duties of their office, in the manner prescribed in article 70, is highly prudent and in conformity with good practice.
Article 76, prohibiting directors from making loans to themselves, is of course designed to prevent the possibility of the looting of the
corporation by unscrupulous directors. A more discreet provision to insert in the by-laws of a building and loan association would be hard to
imagine. Clearly, the eighth cause of action cannot be sustained.

Ninth cause of action. — The specification under this head is in effect that the respondent has abused its franchise in issuing "special" shares.
The issuance of these shares is allege to be illegal and inconsistent with the plan and purposes of building and loan associations; and in
particular, it is alleged and inconsistent with the plan and purposes of building and loan associations; and in particular, it is alleged that they
are, in the main, held by well-to-wage-earners for accumulating their modest savings for the building of homes.

In the articles of incorporation we find the special shares described as follows:

"Special" shares shall be issued upon the payment of 80 per cent of their par value in cash, or in monthly dues of P10. The 20 per
cent remaining of the par value of such shares shall be completed by the accumulation thereto of their proportionate part of the
profits of the corporation. At the end of each quarter the holders of special shares shall be entitled to receive in cash such part of
the net profits of the corporation corresponding to the amount on such date paid in by the holders of special shares, on account
thereof, as shall be determined by the directors, and at the end of each year the full amount of the net profits available for
distribution corresponding to the special shares. The directors shall apply such part as they deem advisable to the amortization of
the subscription to capital with respect to shares not fully paid up, and the remainder of the profits, if any, corresponding to such
shares, shall be delivered to the holders thereof in accordance with the provision of the by-laws.

The ground for supposing the issuance of the "special" shares to be unlawful is that special shares are not mentioned in the Corporation Law
as one of the forms of security which may be issued by the association. In the agreed statement of facts it is said that special shares are
issued upon two plans. By the second, the shareholder, upon subscribing, pays in cash P10 for each share taken, and undertakes to pay P10
a month, as dues, until the total so paid in amounts to P160 per share. On December 31, 1925, there were outstanding 20,844 special shares
of a total paid value (including accumulations ) of P3,680,162.51. The practice of El Hogar Filipino, since 1915, has been to accumulate to
each special share, at the end of the year, one-tenth of the divident declared and to pay the remainder of the divident in cash to the holders
of shares. Since the same year dividend have been declared on the special and common shares at the rate of 10 per centum per annum.
When the amount paid in upon any special share plus the accumulated dividends accruing to it, amounts to the par value of the share (P200),
such share matures and ceases to participate further in the earning. The amount of the par value of the share (P200) is then returned to the
shareholder and the share cancelled. Holders of special and ordinary shares participate ratably in the dividends declared and distributed, the
part pertaining to each share being computed on the basis of the capital paid in, plus the accumulated dividends pertaining to each share at
the end of the year. The total number of shares of El Hogar Filipino outstanding on December 31, 1925, was 125,750, owned by 5,826
shareholders, and dividend into classes as follows:

Preferred shares .................................. 1,503

Special shares ..................................... 20,884

Ordinary shares .................................. 103,363

The matter of the propriety of the issuance of special shares by El Hogar Filipino has been before this court in two earlier cases, in both of
which the question has received the fullest consideration from this court. In El Hogar Filipino vs. Rafferty (37 Phil., 995), it was insisted that
the issuance of such shares constituted a departure on the part of the association from the principle of mutuality; and it was claimed by the
Collector of Internal Revenue that this rendered the association liable for the income tax to which other corporate entities are subject. It was
held that this contention was untenable and that El Hogar Filipino was a legitimate building and loan association notwithstanding the issuance
of said shares. In Sevireno vs. El Hogar Filipino (G. R. No. 24926),2 and the related cases of Gervasio Miraflores and Gil Lopes against the
same entity, it was asserted by the plaintiffs that the emission of special shares deprived the herein responded of the privileges and
immunities of a building and loan association and that as a consequence the loans that had been made to the plaintiffs in those cases were
usurious. Upon an elaborate review of the authorities, the court, though divided, adhered to the principle announced in the earlier case and
held that the issuance of the special shares did not affect the respondent's character as a building and loan association nor make its loans
usurious. In view of the lengthy discussion contained in the decisions above-mentioned, it would appear to be an act of supererogation on our
part to go over the same ground again. The discussion will therefore not be repeated, and what is now to be said should be considered
supplemental thereto.

Upon examination of the nature of the special shares in the light of American usage, it will be found that said shares are precisely the same
kind of shares that, in some American jurisdictions, are generally known as advance payment shares; in if close attention be paid to the
language used in the last sentence of section 178 of the Corporation Law, it will be found that special shares where evidently created for the
purpose of meeting the condition cause by the prepayment of dues that is there permitted. The language of this provision is as follow
"payment of dues or interest may be made in advance, but the corporation shall not allow interest on such advance payment at a greater rate
than six per centum per annum nor for a longer period than one year." In one sort of special shares the dues are prepaid to the extent of
P160 per share; in the other sort prepayment is made in the amount of P10 per share, and the subscribers assume the obligation to pay P10
monthly until P160 shall have been paid.

It will escape notice that the provision quoted say that interest shall not be allowed on the advance payments at a greater rate than six per
centum per annum nor for a longer period than one year. The word "interest " as there used must be taken in its true sense of compensation
for the used of money loaned, and it not must not be confused with the dues upon which it is contemplated that the interest may be paid.
Now, in the absence of any showing to the contrary, we infer that no interest is ever paid by the association in any amount for the advance
payments made on these shares; and the reason is to be found in the fact that the participation of the special shares in the earnings of the
corporation, in accordance with section 188 of the Corporation Law, sufficiently compensates the shareholder for the advance payments made
by him; and no other incentive is necessary to induce inventors to purchase the stock.

It will be observed that the final 20 per centum of the par value of each special share is not paid for by the shareholder with funds out of the
pocket. The amount is satisfied by applying a portion of the shareholder's participation in the annual earnings. But as the right of every
shareholder to such participation in the earnings is undeniable, the portion thus annually applied is as much the property of the shareholder
as if it were in fact taken out of his pocket. It follows that the mission of the special shares does not involve any violation of the principle that
the shares must be sold at par.
From what has been said it will be seen that there is express authority, even in the very letter of the law, for the emission of advance-
payment or "special" shares, and the argument that these shares are invalid is seen to be baseless. In addition to this it is satisfactorily
demonstrated in Severino vs. El Hogar Filipino, supra, that even assuming that the statute has not expressly authorized such shares, yet the
association has implied authority to issue them. The complaint consequently fails also as regards the stated in the ninth cause of action.

Tenth cause of action. — Under this head of the complaint it is alleged that the defendant is pursuing a policy of depreciating, at the rate of
10 per centum per annum, the value of the real properties acquired by it at its sales; and it is alleged that this rate is excessive. From the
agreed statement it appears that since its organization in 1910 El Hogar Filipino, prior to the end of the year 1925, had made 1,373 loans to
its shareholders secured by first mortgages on real estate as well as by the pledge of the shares of the borrowers. In the same period the
association has purchased at foreclosure sales the real estate constituting the security for 54 of the aforesaid loans. In making these
purchases the association has always bid the full amount due to it from the debtor, after deducting the withdrawal value of the shares
pledged as collateral, with the result that in no case has the shareholder been called upon to pay a deficiency judgement on foreclosure.

El Hogar Filipino places real estate so purchased in its inventory at actual cost, as determined by the amount bid on foreclosure sale; and
thereafter until sold the book value of such real estate is depreciated at the rate fixed by the directors in accordance with their judgment as to
each parcel, the annual average depreciation having varied from nothing to a maximum of 14.138 per cent. The sales thereof, but sales are
made for the best prices obtainable, whether greater or less than the book value.

It is alleged in the complaint that depreciation is charged by the association at the rate of 10 per centum per annum. The agreed statement of
facts on this point shows that the annual average varies from nothing to a maximum of something over 14 per centum. We are thus left in
the dark as to the precise depreciation allowed from year to year. It is not claimed for the Government that the association is without power
to allow some depreciation; and it is quite clear that the board of directors possesses a discretion in this matter. There is no positive provision
of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real
profits; and article 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be written down upon
the expenses of installation and the property of the corporation. There can be no question that the power to adopt such a by-law is embraced
within the power to make by-laws for the administration of the corporate affairs of the association and for the management of its business, as
well as the care, control and disposition of its property (Act No. 1459, sec. 13 [7]). But the Attorney-General questions the exercise of the
direction confided to the board; and it is insisted that the excessive depreciation of the property of the association is objectionable in several
respects, but mainly because it tends to increase unduly the reserves of the association, thereby frustrating the right of the shareholders to
participate annually and equally in the earnings of the association.

This count for the complaint proceeds, in our opinion, upon an erroneous notion as to what a court may do in determining the internal policy
of a business corporation. If the criticism contained in the brief of the Attorney-General upon the practice of the respondent association with
respect to depreciation be well founded, the Legislature should supply the remedy by defining the extent to which depreciation may be
allowed by building and loan associations. Certainly this court cannot undertake to control the discretion of the board of directors of the
association about an administrative matter as to which they have legitimate power of action. The tenth cause of action is therefore not well
founded.

Eleventh and twelfth causes of action. — The same comment is appropriate with respect to the eleventh and twelfth causes of action, which
are treated together in the briefs, and will be here combined. The specification in the eleventh cause of action is that the respondent
maintains excessive reserve funds, and in the twelfth cause of action that the board of directors has settled upon the unlawful policy of paying
a straight annual dividend of 10 per centum, regardless of losses suffered and profits made by the corporation and in contravention of the
requirements of section 188 of the Corporation Law. The facts relating to these two counts in the complaint, as set forth in the stipulation, are
these:

In article 92 of the by-laws of El Hogar Filipino it is provided that 5 per centum of the net profits earned each year, as shown by the annual
balance sheet shall be carried to a reserve fund. The fund so created is called the General Reserve. Article 93 of the by-laws authorizes the
directors to carry funds to a special reserve, whenever in their judgment it is advisable to do so, provided that the annual dividend in the year
in which funds are carried to special reserve exceeds 8 per centum. It appears to have been the policy of the board of directors for several
years past to place in the special reserve any balance in the profit and loss account after the satisfaction of preferential charges and the
payment of a dividend of 10 per centum to all special and ordinary shares (with accumulated dividends). As things stood in 1926 the general
reserve contained an amount equivalent to about 5 per centum of the paid-in value of shared. This fund has never been drawn upon for the
purpose of maintaining the regular annual dividend; but recourse has been had to the special reserve on three different occasions to make
good the amount necessary to pay dividends. It appears that in the last five years the reserves have declined from something over 9 per cent
to something over 7.

It is insisted in the brief of the Attorney-General that the maintenance of reserve funds is unnecessary in the case of building and loan
associations, and at any rate the keeping of reserves is inconsistent with section 188 of the Corporation Law. Moreover, it is said that the
practice of the association in declaring regularly a 10 per cent dividend is in effect a guaranty by the association of a fixed dividend which is
contrary to the intention of the statute.

Upon careful consideration of the questions involved we find no reason to doubt the right of the respondent to maintain these reserves. It is
true that the corporation law does not expressly grant this power, but we think it is to be implied. It is a fact of common observation that all
commercial enterprises encounter periods when earnings fall below the average, and the prudent manager makes provision for such
contingencies. To regard all surplus as profit is to neglect one of the primary canons of good business practice. Building and loan associations,
though among the most solid of financial institutions, are nevertheless subject to vicissitudes. Fluctuations in the dividend rate are highly
detrimental to any fiscal institutions, while uniformity in the payments of dividends, continued over long periods, supplies the surest
foundations of public confidence.

The question now under consideration is not new in jurisprudence, for the American courts have been called upon more than once to consider
the legality of the maintenance of reserves by institutions of this or similar character.

In Greeff vs. Equitable Life Assurance Society, the court had under consideration a charter provision of a life insurance company, organized on
the mutual plan, in its relation to the power of the company to provide reserves. There the statute provided that "the officers of the company,
within sixty days from the expiration of the first five years, from December 31, 1859, and within the first sixty days of every subsequent
period of five years, shall cause a balance to be struck of the affairs of the company, which shall exhibit its assets and liabilities, both present
and contingent, and also the net surplus, after deducting a sufficient amount to cover all outstanding risks and other obligations. Each policy
holder shall be credited with an equitable share of the said surplus."

The court said:

No prudent person would be inclined to take a policy in a company which had so improvidently conducted its affairs that it only
retained a fund barely sufficient to pay its present liabilities, and, therefore, was in a condition where any change by the reduction of
interest upon, or depreciation in, the value of its securities, or any increase of mortality, would render it insolvent and subject to be
placed in the hands of a receiver. The evident purpose of the provisions of the defendant's charter and policy relating to this subject
was to vest in the directors of the corporation a discretion to determine the proportion of its surplus which should be dividend each
year.
In a friendly suit tried in a circuit court of Wisconsin in 1916, entitled Boheman Bldg. and Loan Association vs. Knolt, the court, in commenting
on the nature of these reserves, said:

The apparent function of this fund is to insure the stockholders against losses. Its purpose is not unlike that of the various forms of
insurance now in such common use. This contribution is as legitimate an item of expense as are the premiums paid on any
insurance policy. (See Clarks and Chase, Building and Loan Association, footnote, page 344.)

In commenting on the necessity of such funds, Sundheim says:

It is optional with the association whether to maintain such a fund or not, but justice and good business policy seem to require it.
The retiring stockholder must be paid the value of his stock in cash and leave for those remaining a large number of securities and
perhaps some real estate purchased to protect the associations interest. How much will be realized on these securities, or real
estate, no human foresight can tell. Further, the realizing on these securities may entail considerable litigation and expense. There
are many other contingencies which might cause a shrinkage in the association's assets, such as defective titles, undisclosed
defalcations on the part of an officer, a miscalculation of assets and liabilities, and many other errors and omissions which must
always be reckoned within the conduct of human affairs.

The contingent fund is merely insurance against possible loss. That losses may occur from time to time seems almost inevitable and
it is, therefore, inequitable that the remaining stockholders should be compelled to accept all securities at par, so, to say the least,
the maintenance of this fund is justified. The association teaches the duty of providing for the proverbial rainy day. Why should it
not provide for the hour of adversity? The reserve fund has protected the maturing or withdrawing member during the period of his
membership. In case of loss it has or would have reimbursed him and, at all times, it has protected him and given strength and
standing to the association. Losses may occur, after his membership ceases, that arose from some mistake or mismanagement
committed during the period of his membership, and in fairness and equity the remaining members should have some protection
against this. (Sundheim, Law of Building and Loan Association, sec. 53.)

The government insists, we thing, upon an interpretation of section 188 of the Corporation Law that is altogether too strict and literal. From
the fact that the statute provides that profits and losses shall be annually apportioned among the shareholders it is argued that all earnings
should be distributed without carrying anything to the reserve. But it will be noted that it is provided in the same section that the profits and
losses shall be determined by the board of directors: and this means that they shall exercise the usual discretion of good businessmen in
allocating a portion of the annual profits to purposes needful to the welfare of the association. The law contemplates the distribution of
earnings and losses after other legitimate obligations have been met.

Our conclusion is that the respondent has the power to maintain the reserves criticized in the eleventh and twelfth counts of the complaint;
and at any rate, if it be supposed that the reserves referred to have become excessive, the remedy is in the hands of the Legislature. It is no
proper function of the court to arrogate to itself the control of administrative matters which have been confided to the discretion of the board
of directors. The causes of action under discussion must be pronounced to be without merit.

Thirteenth cause of action. — The specification under this head is, in effect, that the respondent association has made loans which, to the
knowledge of the associations officers were intended to be used by the borrowers for other purposes than the building of homes. In this
connection it appears that, though loans have been made by the association exclusively to its shareholders, no attempt has been made by it
to control the borrowers with respect to the use made of the borrowed funds, the association being content to see that the security given for
the loan in each case is sufficient. On December 31, 1925, the respondent had five hundred forty-four loans outstanding secured by
mortgages upon real estate and by the pledge of the borrowers' shares in an amount sufficient at maturity to amortize the loans. With respect
to the nature of the real estate upon which these loans were made it appears that three hundred fifty-one loans were secured by mortgages
upon city residences, seven by mortgages upon commercial building in cities, and three mortgages upon unimproved city lots. At the same
time one hundred eighty-three of the loans were secured by mortgages upon groves, sugar land, and rice land, with a total area of about
7,558 hectares. From information gathered by the association from voluntary statements of borrowers given at the time of application with
respect to the use intended to be made of the borrowed funds, it appears that the amount of P693,200 was borrowed to redeem real property
from existing mortgages or pactos de retro, P280,800 to buy real estate, P449,100 to erect buildings, P24,000 to improve and repair
buildings, P1,480,900 for agricultural purposes, while the amount of P5,763,700 was borrowed for purposes not disclosed.

Upon these facts an elaborate argument has been constructed in behalf of the plaintiff to the effect that in making loans for other purposes
than the building of residential houses the association has illegally departed from its character and made itself amenable to the penalty of
dissolution. Aside from being directly opposed to the decision of this court in Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds
of Occidental Negros (47 Phil., 249), this contention finds no substantial support in the prevailing decisions made in American courts; and our
attention has not been directed to a single case wherein the dissolution of a building and loan association has been decreed in a quo
warranto proceeding because the association allowed its borrowers to use the loans for other purposes than the acquisition of homes.

The case principally relied upon for the Government appears to be Pfeister vs. Wheeling Building Association (19 W. Va., 676, 716),which
involved the question whether a building and loan association could recover the full amount of a note given to it by a member and secured by
a mortgage from a stranger. At the time the case arose there was a statute in force in the State of West Virginia expressly forbidding building
and loan associations to use or direct their funds for or to any other object or purpose than the buying of lots or houses or in building and
repairing houses, and it was declared that in case the funds should be improperly directed to other objects, the offending association should
forfeit all rights and privileges as a corporation. Under the statute so worded the court held that the plaintiff could only recover the amount
actually advanced by it with lawful interest and fines, without premium; and judgment was given accordingly. The suggestion in that case
that the result would have been the same even in the absence of statute was mere dictum and is not supported by respectable authority.

Reliance is also placed in the plaintiff's brief upon McCauley vs. Building & Saving Association. The statute in force in the State of Tennessee
at the time this action arose provided that all loans should be made to the members of the association at open stated meetings and that the
money should be lent to the highest bidder. Inconsistently with this provision, there was inserted in the by-laws of the association a provision
to the effect that no loan should be made at a greater premium than 30 per cent, nor at a less premium than 29 7/8 per cent. It was held
that this by-law made free and open competition impossible and that it in effect established a fixed premium. It was accordingly held, in the
case cited, that an association could not recover such part of the loan as had been applied by it to the satisfaction of a premium of 30 per
centum.

We have no criticism to make upon the result reached in either of the two decisions cited, but it is apparent that much of the discussion
contained in the opinions in those cases does not reflect the doctrine now prevailing in the United States; and much less are those decisions
applicable in this jurisdiction. There is no statute here expressly declaring that loans may be made by these associations solely for the
purpose of building homes. On the contrary, the building of homes is mentioned in section 171 of the Corporation Law as only one among
several ends which building and loan associations are designed to promote. Furthermore, section 181 of the Corporation Law expressly
authorities the Board of directors of the association from time to time to fix the premium to be charged.

In the brief of the plaintiff a number of excerpts from textbooks and decisions have been collated in which the idea is developed that the
primary design of building and loan associations should be to help poor people to procure homes of their own. This beneficent end is
undoubtedly served by these associations, and it is not to be denied that they have been generally fostered with this end in view. But in this
jurisdiction at least the lawmaker has taken care not to limit the activities of building and loan associations in an exclusive manner, and the
exercise of the broader powers must in the end approve itself to the business community. Judging from the past history of these institutions it
can be truly said that they have done more to encourage thrift, economy and saving among the people at large than any other institution of
modern times, not excepting even the saving banks. In this connection Mr. Sundheim, in a late treatise upon the subject of the law of building
and loan associations, makes the following comment:

They have grown to such an extent in recent years that they no longer restrict their money to the home buyer, but loan their money
to the mere investor or dealer in real estate. They are the holder of large mortgages secured upon farms, factories and other
business properties and rows of stores and dwellings. This is not an abuse of their powers or departure from their main purposes,
but only a natural and proper expansion along healthy and legitimate lines. (Sundheim, Building and Loan Associations, sec. 7.)

Speaking of the purpose for which loans may be made, the same author adds:

Loans are made for the purpose of purchasing a homestead, or other real estate, or for any lawful purpose or business, but there is
no duty or obligation of the association to inquire for what purpose the loan is obtained, or to require any stipulation from the
borrower as to what use he will make of the money, or in any manner to supervise or control its disbursement. (Sundheim, Building
and Loan Association, sec. 111.)

In Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of Occidental Negros, this court had before it the question whether a loan
made by the respondent association upon the security of a mortgage upon agricultural land, — where the loan was doubtless used for
agricultural purposes, — was usurious or not; and the case turned upon the point whether, in making such loans, the association had violated
the law and departed from its fundamental purposes. The conclusion of the court was that the loan was valid and could be lawfully enforced
by a nonjudicial foreclosure in conformity with the terms of the contract between the association and the borrowing member. We now find no
reason to depart from the conclusion reached in that case, and it is unnecessary to repeat what was then said. The thirteenth cause of action
must therefore be pronounced unfounded.

Fourteenth cause of action. — The specification under this head is that the loans made by the defendant for purposes other than building or
acquiring homes have been extended in extremely large amounts and to wealthy persons and large companies. In this connection attention is
directed to eight loans made at different times in the last several years to different persons or entities, ranging in amounts from P120,000 to
P390,000 and to two large loans made to the Roxas Estate and to the Pacific Warehouse Company in the amounts of P1,122,000 and
P2,320,000, respectively. In connection with the larger of the two after this loan was made the available funds of El Hogar Filipino were
reduced to the point that the association was compelled to take advantage of certain provisions of its by-laws authorizing the postponement
of the payment of claims resulting from withdrawals, whereas previously the association had always settled these claims promptly from
current funds. At no time was there apparently any delay in the payment of matured shares; but in four or five cases there was as much as
ten months delay in the payment of withdrawal applications.

There is little that can be said upon the legal aspects of this cause of action. In so far, as it relates to the purposes for which these loans were
made, the matter is covered by what was said above with reference to the thirteenth cause of action; and in so far as it relates to the
personality of the borrowers, the question belongs more directly to the discussion under the sixteenth cause of action, which will be found
below. The point, then, which remains for consideration here is whether it is a suicidal act on the part of a building and loan association to
make loans in large amount. If the loans which are here the subject of criticism had been made upon inadequate security, especially in case
of the largest two, the consequences certainly would have been disastrous to the association in the extreme; but no such fact is alleged; and
it is to be assumed that none of the ten borrowers have defaulted in their contracts.

Now, it must be admitted that two of these loans at least are of a very large size, considering the average range of financial transaction in
this country; and the making of the largest loan was followed, as we have already see, with unpleasant consequences to the association in
dealing with current claims. Nevertheless the agreed statement of facts shoes that all of the loan referred to are only ten out of a total of five
hundred forty-four outstanding on December 31, 1925; and the average of all the loans taken together is modest enough. It appears that the
chief examiner of banks and corporations of the Philippine Treasury, after his examination of El Hogar Filipino at the end of the year 1925,
made a report concerning this association as of January 31, 1926, in which he criticized the Pacific Warehouse Company loan as being so
large that it temporarily crippled the lending power of the association for some time. This criticism was apparently justified as proper
comment on the activities of the association; but the question for use here to decide is whether the making of this and the other large loans
constitutes such a misuser of the franchise as would justify us in depriving the association of its corporate life. This question appears to us to
be so simple as almost to answer itself. The law states no limit with respect to the size of the loans to be made by the association. That
matter is confided to the discretion of the board of directors; and this court cannot arrogate to itself a control over the discretion of the
chosen officials of the company. If it should be thought wise in the future to put a limit upon the amount of loans to be made to a single
person or entity, resort should be had to the Legislature; it is not a matter amenable to judicial control. The fourteenth cause of action is
therefore obviously without merit.

Fifteenth cause of action. — The criticism here comes back to the supposed misdemeanor of the respondent in maintaining its reserve funds,
— a matter already discussed under the eleventh and twelfth causes of action. Under the fifteenth cause of action it is claimed that upon the
expiration of the franchise of the association through the effluxion of time, or earlier liquidation of its business, the accumulated reserves and
other properties will accrue to the founder, or his heirs, and the then directors of the corporation and to those persons who may at that time
to be holders of the ordinary and special shares of the corporation. In this connection we note that article 95 of the by-laws reads as follows:

ART. 95. The funds obtained by the liquidation of the association shall be applied in the first place to the repayment of shares and
the balance, if any, shall be distribute in accordance with the system established for the distribution of annual profits.

It will be noted that the cause of action with which we are now concerned is not directed to any positive misdemeanor supposed to have been
committed by the association. It has exclusive relation to what may happen some thirty-five years hence when the franchise expires,
supposing of course that the corporation should not be reorganized and continued after that date. There is nothing in article 95 of the by-laws
which is, in our opinion, subject to criticism. The real point of criticism is that upon the final liquidation of the corporation years hence there
may be in existence a reserve fund out of all proportion to the requirements that may then fall upon it in the liquidation of the company. It
seems to us that this is matter that may be left to the prevision of the directors or to legislative action if it should be deemed expedient to
require the gradual suppression of the reserve funds as the time for dissolution approaches. It is no matter for judicial interference, and much
less could the resumption of the franchise on this ground be justified. There is no merit in the fifteenth cause of action.

Sixteenth cause of action. — This part of the complaint assigns as cause of action that various loans now outstanding have been made by the
respondent to corporations and partnerships, and that these entities have in some instances subscribed to shares in the respondent for the
sole purpose of obtaining such loans. In this connection it appears from the stipulation of facts that of the 5,826 shareholders of El Hogar
Filipino, which composed its membership on December 31, 1925, twenty-eight are juridical entities, comprising sixteen corporations and
fourteen partnerships; while of the five hundred forty-four loans of the association outstanding on the same date, nine had been made to
corporations an five to partnerships. It is also admitted that some of these juridical entities became shareholders merely for the purpose of
qualifying themselves to take loans from the association, and the same is said with respect to many natural persons who have taken shares in
the association. Nothing is said in the agreed statement of facts on the point whether the corporations and partnerships that have taken loans
from the respondent are qualified by law governing their own organization to enter into these contracts with the respondent.

In section 173 of the Corporation Law it is declared that "any person" may become a stockholder in building and loan associations. The word
"person" appears to be here used in its general sense, and there is nothing in the context to indicate that the expression is used in the
restricted sense of both natural and artificial persons, as indicated in section 2 of the Administrative Code. We would not say that the word
"person" or persons," is to be taken in this broad sense in every part of the Corporation Law. For instance, it would seem reasonable to say
that the incorporators of a corporation ought to be natural persons, although in section 6 it is said that five or more "persons", although in
section 6 it is said that five or more "persons," not exceeding fifteen, may form a private corporation. But the context there, as well as the
common sense of the situation, suggests that natural persons are meant. When it is said, however, in section 173, that "any person" may
become a stockholder in a building and loan association, no reason is seen why the phrase may not be taken in its proper broad sense of
either a natural or artificial person. At any rate the question whether these loans and the attendant subscriptions were properly made involves
a consideration of the power of the subscribing corporations and partnerships to own the stock and take the loans; and it is not alleged in the
complaint that they were without power in the premises. Of course the mere motive with which subscriptions are made, whether to qualify
the stockholders to take a loan or for some other reason, is of no moment in determining whether the subscribers were competent to make
the contracts. The result is that we find nothing in the allegations of the sixteenth cause of action, or in the facts developed in connection
therewith, that would justify us in granting the relief.

Seventeenth cause of action. — Under the seventeenth cause of action, it is charged that in disposing of real estates purchased by it in the
collection of its loans, the defendant has no various occasions sold some of the said real estate on credit, transferring the title thereto to the
purchaser; that the properties sold are then mortgaged to the defendant to secure the payment of the purchase price, said amount being
considered as a loan, and carried as such in the books of the defendant, and that several such obligations are still outstanding. It is further
charged that the persons and entities to which said properties are sold under the condition charged are not members or shareholders nor are
they made members or shareholders of the defendant.

This part of the complaint is based upon a mere technicality of bookkeeping. The central idea involved in the discussion is the provision of the
Corporation Law requiring loans to be stockholders only and on the security of real estate and shares in the corporation, or of shares alone. It
seems to be supposed that, when the respondent sells property acquired at its own foreclosure sales and takes a mortgage to secure the
deferred payments, the obligation of the purchaser is a true loan, and hence prohibited. But in requiring the respondent to sell real estate
which it acquires in connection with the collection of its loans within five years after receiving title to the same, the law does not prescribe
that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation. Such sales can of course be made
upon terms and conditions approved by the parties; and when the association takes a mortgage to secure the deferred payments, the
obligation of the purchaser cannot be fairly described as arising out of a loan. Nor does the fact that it is carried as a loan on the books of the
respondent make it a loan on the books of the respondent make it a loan in law. The contention of the Government under this head is
untenable.

In conclusion, the respondent is enjoined in the future from administering real property not owned by itself, except as may be permitted to it
by contract when a borrowing shareholder defaults in his obligation. In all other respects the complaint is dismissed, without costs. So
ordered.
G.R. No. 116631 October 28, 1998

MARSH THOMSON, petitioner,

vs.
COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE PHILIPPINES, INC,respondents.

QUISUMBING, J.:

This is a petition for review on certiorari seeking the reversal of the Decision 1 of the Court of Appeals on May 19, 1994, disposing as follows:

WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER JUDGMENT IS ENTERED ORDERING
DEFENDANT-APPELLEE MARSH THOMSON TO TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF
THE APPELLANT.

The facts of the case are:

Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the Management Consultant of private respondent, the
American Chamber of Commerce of the Philippines, Inc. (AmCham) for over ten years, 1979-1989.

While petitioner was still working with private respondent, his superior, A. Lewis Burridge, retired as AmCham's President. Before Burridge
decided to return to his home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However,
through the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's name. This was made clear in an
employment advice dated January 13, 1986, wherein petitioner was informed by private respondent as follows:

11. If you so desire, the Chamber is willing to acquire for your use a membership in the Manila Polo
Club. The timing of such acquisition shall be subject to the discretion of the Board based on the
Chamber's financial position. All dues and other charges relating to such membership shall be for your
personal account. If the membership is acquired in your name, you would execute such documents as
necessary to acknowledge beneficial ownership thereof by the Chamber. 2

On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a letter 3 of notification to the Manila Polo Club.

Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00 from his own funds; but private respondent
subsequently reimbursed this amount. On November 19, 1986, MPC issued Proprietary Membership Certificate Number 3398 in favor of
petitioner. But petitioner, however, failed to execute a document recognizing private respondent's beneficial ownership over said share.

Following AmCham's policy and practice, there was a yearly renewal of employment contract between the petitioner and private respondent.
Separate letters of employment advice dated October 1, 1986 4, as well March 4, 1988 5 and January 7, 1989 6, mentioned the MPC share. But
petitioner never acknowledged that private respondent is the beneficial owner of the share as requested in follow-up requests, particularly
one dated March 4, 1988 as follows:

Dear Marsh:

All other provisions of your compensation/benefit package will remain the same and are summarized as follows:

9) The Manila Polo Club membership provided by the Chamber for you and your family will continue on
the same basis, to wit: all dues and other charges relating to such membership shall be for your
personal account and, if you have not already done so,you will execute such documents as are
necessary to acknowledge that the Chamber is the beneficial owner of your membership in the
Club. 7

When petitioner's contract of employment was up for renewal in 1989, he notified private respondent that he would no longer be available as
Executive Vice President after September 30, 1989. Still, the private respondent asked the petitioner to stay on for another six (6) months.
Petitioner indicated his acceptance of the consultancy arrangement with a counter-proposal in his letter dated October 8, 1989, among others
as follows:

11.) Retention of the Polo Club share, subject to my reimbursing the purchase price to the Chamber, or
one hundred ten thousand pesos (P110,000.00). 8

Private respondent rejected petitioner's counter-proposal.

Pending the negotiation for the consultancy arrangement, private respondent executed on September 29, 1989 a Release and
Quitclaim, 9 stating that "AMCHAM, its directors, officers and assigns, employees and/or representatives do hereby release, waive, abandon
and discharge J. MARSH THOMSON from any and all existing claims that the AMCHAM, its directors, officers and assigns, employees and/or
representatives may have against J. MARSH THOMSON." 10 The quitclaim, expressed in general terms, did not mention specifically the MPC
share.

On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding the return and delivery of the MPC share
which "it (AmCham) owns and placed in your (Thomson's) name." 11

Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against petitioner praying, inter alia, that the
Makati Regional Trial Court render judgment ordering Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to
the nominee of plaintiff." 12

On February 28, 1992, the trial court promulgated its decision, 13 thus:

The foregoing considered judgment is rendered as follows:

1) The ownership of the contested Manila Polo Club share is adjudicated in favor of defendant Marsh
Thomson; and;

2) Defendant shall pay plaintiff the sum of P300,000.00

 Because both parties thru their respective faults have somehow contributed to the birth of this case, each shall bear the
incidental expenses incurred. 14

In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the ground that the Articles of Incorporation and By-
laws of Manila Polo Club prohibit artificial persons, such as corporations, to be club members, ratiocinating in this manner:

An assessment of the evidence adduced by both parties at the trial will show clearly that it was the intention of the parties
that a membership to Manila Polo Club was to be secured by plaintiff [herein private respondent] for defendant's [herein
petitioner] use. The latter was to execute the necessary documents to acknowledge ownership of the Polo membership in
favor of plaintiff. (Exh. C par 9) However, when the parties parted ways in disagreement and with some degree of
bitterness, the defendant had second thoughts and decided to keep the membership for himself. This is evident from the
exhibits (E & G) where defendant asked that he retained the Polo Club membership upon reimbursement of its purchase
price; and where he showed his "profound disappointment, both at the previous Board's unfair action, and at what I
consider to be harsh terms, after my long years of dedication to the Chamber's interest."

Notwithstanding all these evidence in favor of plaintiff, however, defendant may not be declared the owner of the
contested membership be compelled to execute documents transferring the Polo Membership to plaintiff or the latter's
nominee for the reason that this is prohibited by Polo Club's Articles & By-Laws. . . .

It is for the foregoing reasons that the Court rules that the ownership of the questioned Polo Club membership be retained
by defendant. 15 . . . .

Not satisfied with the trial court's decision, private respondent appealed to the Court of Appeals.

On May 19, 1994, the Court of Appeals (Former Special Sixth Division) promulgated its decision 16 in said CA-G.R. CV No. 38417, reversing
the, trial court's judgment and ordered herein petitioner to transfer the MPC share to the nominee of private respondent, reasoning thus:

The significant fact in the instant case is that the appellant [herein private respondent] purchased the MPC share for the
use of the appellee [herein petitioner] and the latter expressly conformed thereto as shown in Exhibits A-1, B, B-1, C, C-1,
D, D-1. By such express conformity of the appellee, the former was bound to recognize the appellant as the owner of the
said share for a contract has the force of law between the parties. (Alim vs. CA, 200 SCRA 450; Sasuhura Company, Inc.,
Ltd. vs. IAC, 205 SCRA 632) Aside from the foregoing, the appellee conceded the true ownership of the said share to the
appellant when (1) he offered to buy the MPC share from the appellant (Exhs. E and E-1) upon the termination of his
employment; (2) he obliged himself to return the MPC share after his six month consultancy contract had elapsed, unless
its return was earlier requested in writting (Exh. I); and (3) on cross-examination, he admitted that the proprietary share
listed as one of the assets of the appellant corporation in its 1988 Corporate Income Tax Return, which he signed as the
latter's Executive Vice President (prior to its filing), refers to the Manila Polo Club Share (tsn., pp. 19-20, August 30,
1991). . . . 17

On 16 June 1994, petitioner filed a motion for reconsideration 18

of said decision. By resolution 19
promulgated on August 4, 1994, the Court
of Appeals denied the motion for reconsideration.

In this petition for review, petitioner alleges the following errors of public respondent as grounds for our review:

I. The respondent Court of Appeals erred in setting aside the Decision dated 28 February 1992 of the
Regional Trial Court, NCJR, Branch 65, Makati, Metro Manila, in its Civil Case No. 90-1286, and in not
confirming petitioner's ownership over the MPC membership share.

II. The respondent Court of Appeals erred in ruling that "the Quitclaim executed by AmCham in favor of
petitioner of September 29, 1989 was superseded by the contractual agreement entered into by the
parties on October 13, 1989 wherein again the appellee acknowledged that the appellant owned the
MPC share, there being absolutely no evidence to support such a conclusion and/or such inference is
manifestly mistaken.

III. The respondent Court of Appeals erred in rendering judgment ordering petitioner to transfer the
contested MPC share to a nominee of respondent AmCham notwithstanding that: (a) AmCham has no
standing in the Manila Polo Club (MPG), and being an artificial person, it is precluded under MPC's
Articles of Incorporation and governing rules and regulations from owning a proprietary share or from
becoming a member thereof: and (b) even under AmCham's Articles of Incorporation, the purposes for
which it is dedicated, becoming a stockholder or shareholder in other corporation is not one of the
express implied powers fixed in AmCham's said corporate franchise. 20

As posited above, these assigned errors show the disputed matters herein are mainly factual. As such they are best left to the trial and
appellate courts' disposition. And this Court could have dismissed the petition outright, were it not for the opposite results reached by the
courts below. Moreover, for the enhanced appreciation of the jural relationship between the parties involving trust, this Court has given due
course to the petition, which we now decide.

After carefully considering the pleadings on record, we find there are two main issues to be resolved: (1) Did respondent court err in holding
that private respondent is the beneficial owner of the disputed share? (2) Did the respondent court err in ordering petitioner to transfer said
share to private respondent's nominees?

Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt to respondent when the latter advanced the funds for
the purchase of the share. On the other hand, private respondent asserts beneficial ownership whereby petitioner only holds the share in his
name, but the beneficial title belongs to private respondent. To resolve the first issue, we must clearly distinguish a debt from a trust.

The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely a personal claim against the debtor. In
trust, there is a fiduciary relation between a trustee and a beneficiary, but there is no such relation between a debtor and creditor. While a
debt implies merely an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific property for the benefit of
another. If a creditor-debtor relationship exists, but not a fiduciary relationship between the parties, there is no express trust. However, it is
understood that when the purported trustee of funds is entitled to use them as his or her own (and commingle them with his or her own
money), a debtor-creditor relationship exists, not a trust. 21

In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary position in the business of AmCham.
AmCham released the funds to acquire a share in the Club for the use of petitioner but obliged him to "execute such document as necessary
to acknowledge beneficial ownership thereof by the Chamber". 22 A trust relationship is, therefore, manifestly indicated.
Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor when the private respondent paid the
purchase price of the MPC share. Applicable here is the rule that a trust arises in favor of one who pays the purchase money of property in
the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. 23

Although petitioner initiated the acquisition of the share, evidence on record shows that private respondent acquired said share with its funds.
Petitioner did not pay for said share, although he later wanted to, but according to his own terms, particularly the price thereof.

Private respondent's evident purpose in acquiring the share was to provide additional incentive and perks to its chosen executive, the
petitioner himself. Such intention was repeated in the yearly employment advice prepared by AmCham for petitioner's concurrence. In the
cited employment advice, dated March 4, 1988, private respondent once again, asked the petitioner to execute proof to recognize the trust
agreement in writing:

The Manila Polo membership provided by the Chamber for you and your family will continue on the same basis, to wit: all
dues and other charges relating to such membership shall be for your personal account and, if you have not already done
so, you will execute such documents as are necessary to acknowledge that the Chamber is the beneficial owner of your
membership in the Club. 24

Petitioner voluntarily affixed his signature to conform with the employment advice, including his obligation stated therein — for him to
execute the necessary document to recognize his employer as the beneficial owner of the MPC share. Now, we cannot hear him claiming
otherwise, in derogation of said undertaking, without legal and equitable justification.

For private respondent's intention to hold on to its beneficial ownership is not only presumed; it was expressed in writing at the very outset.
Although the share was placed in the name of petitioner, his title is limited to the usufruct, that is, to enjoy the facilities and privileges of such
membership in the club appertaining to the share. Such arrangement reflects a trust relationship governed by law and equity.

While private respondent paid the purchase price for the share, petitioner was given legal title thereto. Thus, a resulting trust is presumed as
a matter of law. The burden then shifted to the transferee to show otherwise, that it was just a loan. Such resulting trust could have been
rebutted by proof of a contrary intention by a showing that, in fact, no trust was intended. Petitioner could have negated the trust agreement
by contrary, consistent and convincing evidence on rebuttal. However, on the witness stand, petitioner failed to do so persuasively.

On cross-examination, the petitioner testified as follows:

ATTY. AQUINO (continuing)

Q. Okay, let me go to the cash advance that you mentioned Mr. Witness, is there any document proving
that you claimed cash advance signed by an officer of the Chamber?

A. I believe the best evidence is the check.

Q. Is there any document?

COURT

Other than the Check?

MR. THOMSON

Nothing more.

ATTY. AQUINO

Is there any application filed in the Chamber to avail of this cash advance?

A. Verbal only.

Q. Nothing written, and can you tell to this Honorable Court what are the stipulations or conditions, or
terms of this transaction of securing this cash advance or loan?

COURT

How are you going to repay the cash advance?

MR. THOMSON

The cash advance, we never stipulate when I have to repay it, but I presume that I would, when able to
repay the money. 25

In deciding whether the property was wrongfully appropriated or retained and what the intent of the parties was at the time of the
conveyance, the court must rely upon its impression of the credibility of the witnesses. 26 Intent is a question of fact, the determination of
which is not reviewable unless the conclusion drawn by the trier is one which could not reasonably be drawn. 27 Petitioner's denial is not
adequate to rebut the trust. Time and again, we have ruled that denials, if unsubstantiated by clear and convincing evidence, are deemed
negative and self-serving evidence, unworthy of credence. 28

The trust between the parties having been established, petitioner advanced an alternative defense that the private respondent waived the
beneficial ownership of MPC share by issuing the Release and Quitclaim in his favor.

This argument is less than persuasive. The quitclaim executed by private respondent does not clearly show the intent to include therein the
ownership over the MPC share. Private respondent even asserts that at the time the Release and Quitclaim was executed on September 29,
1989, the ownership of the MPC share was not controversial nor contested. Settled is the rule that a waiver to be valid and effective must, in
the first place, be couched in clear and unequivocal terms which leave no doubt as to the intention of a party to give up a right or benefit
which legally pertains to him. 29 A waiver may not be attributed to a person when the terms thereof do not explicitly and clearly evidence an
intent to abandon a right vested in such person. 30 If we apply the standard rule that waiver must be cast in clear and unequivocal terms,
then clearly the general terms of the cited release and quitclaim indicates merely a clearance from general accountability, not specifically a
waiver of AmCham's beneficial ownership of the disputed shares.

Additionally, the intention to waive a right or advantage must be shown clearly and convincingly, and when the only proof of intention rests in
what a party does, his act should be so manifestly consistent with, and indicative of, an intent to voluntarily relinquish the particular right or
advantage that no other reasonable explanation of his conduct is possible. 31 Considering the terms of the quitclaim executed by the President
of private respondent, the tenor of the document does not lead to the purported conclusion that be intended to renounce private respondent's
beneficial title over its share in the Manila Polo Club. We, therefore, find no reversible error in the respondent Court's holding that private
respondent, AmCham, is the beneficial owner of the share in dispute.

Turning now to the second issue, the petitioner contends that the Articles of Incorporation and By-laws of Manila Polo Club prohibit corporate
membership. However, private respondent does not insist nor intend to transfer the club membership in its name but rather to its designated
nominee. For as properly ruled by the Court of Appeals:

The matter prayed for does not involve the transfer of said share to the appellant, an artificial person. The transfer sought
is to the appellant's nominee. Even if the MPC By-Laws and Articles prohibit corporate membership, there would be no
violation of said prohibition for the appellant's nominee to whom the said share is sought to be transferred would certainly
be a natural person. . . .

As to whether or not the transfer of said share the appellant's nominee would be disapproved by the MPC, is a matter that
should be raised at the proper time, which is only if such transfer is disapproved by the MPC. 32

The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The Club only restricts membership to
deserving applicants in accordance with its rules, when the amended Articles of Incorporation states that: "No transfer shall be valid except
between the parties, and shall be registered in the Membership Book unless made in accordance with these Articles and the By-
Laws". 33 Thus, as between parties herein, there is no question that a transfer is feasible. Moreover, authority granted to a corporation to
regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure to be followed in effecting transfer. 34

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the privileges of the club. But upon the
expiration of petitioner's employment as officer and consultant of AmCham, the incentives that go with the position, including use of the MPC
share, also ceased to exist. It now behooves petitioner to surrender said share to private respondent's next nominee, another natural person.
Obviously this arrangement of trust and confidence cannot be defeated by the petitioner's citation of the MPC rules to shield his untenable
position, without doing violence to basic tenets of justice and fair dealing.

However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It has been held that so long as there has
been no denial or repudiation of the trust, the possession of the trustee of an express and continuing trust is presumed to be that of the
beneficiary, and the statute of limitations does not run between them. 35 With regard to a constructive or a resulting trust, the statute of
limitations does not begin to run until the trustee clearly repudiates or disavows the trust and such disavowal is brought home to the other
party, "cestui que trust". 36 The statute of limitations runs generally from the time when the act was done by which the party became
chargeable as a trustee by operation of law or when the beneficiary knew that he had a cause of action, 37 in the absence of fraud or
concealment.

Noteworthy in the instant case, there was no declared or explicit repudiation of the trust existing between the parties. Such repudiation could
only be inferred as evident when the petitioner showed his intent to appropriate the MPC share for himself. Specifically, this happened when
he requested to retain the MPC share upon his reimbursing the purchase price of P110,000, a request denied promptly by private respondent.
Eventually, petitioner refused to surrender the share despite the written demand of private respondent. This act could then be construed as
repudiation of the trust. The statute of limitation could start to set in at this point in time. But private respondent took immediate positive
action. Thus, on May 15, 1990, private respondent filed an action to recover the MPC share. Between the time of implicit repudiation of the
trust on October 9, 1989, as evidenced by petitioner's letter of said date, and private respondent's institution of the action to recover the MPC
share on May 15, 1990, only about seven months bad lapsed. Our laws on the matter provide that actions to recover movables shall prescribe
eight years from the time the possession thereof is lot, 38 unless the possessor has acquired the ownership by prescription for a less period of
four years if in good faith. 39 Since the private respondent filed the necessary action on time and the defense of good faith is not available to
the petitioner, there is no basis for any purported claim of prescription, after repudiation of the trust, which will entitle petitioner to ownership
of the disputed share. As correctly held by the respondent court, petitioner has the obligation to transfer now said share to the nominee of
private respondent.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals of May 19, 1994, is AFFIRMED. COSTS
against petitioner. SO ORDERED.
G.R. No. 96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS, petitioners,

vs.

COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G.
ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , SR.,respondents.

PARAS, J.:

The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities and Exchange Commission when it
compelled by Mandamus the Rural Bank of Salinas to register in its stock and transfer book the transfer of 473 shares of stock to private
respondents. Petitioners maintain that the Petition forMandamus should have been denied upon the following grounds.

(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the purpose is to register certificates of
stock in the names of claimants who are not yet stockholders of a corporation:

(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:

(a) a pending controversy over the ownership of the certificates of stock with the Regional Trial Court;

(b) claims that the Deeds of Assignment covering the subject certificates of stock were fictitious and antedated; and

(c) claims on a resultant possible deprivation of inheritance share in relation with a conflicting claim over the subject
certificates of stock.

The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of his
wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of and/or
mortgage 473 shares of stock of the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact, executed
a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10
shares) and Francisco Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private respondent Melania Guerrero,
pursuant to the same Special Power of Attorney, executed a Deed of Assignmentfor the remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for
registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of
stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in
the name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.

On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange Commission" (SEC) an action
for mandamus against petitioners Rural Bank of Salinas, its President and Corporate Secretary. The case was docketed as SEC Case No.
1979.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of Clemente G. Guerrero, his 473 shares
of stock became the property of his estate, and his property and that of his widow should first be settled and liquidated in accordance with
law before any distribution can be effected so that petitioners may not be a party to any scheme to evade payment of estate or inheritance
tax and in order to avoid liability to any third persons or creditors of the late Clemente G. Guerrero.

On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the late Clemente G. Guerrero
and private respondent Melania Guerrero, who stated therein that on November 26, 1980 (almost two weeks before the filing of the petition
for Mandamus) a Petition for the administration of the estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court,
Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the Deeds of Assignment for the subject
shares of stock are fictitious and antedated; that said conveyances are donations since the considerations therefor are below the book value
of the shares, the assignees/private respondents being close relatives of private respondent Melania Guerrero; and that the transfer of the
shares in question to assignees/private respondents, other than private respondent Melania Guerrero, would deprive her (Maripol Guerrero) of
her rightful share in the inheritance. The SEC hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En
Banc affirmed the decision of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch, against private respondents for the
annulment of the Deeds of Assignment, docketed as Civil Case No. Q-32050. Petitioners, on the other hand, filed a Motion to Dismiss and/or
to Suspend Hearing of SEC Case No. 1979 until after the question of whether the subject Deeds of Assignment are fictitious, void or simulated
is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by the private respondents
and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to issue
new certificates in the names of private respondents, except Melania Guerrero. The dispositive, portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents, directing the latter,
particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to register in the latter's Stock and Transfer
Book the transfer of 473 shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26, 45 and 65 and issue
new Stock Certificates covering the transferred shares in favor of petitioners, as follows:

1. Luz Andico 457 shares

2. Wilhelmina Rosales 10 shares

 3. Francisco Guerrero, Jr. 5 shares

4. Francisco Guerrero, Sr. 1 share

and to pay to the above-named petitioners, the dividends for said shares corresponding to the years 1981, 1982, 1983 and
1984 without interest.

No pronouncement as to costs.

SO ORDERED. (p. 88, Rollo)

On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review with the Court of Appeals but
said Court likewise affirmed the decision of the SEC.

We rule in favor of the respondents.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving intracorporate
controversies. An intracorporate controversy has been defined as one which arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock,
their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to
adjudicate.

Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private respondent's names. Such ruling finds
support under Section 63 of the Corporation Code, to wit:

Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation . . .

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:

Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom the
stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of, or
against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to dispose
them in favor of whomever he pleases, without limitation in this respect, than the general provisions of law. . . .

The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the
shares intended to be transferred, which is absent here.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe regulation, not
restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. . . . (Tomson on Corporation Sec. 4137, citedin
Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamuswill lie to compel the
officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil.
138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the
question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good cause, it
may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer book, which duty is ministerial
on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code. Thus, respondent Court of
Appeals did not err in upholding the Decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of the
473 shares in the stock and transfer book in the names of private respondents. At all events, the registration is without prejudice to the
proceedings in court to determine the validity of the Deeds of Assignment of the shares of stock in question.

WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED.

G.R. No. 121791 December 23, 1998

ENRIQUE SALAFRANCA, petitioner,

vs.
PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND DIVISION,
NATIONAL LABOR RELATIONS COMMISSION (NLRC), respondents.

ROMERO, J.:

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

Sometime in 1987, private respondent decided to amend its by-laws. Included therein was a provision regarding officers, specifically, the
position of administrative officer under which said officer shall hold office at the pleasure of the Board of Directors. In view of this
development, private respondent, on July 3, 1987, informed the petitioner that his term of office shall be coterminus with the Board of
Directors which appointed him to his position. Furthermore, until he submits a medical certificate showing his state of health, his employment
shall be on a month-to-month basis. 3 Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued
working until his termination in December 1992. 4 Claiming that his services had been unlawfully and unceremoniously dispensed with,
petitioner filed a complaint for illegal dismissal with money claims and for damages. 5

After the submission by the parties of their respective position papers and other pleadings, the Labor Arbiter rendered a decision 6 ordering
private respondent to pay the petitioner the amount of P257,833.33 representing his backwages, separation pay and 13th month pay. In
justifying the award, the Labor Arbiter elucidated:

Respondents' contention that complainant's term of employment was co-terminus with the term of Office of the Board of
Directors, is wanting in merit. Records show that complainant had been hired in 1981 while the Amendment of the
respondents' By-Laws making the position of an Administrative Officer co-terminus with the term of the Board of Directors
was made in 1987. Evidently, the said Amendment would not be applicable to the case of complainant who had become a
regular employee long time before the Amendment took place. Moreover, the Amendment should be applied prospectively
and not retroactively.

On appeal by the private respondent, the NLRC reversed the decision of the Labor Arbiter and rendered a new one 7 reducing petitioner's
monetary award to only one-half (1/2) month pay for every year of service representing his retirement pay. In other words, the NLRC viewed
the dismissal of the petitioner as a valid act by the private respondent.

The fact that he continued to perform the function of the office of administrative officer without extension or re-
appointment thereafter, to our mind, did not in any way make his employment permanent as in fact, he was even
reminded of the nature of his position by then president of the association Jaime Y. Ladao in a letter of 3 July 1987. His
reply to the aforesaid letter, claiming his employment regular, and viz a viz, referring to submit his medical certificate,
notwithstanding, to our mind, merely underscored the need to define his position as, in fact, the Association's Rules and
Regulations were amended if but to put to rest the tenural (sic) limit of the office of the Administrative Officer in
accordance with its earlier intention, that it is co-terminus with that of the members of the Board of Directors.

WHEREFORE, the decision appealed from is hereby set aside. Respondents are hereby ordered to pay herein appellee one
half (1/2) month pay for every year of service representing his retirement pay.

In view of the sudden turn of events, petitioner has elevated the case to this Court assigning the following errors: 8

1. The NLRC gravely abused its discretion when it ruled that the employment of the Petitioner is not purely based on
considerations of Employer-Employee relationship.

2. Petitioner was illegally dismissed by private respondents.

As to the first assigned error by the petitioner, we need not dwell on this at length. We agree with the Solicitor General's observation that an
employer-employee relationship exists between the petitioner and the private respondent. 9

xxx xxx xxx

The first element is present in this case. Petitioner was hired as Administrative Officer by respondents. In fact, he was
extended successive appointments by respondents.

The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed salary for his
services.

As to the third element, it can be seen from the Records that respondents had the power of dismissal over petitioner. In
their letter dated December 7, 1992, respondents informed petitioner that they had decided to discontinue his services. In
their Position Paper submitted to the Labor Arbiter, respondents stated that petitioner "was dismissed for cause." (p. 17,
Record).

With respect to the fourth and most important element, respondents controlled the work of petitioner not only with respect
to the ends to be achieved but also the means used in reaching such ends.

Relative to the second assigned error of the petitioner, both the Solicitor General and the private respondent take the stance that petitioner
was not illegally dismissed. 10 On this aspect, we disagree with their contentions.

On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of
service with the private respondent. Accordingly, petitioner enjoys the right to security of tenure 11 and his services may be terminated only
for causes provided by law. 12

Viewed in this light, while private respondent has the right to terminate the services of petitioner, this is subject to both substantive and
procedural grounds. 13 The substantive causes for dismissal are those provided in Articles 282 and 283 of the, Labor Code, 14 while the
procedural grounds refer to the observance of the requirement of due process. 15
In all these instances, it is the private respondent, being the
employer, who must prove the validity of the dismissal. 16

Having reviewed the records of this case carefully, we conclude that private respondent utterly failed to substantiate petitioner's dismissal,
rendering the latter's termination illegal. At the risk of being redundant, it must be stressed that these requirements are mandatory and non-
compliance therewith renders any judgment reached by the management void and inexistent. 17

While private respondent imputes "gross negligence," and "serious misconduct" as the causes of petitioner's dismissal, 18 not a shred of
evidence was offered in support thereof, other than bare and uncorroborated allegations. The facts and circumstances regarding such alleged
infractions were never explained, While it is true that private respondent, through its president Bonifacio Dazo, executed an affidavit narrating
the alleged violations of the petitioner, 19 these were never corroborated by concrete or competent evidence. It is settled that no undue
importance should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex-parte, an affidavit is almost
always incomplete and inaccurate. 20 Furthermore, it must be noted that when petitioner was terminated in 1992, these alleged infractions
were never raised nor communicated to him. In fact, these were only revealed after the complaint was filed by the petitioner in 1993. Why
there was a delay was never adequately explained by private respondent.

Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to cross-examine him and propound
clarificatory questions regarding matters averred in his affidavit. All told, the foregoing lapses and the belated submission of the affidavit, cast
doubt as to the credibility of the allegations. In sum, the dismissal of the petitioner had no factual basis whatsoever. The rule is that
unsubstantiated accusations without more, are not tantamount to guilt. 21

As regards the issue of procedural due process, private respondent justifies its non-compliance therewith in this wise:

The Association Officers, being his peers and friends had a problem however in terminating his services. He had been
found to have committed infractions as previously enumerated. PVHA could have proceeded with a full-blown investigation
to hear these charges, but the ordeal might break the old man's heart as this will surely affect his standing in the
community. So they decided to make their move as discreetly (but legally) as possible to save the petitioner's reputation.
Terminating him in accordance with the provision of the by-laws of the Association without pointing out his numerous
faults and malfeasance in office and with one-half month pay for every year of service in accordance with the Retirement
Law was the best and only alternative.

We are not impressed. The reasoning advanced by the private respondent is as puerile as it is preposterous.

The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name and reputation from any
taint. It includes the twin requirements of notice and hearing. 22 This concept evolved from the basic tenet that one's employment or
profession is a property right protected by the constitutional guaranty of due process of law. 23 Hence, an individual's separation from work
must be founded on clearly-established facts, not on mere conjectures and suspicions. 24

In light of the foregoing, private respondent's arguments are clearly baseless and without merit. In truth, instead of protecting petitioner's
reputation, private respondent succeeded in doing exactly the opposite — it condemned the petitioner without even hearing his side. It is
stating the obvious that dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing
ground. 25 As such, a decision to terminate an employee without fully apprising him of the facts, on the pretext that the twin requirements of
notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative.

Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the latter's position is
coterminus with that of the Village's Board of Directors, as provided for in its amended by-laws.26

Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative
or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights.

Prescinding from these premises, private respondent's insistence that it can legally dismiss petitioner on the ground that his tenure has
expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure, hence, his services may only be
terminated for causes provided by law. 27 A contrary interpretation would not find justification in the laws or the Constitution. If we were to
rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws
and providing that his/her position shall cease to exist upon the occurrence of a specified event.

If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then the amendment must be
effective after petitioner's stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in
amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular employee
guaranteed under the Labor Code. 28

Interestingly, the Solicitor General is of the view that what actually transpired was that petitioner was retired from his employment,
considering the fact that in 1992 he was already 70 years old and not terminated. 29

While there seems to be a semblance of plausibility in this contention for the matter of extension of service of such employee or official is
addressed to the sound discretion of the employer, still we have no doubt that this was just a mere after-thought — a dismissal disguised as
retirement.

In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of compulsory retirement, 30 as a
cause for terminating petitioner's service. In its appeal before the NLRC, this ground was never discussed. In fact, private respondent, in
justifying the termination of the petitioner, still anchored its claim on the applicability of the amended by-laws. This omission is fatal to
private respondent's cause, for the rule is well-settled that matters, theories or arguments not brought out in the proceedings below will
ordinarily not be considered by a reviewing court, as they cannot be raised for the first time on appeal. 31

Undaunted, private respondent now asserts that the instant petition was filed out of time, 32 considering that the assailed NLRC decision was
received on June 28, 1995 while this petition was filed on September 20, 1995. At this juncture, we take this opportunity to state that under
the 1997 Rules of Civil Procedure, a petition for certiorari must now be instituted within sixty days of receipt of the assailed judgment, order
or resolution. 33 However, since this case arose in 1995 and the aforementioned rule only took effect on July 1, 1997 then the old rule is
applicable. Since prior to the effectivity of the new rule, a special civil action of certiorari should be instituted within a period of three
months, 34 the instant petition which was filed on September 20, 1995 or two months and twenty-two days thereafter, was still within the
reglementary period.

With respect to the issue of the monetary award to be given to the petitioner, private respondent argues that he deserves only retirement pay
and nothing more. This position would have been tenable had petitioner not been illegally dismissed. However, since we have already ruled
petitioner's dismissal as without just cause and lacking due process, the award of backwages and reinstatement is proper. 35
In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was removed from his
employment. As a substitute thereof, separation pay is generally awarded, 36 the amount of which must be equivalent to one-month salary
for every year of service. 37

With respect to the amount of backwages which, incidentally is different from separation pay, 38 it now settled that an illegally dismissed
employee is entitled to its full payment as long as the cause of action accrued after March 21, 1989.39 Considering that petitioner was
terminated from the service on December 9, 1992, which is after March 21, 1989, he is entitled to full backwages from the time of the illegal
dismissal without any, qualification or deduction. 40

As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half (1/2) month salary for every
year of service. This time we agree with private respondent's contention. The pertinent law is Article 287 of the Labor Code, as amended by
Republic Act No. 7641, which reads:

Art. 287. Retirement. — Any employee may be retired upon reaching the retirement age established in the collective
bargaining agreement or other applicable employment contract.

In case of retirement, the employee shall he entitled to receive such retirement benefits as he may have earned under
existing laws and any collective bargaining agreement and other agreements:Provided, however, That an employee's
retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an
employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared
the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be
entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of al least
six (6) months being considered as one whole year.

xxx xxx xxx

With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay, Memorandum Order No. 28,
as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, provides:

Sec. 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all
their rank and file employees a 13th month pay not later than December 24 of every year.

Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of course, this does not preclude an employer from
granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion.

Finally, we cannot simply ignore private respondent's malicious scheme to remove petitioner from his position which is contrary to good
customs and effected in an oppressive manner, thus warranting an award of moral and exemplary damages to the petitioner. 41 Moreover,
since petitioner was forced to litigate and incur expenses to protect his right and interests, he is entitled to attorney's fees. 42

WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The NLRC decision dated June 15, 1995 is hereby REVERSED and SET
ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED: (1) to pay petitioner Enrique Salafranca separation pay
equivalent to one month salary for every year of service; (2) to pay his full backwages in accordance with our ruling in Bustamante v.
NLRC; 43 (3) to pay his retirement pay in accordance with Article 287 of the Labor Code, as amended by Republic Act No. 7641, (4) to pay
moral and exemplary damages in the amount of twenty thousand (P20,000.00) pesos and ten thousand (P10,000.00) pesos,
respectively; 44 and (5) to pay ten (10%) percent of the total amount due to petitioner, as attorney's fees. Consequently, the respondent
NLRC is ORDERED to COMPUTE the total monetary benefits awarded in accordance with this decision and to submit its compliance thereon
within thirty (30) days from notice of this decision. SO ORDERED.
G.R. No. 117604 March 26, 1997

CHINA BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking Corporation seeks the
reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities and Exchange Commission's order and
resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for brevity). 1

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in its books. 2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's favor was duly noted in its
corporate books. 3

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the aforestated pledge
agreement still existing between Calapatia and petitioner. 4

Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public
Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock. 5

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the pledged stock be
transferred to its (petitioner's) name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote petitioner
expressing its inability to accede to petitioner's request in view of Calapatia's unsettled accounts with the club. 6

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as the highest bidder at
P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding certificate of sale. 7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24. 8 Said
notice was followed by a demand letter dated 12 December 1985 for the same amount 9 and another notice dated 22 November 1986 for
P23,483.24. 10

On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock
certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of
stock in the 10 December 1986 auction. 11

On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue of being the highest
bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. 12

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986
for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court
of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. 14

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that
it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of
Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in
petitioner's name; and for damages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that "(c)onsidering that
the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI) until
liquidation of
delinquency." 15 Consequently, the case was dismissed. 16

On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer. It
declared thus:

The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of
pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of the
pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The auction
sale conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-
respondent Club is ordered to issue another membership certificate in the name of appellant-petitioner bank.

SO ORDERED. 18
VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its
decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and,
consequently, dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not
intra-corporate. It ruled as follows:

In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the
following relationships: (a) between the corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation,
partnership or association and the state in so far as its franchise, permit or license to operate is concerned, and (d) among
the stockholders, partners or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983,
126 SCRA 31). The establishment of any of the relationship mentioned will not necessarily always confer jurisdiction over
the dispute on the Securities and Exchange Commission to the exclusion of the regular courts. The statement made
in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute.
The better policy in determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy (Viray vs. Court of
Appeals, November 9, 1990, 191 SCRA 308, 322-323).

Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that used to
belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not any of those mentioned
in the aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and Exchange
Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S
and W, petition) are all nullified and set aside for lack of jurisdiction over the subject matter of the case. Accordingly, the
complaint of respondent China Banking Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in
this instance.

SO ORDERED. 20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. 21

Hence, this petition wherein the following issues were raised:

II

ISSUES

WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE
SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER
AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04,
1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP
CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC.

P. D. No. 902-A conferred upon the SEC the following pertinent powers:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or
associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in
the Philippines, and in the exercise of its authority, it shall have the power to enlist the aid and support of and to deputize
any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm,
association or person.

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors, business associates, its
officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest
of the public and/or of the stockholders, partners, members of associations or organizations registered
with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among

stockholders, members, or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns their individual franchise or
right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such

corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of

payments in cases where the corporation, partnership or association possesses property to cover all of
its debts but foresees the impossibility of meeting them when they respectively fall due or in cases
 where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is
under the Management Committee created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction Co., Inc. v.Movilla 23 and Bernardo
v. CA, 24 thus:

. . . .The better policy in determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.

Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to determine therefore whether or not
petitioner is a stockholder of VGCCI and whether or not the nature of the controversy between petitioner and private respondent corporation
is intra-corporate.

As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and
the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have
the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in
fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of
petitioner and has even noted said agreement in its corporate books. 25 In addition, Calapatia, the original owner of the subject share, has
not contested the said transfer.

By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between
petitioner and VGCCI aptly exemplies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-
A.

An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims
a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which provides that "after a member shall have been
posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that
VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its
corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-laws, a
subject which irrefutably calls for the special competence of the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the
power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled
that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to
cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The
Court held that under the "sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not
determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the
question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is
essential to comply with the purposes of the regulatory statute administered.

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special
knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual
matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984,
the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been
to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and
unequivocably, the choice should fall on [an administrative agency.]'" The Court in the earlier case of Ebon v. De Guzman,
noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of
damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts,
"evidently, . . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages
in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting
findings and conclusions by two tribunals on one and the same claim."

In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous analysis and correct
interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation Code in order to determine the validity of
VGCCI's claims. The SEC, therefore, took proper cognizance of the instant case.

VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil
Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the
plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply
because it made a mistake before in the choice of the proper forum. . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to dismiss) that the case
between itself and petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is
precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court likewise deems it
procedurally sound to proceed and rule on its merits in the same proceedings.

It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of jurisdiction. In its
assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its responsive pleadings, private respondent
duly answered and countered all the issues raised by petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie v. Court of
Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals. 31

In the interest of the public and for the expeditious administration of justice the issue on infringement shall be resolved by
the court considering that this case has dragged on for years and has gone from one forum to another.
 It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no
root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of an
issue in a case is remanded to the trial court only to have its decision raised again to the Court of Appeals and from there
to the Supreme Court.

We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of evidence
is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where
the ends of justice would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample
authority to review matters, even those not raised on appeal if it finds that their consideration is necessary in arriving at a
just disposition of the case.

In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice Ricardo J. Francisco, ruled in
this wise:

At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court, none of the
substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and
respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of
mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining
just, speedy and inexpensive determination of every action or proceeding. The Court, therefore, feels that the central
issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions
of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and
arguments on the matter necessitating prompt adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to enable us to render a
sound judgment and since only questions of law were raised (the proper jurisdiction for Supreme Court review), we can, therefore, unerringly
take cognizance of and rule on the merits of the case.

The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the same was null and void for
lack of consideration because the pledge agreement was entered into on 21 August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August 1983.34

VGCCI's contention is unmeritorious.

A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein that the said pledge will
also stand as security for any future advancements (or renewals thereof) that Calapatia (the pledgor) may procure from petitioner:

xxx xxx xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts, bills or
exchange, discounts, and all other obligations of every kind which have heretofore been contracted, or which may
hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including
discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further endorsement by the
PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued
interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses (including attorney's fees) which
PLEDGEE may incur in connection with the collection thereof. 35 (Emphasis ours.)

The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As candidly explained by
petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first promissory note covered by the
same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in
accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of delinquency to Calapatia after it
was informed by petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings initiated against Calapatia's pledged share,
although Calapatia has been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had
officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until
VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as pledgee. It
even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith.

In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:

The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy thereto
(Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or constructive
knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when
petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share foreclosed on September 17,
1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private
respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual
knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. Since
the by-laws was already binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985
then the petitioner purchased the said share subject to the right of the private respondent to sell the said share for reasons
of delinquency and the right of private respondent to have a first lien on said shares as these rights are provided for in the
by-laws very very clearly. 36

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such by-law
when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a
privy to the contract created by said by-law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said
by-law cannot operate to defeat his rights as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a
period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the
by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)
 When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any
contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo.,
447.)

The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect
of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the
assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of
directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless
stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs.
Wasson, 48 Iowa, 336.) (Emphasis ours.)

In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement
between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could
have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in
Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is
particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its
own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and
among themselves in their relation to it. In other words, by-laws are the relatively permanent and continuing rules of
action adopted by the corporation for its own government and that of the individuals composing it and having the
direction, management and control of its affairs, in whole or in part, in the management and control of its affairs and
activities. (9 Fletcher 4166, 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and
among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public
law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge
of the provisions either actually or constructively. In the case of Fleisher v.Botica Nolasco, 47 Phil. 584, the Supreme Court
held that the by-law restricting the transfer of shares cannot have any effect on the transferee of the shares in question as
he "had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a
valuable consideration. He was not a privy to the contract created by the by-law between the shareholder . . .and the
Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to the present
controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's by-laws. It must be
recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge agreement was duly
noted in the club's books there was no mention of the shareholder-pledgor's unpaid accounts. The transcript of
stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus,
appellant-petitioner was in good faith when the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the general accepted rule that third persons are not bound
by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCI By-laws must be
acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at
the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is
also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or
mortgage consists maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender
of the certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee
will be fully protected against a subsequent purchaser who would be charged with constructive notice
that the certificate is covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the
amount due on the debt secured. In other words, the pledgee has the right to resort to its collateral for
the payment of the debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate to a third person who
purchased the same certificate covered by the pledge, will certainly defeat the right of the pledgee to
resort to its collateral for the payment of the debt. The pledgor or his representative or registered
stockholders has no right to require a return of the pledged stock until the debt for which it was given
as security is paid and satisfied, regardless of the length of time which have elapsed since debt was
created. (12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or of third
persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may subsequently arise
in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the pledgee on
the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that
the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano
v. Chua A. H. Lee, 39 is clearly not applicable:

In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document
by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the
contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires
domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive.

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

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June
1993 is hereby AFFIRMED. SO ORDERED.
G.R. No. 121466 August 15, 1997

PMI COLLEGES, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N, respondents.

ROMERO, J.:

Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is the resolution 1 of public respondent National Labor
Relations Commission 2 rendered on August 4, 1995, affirming in toto the December 7, 1994 decision 3 of Labor Arbiter Pablo C. Espiritu
declaring petitioner PMI Colleges liable to pay private respondent Alejandro Galvan P405,000.00 in unpaid wages and P40,532.00 as
attorney's fees.

A chronicle of the pertinent events on record leading to the filing of the instant petition is as follows:

On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training and other marine-related courses, hired
private respondent as contractual instructor with an agreement that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending
on the description of load subjects and on the schedule for teaching the same. Pursuant to this engagement, private respondent then
organized classes in marine engineering.

Initially, private respondent and other instructors were compensated for services rendered during the first three periods of the
abovementioned contract. However, for reasons unknown to private respondent, he stopped receiving payment for the succeeding rendition
of services. This claim of non-payment was embodied in a letter dated March 3, 1992, written by petitioner's Acting Director, Casimiro A.
Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention to and appealing for the early approval and release of the
salaries of its instructors including that of private respondent. It appeared further in said letter that the salary of private respondent
corresponding to the shipyard and plant visits and the ongoing on-the-job training of Class 41 on board MV "Sweet Glory" of Sweet Lines, Inc.
was not yet included. This request of the Acting Director apparently went unheeded. Repeated demands having likewise failed, private
respondent was soon constrained to file a complaint 4 before the National Capital Region Arbitration Branch on September 14, 1993 seeking
payment for salaries earned from the following: (1) basic seaman course Classes 41 and 42 for the period covering October 1991 to
September 1992; (2) shipyard and plant visits and on-the-job training of Classes 41 and 42 for the period covering October 1991 to
September 1992 on board M/V "Sweet Glory" vessel; and (3) as Acting Director of Seaman Training Course for 3-1/2 months.

In support of the abovementioned claims, private respondent submitted documentary evidence which were annexed to his complaint, such as
the detailed load and schedule of classes with number of class hours and rate per hour (Annex "A"); PMI Colleges Basic Seaman Training
Course (Annex "B"); the aforementioned letter-request for payment of salaries by the Acting Director of PMI Colleges (Annex "C"); unpaid
load of private respondent (Annex "D"); and vouchers prepared by the accounting department of petitioner but whose amounts indicated
therein were actually never paid to private respondent (Exhibit "E").

Private respondent's claims, as expected, were resisted by petitioner. It alleged that classes in the courses offered which complainant claimed
to have remained unpaid were not held or conducted in the school premises of PMI Colleges. Only private respondent, it was argued, knew
whether classes were indeed conducted. In the same vein, petitioner maintained that it exercised no appropriate and proper supervision of
the said classes which activities allegedly violated certain rules and regulations of the Department of Education, Culture and Sports (DECS).
Furthermore, the claims, according to petitioner, were all exaggerated and that, at any rate, private respondent abandoned his work at the
time he should have commenced the same.

In reply, private respondent belied petitioner's allegations contending, among others, that he conducted lectures within the premises of
petitioner's rented space located at 5th Floor, Manufacturers Bldg., Sta. Cruz, Manila; that his students duly enrolled with the Registrar's
Office of petitioner; that shipyard and plant visits were conducted at Fort San Felipe, Cavite Naval Base; that petitioner was fully aware of
said shipyard and plant visits because it even wrote a letter for that purpose; and that basic seaman courses 41 and 42 were sanctioned by
the DECS as shown by the records of the Registrar's Office.

Later in the proceedings below, petitioner manifested that Mr. Tomas G. Cloma, Jr., a member of the petitioner's Board of Trustees wrote a
letter 5 to the Chairman of the Board on May 23, 1994, clarifying the case of private respondent and stating therein, inter alia, that under
petitioner's by-laws only the Chairman is authorized to sign any contract and that private respondent, in any event, failed to submit
documents on the alleged shipyard and plant visits in Cavite Naval Base.

Attempts at amicable settlement having failed, the parties were required to submit their respective position papers. Thereafter, on June 16,
1994, the Labor Arbiter issued an order declaring the case submitted for decision on the basis of the position papers which the parties filed.
Petitioner, however, vigorously opposed this order insisting that there should be a formal trial on the merits in view of the important factual
issues raised. In another order dated July 22, 1994, the Labor Arbiter impliedly denied petitioner's opposition, reiterating that the case was
already submitted for decision. Hence, a decision was subsequently rendered by the Labor Arbiter on December 7, 1994 finding for the
private respondent. On appeal, the NLRC affirmed the same in toto in its decision of August 4, 1995.

Aggrieved, petitioner now pleads for the Court to resolve the following issues in its favor, to wit:

I. Whether the money claims of private respondent representing salaries/wages as contractual instructor for class instruction, on-
the-job training and shipboard and plant visits have valid legal and factual bases;

II. Whether claims for salaries/wages for services relative to on-the-job training and shipboard and plant visits by instructors,
assuming the same were really conducted, have valid bases;

III. Whether the petitioner was denied its right to procedural due process; and

IV. Whether the NLRC findings in its questioned resolution have sound legal and factual support.

We see no compelling reason to grant petitioner's plea; the same must, therefore, be dismissed.

At once, a mere perusal of the issues raised by petitioner already invites dismissal for demonstrated ignorance and disregard of settled rules
on certiorari. Except perhaps for the third issue, the rest glaringly call for a re-examination, evaluation and appreciation of the weight and
sufficiency of factual evidence presented before the Labor Arbiter. This, of course, the Court cannot do in the exercise of
its certiorari jurisdiction without transgressing the well-defined limits thereof. The corrective power of the Court in this regard is confined only
to jurisdictional issues and a determination of whether there is such grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of a tribunal or agency. So unyielding and consistent are the decisional rules thereon that it is indeed surprising why petitioner's
counsel failed to accord them the observance they deserve.

Thus, in San Miguel Foods, Inc. Cebu B-Men Feed Plant v. Hon. Bienvenido Laguesma, 6 we were emphatic in declaring that:
 This Court is definitely not the proper venue to consider this matter for it is not a trier of facts. . . . Certiorariis a remedy narrow in
its scope and inflexible in character. It is not a general utility tool in the legal workshop. Factual issues are not a proper subject for
certiorari, as the power of the Supreme Court to review labor cases is limited to the issue of jurisdiction and grave abuse of
discretion. . . . (Emphasis supplied).

Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative, Inc. v. NLRC 7
where we made plain that:

In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this Court does not go so far as to evaluate the
sufficiency of evidence upon which the Labor Arbiter and the NLRC based their determinations, the inquiry being limited essentially
to whether or not said public respondents had acted without or in excess of its jurisdiction or with grave abuse of discretion.
(Emphasis supplied).

To be sure, this does not mean that the Court would disregard altogether the evidence presented. We merely declare that the extent of
review of evidence we ordinarily provide in other cases is different when it is a special civil action of certiorari. The latter commands us to
merely determine whether there is basis established on record to support the findings of a tribunal and such findings meet the required
quantum of proof, which in this instance, is substantial evidence. Our deference to the expertise acquired by quasi-judicial agencies and the
limited scope granted to us in the exercise of certiorari jurisdiction restrain us from going so far as to probe into the correctness of a tribunal's
evaluation of evidence, unless there is palpable mistake and complete disregard thereof in which case certiorari would be proper. In plain
terms, in certiorari proceedings, we are concerned with mere "errors of jurisdiction" and not "errors of judgment." Thus:

The rule is settled that the original and exclusive jurisdiction of this Court to review a decision of respondent NLRC (or Executive
Labor Arbiter as in this case) in a petition for certiorari under Rule 65 does not normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not within the province of a special
civil action for certiorari, which is merely confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent upon
petitioner to satisfactorily establish that respondent Commission or executive labor arbiter acted capriciously and whimsically in total
disregard of evidence material to or even decisive of the controversy, in order that the extraordinary writ of certiorari will lie. By
grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it
must be shown that the discretion was exercised arbitrarily or despotically. For certiorari to lie there must be capricious, arbitrary
and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and
common law traditions. 8

The Court entertains no doubt that the foregoing doctrines apply with equal force in the case at bar.

In any event, granting that we may have to delve into the facts and evidence of the parties, we still find no puissant justification for us to
adjudge both the Labor Arbiter's and NLRC's appreciation of such evidence as indicative of any grave abuse of discretion.

First. Petitioner places so much emphasis on its argument that private respondent did not produce a copy of the contract pursuant to which
he rendered services. This argument is, of course, puerile. The absence of such copy does not in any manner negate the existence of a
contract of employment since "(C)ontracts shall be obligatory, in whatever form they have
been entered into, provided all the essential requisites for their validity are present." 9 The only exception to this rule is "when the law
requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way." However,
there is no requirement under the law that the contract of employment of the kind entered into by petitioner with private respondent should
be in any particular form. While it may have been desirable for private respondent to have produced a copy of his contract if one really exists,
but the absence thereof, in any case, does not militate against his claims inasmuch as:

No particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant
evidence to prove the relationship may be admitted. For, if only documentary evidence would be required to show that relationship,
no scheming employer would ever be brought before the bar of justice, as no employer would wish to come out with any trace of the
illegality he has authored considering that it should take much weightier proof to invalidate a written instrument. . . . 10

At any rate, the vouchers prepared by petitioner's own accounting department and the letter-request of its Acting Director asking for payment
of private respondent's services suffice to support a reasonable conclusion that private respondent was employed with petitioner. How else
could one explain the fact that private respondent was supposed to be paid the amounts mentioned in those documents if he were not
employed? Petitioner's evidence is wanting in this respect while private respondent affirmatively stated that the same arose out of his
employment with petitioner. As between the two, the latter is weightier inasmuch as we accord affirmative testimony greater value than a
negative one. For the foregoing reasons, we find it difficult to agree with petitioner's assertion that the absence of a copy of the alleged
contract should nullify private respondent's claims.

Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board which
allegedly violated petitioner's by-laws. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same." 11 No proof appears on record that private respondent
ever knew anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the same without even bothering to attach a
copy or excerpt thereof to show that there is such a provision. How can it now expect the Labor Arbiter and the NLRC to believe it? That this
allegation has never been denied by private respondent does not necessarily signify admission of its existence because technicalities of law
and procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature.

Second. Petitioner bewails the fact that both the Labor Arbiter and the NLRC accorded due weight to the documents prepared by private
respondent since they are said to be self-serving. "Self-serving evidence" is not to be literally taken as evidence that serves one's selfish
interest. 12 The fact alone that most of the documents submitted in evidence by private respondent were prepared by him does not make
them self-serving since they have been offered in the proceedings before the Labor Arbiter and that ample opportunity was given to petitioner
to rebut their veracity and authenticity. Petitioner, however, opted to merely deny them which denial, ironically, is actually what is considered
self-serving evidence 13 and, therefore, deserves scant consideration. In any event, any denial made by petitioner cannot stand against the
affirmative and fairly detailed manner by which private respondent supported his claims, such as the places where he conducted his classes,
on-the-job training and shipyard and plant visits; the rate he applied and the duration of said rendition of services; the fact that he was
indeed engaged as a contractual instructor by petitioner; and that part of his services was not yet remunerated. These evidence, to reiterate,
have never been effectively refuted by petitioner.

Third. As regards the amounts demanded by private respondent, we can only rely upon the evidence presented which, in this case, consists of
the computation of private respondent, as well as the findings of both the Labor Arbiter and the NLRC. Petitioner, it must be stressed,
presented no satisfactory proof to the contrary. Absent such proof, we are constrained to rely upon private respondent's otherwise
straightforward explanation of his claims.

Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no cause for petitioner to impute grave abuse of discretion.
Whether to conduct one or not depends on the sole discretion of the Labor Arbiter, taking into account the position papers and supporting
documents submitted by the parties on every issue presented. If the Labor Arbiter, in his judgment, is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial anymore, unless it would appear that, in view of the particular
circumstances of a case, the documents, without more, are really insufficient.
As applied to the instant case, we can understand why the Labor Arbiter has opted not to proceed to trial, considering that private
respondent, through annexes to his position paper, has adequately established that, first of all, he was an employee of petitioner; second, the
nature and character of his services, and finally, the amounts due him in consideration of his services. Petitioner, it should be reiterated,
failed to controvert them. Actually, it offered only four documents later in the course of the proceedings. It has only itself to blame if it did not
attach its supporting evidence with its position paper. It cannot now insist that there be a trial to give it an opportunity to ventilate what it
should have done earlier. Section 3, Rule V of the New Rules of Procedure of the NLRC is very clear on the matter:

Sec. 3. . . .

These verified position papers . . . shall be accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter's direct testimony. The parties shall thereafter not be allowed to allege facts, or
present evidence to prove facts, not referred to and any cause or causes of action not included in the complaint or position papers,
affidavits and other documents. . . . (Emphasis supplied).

Thus, given the mandate of said rule, petitioner should have foreseen that the Labor Arbiter, in view of the non-litigious nature of the
proceedings before it, might not proceed at all to trial. Petitioner cannot now be heard to complain of lack of due process. The following is
apropos:

The petitioners should not have assumed that after they submitted their position papers, the Labor Arbiter would call for a formal
trial or hearing. The holding of a trial is discretionary on the Labor Arbiter, it is not a matter of right of the parties, especially in this
case, where the private respondents had already presented their documentary evidence.

xxx xxx xxx

The petitioners did ask in their position paper for a hearing to thresh out some factual matters pertinent to their case. However,
they had no right or reason to assume that their request would be granted. The petitioners should have attached to their position
paper all the documents that would prove their claim in case it was decided that no hearing should be conducted or was necessary.
In fact, the rules require that position papers shall be accompanied by all supporting documents, including affidavits of witnesses in
lieu of their direct testimony. 14

It must be noted that adequate opportunity was given to petitioner in the presentation of its evidence, such as when the Labor Arbiter
granted petitioner's Manifestation and Motion 15 dated July 22, 1994 allowing it to submit four more documents. This opportunity
notwithstanding, petitioner still failed to fully proffer all its evidence which might help the Labor Arbiter in resolving the issues. What it desired
instead, as stated in its petition, 16 was to "require presentation of witnesses buttressed by relevant documents in support thereof." But this is
precisely the opportunity given to petitioner when the Labor Arbiter granted its Motion and Manifestation. It should have presented the
documents it was proposing to submit. The affidavits of its witnesses would have sufficed in lieu of their direct testimony 17 to clarify what it
perceives to be complex factual issues. We rule that the Labor Arbiter and the NLRC were not remiss in their duty to afford petitioner due
process. The essence of due process is merely that a party be afforded a reasonable opportunity to be heard and to submit any evidence he
may have in support of his defense. 18

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit while the resolution of the National Labor
Relations Commission dated August 4, 1995 is hereby AFFIRMED. SO ORDERED.
G.R. Nos. 89679-81 September 28, 1990

LAND BANK OF THE PHILIPPINES, petitioner,

vs
COMMISSION ON AUDIT, respondent.

Menandro A. Alvarez and Norberto L. Martinez for petitioner.

MELENCIO-HERRERA, J.:

This Petition raises the issue of whether it is within the corporate powers of the Land Bank of the Philippines (LBP) to waive the penalty
charges of P9,636.36 on the loan of the Home Savings Bank and Trust Company (HSBTC). The LBP asserts that, as a banking institution, its
Charter authorizes it to condone claims or liabilities. The Commission on Audit, on the other hand, maintains that such power is exclusively
vested in the Commission pursuant to Section 36 of Pres. Decree No. 1445, or the Government Auditing Code.

The records indicate that on 22 July 1980, the Board of Directors of the LBP issued Resolution No. 80-222 (Rollo, pp. 4-5, pp. 91-93) fixing
the new rates for penalty charges on past due loans/amortization and other credit accommodations. The Resolution also provided that "in
cases of defaults in loan payment and other credit accommodations due to unforeseen, highly justifiable reasons/circumstances beyond the
control of the borrower such as damages due to natural calamities, sickness, adverse government rulings or court judgments, duly processed
and verified by the lending units, penalty charges may be condoned / reduced by the Loan Executive Committee upon recommendation of
the appropriate lending units" (Emphasis supplied)

Pursuant to this Resolution, LBP, through its Loan Executive Committee, waived the penalty charges in the amount of Nine Thousand Six
Hundred Thirty Six Pesos and Thirty Six Centavos (P9,636.36) on the loan of HSBTC, a thrift banking institution organized under Philippine
laws (Rollo, p. 4).

On 23 September 1986, LBP requested its Corporate Auditor to pass in audit its waiver of the penalty charges. Said official questioned the
waiver and opined that the power to condone interests or penalties is vested exclusively in the COA but, in the absence of a categorical ruling
on the matter applicable to a government banking institution, referred the LBP request to the COA in a letter dated 20 January 1987.

In COA Decision No. 551, dated 29 June 1988 (Annex "C", Petition, Rollo, p. 29), the COA held that the waiver is unauthorized and should
outrightly be disallowed in audit, pursuant to Pres. Decree No. 1445, Section 36, infra. Reconsiderations successively sought by LBP met with
denial in COA Decision No. 701, dated 13 December 1988 (Annex "F", Petition, Rollo, p. 38), and in COA Decision No. 977, dated 6 June 1989
(Annex "A", ibid., p. 25), both of which Decisions emphasized COA's exclusive prerogative to settle and/or compromise claims.

Thus, this Petition and Amended Petition erroneously brought under Rules 44 and 43 of the Rules of Court, respectively, the proper remedy
being that of certiorari under Rule 65 (Article IX (A) Sec. 7, 1987 Constitution).

The issue for resolution is whether or not LBP is authorized to compromise or release claims or liabilities in whole or in part.

COA maintains that it has the sole prerogative to compromise liabilities to the Government pursuant to Section 36 of Pres. Decree No. 1445,
the Government Auditing Code, which provides, inter alia, that:

Sec. 36. Power to compromise claims. —

(1) When the interest of the government so requires, the Commission may compromise or release in whole or in part, any
claim or settled liability to any government agency not exceeding ten thousand pesos and with the written approval of the
Prime Minister, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand
pesos, the application for relief therefrom shall be submitted, through the Commission and the Prime Minister, with their
recommendations, to the National Assembly.

xxx xxx xxx

On the other hand, LBP claims that it, too, has the power to condone penalties being a commercial bank clothed with authority to exercise all
the general powers mentioned in the Corporation Law and the General Banking Act, as provided in Section 75[12] of its Charter, Rep. Act. No.
3844, as amended by Pres. Decree No. 251, among which is the power to write off loans and advances (General Banking Act, Sec. 84, infra),
which necessarily includes the lesser power to charge off interests and penalties. LBP also submits that its Charter (Rep. Act No. 3844, as
amended), being a special law, should prevail over the general grant of authority to COA by Pres. Decree No. 1445 to compromise claims.

We agree with LBP.

LBP was created as a body corporate and government instrumentality to provide timely and adequate financial support in all phases involved
in the execution of needed agrarian reform (Rep. Act No. 3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific powers
normally exercised by banking institutions, such as the authority to grant short, medium and long-term loans and advances against security
of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans, transactions or obligations; and to borrow from, or
rediscount notes, bills of exchange and other commercial papers with the Central Bank. In addition to the enumeration of specific powers
granted to LBP, Section 75 of its Charter also authorizes it:

12. To exercise the general powers mentioned in the Corporation Law and the General Banking Act, as amended, insofar
as they are not inconsistent or incompatible with this Decree.

One of the general powers mentioned in the General Banking Act is that provided for in Section 84 thereof, reading:

xxx xxx xxx

Writing-off loans and advances with an outstanding amount of one hundred thousand pesos or more shall require the prior
approval of the Monetary Board (As amended by PD 71).

It will thus be seen that LBP is a unique and specialized banking institution, not an ordinary "government agency" within the scope of Section
36 of Pres. Decree No. 1445. As a bank, it is specifically placed under the supervision and regulation of the Central Bank of the Philippines
pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree No. 251). In so far as loans and advances are concerned,
therefore, it should be deemed primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the
frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-off do not exceed a certain aggregate
amount. The pertinent portion of that Circular reads:
 b. Frequency/ceiling of write-off. The frequency for writing-off loans and advances shall be left to the discretion of the
Board of Directors of the bank concerned. Provided, that the aggregate amount of loans and advances which may be
written-off during the year, shall in no case exceed 3% of total loans and investments; Provided, further, that charge-offs
are made against allowance for possible losses, earnings during the year and/or retained earnings.

The authority to write-off loans and advances should be construed to include within its scope the waiver of penalty charges on past due loans,
which are of a lesser category.

Concededly, the power to write-off is not expressly granted in the LBP Charter. It can be logically implied however, from LBP's authority to
exercise the general powers vested in banking institutions as provided in the General Banking Act. The clear intendment of its Charter is for
LBP to be clothed not only with the express powers granted to it, but also with those implied, incidental and necessary for the exercise of
those express powers. "The test to be applied is whether the act of the corporation is in direct and immediate furtherance of its business,
fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not"
(Montelibano v. Bacolod-Murcia Milling Co. Inc., L-15092, 18 May 1962, 5 SCRA 36).

It bears emphasizing that LBP was created to provide adequate financial support to the agrarian reform program as well as to grant loans to
farmers' cooperatives/associations, and to finance and/or guarantee the acquisition of farm lots transferred to tenant-farmers. Its clientele
consists primarily of agrarian reform beneficiaries, landowners affected by agrarian reform and Land Bank bond-holders. It should, therefore,
be given some measure of flexibility in its operations in order not to hamper it unduly in the fulfillment of its objectives. Moreover, it is only
the penalty charges on a past due loan of the HSBTC that are being condoned and not the loan itself. The criteria for waiver are likewise
specifically spelled out in LBP Resolution No. 80-222, namely, for "unforeseen, highly justifiable reasons/circumstances beyond the control of
the borrower such as damages due to natural calamities, sickness, adverse government rulings or court judgments, duly processed and
verified by the appropriate lending units."

But while we rule that LBP is empowered by its corporate charter to waive penalty charges, thereby overruling COA's avowed exclusive
prerogative to settle and compromise liabilities to the Government, nevertheless, pursuant to Pres. Decree No. 1445, LBP is still subject to
COA's general audit jurisdiction to see to it that the fiscal responsibility that rests directly with the head of the government agency has been
properly and effectively discharged (Section 25[1]), and as provided for in its Section 26, reading:

Sec. 26. General jurisdiction. — The authority and powers of the Commission shall extend to and comprehend all matters
relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records,
and papers relating to those accounts, and the audit and settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all
debts and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations . . .

This is but in keeping with the wide sphere of state audit set forth in the fundamental law of the land.

SEC. 2 (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and
controlled corporations with original charters, . . . (Article IX [D], Sec. 2[l], 1987 Constitution).

Having arrived at the foregoing conclusions, we find no need to pass upon the other arguments raised.

WHEREFORE, the Decisions of the Commission on Audit sought to be reviewed are hereby SET ASIDE in so far as they hold that the
Commission on Audit, vis-a-vis the Land Bank, has the exclusive prerogative to settle and compromise liabilities to the Government. No costs.

SO ORDERED.
G.R. No. 109491 February 28, 2001

ATRIUM MANAGEMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT
CORPORATION, respondents.

----------------------------------------

G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner,

vs.
COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION,respondents.

PARDO, J.:

What is before the Court are separate appeals from the decision of the Court of Appeals,1 ruling that Hi-Cement Corporation is not liable for
four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation.

On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four
postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de
Leon,2 treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co.,
Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for
payment, the drawee bank dishonored all four checks for the common reason "payment stopped". Atrium, thus, instituted this action after its
demand for payment of the value of the checks was denied.3

After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T.
Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million corresponding to the
value of the four checks, plus interest and attorney's fees.4

On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court,
absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de
Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de
Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration.5

At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T.
Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment
for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February
9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in
payment for petroleum products.6

Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of Hi-Cement,
Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon
instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject checks would secure as
collateral.7

On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads:

"WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence,
judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally
the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid,
plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorney's fees and the cost of suit."

All other claims are, for lack of merit dismissed.

SO ORDERED."8

In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals.9

Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check.
Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the rediscounted checks.10

Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it
could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any
consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. Henry. 11

On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which
reads:

"Judgement is hereby rendered:

(1) dismissing the plaintiff's complaint as against defendants Hi-Cement Corporation and Antonio De las Alas;

(2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of
TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus
P20,000.00 for attorney's fees.

(3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-
Cement Corporation, the sum of P20,000.00 as and for attorney's fees.

With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon.
 So ordered."12

Hence, the recourse to this Court.13

The issues raised are the following:

In G. R. No. 109491 (Atrium, petitioner):

1. Whether the issuance of the questioned checks was an ultra vires act;

2. Whether Atrium was not a holder in due course and for value; and

3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as attorney's
fees.14

In G. R. No. 121794 (de Leon, petitioner):

1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry;

2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course;

3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable
for the value of the checks, which were declared to be issued without consideration;

4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorney's fees and costs.15

We affirm the decision of the Court of Appeals.

We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued
the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil
delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in
payment for hydro oil delivered by E.T. Henry to Hi-Cement?

Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting
operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient
evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the
corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million
pesos.

It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it
was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act.

"An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law"16 The term "ultra vires" is "distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated."17

The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as
corporate officers and authorized signatories of the check.

"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when:

"1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

"2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;

"3. He agrees to hold himself personally and solidarily liable with the corporation; or

"4. He is made, by a specific provision of law, to personally answer for his corporate action."18

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for
the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only
to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is,
"that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage
to the corporation. Hence, Ms. de Leon may be held personally liable therefor.1âwphi1.nêt

The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52
defines a holder in due course, thus:

"A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if
such was the fact;

(c) That he took it in good faith and for value;

 (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it."

In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium
was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be
considered a holder in due course.

However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded
from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the
instrument.19

The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable.20 One such defense is absence or failure of consideration.21

We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions.

WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are
hereby AFFIRMED in toto. No costs. SO ORDERED.
G.R. No. L-5377 December 29, 1954

MARIA CLARA PIROVANA ET AL., plaintiffs-appellees,

vs.
THE DE LA RAMA STEAMSHIP CO., defendant-appellant.

Del Rosario and Garcia for appellant.

Vicente J. Francisco for appellees.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Rizal declaring the donation made by the defendant in favor of the minor
children of the late Enrico Pirovano of the proceeds of the insurance policies taken on his life valid and binding, and ordering said defendant to
pay to said minor children the sum of P583,813.59, with interest thereon at the rate of per cent from the date of filing of the complaint, plus
an additional amount equivalent to 20 per cent of said sum of P538,813.59 as damages by way of attorney's fees and the costs of action.

Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial guardian Estefania R. Pirovano.
They seek to enforce certain resolutions adopted by the Board of Directors and stockholders of the defendant company giving to said minor
children of the proceeds of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as beneficiary.
Defendant's main defense is: that said resolutions and the contract executed pursuant thereto are ultra vires, and, if valid, the obligation to
pay the amount given is not yet due and demandable.

The trial court resolved all the issues raised by the parties in favor of the plaintiffs and, after considering the evidence, both oral and
documentary, arrived at the following conclusions:

First. — That the contract executed between the plaintiffs and the defendant is a renumerative donation.

Second. — That said contract or donation is not ultra vires, but an act executed within the powers of the defendant corporation in
accordance with its articles of incorporation and by laws, sanctioned and approved by its Board of Directors and stockholders; and
subsequently ratified by other subsequent acts of the defendant company.

Third. — That the said donation is in accordance with the trend of modern and more enlightened legislation in its treatment of
questions between labor and capital.

Fourth. — That the condition mentioned in the donation is null and void because it depends on the provisions of Article 1115 of the
old Civil Code.

Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant company from obeying and doing
the wishes and mandates of the majority of the stockholders.

Sixth. — That the non-payment of the debt in favor of the National Development Company is not due to the lack of funds, nor to
lack of authority, but the desire of the President of the corporation to preserve and continue the Government participation in the
company.

Seventh. — That due demands were made by the plaintiffs and their attorneys and these demands were rejected for no justifiable or
legal grounds.

The important facts which need to be considered for purposes of this appeal may be briefly stated as follows: Defendant is a corporation duly
organized in accordance with law with an authorized capital of P500,000, divided into 5,000 shares, with a par value of P100 each share. The
stockholders were: Esteban de la Rama, 1,800 shares, Leonor de la Rama, 100 shares, Estefania de la Rama, 100 shares, and Eliseo Hervas,
Tomas Concepcion, Antonio G. Juanco, and Gaudencio Volasote with 5 shares each. Leonor and Estefania are daughters of Don Esteban, while
the rest his employees. Estefania de la Rama was married to the late Enrico Pirovano and to them four children were born who are the
plaintiffs in this case.

Enrico Pirovano became the president of the defendant company and under his management the company grew and progressed until it
became a multi-million corporation by the time Pirovano was executed by the Japanese during the occupation. On May 13, 1941, the capital
stock of the corporation was increased to P2,000,000, after which a 100 per cent stock dividend was declared. Subsequently, or before the
outbreak of the war , new stock dividends of 200 per cent and 33 1/3 per cent were again declared. On December 4, 1941, the capital stock
was once more increased to P5,000,000. Under Pirovano's management, the assets of the company grew and increased from an original paid
up capital of around P240,000 to P15,538,024.37 by September 30, 1941 (Exhibit HH).

In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the defendant corporation, distributed his
shareholding among his five daughters, namely, Leonor, Estefania, Lourdes, Lolita and Conchita and his wife Natividad Aguilar so that, at that
time, or on July 10, 1946, the stockholding of the corporation stood as follows: Esteban de la Rama, 869 shares, Leonor de la Rama, 3,375
shares, Estefania de la Rama, 3,368 shares, Lourdes de la Rama, 3,368 shares, Lolita de la Rama, 3,368 shares, Conchita de la Rama, 3,376
shares, and Natividad Aguilar, 2,136 shares. The other stockholders , namely, Eliseo Hervas, Tomas Concepcion, Antonio Juanco, and Jose
Aguilar, who were merely employees of Don Esteban, were given 40 shares each, while Pio Pedrosa, Marcial P. Lichauco and Rafael Roces,
one share each, because they merely represented the National Development Company. This Company was given representation in the Board
Of Directors of the corporation because at that time the latter had an outstanding bonded indebtedness to the National Development
Company.

This bonded indebtedness was incurred on February 26, 1940 and was in the amount of P7,500.00. The bond held by the National
Development Company was redeemable within a period of 20 years from March 1, 1940,.bearing interest at the rate of 5 per cent per annum.
To secure said bonded indebtedness, all the assets of the De la Rama Steamship Co., Inc., and properties of Don Esteban de la Rama, as well
as those of the Hijos de I. de la Rama and Co., Inc., a sister corporation owned by Don Esteban and his family, were mortgaged to the
National Development Company (Annexes A, B, C, D of Exhibit 3, Deed of Trust). Payments made by the corporation under the management
of Pirovano reduced this bonded indebtedness to P3,260,855.77.

Upon arrangement made with the National Development Company, the outstanding bonded indebtedness was converted into non-voting
preferred shares of stock of the De la Rama company under the express condition that they would bear affixed cumulative dividend of 6 per
cent per annum and would be redeemable within 15 years (Exhibits 5 and 7). This conversion was carried out on September 23, 1949, when
the National Development Company executed a "Deed of Termination of Trust and Release of Mortgage" in favor of the De la Rama company
(Exhibit 6.) The immediate effect of this conversion was the released from incumbrance of all the properties Of Don Esteban and of the Hijos
de I. de la Rama and Co., Inc., which was apparently favorable to the interests of the De la Rama company, but, on the other hand, it
resulted in the inconvenience that, as holder of the preferred stock, the National Development Company, was given to the right to 40 per cent
of the membership of the Board of Directors of the De la Rama company, which meant an increase in the representation of the National
Development Company from 2 to 4 of the 9 members of said Board of Directors.

The first resolution granting to the Pirovano children the proceeds of the insurance policies taken on his life by the defendant company was
adopted by the Board of Directors at a meeting held on July 10, 1946, (Exhibit B). This grant was called in the resolution as "Special Payment
to Minor Heirs of the late Enrico Pirovano". Because of its direct hearing on the issues involved in this case, said resolution is hereunder
reproduced in toto:

SPECIAL PAYMENT TO MINORS HEIRS OF THE LATE ENRICO PIROVANO

The President stated that the principal purpose for which the meeting had been called was to discuss the advisability of making
some form of compensation to the minor heirs of the late Enrico Pirovano, former President and General Manager of the Company.
As every member of the Board knows, said the President, the late Enrico Pirovano who was largely responsible for the very
successful development of the activities of the Company prior to war was killed by the Japanese in Manila sometime in 1944 leaving
as his only heirs four minor children, Maria Carla, Esteban, Enrico and John Albert. Early in 1941, explained the President, the
Company had insured the life of Mr. Pirovano for a million pesos. Following the occupation of the Philippines by Japanese forces the
Company was unable to pay the premiums on those policies issued by Filipino companies and these policies had lapsed. But with
regards to the York Office of the De la Rama Steamship Co., Inc. had kept up payment of the premiums from year to year. The
payments made on account of these premiums, however, are very small compared to the amount which the Company will now
receive as a result of Mr. Pirovano's death. The President proposed therefore that out of the proceeds of these policies the sum of
P400,000 be set aside for the minor children of the deceased, said sum of money to be convertible into 4,000 shares of the stock of
the Company, at par, or 1,000 shares for each child. This proposal, explained the President as being made by him upon suggestion
of President Roxas, but, he added, that he himself was very much in favor of it also. On motion of Miss Leonor de la Rama duly
seconded by Mrs. Lourdes de la Rama de Osmeña, the following resolution was, thereupon, unanimously approved:

Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship Company, died in Manila sometime
in November, 1944:

Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful development of the activities of thus
company;

Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and American Life Insurance
companies for the total sum of P1,000,000;

Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and four minor children, to wit: Esteban, Maria Carla,
Enrico and John Albert, all surnamed Pirovano;lawphil.net

Whereas, said Enrico Pirovano left practically nothing to his heirs and it is but fit proper that this company which owes so much to
the deceased should make some provision for his children;

Whereas, this company paid premium on Mr. Pirovano's life insurance policies for a period of only 4 years so that it will receive from
the insurance companies sums of money greatly in excess of the premiums paid by this company.

Be it resolved, That out of the proceeds to be collected from the life insurance policies on the life of the late Enrico Pirovano, the
sum of P400,000 be set aside for equal division among the 4 minor children of the deceased, to wit: Esteban, Maria Carla, Enrico
and John Albert, all surnamed Pirovano, which sum of money shall be convertible into shares of stock of the De la Rama Steamship
Company, at par and, for that purpose, that the present registered stockholders of the corporation be requested to waive their
preemptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4 minor heirs of the deceased,
to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano, to obtain 1,000 shares at par;

Resolved, further, that in view of the fact that under the provisions of the indenture with the National Development Company, it is
necessary that action herein proposed to be confirmed by the Board of Directors of that company, the Secretary is hereby instructed
to send a copy of this resolution to the proper officers of the National Development Company for appropriate action. (Exhibit B)

The above resolution, which was adopted on July 10, 1946, was submitted to the stockholders of the De la Rama company at a meeting
properly convened, and on that same date, July 10, 1946, the same was duly approved.

It appears that, although Don Esteban and the Members of his family were agreeable to giving to the Pirovano children the amount of
P400,000 out of the proceeds of the insurance policies taken on the life of Enrico Pirovano, they did not realize that when they provided in the
above referred two resolutions that said Amount should be paid in the form of shares of stock, they would be actually giving to the Pirovano
children more than what they intended to give. This came about when Lourdes de la Rama, wife of Sergio Osmeña, Jr., showed to the latter
copies of said resolutions and asked him to explain their import and meaning, and it was value then that Osmeña explained that because the
value then of the shares of stock was actually 3.6 times their par value, the donation their value, the donation, although purporting to be only
P400,00, would actually amount to a total of P1,440,000. He further explained that if the Pirovano children would given shares of stock in lieu
of the amount to be donated, the voting strength of the five daughters of Don Esteban in the company would be adversely affected in the
sense that Mrs. Pirovano would be adversely affected in the sense that Mrs. Pirovano would have a voting power twice as much as that of her
sisters. This caused Lourdes de la Rama to write to the secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the waiver
she supposedly gave of her pre-emptive rights. Osmeña elaborated on this matter at the annual meeting of the stockholders held on
December 12, 1946 but at said meeting it was decided to leave the matter in abeyance pending further action on the part of the members of
the De la Rama family.

Osmeña, in the meantime, took up the matter with Don Esteban and, as consequence, the latter, on December 30, 1946, addressed to
Marcial Lichauco a letter stating, among other things, that "in view of the total lack of understanding by me and my daughters of the two
Resolutions abovementioned, namely, Directors' and Stockholders' dated July 10, 1946, as finally resolved by the majority of the
Stockholders and Directors present yesterday, that you consider the abovementioned resolutions nullified." (Exhibit CC).

On January 6, 1947, the Board of Directors of the De la Rama company, as a consequence of the change of attitude of Don Esteban, adopted
a resolution changing the form of the donation to the Pirovano children from a donation of 4,000 shares of stock as originally planned into a
renunciation in favor of the children of all the company's "right, title, and interest as beneficiary in and to the proceeds of the
abovementioned life insurance policies", subject to the express condition that said proceeds should be retained by the company as a loan
drawing interest at the rate of 5 per cent per annum and payable to the Pirovano children after the company "shall have first settled in full the
balance of its present remaining bonded indebtedness in the sum of approximately P5,000,000" (Exhibit C). This resolution was concurred in
by the representatives of the National Development Company. The pertinent portion of the resolution reads as follows:

Be resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby renounces, all of his right, title,
and interest as beneficiary in and to the proceeds of the abovementioned life insurance policies in favor of Esteban, Maria Carla,
Enrico and John Albert, all surnamed Pirovano, subject to the terms and conditions herein after provided;
 That the proceeds of said insurance policies shall be retained by the Company in the nature of a loan drawing interest at the rate of
5 per cent annum from the date of receipt of payment by the Company from the various insurance companies above-mentioned
until the time the time the same amounts are paid to the minor heirs of Enrico Pirovano previously mentioned;

That all amounts received from the above-mentioned policies shall be divided equally among the minors heirs of said Enrico
Pirovano;

That the company shall proceed to pay the proceeds of said insurance policies plus interests that may have accrued to each of the
heirs of the said Enrico Pirovano or their duly appointed representatives after the Company shall have first settled in full the balance
of its present remaining bonded indebtedness in the sum of the approximately P5,000,000.

The above resolution was carried out by the company and Mrs. Estefania R. Pirovano, the latter acting as guardian of her children, by
executing a Memorandum Agreement on January 10, 1947 and June 17, 1947, respectively, stating therein that the De la Rama Steamship
Co., Inc., shall enter in its books as a loan the proceeds of the life insurance policies taken on the life of Pirovano totalling S321,500, which
loan would earn interest at the rate of 5 per cent per annum. Mrs. Pirovano, in executing the agreement, acted with the express authority
granted to her by the court in an order dated March 26, 1947.

On June 24, 1947, the Board of Directors approved a resolution providing therein that instead of the interest on the loan being payable,
together with the principal, only after the company shall have first settled in full its bonded indebtedness, said interest may be paid to the
Pirovano children "whenever the company is in a position to met said obligation" (Exhibit D), and on February 26, 1948, Mrs. Pirovano
executed a public document in which she formally accepted the donation (Exhibit H). The Dela Rama company took "official notice" of this
formal acceptance at a meeting held by its Board of Directors on February 26, 1948.

In connection with the above negotiations, the Board of Directors took up at its meeting on July 25, 1949, the proposition of Mrs. Pirovano to
buy the house at New Rochelle, New York, owned by the Demwood Realty, a subsidiary of the De la Rama company at its original costs of
$75,000, which would be paid from the funds held in trust belonging to her minor children. After a brief discussion relative to the matter, the
proposition was approved in a resolution adopted on the same date.

The formal transfer was made in an agreement signed on September 5, 1949 by Mrs. Pirovano, as guardian of her children, and by the De la
Rama company, represented by its new General Manager, Sergio Osmeña, Jr. The transfer of this property was approved by the court in its
order of September 20, 1949.lawphil.net

On September 13, 1949, or two years and 3 months after the donation had been approved in the various resolutions herein above mentioned,
the stockholders of the De la Rama company formally ratified the donation (Exhibit E), with certain clarifying modifications, including the
resolution approving the transfer of the Demwood property to the Pirovano children. The clarifying modifications are quoted hereunder:

1. That the payment of the above-mentioned donation shall not be affected until such time as the Company shall have first duly
liquidated its present bonded indebtedness in the amount of P3,260,855.77 with The National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to the National Development Company in lieu thereof;

2. That any and all taxes, legal fees, and expenses in any way connected with the above transaction shall be chargeable and
deducted from the proceeds of the life insurance policies mentioned in the resolutions of the Board of Directors. (Exhibit E)

Sometime in March 1950, the President of the corporation, Sergio Osmeña, Jr., addressed an inquiry to the Securities and Exchange
Commission asking for opinion regarding the validity of the donation of the proceeds of the insurance policies to the Pirovano children. On
June 20, 1950 that office rendered its opinion that the donation was void because the corporation could not dispose of its assets by gift and
therefore the corporation acted beyond the scope of its corporate powers. This opinion was submitted to the Board of Directors at its meting
on July 12, 1950, on which occasion the president recommend that other legal ways be studied whereby the donation could be carried out. On
September 14, 1950, another meeting was held to discuss the propriety of the donation. At this meeting the president expressed the view
that, since the corporation was not authorized by its charter to make the donation to the Pirovano children and the majority of the
stockholders was in favor of making provision for said children, the manner he believed this could be done would be to declare a cash
dividend in favor of the stockholders in the exact amount of the insurance proceeds and thereafter have the stockholders make the donation
to the children in their individual capacity. Notwithstanding this proposal of the president, the board took no action on the matter, and on
March 8, 1951, at a stockholders' meeting convened on that date the majority of the stockholders' voted to revoke the resolution approving
the donation to the Pirovano children. The pertinent portion of the resolution reads as follows:

Be it resolved, as it is hereby resolved, that in view of the failure of compliance with the above conditions to which the above
donation was made subject, and in view of the opinion of the Securities and Exchange Commissioner, the stockholders revoke,
rescind and annul, as they do thereby revoke, rescind and annul, its ratification and approval on September 13, 1949 of the
aforementioned resolution of the Board of Directors of January 6, 1947, as amended on June 24, 1947. (Exhibit T)

In view of the resolution declaring that the corporation failed to comply with the condition set for the effectivity of the donation and revoking
at the same time the approval given to it by the corporation, and considering that the corporation can no longer set aside said donation
because it had no longer set aside said donation because it had long been perfected and consummated, the minor children of the late Enrico
Pirovano, represented by their mother and guardian, Estefania R. de Pirovano, demanded the payment of the credit due them as of December
31, 1951, amounting to P564,980.89, and this payment having been refused, they instituted the present action in the Court of First Instance
of Rizal wherein they prayed that the be granted an alternative relief of the following tenor: (1) sentencing defendant to pay to the plaintiff
the sum of P564,980.89 as of December 31, 1951, with the corresponding interest thereon; (2) as an alternative relief, sentencing defendant
to pay to the plaintiffs the interests on said sum of P564,980.89 at the rate of 5 per cent per annum, and the sum of P564,980.89 after the
redemption of the preferred shares of the corporation held by the National Development Company; and (3) in any event, sentencing
defendant to pay the plaintiffs damages in the amount of not less than 20 per cent of the sum that may be adjudged to the plaintiffs, and the
costs of action.

The only issues which in the opinion of the court need to be determined in order to reach a decision in this appeal are: (1) Is the grant of the
proceeds of the insurance policies taken on the life of the late Enrico Pirovano as embodied in the resolution of the Board of Directors of
defendant corporation adopted on January 6, 1947 and June 24, 1947 a remunerative donation as found by the lower court?; (2) IN the
affirmative case, has that donation been perfected before its rescission or nullification by the stockholders of the corporation on March 8,
1951?; (3) Can defendant corporation give by way of donation the proceeds of said insurance policies to the minor children of the late Enrico
Pirovano under the law or its articles of corporation, or is that donation an ultra vires act?; and (4) has the defendant corporation, by the acts
it performed subsequent to the granting of the donation, deliberately prevented the fulfillment of the condition precedent to the payment of
said donation such that it can be said it has forfeited its right to demand its fulfillment and has made the donation entirely due and
demandable?

We will discuss these issues separately.

1. To determine the nature of the grant made by the defendant corporation to the minor children of the late Enrico Pirovano, we do not need
to go far nor dig into the voluminous record that lies at the bottom of this case. We do not even need to inquire into the interest which has
allegedly been shown by President Roxas in the welfare of the children of his good friend Enrico Pirovano. Whether President Roxas has taken
the initiative in the move to give something to said children which later culminated in the donation now in dispute, is of no moment for the
fact is that, from the mass of evidence on hand, such a donation has been given the full indorsement and encouraging support by Don
Esteban de la Rama who was practically the owner of the corporation. We only need to fall back to accomplish this purpose on the several
resolutions of the Board of Directors of the corporations containing said grant for they clearly state the reasons and purposes why the
donation has been given.

Before we proceed further, it is convenient to state here in passing that, before the Board of Directors had approved its resolution of January
6, 1947, as later amended by another resolution adopted on June 24, 1947, the corporation had already decided to give to the minor children
of the late Enrico Pirovano the sum of P400,000 out of the proceeds of the insurance policies taken on his life in the form of shares, and that
when this form was considered objectionable because its result and effect would be to give to said children a much greater amount
considering the value then of the stock of the corporation, the Board of Directors decided to amend the donation in the form and under the
terms stated in the aforesaid resolutions. Thus, in the original resolution approved by the Board of Directors on July 10, 1946, wherein the
reasons for granting the donation to the minor children of the late Enrico Pirovano were clearly, we find out the following revealing
statements:

Whereas, the late Enrico Pirovano President and General Manager of the De la Rama Steamship Company, died in Manila sometime
in November, 1944;

Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful development of the activities of this
company;

Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and American Life Insurance
companies for the total sum of P1,000,000;

Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and 4 minor children, to wit: Esteban, Maria Carla,
Enrico and John Albert, all surnamed Pirovano;

Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that this company which owes so
much to the deceased should make some provisions for his children;

Whereas, this company paid premiums on Mr. Pirovano's life insurance policies for a period of only 4 years so that it will receive
from the insurance companies sums of money greatly in excess of the premiums paid by the company,

Again, in the resolution approved by the Board of Directors on January 6, 1947, we also find the following expressive statements which are
but a reiteration of those already expressed in the original resolution:

Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship Co., Inc., died in Manila sometime
during the latter part of the year 1944;

Whereas, the said Enrico Pirovano was to a large extent responsible for the rapid and very successful development and expansion of
the activities of this company;

Whereas, early in 1941, the life of the said Enrico Pirovano was insured in various life companies, to wit:

Whereas, the said Enrico Pirovano is survived by 4 minor children, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed
Pirovano; and

Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that this Company which owes so
much to the deceased should make some provision for his children;

Be it resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby renounces, . . . .

From the above it clearly appears that the corporation thought of giving the donation to the children of the late Enrico Pirovano because he
"was to a large extent responsible for the rapid and very successful development and expansion of the activities of this company"; and also
because he "left practically nothing to his heirs and it is but fit and proper that this company which owes so much to the deceased should
make some provision to his children", and so, the donation was given "out of gratitude to the late Enrico Pirovano." We do not need to stretch
our imagination to see that a grant or donation given under these circumstances is remunerative in nature in contemplation of law.

That which is made to a person in consideration of his merits or for services rendered to the donor, provided they do not constitute
recoverable debts, or that in which a burden less than the value of the thing given is imposed upon the donee, is also a donation."
(Art. 619, old Civil Code.)

In donations made to a person for services rendered to the donor, the donor's will is moved by acts which directly benefit him. The
motivating cause is gratitude, acknowledgment of a favor, a desire to compensate. A donation made to one who saved the donor's
life, or a lawyer who renounced his fees for services rendered to the donor, would fall under this class of donations. These donations
are called remunerative donations . (Sinco and Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72-73.)

2. The next question to be determined is whether the donation has been perfected such that the corporation can no longer rescind it even if it
wanted to. The answer to this question cannot but be in the affirmative considering that the same has not only been granted in several
resolutions duly adopted by the Board of Directors of the defendant corporation, and in all these corporate acts the concurrence of the
representatives of the National Development Company, the only creditor whose interest may be affected by the donation, has been expressly
given. The corporation has even gone further. It actually transferred the ownership of the credit subject of donation to the Pirovano children
with the express understanding that the money would be retained by the corporation subject to the condition that the latter would pay
interest thereon at the rate of 5 per cent per annum payable whenever said corporation may be in a financial position to do so. Thus, the
following acts of the corporation as reflected from the evidence bear this out:

(a) The donation was embodied in a resolution duly approved by the Board of Directors on January 6, 19437. In this resolution, the
representatives of the National Development Company, have given their concurrence. This is the only creditor which can be considered as
being adversely affected by the donation. The resolution of June 24, 1947 did not modify the substance of the former resolution for it merely
provided that instead of the interest on the loan being payable, together with the principal, only after the corporation had first settled in full
its bonded indebtedness, said interest would be paid "whenever the company is in a position to meet said obligation."

(b) The resolution of January 6, 1947 was actually carried out when the company and Mrs. Estefania R. Pirovano, executed a memorandum
agreement stating therein hat the proceeds of the insurance policies would be entered in the books of the corporation as a loan which would
bear an interest at the rate of 5 per cent per annum, and said agreement was signed by Mrs. Pirovano as judicial guardian of her children
after she had been expressly authorized by the court to accept the donation in behalf of her children.

(c) While the donation can be considered as duly executed by the execution of the document stated in the preceding paragraph, and by the
entry in the books of the corporation of the donation as a loan, a further record of said execution was made when Mrs. Pirovano executed a
public document on February 26, 1948 making similar acceptance of the donation. And this acceptance was officially recorded by the
corporation when on the same date its Board of Directors approved a resolution taking "official notice" of said acceptance.

(d) On July 25, 1949, the Board of Directors approved the proposal of Mrs. Pirovano to buy the house at New Rochelle, New York, owned by a
subsidiary of the corporation at the costs of S75,000 which would be paid from the sum held in trust belonging to her minor children. And this
agreement was actually carried out in a document signed by the general manager of the corporation and by Mrs. Pirovano, who acted on the
matter with the express authority of the court.

(e) And on September 30, 1949, or two years and 3 months after the donation had been executed, the stockholders of the defendant
corporation formally ratified and gave approval to the donation as embodied in the resolutions above referred to, subject to certain
modifications which did not materially affect the nature of the donation.

There can be no doubt from the foregoing relation of facts the donation was a corporate act carried out by the corporation not only with the
sanction of its Board of Directors but also of its stockholders. It is evident that the donation has reached the stage of perfection which is valid
and binding upon the corporation and as such cannot be rescinded unless there is exists legal grounds for doing so. In this case, we see none.
The two reasons given for the rescission of said donation in the resolution of the corporation adopted on March 8, 1951, to wit: that the
corporation failed to comply with the conditions to which the above donation was made subject, and that in the opinion of the Securities and
Exchange Commission said donation is ultra vires, are not, in our opinion, valid and legal as to justify the rescission of a perfected donation.
These reasons, as we will discuss in the latter part of this decision, cannot be invoked by the corporation to rescind or set at naught the
donation, and the only way by which this can be done is to show that the donee has been in default, or that the donation has not been validly
executed, or is illegal or ultra vires, and such is not the case as we will see hereafter. We therefore declare that the resolution approved by
the stockholders of the defendant corporation on March 8, 1951 did not and cannot have the effect of nullifying the donation in question.

3. The third question to be determined is: Can defendant corporation give by way of donation the proceeds of said insurance policies to the
minor children of the late Enrico Pirovano under the law or its articles of corporation, or is that donation an ultra vires act? To answer this
question it is important for us to examine the articles of incorporation of the De la Rama company to see this question it is important for us to
examine the articles of incorporation of the De la Rama company to see if the act or donation is outside of their scope. Paragraph second of
said articles provides:

Second.— The purposes for which said corporation is formed are:

(a) To purchase, charter, hire, build, or otherwise acquire steam or other ships or vessels, together with equipments and furniture
therefor, and to employ the same in conveyance and carriage of goods, wares and merchandise of every description, and of
passengers upon the high seas.

(b) To sell, let, charter, or otherwise dispose of the said vessels or other property of the company.

(c) To carry on the business of carriers by water.

(d) To carry on the business of shipowners in all of its branches.

(e) To purchase or take on lease, lands, wharves, stores, lighters, barges and other things which the company may deem necessary
or advisable to be purchased or leased for the necessary and proper purposes of the business of the company, and from time to
time to sell the dispose of the same.

(f) To promote any company or companies for the purposes of acquiring all or any of the property or liabilities of this company, or
both, or for any other purpose which may seem directly or indirectly calculated to benefit the company.

(g) To invest and deal with the moneys of the company and immediately required, in such manner as from time to time may be
determined.

(h) To borrow, or raise, or secure the payment of money in such manner as the company shall think fit.

(i) Generally, to do all such other thing and to transact all business as may be directly or indirectly incidental or conducive to the
attainment of the above object, or any of them respectively.

(j) Without in any particular limiting or restricting any of the objects and powers of the corporation, it is hereby expressly declared
and provided that the corporation shall have power to issue bonds and provided that the corporation shall have power to issue
bonds and other obligations, to mortgage or pledge any stocks, bonds or other obligations or any property which may be required
by said corporations; to secure any bonds, guarantees or other obligations by it issued or incurred; to lend money or credit to and to
aid in any other manner any person, association, or corporation of which any obligation or in which any interest is held by this
corporation or in the affairs or prosperity of which this corporation or in the affairs or prosperity of which this corporation has a
lawful interest, and to do such acts and things as may be necessary to protect, preserve, improve, or enhance the value of any such
obligation or interest; and, in general, to do such other acts in connection with the purposes for which this corporation has been
formed which is calculated to promote the interest of the corporation or to enhance the value of its property and to exercise all the
rights, powers and privileges which are now or may hereafter be conferred by the laws of the Philippines upon corporations formed
under the Philippine Corporation Act; to execute from time to time general or special powers of attorney to persons, firms,
associations or corporations either in the Philippines, in the United States, or in any other country and to revoke the same as and
when the Directors may determine and to do any and or all of the things hereinafter set forth and to the same extent as natural
persons might or could do.

After a careful perusal of the provisions above quoted we find that the corporation was given broad and almost unlimited powers to carry out
the purposes for which it was organized among them, (1) "To invest and deal with the moneys of the company not immediately required, in
such manner as from time to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation of which
any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest."
The world deal is broad enough to include any manner of disposition, and refers to moneys not immediately requiredby the corporation, and
such disposition may be made in such manner as from time to time may be determined by the corporations. The donation in question
undoubtedly comes within the scope of this broad power for it is a fact appearing in the evidence that the insurance proceeds were not
immediately required when they were given away. In fact, the evidence shows that the corporation declared a 100 per cent cash dividend, or
P2,000,000, and later on another 30 per cent cash dividend. This is clear proof of the solvency of the corporation. It may be that, as
insinuated, Don Esteban wanted to make use of the insurance money to rehabilitate the central owned by a sister corporation, known as Hijos
de I. de la Rama and Co., Inc., situated in Bago, Negros Occidental, but this, far from reflecting against the solvency of the De la Rama
company, only shows that the funds were not needed by the corporation.

Under the second broad power we have the above stated, that is, to aid in any other manner any person in the affairs and prosperity of whom
the corporation has a lawful interest, the record of this case is replete with instances which clearly show that the corporation knew well its
scope and meaning so much so that, with the exception of the instant case, no one has lifted a finger to dispute their validity. Thus, under
this broad grant of power, this corporation paid to the heirs of one Florentino Nonato, an engineer of one of the ships of the company who
died in Japan, a gratuity of P7,000, equivalent to one month salary for each year of service. It also gave to Ramon Pons, a captain of one of
its ships , a retirement gratuity equivalent to one month salary for every year of service, the same to be based upon his highest salary. And it
contributed P2,000 to the fund raised by the Associated Steamship Lines for the widow of the late Francis Gispert, secretary of said
Association, of which the De la Rama Steamship Co., Inc., was a member along with about 30 other steamship companies. In this instance,
Gispert was not even an employee of the corporation. And invoking this vast power, the corporation even went to the extent of contributing
P100,000 to the Liberal Party campaign funds, apparently in the hope that by conserving its cordial relations with that party it might continue
to retain the patronage of the administration. All these acts executed before and after the donation in question have never been questioned
and were willingly and actually carried out.

We don't see much distinction between these acts of generosity or benevolence extended to some employees of the corporation, and even to
some in whom the corporation was merely interested because of certain moral or political considerations, and the donation which the
corporation has seen fit to give to the children of the late Enrico Pirovano from the point of view of the power of the corporation as expressed
in its articles of incorporation. And if the former had been sanctioned and had been considered valid and intra vires, we see no plausible
reasons why the latter should now be deemed ultra vires. It may perhaps be argued that the donation given to the children of the late Enrico
Pirovano is so large and disproportionate that it can hardly be considered a pension of gratuity that can be placed on a par with the instances
above mentioned, but this argument overlooks one consideration: the gratuity here given was not merely motivated by pure liberality or act
of generosity, but by a deep sense of recognition of the valuable services rendered by the late Enrico Pirovano which had immensely
contributed to the growth of the corporation to the extent that from its humble capitalization it blossomed into a multi-million corporation that
it is today. In other words of the very resolutions granting the donation or gratuity, said donation was given not only because the company
was so indebted to him that it saw fit and proper to make provisions for his children, but it did so out of a sense of gratitude. Another factor
that we should bear in mind is that Enrico Pirovano was not only a high official of the company but was at the same time a member of the De
la Rama family, and the recipient of the donation are the grandchildren of Don Esteban de la Rama. This we, may say, is the motivating root
cause behind the grant of this bounty.

It may be contended that a donation is different from a gratuity. While technically this may be so in substance they are the same. They are
even similar to a pension. Thus, it was granted for services previously rendered, and which at the time they were rendered gave rise to no
legal obligation. " (Words and Phrases, Permanent Edition, p. 675; O'Dea vs. Cook,, 169 Pac., 306, 176 Cal., 659.) Or stated in another way,
a "Gratuity is mere bounty given by the Government in consideration or recognition or meritorious services and springs from the appreciation
an d graciousness of the Government", (Ilagan vs. Ilaya, G.R. No. 33507, Dec. 20 1930) or "A gratuity is something given freely, or without
recompense, a gift, something voluntarily given in return for a favor or services; a bounty; a tip." Wood Mercantile Co. vs. Cole, 209 S.W. 2d.
290; Mendoza vs. Dizon, 77 Phil., 533, 43 Off. Gaz. p. 4633. We do not see much difference between this definition of gratuity and a
remunerative donation contemplated in the Civil Code. In essence they are the same. Such being the case, it may be said that this donation is
gratuity in a large sense for it was given for valuable services rendered an ultra vires act in the light of the following authorities:

Indeed, some cases seem to hold that the giving of a pure gratuity to directors is ultra vires of corporation, so that it could not be
legalized even if the approval of the shareholders; but this position has no sound reason to support it, and is opposed to the weight
of authority (Suffaker vs. Kierger's Assignee, 53 S.W. Rep. 288; !07 Ky. 200; 46 L.R.A. 384).

But although business corporations cannot contribute to charity or benevolence, yet they are not required always to insist on the full
extent of their legal rights. They are not forbidden for the recognizing moral obligation of which strict law takes no cognizance. They
are not prohibited from establishing a reputation for board, liberal, equitable dealing which may stand them in good stead in
competition with less fair rivals. Thus, an incorporated fire insurance company which policies except losses from explosions may
nevertheless pay a loss from that cause when other companies are accustomed to do so, such liberal dealing being deemed
conducive to the prosperity of the corporation." (Modern Law of Corporations, Machen, Vol. 1, p. 81).

So, a bank may grant a five years pension to the family at one of its officers. In all cases in this sorts, the amount of the gratuity
rests entirely within the discretion of the company, unless indeed it be all together out of the reason and fitness. But where the
company has ceased to be going concerned, this power to make gifts or present it at the end. (Modern Law of Corporations,
Machen, Vol. 1, p. 82.).

Payment of Gratitude out of Capital.— There seems on principle no reason to doubt that gifts or gratuities wherever they are lawful
may be paid out of capital as well as out of profits. (Modern Law of corporations, Machen, Vol. 1 p. 83.).

Whether desirable to supplement implied powers of this kind by express provisions.— Enough has been said to show that the
implied powers of a corporation to give gratuities to its servants and officers, as well as to strangers, are ample, so that there is
therefore no need to supplement them by express provisions." (modern Law of Corporations, Machen, Vol. 1, p. 83.) 1

Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of the defendant corporation, or the scope
of the powers that it may exercise under the law, or it is an ultra vires act, still it may said that the same can not be invalidated, or declared
legally ineffective for the reason alone, it appearing that the donation represents not only the act of the Board of Directors but of the
stockholders themselves as shown by the fact that the same has been expressly ratified in a resolution duly approved by the latter. By this
ratification, the infirmity of the corporate act, it may has been obliterated thereby making the cat perfectly valid and enforceable. This is
specially so if the donation is not merely executory but executed and consummated and no creditors are prejudice, or if there are creditors
affected, the latter has expressly given their confirmity.

In making this pronouncement, advertence should made of the nature of the ultra vires act that is in question. A little digression needs be
made on this matter to show the different legal effect that may result consequent upon the performance of a particular ultra vires act on the
part of the corporation. may authorities may be cited interpreting or defining, extent, and scope of an ultra vires act, but all of them are
uniform and unanimous that the same may be either an act performed merely outside the scope of the powers granted to it by it articles of
incorporation, or one which is contrary to law or violative of any principle which will void any contract whether done individually or
collectively. In other words, a distinction should be made between corporate acts or contracts which are illegal and those which are
merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public policy or public duty, and are, like
similar transactions between the individuals void. They cannot serve as basis of a court action, nor require validity ultra vires acts on the
other hand, or those which are not illegal and void ab initio, but are merely within are not illegal and void ab initio, but are not merely within
the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders.

Strictly speaking, an ultra vires act is one outside the scope of the power conferred by the legislature, and although the term has
been used indiscriminately, it is properly distinguishable from acts which are illegal, in excess or abuse of power, or executed in an
unauthorized manner, or acts within corporate powers but outside the authority of particular officers or agents (19 C. J. S. 419).

Corporate transactions which are illegal because prohibited by statute or against public policy are ordinarily void and unenforceable
regardless of the part performance, ratification, or estoppel; but general prohibitions against exceeding corporate powers and
 prohibitions intended to protect a particular class or specifying the consequences of violation may not preclude enforcement of the
transaction and an action may be had for the part unaffected by the illegality or for equitable restitution. (19 C.J.S. 421.)

Generally, a transaction within corporate powers but executed in an irregular or unauthorized manner is voidable only, and may
become enforceable by reason of ratification or express or implied assent by the stockholders or by reason of estoppel of the
corporation or the other party to the transaction to raise the objection, particularly where the benefits are retained

As appears in paragraphs 960-964 supra, the general rule is that a corporation must act in the manner and with the formalities, if
any, prescribed by its character or by the general law. However, a corporation transaction or contract which is within the corporation
powers, which is neither wrong in itself nor against public policy, but which is defective from a failure to observe in its execution a
requirement of law enacted for the benefit or protection of a certain class, is voidable and is valid until avoided, not void until
validated; the parties for whose benefit the requirement was enacted may ratify it or be estoppel to assert its invalidity, and third
persons acting in good faith are not usually affected by an irregularity on the part of the corporation in the exercise of its granted
powers. (19 C.J.S., 423-24.)

It is true that there are authorities which told that ultra vires acts, or those performed beyond the powers conferred upon the corporation
either by law or by its articles of incorporation, are not only voidable, but wholly void and of no legal effect, and that such acts cannot be
validated by ratification or be the basis of any action in court; but such ruling does not constitute the weight of authority, the reason being
that they fail to make the important distinction we have above adverted to. Because rule has been rejected by most of the state courts and
even by the modern treaties or corporations (7 Flethcer, Cyc. Corps., 563-564). And now it can be said that the majority of the cases hold
that acts which are merely ultra vires, or acts which are not illegal, may be ratified by the stockholders of a corporation (Brooklyn Heights R.
Co. vs. Brooklyn City R. Co., 135 N.Y. Supp. 1001).

Strictly speaking, an act of a corporation outside of its character powers is just as such ultra vires where all the stockholders consent
thereto as in a case where none of the stockholders expressly or cannot be ratified so as to make it valid, even though all the
stockholders consent thereto; but inasmuch as the stockholders in reality constitute the corporation, it should , it would seem, be
estopped to allege ultra vires, and it is generally so held where there are no creditors, or the creditors are not injured thereby, and
where the rights of the state or the public are not involved, unless the act is not only ultra vires but in addition illegal and void. of
course, such consent of all the stockholders cannot adversely affect creditors of the corporation nor preclude a proper attack by the
state because of such ultra vires act. (7 Fletcher Corp., Sec. 3432, p. 585)

Since it is not contended that the donation under consideration is illegal, or contrary to any of the express provision of the articles of
incorporation, nor prejudicial to the creditors of the defendant corporation, we cannot but logically conclude, on the strength of the authorities
we have quoted above, that said donation, even if ultravires in the supposition we have adverted to, is not void, and if voidable its infirmity
has been cured by ratification and subsequent acts of the defendant corporation. The defendant corporation, therefore, is now prevented or
estopped from contesting the validity of the donation. This is specially so in this case when the very directors who conceived the idea of
granting said donation are practically the stockholders themselves, with few nominal exception. This applies to the new stockholder Jose
Cojuangco who acquired his interest after the donation has been made because of the rule that a "purchaser of shares of stock cannot
avoid ultra vires acts of the corporation authorized by its vendor, except those done after the purchase" (7 Fletcher, Cyc. Corps. section 3456,
p. 603; Pascual vs. Del Saz Orozco, 19 Phil., 82.) Indeed, how can the stockholders now pretend to revoke the donation which has been
partly consummated? How can the corporation now set at naught the transfer made to Mrs. Pirovano of the property in New York, U.S.A., the
price of which was paid by her but of the proceeds of the insurance policies given as donation. To allow the corporation to undo what it has
done would only be most unfair but would contravene the well-settled doctrine that the defense of ultra vires cannot be set up or availed of in
completed transactions (7 Fletcher, Cyc. Corps. Section 3497, p. 652; 19 C.J.S., 431).

4. We now come to the fourth and last question that the defendant corporation, by the acts it has performed subsequent to the granting of
the donation, deliberately prevented the fulfillment of the condition precedent to the payment of said donation such that it can be said it has
forfeited entirely due and demandable.

It should be recalled that the original resolution of the Board of Directors adopted on July 10, 1946 which provided for the donation of
P400,000 out of the proceeds which the De la Rama company would collect on the insurance policies taken on the life of the late Enrico
Pirovano was, as already stated above, amended on January 6, 1947 to include, among the conditions therein provided, that the corporation
shall proceed to pay said amount, as well as the interest due thereon, after it shall have settled in full balance of its bonded indebtedness in
the sum of P5,000,000. It should be recalled that on September 13, 1949, or more than 2 years after the last amendment referred too above,
the stockholders adopted another resolution whereby they formally ratified said donation but subject to the following clarifications: (1) that
the amount of the donation shall not be effected until such time as the company shall have first duly liquidated its present bonded
indebtedness in the amount of P3,260,855.77 to the National Development Company, or shall have first fully redeemed the preferred shares
of stock in the amount to be issued to said company in lieu thereof, and (2) that any and all taxes, legal fees, and expenses connected with
the transaction shall be chargeable from the proceeds of said insurance policies.

The trial court, in considering these conditions in the light of the acts subsequently performed by the corporation in connection with the
proceeds of the insurance policies, considered said conditions null and void, or at most not written because in its pinion their non-fulfillment
was due to a deliberate desistance of the corporation and not to lack of funds to redeem the preferred shares of the National Development
Company. The conclusions arrived at by the trial court on this point are as follows:

Fourth. — that the condition mentioned in the donation is null and void because it depends on the exclusive will of the donor, in
accordance with the provisions of Article 1115 of the Old Civil Code.

Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant company from obeying and doing
the wishes and mandate of the majority of the stockholders.

Sixth. — That the non-payment of the debt in favor of the National Development Company is due to the lack of funds, nor to lack of
authority, but to the desire of the President of the corporation to preserve and continue the Government participation in the
company.

To this views of the trial court, we fail to agree. There are many factors we can consider why the failure to immediately redeem the preferred
shares issued to the National Development Company as desired by the minor children of the late Enrico Pirovano cannot or should not be
attributed to a mere desire on the part of the corporation to delay the redemption, or to prejudice the interest of the minors, but rather to
protect the interest of the corporation itself. One of them is the text of the very resolution approved by the National Development Company
on February 18, 1949 which prescribed the terms and conditions under which it expressed its conformity to the conversion of the bonded
indebtedness into preferred shares of stock. The text of the resolution above mentioned reads:

Resolved: That the outstanding bonded indebtedness of the Dela Rama Steamship Co., Inc., in the approximate amount of
P3,260,855.77 be converted into non-voting preferred shares of stock of said company, said shares to bear a fixed dividend of 6
percent per annum which shall be cumulative and redeemable within 15 years. Said shares shall be preferred as to assets in the
event of liquidation or dissolution of said company but shall be non-participating.
It is plain from the text of the above resolution that the defendant corporation had 15 years from February 18, 1949, or until 1964, within
which to effect the redemption of the preferred shares issued to the National Development Company. This condition cannot but be binding
and obligatory upon the donees, if they desire to maintain the validity of the donation, for it is not only the basis upon which the stockholders
of the defendant corporation expressed their willingness to ratify the donation, but it is also by way which its creditor, the National
Development Company, would want it to be. If the defendant corporation is given 15 years within which to redeem the preferred shares, and
that period would expire in 1964, one cannot blame the corporation for availing itself of this period if in its opinion it would redound to its best
interest. It cannot therefore be said that the fulfillment of the condition for the payment of the donation is one that wholly depends on the
exclusive will of the donor, as the lower court has concluded, simply because it failed to meet the redemption of said shares in her manner
desired by the donees. While it may be admitted that because of the disposition of the assets of the corporation upon the suggestion of its
general manager more than enough funds had been raised to effect the immediate redemption of the above shares, it is not correct to say
that the management has completely failed in its duty to pay its obligations for, according to the evidence, a substantial portion of the
indebtedness has been paid and only a balance of about P1,805,169.98 was outstanding when the stockholders of the corporation decided to
revoke or cancel the donation. (Exhibit P.)

But there are other good reasons why all the available funds have not been actually applied to the redemption of the preferred shares, one of
them being the "desire of the president of the corporation to preserve and continue the government participation in the company" which even
the lower court found it to be meritorious, which is one way by which it could continue receiving the patronage and protection of the
government. Another reason is that the redemption of the shares does not depend on the will of the corporation alone but to a great extent
on the will of a third party, the National Development Company. In fact, as the evidence shows, this Company had pledged these shares to
the Philippine National Bank and the Rehabilitation Finance Corporation as a security to obtain certain loans to finance the purchase of certain
ships to be built for the use of the company under management contract entered into between the corporation and the National Development
Company, and this was what prevented the corporation from carrying out its offer to pay the sum P1,956,513.07 on April 5, 1951. Had this
offer been accepted, or favorably acted upon by the National Development Company, the indebtedness would have been practically
liquidated, leaving outstanding only one certificate worth P217,390.45. Of course, the corporation could have insisted in redeeming the shares
if it wanted to even to the extent of taking a court action if necessary to force its creditor to relinquish the shares that may be necessary to
accomplish the redemption, but such would be a drastic step which would have not been advisable considering the policy right along
maintained by the corporation to preserve its cordial and smooth relation with the government. At any rate, whether such attitude be
considered as a mere excuse to justify the delay in effecting the redemption of the shares, or a mere desire on the part of the corporation to
retain in its possession more funds available to attend to other pressing need as demanded by the interest of the corporation, we fail to see in
such an attitude an improper motive to circumvent the early realization of the desire of the minors to obtain the immediate payment of the
donation which was made dependent upon the redemption of said shares there being no clear evidence that may justify such design. Anyway,
a great portion of the funds went to the stockholders themselves by way of dividends to offset, so it appears, the huge advances that the
corporation had made to them which were entered in the books of the corporation as loans and, therefore, they were invested for their own
benefit. As General Manager Osmeña said, "we were first confronted with the problem of the withdrawals of the family which had to be repaid
back to the National Development Company and one of the most practical solutions to that was to declare dividends and reduce the amounts
of their withdrawals", which then totalled about P3,000,000.

All things considered, we are of the opinion that the finding of the lower court that the failure of the defendant corporation to comply with the
condition of the donation is merely due to its desistance from obeying the mandate of the majority of the stockholders and not to lack of
funds, or to lack of authority, has no foundation in law or in fact, and, therefore, its conclusion that because of such desistance that condition
should be deemed as fulfilled and the payment of the donation due and demandable, is not justified. In this respect, the decision of the lower
court should be reversed.

Having reached the foregoing conclusion, we deem it unnecessary to discuss the other issues raised by the parties in their briefs.

The lower court adjudicated to plaintiff an additional amount equivalent to 20 per cent of the amount claimed as damages by way of
attorney's fees, and in our opinion, this award can be justified under Article 2208, paragraph 2, of the new Civil Code, which provides: "When
the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest",
attorney's fees nay be awarded as damages. However, the majority believes that this award should be reduced to 10 per cent.

Wherefore, the decision appealed from should be modified as follows: (a) that the donation made in favor of the children of the late Enrico
Pirovano of the proceeds of the insurance policies taken on his life is valid and binding on the defendant corporation, (b) that said donation,
which amounts to a total of P583,813.59, including interest, as it appears in the books of the corporation as of August 31, 1951, plus interest
thereon at the rate of 5 per cent per annum from the filing of the complaint, should be paid to the plaintiffs after the defendant corporation
shall have fully redeemed the preferred shares issued to the National Development Company under the terms and conditions stated in the
resolutions of the Board of Directors of January 6, 1947 and June 24, 1947, as amended by the resolution of the stockholders adopted on
September 13,1949; and (c) defendant shall pay to plaintiffs an additional amount equivalent to 10 per cent of said amount of P583,813.59
as damages by way of attorney's fees, and to pay the costs of action.
G.R. No. L-36207 October 26, 1932

IRINEO G. CARLOS, plaintiff-appellant,

vs.
MINDORO SUGAR CO., ET AL., defendants-appellees.

Jose Ayala for appellant.

Ross, Lawrence & Selph for appellees.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendants the value of four bonds, Nos. 1219, 1220, 1221, and 1222, with due and
unpaid interest thereon, issued by the Mindoro Sugar Company and placed in trust with the Philippine Trust Company which, in turn,
guaranteed them for value received. Said plaintiff appealed from the judgment rendered by the Court of First Instance of Manila absolving the
defendants from the complaint, excepting the Mindoro Sugar Company, which was sentenced to pay the value of the four bonds with interest
at 8 per cent per annum, plus costs.

The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country and registered on July 30, 1917.
According to its articles of incorporation, Exhibit 5, one of its principal purposes was to acquire and exercise the franchise granted by Act No.
2720 to George H. Fairchild, to substitute the organized corporation, the Mindoro Company, and to acquire all the rights and obligations of the
latter and of Horace Havemeyer and Charles J. Welch in the so-called San Jose Estate in the Province of Mindoro.

The Philippine Trust Company is another domestic corporation, registered on October 21, 1917. In its articles of incorporation, Exhibit A,
some of its purposes are expressed thus: "To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise dispose
of stocks, bonds, mortgages, and other securities, or any interest in either, or any obligations or evidences of indebtedness, of any other
corporation or corporations, domestic or foreign. . . . Without in any particular limiting any of the powers of the corporation, it is hereby
expressly declared that the corporation shall have power to make any guaranty respecting the dividends, interest, stock, bonds, mortgages,
notes, contracts or other obligations of any corporation, so far as the same may be permitted by the laws of the Philippine Islands now or
hereafter in force." Its principal purpose, then, as its name indicates, is to engage in the trust business.

On November 17, 1917, the board of directors of the Philippine Trust Company, composed of Phil, C. Whitaker, chairman, and James Ross,
Otto Vorster, Charles D. Ayton, and William J. O'Donovan, members, adopted a resolution authorizing its president, among other things, to
purchase at par and in the name and for the use of the trust corporation all or such part as he may deem expedient, of the bonds in the value
of P3,000,000 that the Mindoro Sugar Company was about to issue, and to resell them, with or without the guarantee of said trust
corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the indebtedness to said bank by
the Mindoro Sugar Company or Charles J. Welch and Horace Havemeyer, up to P2,000,000. The relevant part of the resolution, Exhibit 3,
reads as follows:

Resolved that Mr. Phil. C. Whitaker, president of this company, be and he hereby is authorized to purchase at par in the name and
for the use of this company all, or such part as he may deem expedient, of the said P3,000,000 of 20-year 8 per cent coupon bonds
of the said Mindoro Sugar Company, and to resell or otherwise dispose of the said bonds, with or without this company's guaranty,
at a price not less than par; and it was further

Resolved that Mr. Phil. C. Whitaker, president of the company be and he hereby is authorized in the name of this company alone or
in connection with others, by joint and several obligations, to guarantee to the Philippine National Bank the due and punctual
payment of any and all indebtedness owing to the said Bank by either the Mindoro Sugar Company, the Mindoro Company, or
Charles J. Welch and Horace Havemeyer, up to P2,000,000; and it was further

Resolved that the said president, Mr. Phil. C. Whitaker, be and he hereby is authorized to execute in the name of this company any
and all notes, mortgages, bonds, guaranties, or instruments in writing whatever necessary for the carrying into effect of the
authority hereby granted.

In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company executed in favor of the Philippine Trust Company the
deed of trust, Exhibit 6, transferring all of its property to it in consideration of the bonds it had issued to the value of P3,000,000, the value of
each bond being $1,000, which par value, with interest at 8 per cent per annum, the Philippine Trust Company had guaranteed to the
holders, and in consideration, furthermore, of said trust corporation having guaranteed to the Philippine National Bank all the obligations
contracted by the Mindoro Sugar Company, Charles J. Welch and Horace Havemeyer up to the aforesaid amount of P2,000,000. The
aforementioned deed was approved by his Excellency, the Governor-General, upon recommendation of the Secretary of Agriculture and
Natural Resources, and in accordance with the provisions of Act No. 2720 of the Philippine Legislature. Following are the clauses of said
Exhibit 6 material to this decision:

Whereas, for the purposes aforesaid, and in further pursuance of said resolutions of its board of directors and of its stockholders, the
company, in order to secure the payment of said First Mortgage, Twenty Year, Eight Per Cent, Gold Bonds, has determined to
execute and deliver to said Philippine Trust Company, as trustee, a deed of trust of its properties hereinafter described, and the
board of directors of the Company has approved the form of this indenture and directed that the same be executed and delivered to
said trustee; and

Whereas, all things necessary to make said bonds, when certified by said trustee as in this indenture provided, valid, binding, legal
and negotiable obligations of the company and this indenture a valid deed of trust to secure the payment of said bonds, have been
done and performed, and the creation and issue of said bonds, and the execution, acknowledgment and delivery of this deed of trust
have been duly authorized;

Now, therefore, in order to secure the payment of the principal and interest of all such bonds at any time issued and outstanding
under this indenture, according to their tenor, purport and effect, and to secure the performance and observance of all the
covenants and conditions herein contained and to declare the terms and conditions upon which said bonds are issued, received and
held, and for and in consideration of the premises, and of the purchase or acceptance of such bonds by the holders thereof, and of
the sum of one dollar, United States currency, to it duly paid at or before the ensealing and delivery of these presents, the receipt
whereof is hereby acknowledged, the Mindoro Sugar Company, party of the first part, has sold and conveyed, and by these presents
does sell and convey to the Philippine Trust Company, party of the second part, its successors and assigns forever;

(Description of the property.)

In consequence of this transaction, the bonds, with their coupons were placed on the market and sold by the Philippine Trust Company, all
endorsed as follows:

This is to certify that the within bond is one of the series described in the trust deed therein mentioned.
 PHILIPPINE TRUST COMPANY
by: (Sgd.) PHIL. C. WHITAKER
President

For values received, the Philippine Trust Company hereby guarantees the payment of principal and interest of the within bond.

Manila, Jan.—2, 1918

PHILIPPINE TRUST COMPANY

by: (Sgd.) PHIL. C. WHITAKER
President

The Philippine Trust Company sold thirteen bonds, Nos. 1219 to 1231, to Ramon Diaz for P27,300, at a net profit of P100 per bond. The four
bonds Nos. 1219, 1220, 1221, and 1222, here in litigation, are included in the thirteen sold to Diaz.

The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity
until the 1st of July, 1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such interest or to
redeem the obligation because the guarantee given for the bonds was illegal and void.

The appellant now contends that the judgment appealed from is untenable, assigning the following errors:

FIRST ERROR

The lower court erred in sustaining the demurrer against the amended complaint, filed by defendant J. S. Reis (Reese) and
consequently in dismissing the same with regard to this defendant.

SECOND ERROR

The lower court, without a proof to support it or an averment in defense by the defendant Philippine Trust Company, erred in finding
hypothetically that if the guarantee made by this company be held valid, the trust funds and deposits in its hands would probably be
endangered.

THIRD ERROR

The lower court erred in holding that the Philippine Trust Company has no power to guarantee the obligation of another juridical
personality, for value received.

FOURTH ERROR

The lower court erred in not recognizing the validity and effect of the guarantee subscribed by the Philippine Trust Company for the
payment of the four bonds claimed in the complaint, endorsed upon them, and in absolving said institution from the complaint.

FIFTH ERROR

The lower court erred in absolving the ex-directors of the Philippine Trust Company, Phil. C. Whitaker, O. Vorster, and Charles D.
Ayton, from the complaint.

We shall not follow the order of the appellant's argument, deeming it unnecessary, but shall decide only the third and fourth assignments of
error upon which the merits of the case depend. For the clear understanding of this decision and to avoid erroneous interpretations, however,
we wish to state that in this decision we shall decide only the rights of the parties with regard to the four bonds in question and whatever we
say in no wise affects or applies to the rest of the bonds.

We shall begin by saying that the majority of the justices of this court who took part in the case are of opinion that the only point of law to be
decided is whether the Philippine Trust Company acquired the four bonds in question, and whether as such it bound itself legally and acted
within its corporate powers in guaranteeing them. This question was answered in the affirmative.1awphil.net

In adopting this conclusion we have relied principally upon the following facts and circumstances: Firstly, that the Philippine Trust Company,
although secondarily engaged in banking, was primarily organized as a trust corporation with full power to acquire personal property such as
the bonds in question according to both section 13 (par. 5) of the Corporation Law and its duly registered by-laws and articles of
incorporation; secondly, that being thus authorized to acquire the bonds, it was given implied power to guarantee them in order to place
them upon the market under better, more advantageous conditions, and thereby secure the profit derived from their sale:

It is not, however, ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate
furtherance of its purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the
legitimate transaction of its business it may sell them, and in furtherance of such a sale it may, in order to make them the more
readily marketable, indorse or guarantee their payment. (7 R. C. L., p. 604 and cases cited.)

"Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the
purpose of giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject the
corporation to liabilities in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its charter to
issue its own bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt due to it, and
which it sells or transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so
guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with their sale,
are not ultra vires, and are binding." (14-A C. J., pp. 742-743 and cases cited); thirdly, that although it does not clearly appear in the deed of
trust (Exhibit 6) that the Mindoro Sugar Company transferred the bonds therein referred to, to the Philippine Trust Company, nevertheless, in
the resolution of the board of directors (Exhibit 3), the president of the Philippine Trust Company was expressly authorized to purchase all or
some of the bonds and to guarantee them; whence it may be inferred that subsequent purchasers of the bonds in the market relied upon the
belief that they were acquiring securities of the Philippine Trust Company, guaranteed by this corporation; fourthly, that as soon as
P3,000,000 worth of bonds was issued, and by the deed of trust the Mindoro, Sugar Company transferred all its real property to the Philippine
Trust Company, the cause or consideration of the transfer being, (1) the guarantee given by the purchaser to the bonds, and (2) its having
likewise guaranteed its obligations and those of Welch and Havemeyer in favor of the Philippine National Bank up to the amount of
P2,000,000; fifthly, that in transferring its real property as aforesaid the Mindoro Sugar Company was reduced to a real state of bankruptcy,
as the parties specifically agreed during the hearing of the case, to the point of having become a nominal corporation without any assets
whatsoever; sixthly, that such operation or transaction cannot mean anything other than that the real intention of the parties was that the
Philippine Trust Company acquired the bonds issued and at the same time guaranteed the payment of their par value with interest, because
otherwise the transaction would be fraudulent, inasmuch as nobody would be answerable to the bond-holders for their value and interest;
seventhly, that the Philippine Trust Company had been paying the appellant the interest accrued upon the four bonds from the date of their
issuance until July 1, 1928, such payment of interest being another proof that said corporation had really become the owner of the aforesaid
bonds; and, eightly, that the Philippine Trust Company has not adduced any evidence to show any other conclusions.

There are other considerations leading to the same result even in the supposition that the Philippine Trust Company did not acquire the bonds
in question, but only guaranteed them. In such a case the guarantee of these bonds would at any rate, be valid and the said corporation
would be bound to pay the appellant their value with the accrued interest in view of the fact that they become due on account of the lapse of
sixty (60) days, without the accrued interest due having been paid; and the reason is that it is estopped from denying the validity of its
guarantee.

. . . On the other hand, according to the view taken by other courts, which it must be acknowledged are in the majority, a recovery
directly upon the contract is permitted, on the ground that the corporation, having received money or property by virtue of a
contract not immoral or illegal of itself, is estopped to deny liability; and that the only remedy is one on behalf of the state to punish
the corporation for violating the law. (7 R. C. L., pp. 680-681 and cases cited.)

. . . The doctrine of ultra vires has been declared to be entirely the creation of the courts and is of comparatively modern origin. The
defense is by some courts regarded as an ungracious and odious one, to be sustained only where the most persuasive
considerations of public policy are involved, and there are numerous decisions and dicta to the effect that the plea should not as a
general rule prevail whether interposed for or against the corporation, where it will not advance justice but on the contrary will
accomplish a legal wrong. (14-A C. J., pp. 314-315.)

The doctrine of the Supreme Court of the United States together with the English courts and some of the state courts is that no
performance upon either side can validate an ultra vires transaction or authorize an action to be maintained directly upon it.
However, the great weight of authority in the state courts is to the effect that a transaction which is merely ultra vires and not
malum in se or malum prohibitum although it may be made by the state a basis for the forfeiture of the corporate charter or the
dissolution of the corporation, is, if performed by one party, not void as between the parties to all intents and purposes, and that an
action may be brought directly upon the transaction and relief had according to its terms. ( 14-A C. J., pp. 319-320.)

When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the
absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine
of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice
or work a legal wrong. (Coleman vs. Hotel de France Co., 29 Phil., 323.)

Guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with
their sale, are not ultra vires, and are binding. (Broadway Nat. Bank vs. Baker, 57 N. E., p. 603.)

It has been intimated according to section 121 of the Corporation Law, the Philippine Trust Company, as a banking institution, could not
guarantee the bonds to the value of P3,000,000 because this amount far exceeds its capital of P1,000,000 of which only one-half has been
subscribed and paid. Section 121 reads as follows:

SEC. 212. No such bank shall at any time be indebted or in any way liable to an amount exceeding the amount of its capital stock at
such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the following
nature:

(1) Moneys deposited with or collected by the bank;

(2) Bills of exchange or drafts drawn against money actually on deposit to the credit of the bank or due thereto;

(3) Liabilities to the stockholders of the bank for dividends and reserve profits.

This difficulty is easily obviated by bearing in mind that, as we stated above, the banking operations are not the primary aim of said
corporation, which is engaged essentially in the trust business, and that the prohibition of the law is not applicable to the Philippine Trust
Company, for the evidence shows that Mindoro Sugar Company transferred all its real property, with the improvements, to it, and the value
of both, which surely could not be less than the value of the obligation guaranteed, became a part of its capital and assets; in other words,
with the value of the real property transferred to it, the Philippine Trust Company had enough capital and assets to meet the amount of the
bonds guaranteed with interest thereon.

Wherefore, the decision appealed from is reversed and the Philippine Trust Company is sentenced to pay to the appellant the sum of four
thousand dollars ($4,000) with interest at eight per cent (8%) per annum from July 1, 1928 until fully paid, and the costs of both instances.
So ordered.
G.R. No. L-18062 February 28, 1963

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
ACOJE MINING COMPANY, INC., defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

Jalandoni & Jamir for defendant-appellant.

BAUTISTA ANGELO, J.:

On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post, telegraph and money order
offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living in said camp. Acting on the
request, the Director of Posts wrote in reply stating that if aside from free quarters the company would provide for all essential equipment
and assign a responsible employee to perform the duties of a postmaster without compensation from his office until such time as funds
therefor may be available he would agree to put up the offices requested. The company in turn replied signifying its willingness to comply
with all the requirements outlined in the letter of the Director of Posts requesting at the same time that it be furnished with the necessary
forms for the early establishment of a post office branch.

On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things that "In cases where a post office will
be opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for
whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of
the employee of the company who is assigned to take charge of the post office," thereby suggesting that a resolution be adopted by the
board of directors of the company expressing conformity to the above condition relative to the responsibility to be assumed buy it in the event
a post office branch is opened as requested. On September 2, 1949, the company informed the Director of Posts of the passage by its board
of directors of a resolution of the following tenor: "That the requirement of the Bureau of Posts that the Company should accept full
responsibility for all cash received by the Postmaster be complied with, and that a copy of this resolution be forwarded to the Bureau of
Posts." The letter further states that the company feels that that resolution fulfills the last condition imposed by the Director of Posts and that,
therefore, it would request that an inspector be sent to the camp for the purpose of acquainting the postmaster with the details of the
operation of the branch office.

The post office branch was opened at the camp on October 13, 1949 with one Hilario M. Sanchez as postmaster. He is an employee of the
company. On May 11, 1954, the postmaster went on a three-day leave but never returned. The company immediately informed the officials
of the Manila Post Office and the provincial auditor of Zambales of Sanchez' disappearance with the result that the accounts of the postmaster
were checked and a shortage was found in the amount of P13,867.24.

The several demands made upon the company for the payment of the shortage in line with the liability it has assumed having failed, the
government commenced the present action on September 10, 1954 before the Court of First Instance of Manila seeking to recover the
amount of Pl3,867.24. The company in its answer denied liability for said amount contending that the resolution of the board of directors
wherein it assumed responsibility for the act of the postmaster is ultra vires, and in any event its liability under said resolution is only that of
a guarantor who answers only after the exhaustion of the properties of the principal, aside from the fact that the loss claimed by the plaintiff
is not supported by the office record.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without
prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

After trial, the court a quo found that, of the amount claimed by plaintiff totalling P13,867.24, only the sum of P9,515.25 was supported by
the evidence, and so it rendered judgment for the plaintiff only for the amount last mentioned. The court rejected the contention that the
resolution adopted by the company is ultra vires and that the obligation it has assumed is merely that of a guarantor.

Defendant took the present appeal.

The contention that the resolution adopted by the company dated August 31, 1949 is ultra vires in the sense that it has no authority to act on
a matter which may render the company liable as a guarantor has no factual or legal basis. In the first place, it should be noted that the
opening of a post office branch at the mining camp of appellant corporation was undertaken because of a request submitted by it to promote
the convenience and benefit of its employees. The idea did not come from the government, and the Director of Posts was prevailed upon to
agree to the request only after studying the necessity for its establishment and after imposing upon the company certain requirements
intended to safeguard and protect the interest of the government. Thus, after the company had signified its willingness to comply with the
requirement of the government that it furnish free quarters and all the essential equipment that may be necessary for the operation of the
office including the assignment of an employee who will perform the duties of a postmaster, the Director of Posts agreed to the opening of the
post office stating that "In cases where a post office will be opened under circumstances similar to the present, it is the policy of this office to
have the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of
dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take charge of the post office," and
accepting this condition, the company, thru its board of directors, adopted forthwith a resolution of the following tenor: "That the requirement
of the Bureau of Posts that the company should accept full responsibility for all cash received by the Postmaster, be complied with, and that a
copy of this resolution be forwarded to the Bureau of Posts." On the basis of the foregoing facts, it is evident that the company cannot now be
heard to complain that it is not liable for the irregularity committed by its employee upon the technical plea that the resolution approved by
its board of directors is ultra vires. The least that can be said is that it cannot now go back on its plighted word on the ground of estoppel.

The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it
appearing that the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. While as a
rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and
therefore beyond the powers conferred upon it by law (19 C.J.S., Section 965, p. 419), there are however certain corporate acts that may be
performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation.
Thus, it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is
reasonably necessary or proper to the conduct of its business,"1 and here it is undisputed that the establishment of the local post office is a
reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the
living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means
of communication accorded to people living in a city or municipality..

Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same however is not void for it was approved not in
contravention of law, customs, public order or public policy. The term ultra viresshould be distinguished from an illegal act for the former is
merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.2 It being
merely voidable, an ultra vires act can be enforced or validated if there are equitable grounds for taking such action. Here it is fair that the
resolution be upheld at least on the ground of estoppel. On this point, the authorities are overwhelming:

The weight of authority in the state courts is to the effect that a transaction which is merely ultra vires and not malum in
se or malum prohibitum, is, if performed by one party, not void as between the parties to all intents and purposes, and that an
 action may be brought directly on the transaction and relief had according to its terms. (19 C.J.S., Section 976, p.
432, citing Nettles v. Rhett, C.C.A.S.C., 94 F. 2d, reversing, D.C., 20 F. Supp. 48)

This rule is based on the consideration that as between private corporations, one party cannot receive the benefits which are
embraced in total performance of a contract made with it by another party and then set up the invalidity of the transaction as a
defense." (London & Lancashire Indemnity Co. of America v. Fairbanks Steam Shovel Co., 147 N.E. 329, 332, 112 Ohio St. 136.)

The defense of ultra vires rests on violation of trust or duty toward stockholders, and should not be entertained where its allowance
will do greater wrong to innocent parties dealing with corporation..

The acceptance of benefits arising from the performance by the other party may give rise to an estoppel precluding repudiation of
the transaction. (19 C.J.S., Section 976, p. 433.)

The current of modern authorities favors the rule that where the ultra vires transaction has been executed by the other party and
the corporation has received the benefit of it, the law interposes an estoppel, and will not permit the validity of the transaction or
contract to be questioned, and this is especially true where there is nothing in the circumstances to put the other party to the
transaction on notice that the corporation has exceeded its powers in entering into it and has in so doing overstepped the line of
corporate privileges. (19 C.J.S., Section 977, pp. 435-437, citing Williams v. Peoples Building & Loan Ass'n, 97 S.W. 2d 930, 193
Ark. 118; Hays v. Galion Gas Light Co., 29 Ohio St. 330)

Neither can we entertain the claim of appellant that its liability is only that of a guarantor. On this point, we agree with the following comment
of the court a quo: "A mere reading of the resolution of the Board of Directors dated August 31, 1949, upon which the plaintiff based its claim
would show that the responsibility of the defendant company is not just that of a guarantor. Notice that the phraseology and the terms
employed are so clear and sweeping and that the defendant assumed 'full responsibility for all cash received by the Postmaster.' Here the
responsibility of the defendant is not just that of a guarantor. It is clearly that of a principal."

WHEREFORE, the decision appealed from is affirmed. No costs.

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,

vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover Enterprises,
Inc., respondents.

Melquiades P. de Leon for petitioner.

Rogelio A. Ajes for private respondent.

REGALADO, J.:

Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on September 8, 1987, which reversed the
decision of the trial Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos, Jr.

The parties are substantially agreed on the following facts as found by both lower courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales;
and the president of the said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation
of his clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against Traders Royal Bank, dated June
14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-Jose. Since the check was
under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the
treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate story. Plaintiff
Ricardo S. Santos, Jr. did sign the check.

It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell
to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding that upon approval by the
GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the
compromise agreement was not approved within the expected period of time, the aforesaid check for P45,000.00 (Exh. '1')
was replaced by Atty. Benares with another Traders Royal Bank cheek bearing No. 379299 dated August 10, 1980, in the
same amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement check was also
signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement
check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of
funds. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Hence,
defendant through counsel was constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with the
Quezon City Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant
City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court charging both Oscar Benares and
Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of
First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff herein, before
Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the complainant in that criminal case. The
defendant refused to receive the cashier's check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said amount of P45,000.00 with the Clerk of
Court on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted to above was purchased by Atty.
Oscar Z. Benares and given to the plaintiff herein to be applied in payment of the dishonored check. 3

After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is
applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4

As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for consignation, directing
the trial court to give due course thereto.

Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim.

1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the signatories of
the check issued under the account of Mover Enterprises, Inc., is an accommodation party under the Negotiable
Instruments Law and a debtor of petitioner to the extent of the amount of said check.

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely signed the check
in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable thereon under the Negotiable
Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking
the instrument, knew him to be only an accommodation party.

Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer,
acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person.

Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he
has not received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was
not for accommodation 5in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has
been held that in lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. 6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner suggests, the inevitable question is
whether or not it may be held liable on the accommodation instrument, that is, the check issued in favor of herein petitioner.
We hold in the negative.

The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for
value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to
corporations which are accommodation parties. 7 This is because the issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. 8 Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument,
or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the
corporation is for the accommodation of another, he cannot recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third person only if specifically authorized to do so. 10 Corollarily, corporate officers, such as the
president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well
as the consequences arising from their acts in connection therewith.

The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her aforesaid postulation, then
she is effectively barred from recovering from Mover Enterprises, Inc. the value of the check. Be that as it may, petitioner is not without
recourse.

The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should render
personally liable, the signatories of said instrument where the facts show that the accommodation involved was for their personal account,
undertaking or purpose and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued at the instance and for the
personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in accordance with the arrangement
of the corporation with its depository bank. That it was a personal undertaking of said corporate officers was apparent to petitioner by reason
of her personal involvement in the financial arrangement and the fact that, while it was the corporation's check which was issued to her for
the amount involved, she actually had no transaction directly with said corporation.

There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty. Oscar Z. Benares and respondent
Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover Enterprises, Inc.

2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding that the consignation of
the sum of P45,000.00, made by private respondent after his tender of payment was refused by petitioner, was proper
under Article 1256 of the Civil Code.

Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence consignation is not proper. Concomitantly,
this argument was premised on the assumption that private respondent Santos is not an accommodation party.

As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for the value of the check. The fact
that he was only a co-signatory does not detract from his personal liability. A co-maker or co-drawer under the circumstances in this case is
as much an accommodation party as the other co-signatory or, for that matter, as a lone signatory in an accommodation instrument. Under
the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the accommodated party with whom he and his
co-signatory, as the other co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the check, there was created
a debtor-creditor relationship, as between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This
circumstance enables respondent Santos to resort to an action of consignation where his tender of payment had been refused by petitioner.

We interpose the caveat, however, that by holding that the remedy of consignation is proper under the given circumstances, we do not
thereby rule that all the operative facts for consignation which would produce the effect of payment are present in this case. Those are factual
issues that are not clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case No. Q-
33160, for which reason it has advisedly been directed by respondent court to give due course to the complaint for consignation, and which
would be subject to such issues or claims as may be raised by defendant and the counterclaim filed therein which is hereby ordered similarly
revived.

3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of Quezon City filed
against private respondent for violation of Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is the final plaint of petitioner.

We sustain petitioner on this score.

Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No. 05464. In its own decision therein, it
declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly consign the amount of the debt due with
the court after his tender of payment was refused by the creditor." Yet, from the commercial and civil law aspects determinative of said issue,
it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:

Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or credit. Thus, the
making, drawing and issuance of a check, payment of which is refused by the drawee because of insufficient funds in or
credit with such bank is prima facie evidence of knowledge of insufficiency of funds or credit, when the check is presented
within 90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of insufficiency of funds or
credit is not present and, therefore, the crime does not exist, when the drawer pays the holder the amount due or makes
arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such
check has not been paid by the drawee.

Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal rights when he
consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date when plaintiff-appellant
receive (sic) the notice of non-payment, and August 14, 1981, the date when the debt due was deposited with the Clerk of
Court (a Saturday and a Sunday which are not banking days) intervened. The fifth banking day fell on August 14, 1981.
Hence, no criminal liability has yet attached to plaintiff-appellant when he deposited the amount of P45,000.00 with the
Court a quo on August 14, 1981. 11

That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another court are
improper do not have to be belabored. In the latter case, the criminal trial court has to grapple with such factual issues as, for instance,
whether or not the period of five banking days had expired, in the process determining whether notice of dishonor should be reckoned from
any prior notice if any has been given or from receipt by private respondents of the subpoena therein with supporting affidavits, if any, or
from the first day of actual preliminary investigation; and whether there was a justification for not making the requisite arrangements for
payment in full of such check by the drawee bank within the said period. These are matters alien to the present controversy on tender and
consignation of payment, where no such period and its legal effects are involved.

These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive rule, juris tantum at that,
to determine whether or not there was knowledge of insufficiency of funds in or credit with the drawee bank; that payment of civil liability is
not a mode for extinguishment of criminal liability; and that the requisite quantum of evidence in the two types of cases are not the same.

To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the resolution of which should not be
interfered with by respondent Court of Appeals at the present posture of said case, much less preempted by the inappropriate and
unnecessary holdings in the aforequoted portion of the decision of said respondent court. Consequently, we modify the decision of respondent
court in CA-G.R. CV No. 05464 by setting aside and declaring without force and effect its pronouncements and findings insofar as the merits
of Criminal Case No. Q-14867 and the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is AFFIRMED. SO ORDERED.
G.R. No. L-37331 March 18, 1933

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

Gibbs and McDonough and Roman Ozaeta for appellants.

DeWitt, Perkins and Brady for appellees.
Ross, Lawrence and Selph for appellee Balatoc Mining Company.

STREET, J.:

This action was originally instituted in the Court of First Instance of the City of Manila by F. M. Harden, acting in his own behalf and that of all
other stockholders of the Balatoc Mining Co. who might join in the action and contribute to the expense of the suit. With the plaintiff Harden
two others, J. D. Highsmith and John C. Hart, subsequently associated themselves. The defendants are the Benguet Consolidated Mining Co.,
the Balatoc Mining Co., H. E. Renz, John W. Haussermann, and A. W. Beam. The principal purpose of the original action was to annul a
certificate covering 600,000 shares of the stock of the Balatoc Mining Co., which have been issued to the Benguet Consolidated Mining Co.,
and to secure to the Balatoc Mining Co., the restoration of a large sum of money alleged to have been unlawfully collected by the Benguet
Consolidated Mining Co., with legal interest, after deduction therefrom of the amount expended by the latter company under a contract
between the two companies, bearing date of March 9, 1927. The complaint was afterwards amended so as to include a prayer for the
annulment of this contract. Shortly prior to the institution of this lawsuit, the Benguet Consolidated Mining Co., transferred to H. E. Renz, as
trustee, the certificate for 600,000 shares of the Balatoc Mining Co. which constitute the principal subject matter of the action. This was done
apparently to facilitate the splitting up to the shares in the course of the sale or distribution. To prevent this the plaintiffs, upon filing their
original complaint, procured a preliminary injunction restraining the defendants, their agents and servants, from selling, assigning or
transferring the 600,000 shares of the Balatoc Mining Co., or any part thereof, and from removing said shares from the Philippine Islands.
This explains the connection of Renz with the case. The other individual defendants are made merely as officials of the Benguet Consolidated
Mining Co. Upon hearing the cause the trial court dismissed the complaint and dissolved the preliminary injunction, with costs against the
plaintiffs. From this judgment the plaintiffs appealed.

The facts which have given rise this lawsuit are simple, as the financial interests involve are immense. Briefly told these facts are as follows:
The Benguet Consolidated Mining Co. was organized in June, 1903, as a sociedad anonima in conformity with the provisions of Spanish law;
while the Balatoc Mining Co. was organized in December 1925, as a corporation, in conformity with the provisions of the Corporation Law (Act
No. 1459). Both entities were organized for the purpose of engaging in the mining of gold in the Philippine Islands, and their respective
properties are located only a few miles apart in the subprovince of Benguet. The capital stock of the Balatoc Mining Co. consists of one million
shares of the par value of one peso (P1) each.

When the Balatoc Mining Co. was first organized the properties acquired by it were largely undeveloped; and the original stockholders were
unable to supply the means needed for profitable operation. For this reason, the board of directors of the corporation ordered a suspension of
all work, effective July 31, 1926. In November of the same year a general meeting of the company's stockholders appointed a committee for
the purpose of interesting outside capital in the mine. Under the authority of this resolution the committee approached A. W. Beam, then
president and general manager of the Benguet Company, to secure the capital necessary to the development of the Balatoc property. As a
result of the negotiations thus begun, a contract, formally authorized by the management of both companies, was executed on March 9,
1927, the principal features of which were that the Benguet Company was to proceed with the development and construct a milling plant for
the Balatoc mine, of a capacity of 100 tons of ore per day, and with an extraction of at least 85 per cent of the gold content. The Benguet
Company also agreed to erect an appropriate power plant, with the aerial tramlines and such other surface buildings as might be needed to
operate the mine. In return for this it was agreed that the Benguet Company should receive from the treasurer of the Balatoc Company
shares of a par value of P600,000, in payment for the first P600,000 be thus advanced to it by the Benguet Company.

The performance of this contract was speedily begun, and by May 31, 1929, the Benguet Company had spent upon the development the sum
of P1,417,952.15. In compensation for this work a certificate for six hundred thousand shares of the stock of the Balatoc Company has been
delivered to the Benguet Company, and the excess value of the work in the amount of P817,952.15 has been returned to the Benguet
Company in cash. Meanwhile dividends of the Balatoc Company have been enriching its stockholders, and at the time of the filing of the
complaint the value of its shares had increased in the market from a nominal valuation to more than eleven pesos per share. While the
Benguet Company was pouring its million and a half into the Balatoc property, the arrangements made between the two companies appear to
have been viewed by the plaintiff Harden with complacency, he being the owner of many thousands of the shares of the Balatoc Company.
But as soon as the success of the development had become apparent, he began this litigation in which he has been joined by two others of
the eighty shareholders of the Balatoc Company.

Briefly, the legal point upon which the action is planted is that it is unlawful for the Benguet Company to hold any interest in a mining
corporation and that the contract by which the interest here in question was acquired must be annulled, with the consequent obliteration of
the certificate issued to the Benguet Company and the corresponding enrichment of the shareholders of the Balatoc Company.

When the Philippine Islands passed to the sovereignty of the United States, in the attention of the Philippine Commission was early drawn to
the fact that there is no entity in Spanish law exactly corresponding to the notion of the corporation in English and American law; and in the
Philippine Bill, approved July 1, 1902, the Congress of the United States inserted certain provisions, under the head of Franchises, which were
intended to control the lawmaking power in the Philippine Islands in the matter of granting of franchises, privileges and concessions. These
provisions are found in section 74 and 75 of the Act. The provisions of section 74 have been superseded by section 28 of the Act of Congress
of August 29, 1916, but in section 75 there is a provision referring to mining corporations, which still remains the law, as amended. This
provisions, in its original form, reads as follows: "... it shall be unlawful for any member of a corporation engaged in agriculture or mining and
for any corporation organized for any purpose except irrigation to be in any wise interested in any other corporation engaged in agriculture or
in mining."

Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine Commission entered upon the enactment of
a general law authorizing the creation of corporations in the Philippine Islands. This rather elaborate piece of legislation is embodied in what is
called our Corporation Law (Act No. 1459 of the Philippine Commission). The evident purpose of the commission was to introduce the
American corporation into the Philippine Islands as the standard commercial entity and to hasten the day when the sociedad anonima of the
Spanish law would be obsolete. That statute is a sort of codification of American corporate law.

For the purposes general description only, it may be stated that the sociedad anonima is something very much like the English joint stock
company, with features resembling those of both the partnership is shown in the fact that sociedad, the generic component of its name in
Spanish, is the same word that is used in that language to designate other forms of partnership, and in its organization it is constructed along
the same general lines as the ordinary partnership. It is therefore not surprising that for purposes of loose translation the expression sociedad
anonima has not infrequently the other hand, the affinity of this entity to the American corporation has not escaped notice, and the
expression sociedad anonima is now generally translated by the word corporation. But when the word corporation is used in the sense
of sociedad anonima and close discrimination is necessary, it should be associated with the Spanish expression sociedad anonima either in a
parenthesis or connected by the word "or". This latter device was adopted in sections 75 and 191 of the Corporation Law.
In drafting the Corporation Law the Philippine Commission inserted bodily, in subsection (5) of section 13 of that Act (No. 1459) the words
which we have already quoted from section 75 of the Act of Congress of July 1, 1902 (Philippine Bill); and it is of course obvious that
whatever meaning originally attached to this provision in the Act of Congress, the same significance should be attached to it in section 13 of
our Corporation Law.

As it was the intention of our lawmakers to stimulate the introduction of the American Corporation into Philippine law in the place of
the sociedad anonima, it was necessary to make certain adjustments resulting from the continued co-existence, for a time, of the two forms
of commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found making the sociedad anonima subject to the
provisions of the Corporation Law "so far as such provisions may be applicable", and giving to the sociedades anonimas previously created in
the Islands the option to continue business as such or to reform and organize under the provisions of the Corporation Law. Again, in section
191 of the Corporation Law, the Code of Commerce is repealed in so far as it relates to sociedades anonimas. The purpose of the commission
in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the Corporation
Law, unless they should prefer to adopt some form or other of the partnership. To this provision was added another to the effect that
existing sociedades anonimas, which elected to continue their business as such, instead of reforming and reorganizing under the Corporation
Law, should continue to be governed by the laws that were in force prior to the passage of this Act "in relation to their organization and
method of transacting business and to the rights of members thereof as between themselves, but their relations to the public and public
officials shall be governed by the provisions of this Act."

As already observed, the provision above quoted from section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting
corporations engaged in mining and members of such from being interested in any other corporation engaged in mining, was amended by
section 7 of Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929. The change in the law effected by this
amendment was in the direction of liberalization. Thus, the inhibition contained in the original provision against members of a corporation
engaged in agriculture or mining from being interested in other corporations engaged in agriculture or in mining was so modified as merely to
prohibit any such member from holding more than fifteen per centum of the outstanding capital stock of another such corporation. Moreover,
the explicit prohibition against the holding by any corporation (except for irrigation) of an interest in any other corporation engaged in
agriculture or in mining was so modified as to limit the restriction to corporations organized for the purpose of engaging in agriculture or in
mining.

As originally drawn, our Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a corporation, a
member of a corporation , in acquiring an interest contrary to paragraph (5) of section 13 of the Act. The Philippine Legislature undertook to
remedy this situation in section 3 of Act No. 2792 of the Philippine Legislature, approved on February 18, 1919, but this provision was
declared invalid by this court inGovernment of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for lack of an adequate title to the
Act. Subsequently the Legislature reenacted substantially the same penal provision in section 21 of Act No. 3518, under a title sufficiently
broad to comprehend the subject matter. This part of Act No. 3518 became effective upon approval by the Governor-General, on December 3,
1928, and it was therefore in full force when the contract now in question was made.

This provision was inserted as a new section in the Corporation Law, forming section 1990 (A) of said Act as it now stands. Omitting the
proviso, which seems not to be pertinent to the present controversy, said provision reads as follows:

SEC. 190 (A). Penalties. — The violation of any of the provisions of this Act and its amendments not otherwise penalized therein,
shall be punished by a fine of not more than five thousand pesos and by imprisonment for not more than five years, in the discretion
of the court. If the violation is committed by a corporation, the same shall, upon such violation being proved, be dissolved by quo
warranto proceedings instituted by the Attorney-General or by any provincial fiscal by order of said Attorney-General: . . . .

Upon a survey of the facts sketched above it is obvious that there are two fundamental questions involved in this controversy. The first is
whether the plaintiffs can maintain an action based upon the violation of law supposedly committed by the Benguet Company in this case.
The second is whether, assuming the first question to be answered in the affirmative, the Benguet Company, which was organized as
a sociedad anonima, is a corporation within the meaning of the language used by the Congress of the United States, and later by the
Philippine Legislature, prohibiting a mining corporation from becoming interested in another mining corporation. It is obvious that, if the first
question be answered in the negative, it will be unnecessary to consider the second question in this lawsuit.

Upon the first point it is at once obvious that the provision referred to was adopted by the lawmakers with a sole view to the public policy that
should control in the granting of mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of the Corporation Law for
the violation of the prohibition in question are of such nature that they can be enforced only by a criminal prosecution or by an action of quo
warranto. But these proceedings can be maintained only by the Attorney-General in representation of the Government.

What room then is left for the private action which the plaintiffs seek to assert in this case? The defendant Benguet Company has committed
no civil wrong against the plaintiffs, and if a public wrong has been committed, the directors of the Balatoc Company, and the plaintiff Harden
himself, were the active inducers of the commission of that wrong. The contract, supposing it to have been unlawful in fact, has been
performed on both sides, by the building of the Balatoc plant by the Benguet Company and the delivery to the latter of the certificate of
600,000 shares of the Balatoc Company. There is no possibility of really undoing what has been done. Nobody would suggest the demolition
of the mill. The Balatoc Company is secure in the possession of that improvement, and talk about putting the parties in status quo ante by
restoring the consideration with interest, while the Balatoc Company remains in possession of what it obtained by the use of that money, does
not quite meet the case. Also, to mulct the Benguet Company in many millions of dollars in favor of individuals who have not the slightest
equitable right to that money in a proposition to which no court can give a ready assent.

The most plausible presentation of the case of the plaintiffs proceeds on the assumption that only one of the contracting parties has been
guilty of a misdemeanor, namely, the Benguet Company, and that the other party, the Balatoc Company, is wholly innocent to participation in
that wrong. The plaintiffs would then have us apply the second paragraph of article 1305 of the Civil Code which declares that an innocent
party to an illegal contract may recover anything he may have given, while he is not bound to fulfill any promise he may have made. But,
supposing that the first hurdle can be safely vaulted, the general remedy supplied in article 1305 of the Civil Code cannot be invoked where
an adequate special remedy is supplied in a special law. It has been so held by this court in Go Chioco vs. Martinez (45 Phil., 256, 280),
where we refused to apply that article to a case of nullity arising upon a usurious loan. The reason given for the decision on this point was
that the Usury Act, as amended, contains all the provisions necessary for the effectuation of its purposes, with the result that the remedy
given in article 1305 of the Civil Code is unnecessary. Much more is that idea applicable to the situation now before us, where the special
provisions give ample remedies for the enforcement of the law by action in the name of the Government, and where no civil wrong has been
done to the party here seeking redress.

The view of the case presented above rest upon considerations arising upon our own statutes; and it would seem to be unnecessary to
ransack the American decisions for analogies pertinent to the case. We may observe, however, that the situation involved is not unlike that
which has frequently arisen in the United States under provisions of the National Bank Act prohibiting banks organized under that law from
holding real property. It has been uniformly held that a trust deed or mortgaged conveying property of this kind to a bank, by way of
security, is valid until the transaction is assailed in a direct proceeding instituted by the Government against the bank, and the illegality of
such tenure supplies no basis for an action by the former private owner, or his creditor, to annul the conveyance. (National Bank vs.
Matthews, 98 U. S., 621; Kerfoot vs. Farmers & M. Bank, 218 U. S., 281.) Other analogies point in the same direction. (South & Ala. R.
Ginniss vs. B. & M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs. Holmes & Wessell Metal Co., 127 N. Y., 252;
Oelbermann vs. N. Y. & N. R. Co., 77 Hun., 332.)

Most suggestive perhaps of all the cases in Compañia Azucarera de Carolina vs. Registrar (19 Porto Rico, 143), for the reason that this case
arose under a provision of the Foraker Act, a law analogous to our Philippine Bill. It appears that the registrar had refused to register two
deeds in favor of the Compañia Azucarera on the ground that the land thereby conveyed was in excess of the area permitted by law to the
company. The Porto Rican court reversed the ruling of the registrar and ordered the registration of the deeds, saying:

Thus it may be seen that a corporation limited by the law or by its charter has until the State acts every power and capacity that
any other individual capable of acquiring lands, possesses. The corporation may exercise every act of ownership over such lands; it
may sue in ejectment or unlawful detainer and it may demand specific performance. It has an absolute title against all the world
except the State after a proper proceeding is begun in a court of law. ... The Attorney General is the exclusive officer in whom is
confided the right to initiate proceedings for escheat or attack the right of a corporation to hold land.

Having shown that the plaintiffs in this case have no right of action against the Benguet Company for the infraction of law supposed to have
been committed, we forego cny discussion of the further question whether a sociedad anonima created under Spanish law, such as the
Benguet Company, is a corporation within the meaning of the prohibitory provision already so many times mentioned. That important
question should, in our opinion, be left until it is raised in an action brought by the Government.

The judgment which is the subject of his appeal will therefore be affirmed, and it is so ordered, with costs against the appellants.
G.R. No. 126751 March 28, 2001

SAFIC ALCAN & CIE, petitioner,

vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.

YNARES-SANTIAGO, J.:

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the international purchase, sale and trading of coconut
oil. It filed with the Regional Trial Court of Manila, Branch XXV, a complaint dated February 26, 1987 against private respondent Imperial
Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and
September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil, valued at US$222.50 per ton, covered by
Purchase Contract Nos. A601446 and A601655, respectively, to be delivered within the month of January 1987. Private respondent, however,
failed to deliver the said coconut oil and, instead, offered a "wash out" settlement, whereby the coconut oil subject of the purchase contracts
were to be "sold back" to IVO at the prevailing price in the international market at the time of wash out. Thus, IVO bound itself to pay to Safic
the difference between the said prevailing price and the contract price of the 2,000 long tons of crude coconut oil, which amounted to
US$293,500.00. IVO failed to pay this amount despite repeated oral and written demands.

Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and October 31, 1986, it placed purchase
orders with IVO for a total of 4,750 tons of crude coconut oil, covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391,
A601415, A601681, A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement narrated above,
Safic demanded that IVO make marginal deposits within forty-eight hours on the eight purchase contracts in amounts equivalent to the
difference between the contract price and the market price of the coconut oil, to compensate it for the damages it suffered when it was forced
to acquire coconut oil at a higher price. IVO failed to make the prescribed marginal deposits on the eight contracts, in the aggregate amount
of US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the trade, as governed by the provisions of the standard N.I.O.P. Contract
arid the FOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to these rules becomes so impaired as to
create a reasonable doubt as to the ability of such party to perform its obligations under the contract, the other party may from time
to time demand marginal deposits to be made within forty-eight (48) hours after receipt of such demand, such deposits not to
exceed the difference between the contract price and the market price of the goods covered by the contract on the day upon which
such demand is made, such deposit to bear interest at the prime rate plus one percent (1%) per annum. Failure to make such
deposit within the time specified shall constitute a breach of contract by the party upon whom demand for deposit is made, and all
losses and expenses resulting from such breach shall be for the account of the party upon whom such demand is made.
(Underscoring ours.)1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this contract either party shall suspend payment,
commit an act of bankruptcy, notify any of his creditors that he is unable to meet his debts or that he has suspended payment or
that he is about to suspend payment of his debts, convene, call or hold a meeting either of his creditors or to pass a resolution to go
into liquidation (except for a voluntary winding up of a solvent company for the purpose of reconstruction or amalgamation) or shall
apply for an official moratorium, have a petition presented for winding up or shal1i have a Receiver appointed, the contract shall
forthwith be closed either at the market price then current for similar goods or, at the option of the other party at a price to be
ascertained by repurchase or resale and the difference between the contract price and such closing-out price shall be the amount
which the other party shall be entitled to claim shall be liable to account for under this contract (sic). Should either party be
dissatisfied with the price, the matter shall be referred to arbitration. Where no such resale or repurchase takes place, the closing-
out price shall be fixed by a Price Settlement Committee appointed by the Federation. (Underscoring ours.) 2

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus attorney's fees and litigation expenses.
The complaint also included an application for a writ of preliminary attachment against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment. Subsequently, the trial court ordered that
the assets of IVO be placed under receivership, in order to ensure the preservation of the same.

In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue because it was doing business in the
Philippines without the requisite license or authority; the subject contracts were speculative contracts entered into by IVO's then President,
Dominador Monteverde, in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading, and
despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading activity; and that under Article 2018 of the
Civil Code, if a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the
difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to
the winner, the transaction is null and void.1âwphi1.nêt

IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumor-mongering and oppressive action. Later,
IVO filed a supplemental counterclaim alleging that it was unable to operate its business normally because of the arrest of most of its physical
assets; that its suppliers were driven away; and that its major creditors have inundated it with claims for immediate payment of its debts,
and China Banking Corporation had foreclosed its chattel and real estate mortgages.

During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the parties had entered into and
consummated a number of contracts for the sale of crude coconut oil. In those transactions, Safic placed several orders and IVO faithfully
filled up those orders by shipping out the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as gambling transactions, as defined in Article 2018 of the Civil Code, although they involved
some degree of speculation. After all, the court noted, every business enterprise carries with it a certain measure of speculation or risk.
However, the contracts performed in 1985, on one hand, and the 1986 contracts subject of this case, on the other hand, differed in that
under the 1985 contracts, deliveries were to be made within two months. This, as alleged by Safic, was the time needed for milling and
building up oil inventory. Meanwhile, the 1986 contracts stipulated that the coconut oil were to be delivered within period ranging from eight
months to eleven to twelve months after the placing of orders. The coconuts that were supposed to be milled were in all likelihood not yet
growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986 contracts constituted trading in futures or in mere
expectations.

The lower court further held that the subject contracts were ultra vires and were entered into by Dominador Monteverde without authority
from the Board of Directors. It distinguished between the 1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was
presumably authorized to bind IVO, and the 1986 contracts, which were highly speculative in character. Moreover, the 1985 contracts were
covered by letters of credit, while the 1986 contracts were payable by telegraphic transfers, which were nothing more than mere promises to
pay once the shipments became ready. For these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied
corporate sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected IVO's counterclaim and supplemental
counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan & Cie, without prejudice to any action it
might subsequently institute against Dominador Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from
the subject matter of this case. The counterclaim and supplemental counterclaim of the latter defendant are likewise hereby
dismissed for lack of merit. No pronouncement as to costs.

The writ of preliminary attachment issued in this case as well as the order placing Imperial Vegetable Oil Co., Inc. under receivership
are hereby dissolved and set aside.3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No.40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN
CAUSE OF THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH
WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE DAMAGES SUFFERED BY IT AND IN NOT
AWARDING SUCH DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH OUT CONTRACTS.

On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the, appeals and affirming the judgment appealed
from in toto.4

Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it raised before the Court of Appeals and
maintaining that the Court of Appeals grievously erred when:

a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155 (sic) involving 2,000 long tons of crude
coconut oil, and Contracts Nos. A60l297A/B, A601385, A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons
of crude coconut oil) were unauthorized acts of Dominador Monteverde which do not bind IVO in whose name they were entered
into. In this connection, the Court of Appeals erred when (i) it ignored its own finding that (a) Dominador Monteverde, as IVO's
President, had "an implied authority to make any contract necessary or appropriate to the contract of the ordinary business of the
company"; and (b) Dominador Monteverde had validly entered into similar forward contracts for and on behalf of IVO in 1985; (ii) it
distinguished between the 1986 forward contracts despite the fact that the Manila RTC has struck down IVO's objection to the 1986
forward contracts (i.e. that they were highly speculative paper trading which the IVO Board of Directors had prohibited Dominador
Monteverde from engaging in because it is a form of gambling where the parties do not intend actual delivery of the coconut oil
sold) and instead found that the 1986 forward contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo
Monteverde in concluding that the IVO Board of Directors did not authorize its President, Dominador Monteverde, to enter into the
1986 forward contracts; and (iv) it did not find IVO, in any case, estopped from denying responsibility for, and liability under, the
1986 forward contracts because IVO had recognized itself bound to similar forward contracts which Dominador Monteverde entered
into (for and on behalf of IVO) with Safic in 1985 notwithstanding that Dominador Monteverde was (like in the 1986 forward
contracts) not expressly authorized by the IVO Board of Directors to enter into such forward contracts;

b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that Safic had presented not only
testimonial, but also documentary, evidence which proved the higher amount it had to pay for crude coconut oil (vis-à-vis the
contract price it was to pay to IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the 1986 forward
contracts; and

c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out contracts involving Contracts Nos.
A601446 and A60155 (sic), despite the fact that Safic had properly raised the issue on its appeal, and the evidence and the law
support Safic's position that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's President, Dominador Monteverde, validly
entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –

Section 3. Powers and Duties of the President. - The President shall be elected by the Board of Directors from their own number .

He shall have the following duties:

xxxxxxxxx

[g] Have direct and active management of the business and operation of the corporation, conducting the same according to, the
orders, resolutions and instruction of the Board of Directors and according to his own discretion whenever and wherever the same is
not expressly limited by such orders, resolutions and instructions.

It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to bind IVO to any contract. He
must act according to the instructions of the Board of Directors. Even in instances when he was authorized to act according to his discretion,
that discretion must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the IVO Board knew nothing of
the 1986 contracts6 and that it did not authorize Monteverde to enter into speculative contracts.7 In fact, Monteverde had earlier proposed
that the company engage in such transactions but the IVO Board rejected his proposal. 8 Since the 1986 contracts marked a sharp departure
from past IVO transactions, Safic should have obtained from Monteverde the prior authorization of the IVO Board. Safic can not rely on the
doctrine of implied agency because before the controversial 1986 contracts, IVO did not enter into identical contracts with Safic. The basis for
agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent.9 In the case of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the rule on dealing with an agent thus:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not
make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any
excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril,
if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in
case either is controverted, the burden of proof is upon them to establish it.11

The most prudent thing petitioner should have done was to ascertain the extent of the authority of Dominador Monteverde. Being remiss in
this regard, petitioner can not seek relief on the basis of a supposed agency.

Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies
the same expressly or impliedly. It also bears emphasizing that when the third person knows that the agent was acting beyond his power or
authority, the principal can not be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification.13

There was no such ratification in this case. When Monteverde entered into the speculative contracts with Safic, he did not secure the Board's
approval.14 He also did not submit the contracts to the Board after their consummation so there was, in fact, no occasion at all for ratification.
The contracts were not reported in IVO's export sales book and turn-out book.15 Neither were they reflected in other books and records of the
corporation.16 It must be pointed out that the Board of Directors, not Monteverde, exercises corporate power. 17 Clearly, Monteverde's
speculative contracts with Safic never bound IVO and Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set limitations on the extent of Monteverde's authority
to sell coconut oil. It must be borne in mind in this regard that a question that was never raised in the courts below can not be allowed to be
raised for the first time on appeal without offending basic rules of fair play, justice and due process. 18 Such an issue was not brought to the
fore either in the trial court or the appellate court, and would have been disregarded by the latter tribunal for the reasons previously stated.
With more reason, the same does not deserve consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations on Monteverde's authority to sell coconut
oil is belied by what appears on the record. Rodrigo Monteverde, who succeeded Dominador Monteverde as IVO President, testified that the
IVO Board had set down the policy of engaging in purely physical trading thus:

Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?

A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the corporation, although I was at the
time already a stockholder, I think IVO is engaged in trading oil.

Q. As far as you know, what kind of trading was IVO engaged with?

A. It was purely on physical trading.

Q. How did you know this?

A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant and from my observation, as I have
to supervise and monitor purchases of copras and also the sale of the same, I observed that the policy of the corporation is for the
company to engaged (sic) or to purely engaged (sic) in physical trading.

Q. What do you mean by physical trading?

A. Physical Trading means - we buy and sell copras that are only available to us. We only have to sell the available stocks in our
inventory.

Q. And what is the other form of trading?

Atty. Fernando

No basis, your Honor.

Atty. Abad

Well, the witness said they are engaged in physical trading and what I am saying [is] if there are any other kind or form of
trading.

Court

Witness may answer if he knows.

Witness

A. Trading future[s] contracts wherein the trader commits a price and to deliver coconut oil in the future in which he is yet
to acquire the stocks in the future.

Atty. Abad

Q. Who established the so-called physical trading in IVO?

A. The Board of Directors, sir.

Atty. Abad.
Q. How did you know that?

A. There was a meeting held in the office at the factory and it was brought out and suggested by our former president, Dominador
Monteverde, that the company should engaged (sic) in future[s] contract[s] but it was rejected by the Board of Directors. It was
only Ador Monteverde who then wanted to engaged (sic) in this future[s] contract[s].

Q. Do you know where this meeting took place?

A. As far as I know it was sometime in 1985.

Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde that the company should engaged (sic)
in future[s] contracts?

Atty. Fernando

Objection, your Honor, no basis.

Court

Why don't you lay the basis?

Atty. Abad

Q. Were you a member of the board at the time?

A. In 1975, I am already a stockholder and a member.

Q. Then would [you] now answer my question?

Atty. Fernando

No basis, your Honor. What we are talking is about 1985.

Atty. Abad

Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the future[s] contract[s], were you
already a member of the Board of Directors at that time?

A. Yes, sir.

Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in future[s] contract[s] was rejected by
the Board of Directors?

A. Because this future[s] contract is too risky and it partakes of gambling.

Q. Do you keep records of the Board meetings of the company?

A. Yes, sir.

Q. Do you have a copy of the minutes of your meeting in 1985?

A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988, and despite [the] request of our office
for us to be furnished a copy he was not able to furnish us a copy.19

xxxxxxxxx

Atty. Abad

Q. You said the Board of Directors were against the company engaging in future[s] contracts. As far as you know, has this policy of
the Board of Directors been observed or followed?

Witness

A. Yes, sir.

Q. How far has this Dominador Monteverde been using the name of I.V.0.in selling future contracts without the proper authority and
consent of the company's Board of Directors?

A. Dominador Monteverde never records those transactions he entered into in connection with these future[s] contracts in the
company's books of accounts.

Atty. Abad

Q. What do you mean by that the future[s] contracts were not entered into the books of accounts of the company?

Witness

A. Those were not recorded at all in the books of accounts of the company, sir.20
 xxxxxxxxx

Q. What did you do when you discovered these transactions?

A. There was again a meeting by the Board of Directors of the corporation and that we agreed to remove the president and then I
was made to replace him as president.

Q. What else?

A. And a resolution was passed disowning the illegal activities of the former president.21

Petitioner next argues that there was actually no difference between the 1985 physical contracts and the 1986 futures contracts.

The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate court –

Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and 1986 contracts, both of which groups of
contracts were signed or authorized by IVO's President, Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were
similarly with their 1985 predecessors, forward sales contracts in which IVO had undertaken to deliver the crude coconut oil months
after such contracts were entered into. The lead time between the closing of the deal and the delivery of the oil supposedly allowed
the seller to accumulate enough copra to mill and to build up its inventory and so meet its delivery commitment to its foreign
buyers. SAFIC concludes that the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.

Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable distinctions between the 1985 and
1986 contracts. x x x

1. The 1985 contracts were performed within an average of two months from the date of the sale. On the other hand, the 1986
contracts were to be performed within an average of eight and a half months from the dates of the sale. All the supposed
performances fell in 1987. Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the execution of the
contract. These pattern (sic) belies plaintiffs contention that the lead time merely allowed for milling and building up of oil inventory.
It is evident that the 1986 contracts constituted trading in futures or in mere expectations. In all likelihood, the coconuts that were
supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the crude oil to SAFIC.

2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the opening of a letter of credit LC by
SAFIC in favor of IVO. Since the buyer's letter of credit guarantees payment to the seller as soon as the latter is able to present the
shipping documents covering the cargo, its opening usually mark[s] the fact that the transaction would be consummated. On the
other hand, seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon presentation of the shipping
documents. Unlike the letter of credit, a mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's compliance
with its contracts. This fact lends an uncertain element in the 1986 contracts.1âwphi1.nêt

3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully complied with Central Bank Circular
No. 151 dated April 1, 1963, requiring a coconut oil exporter to submit a Report of Foreign Sales within twenty-four (24) hours
"after the closing of the relative sales contract" with a foreign buyer of coconut oil. But with respect to the disputed 1986 contracts,
the parties stipulated during the hearing that none of these contracts were ever reported to the Central Bank, in violation of its
above requirement. (See Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore suspect.

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded either in the 1986 accounting books of
IVO or in its annual financial statement for 1986, a document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to
7-1). Emelita Ortega, formerly an assistant of Dominador Monteverde, testified that they were strange goings-on about the 1986
contract. They were neither recorded in the books nor reported to the Central Bank. What is more, in those unreported cases where
profits were made, such profits were ordered remitted to unknown accounts in California, U.S.A., by Dominador Monteverde.

xxxxxxxxx

Evidently, Dominador Monteverde made business or himself, using the name of IVO but concealing from it his speculative
transactions.

Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not able to prove its claim for damages.
Petitioner first points out that its wash out agreements with Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the
failed contracts was proof enough and, second, that it presented purchases of coconut oil it made from others during the period of IVO's
default.

We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not binding on IVO. Furthermore, such agreements
did not prove Safic's actual losses in the transactions in question. The fact is that Safic did not pay for the coconut oil that it supposedly
ordered from IVO through Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to deliver, Safic suffered
damages to the extent that they had to buy the same commodity from others at higher prices.

The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises several questions, to wit: 1.] Did Safic
commit to deliver the quantity of oil covered by the 1986 contracts to its own buyers? Who were these buyers? What were the terms of those
contracts with respect to quantity, price and date of delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic
have to procure the equivalent oil from other sources? If so, who were these sources? Where were their contracts and what were the terms of
these contracts as to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the trial court, IVO filed an amended motion22for production and inspection
of the following documents: a.] contracts of resale of coconut oil that Safic bought from IVO; b.] the records of the pooling and sales
contracts covering the oil from such pooling, if the coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase of oil
that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of IVO; d.] all other contracts, confirmations,
invoices, wash out agreements and other documents of sale related to (a), (b) and (c). This amended motion was opposed by Safic.23 The
trial court, however, in its September 16, 1988 Order ,24 ruled that:

From the analysis of the parties' respective positions, conclusion can easily be drawn therefrom that there is materiality in the
defendant's move: firstly, plaintiff seeks to recover damages from the defendant and these are intimately related to plaintiffs alleged
losses which it attributes to the default of the defendant in its contractual commitments; secondly, the documents are specified in
the amended motion. As such, plaintiff would entertain no confusion as to what, which documents to locate and produce considering
plaintiff to be (without doubt) a reputable going concern in the management of the affairs which is serviced by competent,
industrious, hardworking and diligent personnel; thirdly, the desired production and inspection of the documents was precipitated by
the testimony of plaintiffs witness (Donald O'Meara) who admitted, in open court, that they are available. If the said witness
 represented that the documents, as generally described, are available, reason there would be none for the same witness to say later
that they could not be produced, even after they have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages, the production and inspection of the desired documents would
be of tremendous help in the ultimate resolution thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which defendant disputes. As the defendant cannot be
precluded in taking exceptions to the correctness and validity of such claim which plaintiffs witness (Donald O'Meara) testified to,
and as, by this nature of the plaintiffs claim for damages, proof thereof is a must which can be better served, if not amply
ascertained by examining the records of the related sales admitted to be in plaintiffs possession, the amended motion for production
and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full disclosure by the parties on both sides of all documents related to
the transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents, prompting the court a quo to assume
that if produced, the documents would have been adverse to Safic's cause. In its efforts to bolster its claim for damages it purportedly
sustained, Safic suggests a substitute mode of computing its damages by getting the average price it paid for certain quantities of coconut oil
that it allegedly bought in 1987 and deducting this from the average price of the 1986 contracts. But this mode of computation if flawed
.because: 1.] it is conjectural since it rests on average prices not on actual prices multiplied by the actual volume of coconut oil per contract;
and 2.] it is based on the unproven assumption that the 1987 contracts of purchase provided the coconut oil needed to make up for the failed
1986 contracts. There is also no evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts and that
Safic had to buy such oil from others to meet the requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with third parties do not match the quantities
of oil provided under the 1986 contracts. Had Safic produced the documents that the trial court required, a substantially correct determination
of its actual damages would have been possible. This, unfortunately, was not the case. Suffice it to state in this regard that "[T]he power of
the courts to grant damages and attorney's fees demands factual, legal and equitable justification; its basis cannot be left to speculation and
conjecture."25 WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit. SO ORDERED.
G.R. No. 142435 April 30, 2003

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners,

vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO
D. TRINIDAD, respondents.

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision 1 dated October 21, 1999 of the Court of Appeals in CA-G.R. CV No.
41536 which dismissed herein petitioners' appeal from the Decision2 dated February 10, 1993 of the Regional Trial Court (RTC) of Quezon
City, Branch 84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners' complaint for annulment of real estate mortgage and
the extra-judicial foreclosure thereof. Likewise brought for our review is the Resolution3 dated February 23, 2000 of the Court of Appeals
which denied petitioners' motion for reconsideration.

The facts, as culled from records, are as follows:

Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single proprietorship with principal
office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for domestic and foreign
consumption. The Lipats also owned the "Mystical Fashions" in the United States, which sells goods imported from the Philippines through
BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical Fashions" in
the United States.

In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of attorney appointing
Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific
Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the obligations
to be extended by Pacific Bank including any extension or renewal thereof.

Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother, Mrs. Lipat
and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in
the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their property
located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure "other additional or new loans, discounting
lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the
Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new loans,
discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and records of the
Mortgagee."4

On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order to facilitate the
management of the business. BEC was engaged in the business of manufacturing and exportation of all kinds of garments of whatever kind
and description5 and utilized the same machineries and equipment previously used by BET. Its incorporators and directors included the Lipat
spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives
and friends of the Lipats.6 Estelita Lipat was named president of BEC, while Teresita became the vice-president and general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the corresponding
promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O.
Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust receipt therefor. Export bills were also
executed in favor of Pacific Bank for additional finances. These transactions were all secured by the real estate mortgage over the Lipats'
property.

The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its payments.
After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable
her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the mortgaged property was
sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder.

On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint,
which was docketed as Civil Case No. Q-89-4152, alleged, among others, that the promissory notes, trust receipt, and export bills were
all ultra vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also
averred that assuming said acts were valid and binding on BEC, the same were the corporation's sole obligation, it having a personality
distinct and separate from spouses Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipat's sole use and benefit and that the real estate mortgage was executed to secure the Lipats' and BET's
P583,854.00 loan only.

In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the value of the
promissory notes, trust receipt, and export bills with their property because they and the BEC are one and the same, the latter being a family
corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for value and that petitioners are estopped from
denying BEC's existence after holding themselves out as a corporation.

After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must be, as is hereby,
dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the finality of this decision within which to
exercise their right of redemption. The writ of injunction issued is automatically dissolved if no redemption is effected within that
period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis. No costs. IT IS SO ORDERED.7

The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the Lipats. As such, it
was a mere extension of petitioners' personality and business and a mere alter ego or business conduit of the Lipats established for their own
benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would sanction its use as a shield to further an end
subversive of justice.8 Thus, the trial court pierced the veil of corporate fiction and held that Bela's Export Corporation and petitioners (Lipats)
are one and the same. Pacific Bank had transacted business with both BET and BEC on the supposition that both are one and the same.
Hence, the Lipats were estopped from disclaiming any obligations on the theory of separate personality of corporations, which is contrary to
principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however, was dismissed by the
appellate court for lack of merit. The Court of Appeals found that there was ample evidence on record to support the application of the
doctrine of piercing the veil of corporate fiction. In affirming the findings of the RTC, the appellate court noted that Mrs. Lipat had full control
over the activities of the corporation and used the same to further her business interests.9 In fact, she had benefited from the loans obtained
by the corporation to finance her business. It also found unnecessary a board resolution authorizing Teresita Lipat to secure loans from Pacific
Bank on behalf of BEC because the corporation's by-laws allowed such conduct even without a board resolution. Finally, the Court of Appeals
ruled that the mortgage property was not only liable for the original loan of P583,854.00 but likewise for the value of the promissory notes,
trust receipt, and export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from Pacific Bank.

The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000. 10

Hence, this petition, with petitioners submitting that the court a quo erred —

1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.

2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE
AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF
BELA'S EXPORT CORPORATION.

3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS
COURT'S JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL."

4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND THEREFORE
ARE NOT VALID OR ARE NOT BINDING TO HIM.

5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR RECONSIDERATION
IS "AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO
APPELLANTS."11

In sum, the following are the relevant issues for our resolution:

1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;

2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but also for the value
of the promissory notes, trust receipt, and export bills subsequently incurred by BEC; and

3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estate mortgage.

On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the obligations incurred by BEC
through the application of the doctrine of piercing the veil of corporate fiction absent any clear showing of fraud on their part.

Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the findings of the trial court, as
affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners.

Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the appellate court
show that in finding petitioners' mortgaged property liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or
instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego or business conduit
of a person, the separate personality of the corporation may be disregarded.12 This is commonly referred to as the "instrumentality rule" or
the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of corporations. As held in one case,

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be disregarded. The control necessary to invoke
the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. x x x .13

We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BEC are separate business
entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET 14 and were two of the incorporators and
majority stockholders of BEC.15 It is also undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita,
to obtain loans and credit lines from Pacific Bank on her behalf.16 Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively.17 We note further that: (1) Estelita and Alfredo Lipat are the owners and majority
shareholders of BET and BEC, respectively;18 (2) both firms were managed by their daughter, Teresita;19 (3) both firms were engaged in the
garment business, supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held office in the same
building owned by the Lipats;20 (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the business operations of the
BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by Estelita
Lipat and the corporation itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family
members;21 (9) Estelita had full control over the activities of and decided business matters of the corporation; 22 and that (10) Estelita Lipat
had benefited from the loans secured from Pacific Bank to finance her business abroad 23 and from the export bills secured by BEC for the
account of "Mystical Fashion."24 It could not have been coincidental that BET and BEC are so intertwined with each other in terms of
ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of and merely
succeeded the former. Petitioners' attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their
liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our
view, BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under
the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule that the Court
of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.

On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent credit lines and loans
incurred by BEC because, first, it was not covered by the mortgage contract of BET which only covered the loan of P583,854.00 and which
allegedly had already been paid; and, second, it was secured by Teresita Lipat without any authorization or board resolution of BEC.

We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to answer for the loan of
P583,854.00. Thus:

Finally, the extent to which the Lipats' property can be held liable under the real estate mortgage is not limited to P583,854.00. It
can be held liable for the value of the promissory notes, trust receipt and export bills as well. For the mortgage was executed not
 only for the purpose of securing the Bela's Export Trading's original loan of P583,854.00, but also for "other additional or new loans,
discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may
subsequently obtain from the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of
said original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and
expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or
secondary, as appears in the accounts, books and records of the mortgagee.25

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal by the Supreme Court,
provided they are borne out by the record or based on substantial evidence. 26 As noted earlier, BEC merely succeeded BET as
petitioners' alter ego; hence, petitioners' mortgaged property must be held liable for the subsequent loans and credit lines of BEC.

Further, petitioners' contention that the original loan had already been paid, hence, the mortgaged property should not be made liable to the
loans of BEC, is unsupported by any substantial evidence other than Estelita Lipat's self-serving testimony. Two disputable presumptions
under the rules on evidence weigh against petitioners, namely: (a) that a person takes ordinary care of his concerns;27 and (b) that things
have happened according to the ordinary course of nature and the ordinary habits of life.28 Here, if the original loan had indeed been paid,
then logically, petitioners would have asked from Pacific Bank for the required documents evidencing receipt and payment of the loans and,
as owners of the mortgaged property, would have immediately asked for the cancellation of the mortgage in the ordinary course of things.
However, the records are bereft of any evidence contradicting or overcoming said disputable presumptions.

Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC as they were secured
without any proper authorization or board resolution. They also blame the bank for its laxity and complacency in not requiring a board
resolution as a requisite for approving the loans.

Such contentions deserve scant consideration.

Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita Lipat and Alice
Burgos, petitioners' rebuttal witness, no business or stockholder's meetings were conducted nor were there election of officers held since its
incorporation. In fact, not a single board resolution was passed by the corporate board29 and it was Estelita Lipat and/or Teresita Lipat who
decided business matters.30

Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat with
Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET and
BEC. While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged
in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to
officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or
authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.31 Apparent
authority, is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him;
or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope
of his ordinary powers.32

In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney executed by Estelita
Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been deciding business matters in the absence of Estelita
Lipat. Further, the export bills secured by BEC were for the benefit of "Mystical Fashion" owned by Estelita Lipat. 33 Hence, Pacific Bank cannot
be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar
doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's authority.34

We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to state that Alfredo
Lipat never disputed the validity of the real estate mortgage of the original loan; hence, he cannot now dispute the subsequent loans obtained
using the same mortgage contract since it is, by its very terms, a continuing mortgage contract.

On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the issue on attorney's fees on
the ground that it was raised for the first time on appeal. We find the conclusion of the Court of Appeals to be in accord with settled
jurisprudence. Basic is the rule that matters not raised in the complaint cannot be raised for the first time on appeal. 35 A close perusal of the
complaint yields no allegations disputing the attorney's fees imposed under the real estate mortgage and petitioners cannot now allege that
they have impliedly disputed the same when they sought the annulment of the contract.

In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution herein assailed by
petitioners.

WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23, 2000 of the Court of
Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners. SO ORDERED.
G.R. No. L-32473 July 31, 1973

IGNACIO VICENTE and MOISES ANGELES, petitioners,

vs.
HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance of Bulacan, Branch V (Sta. Maria), and HI CEMENT
CORPORATION, respondents

G.R. No. L-32483 July 31, 1973

JUAN BERNABE, petitioner,

vs.
HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ, Presiding Judge, Branch V, Court of First Instance of
Bulacan, respondents.

Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles.

Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe.

Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

ANTONIO, J.:

There are two original actions of certiorari with prayer for preliminary injunction wherein petitioners seek to annul the orders dated April 24,
May 18, and July 18, 1970 of respondent Judge of the Court of First Instance of Bulacan in Civil Case No. SM-201 (Hi Cement Corporation vs.
Juan Bernabe, Ignacio Vicente and Moises Angeles). The two cases are herein decided jointly because they proceed from the same case and
involve in substance the same question of law.

On September 9, 1967 herein private respondent Hi Cement Corporation filed with the Court of First Instance of Bulacan a complaint for
injunction and damages against herein petitioners Juan Bernabe, Ignacio Vicente and Moises Angeles. In said complaint the plaintiff alleged
that it had acquired on October 27, 1965, Placer Lease Contract No. V-90, from the Banahaw Shale Mining Association, under a deed of sale
and transfer which was duly registered with the Office of the Mining Recorder of Bulacan on November 4, 1965 and duly approved by the
Secretary of Agriculture and Natural Resources on December 15, 1965; that the said Placer Lease Contract No. V-90 was for a period of
twenty-five years commencing from August 1, 1960 and covered two mining claims (Red Star VIII & IX) with a combined area of about fifty-
one hectares; that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the defendants Juan Bernabe
(about two hectares), Ignacio Vicente (about two hectares) and Moises Angeles (about one-fourth hectare); that the plaintiff had, on several
occasions, informed the defendants, thru its representatives, of the plaintiff's acquisition of the aforesaid placer mining claims which included
the areas occupied by them; that the plaintiff had requested the defendants to allow its workers to enter the area in question for exploration
and development purposes as well as for the extraction of minerals therefrom, promising to pay the defendants reasonable amounts as
damages, but the defendants refused to allow entry of the plaintiff's representatives; that the defendants were threatening the plaintiff's
workers with bodily harm if they entered the premises, for which reason the plaintiff had suffered irreparable damages due to its failure to
work on and develop its claims and to extract minerals therefrom, resulting in its inability to comply with its contractual commitments, for all
of which reasons the plaintiff prayed the court to issue preliminary writs of mandatory injunction perpetually restraining the defendants and
those cooperating with them from the commission or continuance of the acts complained of, ordering defendants to allow plaintiff, or its
agents and workers, to enter, develop and extract minerals from the areas claimed by defendants, to declare the injunction permanent after
hearing, and to order the defendants to pay damages to the plaintiff in the amount of P200,000.00, attorney's fees, expenses of litigation and
costs.

On September 12, 1967 the trial court issued a restraining order and required the defendants to file their answers. The defendants filed their
respective answers, which contained the usual admissions and denials and interposed special and affirmative defenses, namely, among
others, that they are rightful owners of certain portions of the land covered by the supposed mining claims of the plaintiff; that it was the
plaintiff and its workers who had committed acts of force and violence when they entered into and intruded upon the defendants' lands; and
that the complaint failed to state a cause of action. The defendants set up counter-claims against the plaintiff for actual and moral damages,
as well as for attorney's fees.

In another pleading filed on the same date, defendant Juan Bernabe opposed the issuance of a writ of preliminary mandatory or prohibitory
injunction. In its Order dated September 30, 1967, the trial court, however, directed the issuance of a writ of preliminary mandatory
injunction upon the plaintiff's posting of a bond in the amount of P100,000.00. In its order, the court suggested the relocation of the
boundaries of the plaintiff's claims in relation to the properties of the defendants, and to this end named as Commissioner, a Surveyor from
the Office of the District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining claims, to show in a survey plan the location
of the areas thereof in conflict with the portions whose ownership is claimed by the defendants and to submit his report thereof to the court
on or before October 31, 1967. The court also directed the parties to send their representatives to the place of the survey on the date thereof
and to furnish the surveyor with copies of their titles. The Commissioner submitted his report to the Court on November 24, 1967 containing
the following findings:

1. In the attached survey plan, the area covered and embraced full and heavy lines is the Placer Mining Claims of the
Plaintiff containing an area of 107 hectares while the area bounded by fine-broken lines are the properties of the
Defendants.

2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels known as Lot 1-B and Lot 2 of Psu-
103374, both described in O.C.T. No. O-1769 with a total area of 34,984 square meters were totally covered by the Claims
of the Plaintiff.

3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619 square meters, is also inside the Claims
of the Plaintiff.

4. The property of the defendant JUAN BERNABE known as Psu-178969, described in O.C.T. No. 0-2050 is partially covered
by the Claims of the Plaintiff and the area affected is 57,539 square meters.

In an Order issued on December 14, 1967, the court approved the report "with the conformity of all the parties in this case."

Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to amend the complaint "so as to conform to the facts brought out
and/or impliedly admitted in the pre-trial. This motion was granted by the court on April 6, 1968. Accordingly, on October 21, 1968, the
plaintiff filed its amended complaint. The amendments consisted in the statement of the correct areas of the land belonging to defendants
Bernabe (57,539 square meters), Vicente (32,619 square meters) and Angles (34,984 square meters), as well as the addition of allegations
to the effect, among others, that at the pre-trial the defendants Angeles and Vicente declared their willingness to sell to the plaintiff their
properties covered by the plaintiff's mining claims for P10.00 per square meter, and that when the plaintiff offered to pay only P0.90 per
square meter, the said defendants stated that they were willing to go to trial on the issue of what would be the reasonable price for the
properties of defendants sought to be taken by plaintiff. With particular reference to defendant Bernabe, the amended complaint alleged that
the said defendant neither protested against nor prohibited the predecessor-in-interest of the plaintiff from prospecting, discovering, locating
and contracting minerals from the aforementioned claims, or from conducting the survey thereon, or filed any opposition against the
application for lease by the Red Star Mining Association, and that as a result of the failure of said defendant to object to the acts of
possession or occupation over the said property by plaintiff, defendant is now estopped from claiming that plaintiff committed acts of
usurpation on said property. The plaintiff prayed the court, among other things, to fix the reasonable value of the defendants' properties as
reasonable compensation for any resulting damage.

Defendant Bernabe filed an amended answer substantially reproducing his original answer and denying the averments concerning him in the
amended complaint.

The respective counsels of the parties then conferred among themselves on the possibility of terminating the case by compromise, the
defendants having previously signified their willingness to sell to the plaintiff their respective properties at reasonable prices.

On January 30, 1969 the counsels of the parties executed and submitted to the court for its approval the following Compromise Agreement:

COMPROMISE AGREEMENT

COME NOW the plaintiff and the defendants, represented by their respective counsel, and respectfully submit the following
agreement:

1. That the plaintiff is willing to buy the properties subject of litigation, and the defendants are willing to sell their
respective properties;

2. That this Honorable Court authorizes the plaintiff and the defendants to appoint their respective commissioners, that is,
one for the plaintiff and one for each defendant;

3. That the parties hereby agree to abide by the decision of the Court based on the findings of the Commissioners;

4. That the fees of the Commissioners shall be paid as follows:

For those appointed by the parties shall be paid by them respectively; and for the one appointed by the
Court, his fees shall be paid pro-rata by the parties;

5. That the names of the Commissioners to be appointed by the parties shall be submitted to the Court on or before
February 8, 1969.

WHEREFORE, the undersigned respectfully pray that the foregoing agreement be approved.

Sta. Maria, Bulacan, January 30, 1969.

For the Plaintiff:

(Sgd. ) FRANCISCO
VENTURA
t/ FRANCISCO VENTURA.

(Sgd.) FLORENTINO V.
CARDENAS
t/ FLORENTINO V.
CARDENAS

(Sgd.) ENRIQUETO I.
MAGPANTAY
t/ ENRIQUETO I.
MAGPANTAY

For Juan Bernabe:

(Sgd.) ANDRECIANO F.
CABALLERO
t/ ANDRECIANO F.
CABALLERO

For Ignacio Vicente and

Moises Angeles:

(Sgd.) CONRADO
MANZANO
t/ CONRADO MANZANO

The Clerk of Court

CFI, Sta. Maria, Bulacan

GREETINGS:

Please submit the foregoing Compromise Agreement to the Honorable Court for the consideration and approval
immediately upon receipt hereof.

VENTURA, CARDENAS & MAGPANTAY

By:
 (Sgd.) FRANCISCO VENTURA
t/ FRANCISCO VENTURA

On the same date, the foregoing Compromise Agreement was approved by the trial court, which enjoined the parties to comply with the
terms and conditions thereof.

Pursuant to the terms of the said compromise agreement the counsels of both parties submitted the names of the persons designated by
them as their respective commissioners, and in conformity therewith, the trial court, in its Order dated February 26, 1969, appointed the
following as Commissioners: Mr. Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M. Aquino, to represent defendant Bernabe; Mr.
Moises Correa, to represent defendant Angeles; Mr. Santiago Cabungcal, to represent defendant Vicente; and Mr. Liberato Barrameda, to
represent the court, and directed that said Commissioners should appear before the court on March 17, 1969, to take their oath and qualify
as such Commissioners, and then meet on March 31, 1969 in the court for their first session and to submit their report not later than April 30,
1969.

On September 15, 1969, Commissioner Liberato Barrameda submitted to the court for its approval a Consolidated Report, containing the
three reports of the Commissioners of the plaintiff and the three defendants, together with an analysis of the said reports and a summary of
the important facts and conclusions. The following unit prices for the three defendants' properties were recommended in the Consolidated
Report:

A — JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has been extracting its first output, and would still
continue to extract therefrom as the property consists of a mountain of limestone and shale;

B — IGNACIO VICENTE:

a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.

b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.

C — MOISES ANGELES (riceland) at P8.00 per sq. m.

It is worthy of note that in the individual report of the Commissioner nominated by plaintiff HI Cement Corporation, the price recommended
for defendant Juan Bernabe's property was P0.60 per square meter, while in the individual report of the Commissioner nominated by the said
defendant, the price recommended was P50.00 per square meter. The Commissioners named by defendants Vicente and Angeles
recommended was P15.00 per square meter for the lands owned by the said two defendants, while the Commissioners named by the said two
defendants, while the Commissioner named by the plaintiff recommended P0.65 per square meter for Vicente's land, and P0.55 per square
meter for Angeles' land.

On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for plaintiff HI Cement Corporation, filed with the trial court a
manifestation stating that on September 1, 1969 he sent a copy of the Compromise Agreement to Mr. Antonio Diokno, President of the
corporation, requesting the latter to intercede with the Board of Directors for the confirmation or approval of the commitment made by the
plaintiff's lawyers to abide by the decision of the Court based on the reports of the Commissioners; and that on October 15, 1969 he received
a letter from Mr. Diokno, a copy of which was attached to the manifestation. In that letter Mr. Diokno said:

While I realize your interest in cooperating with the Court in its desire to expedite the disposition of the case, this
commitment would deprive us of the right to appeal if we do not agree with the valuation set by the Court. Our Board,
therefore, cannot waive its rights; only when it knows the value set by the Court on the properties can it decide whether to
abide by it or appeal therefrom. I would like to stress that, under the law, the compromise agreement requires the express
approval of our Board of Directors to be binding on our corporation. Such an approval, I regret to say, cannot be obtained
at this time.

On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's manifestation, praying the court to ignore, disregard and, if
possible, order striken from the record, the plaintiff's manifestation on the following grounds: that its filing after the Consolidated Report of
the Commissioners had been submitted and approved, and long after the signing of the Compromise Agreement on January 30, 1969, cast
suspicion on the sincerity of the plaintiff's motive; that when the Compromise Agreement was being considered, the court inquired from the
parties and their respective lawyers if all the attorneys appearing in the case had been duly authorized and/or empowered to enter into a
compromise agreement, and the three lawyers for the plaintiff answered in the affirmative; that in fact it was Atty. Ventura himself who
prepared the draft of the Compromise Agreement in his own handwriting and was the first to sign the agreement; that one of the three
lawyers for the plaintiff, Atty. Florentino V. Cardenas, who also signed the Compromise Agreement, was the official representative, indeed
was an executive official, of plaintiff corporation; that the Compromise Agreement, having been executed pursuant to a pre-trial conference,
partakes the nature of a stipulation of facts mutually agreed upon by the parties and approved by the court, hence, was binding and
conclusive upon the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as its Commissioner pursuant to the
Compromise Agreement, was a clear indication of the plaintiff's tacit approval of the terms and conditions of the Compromise Agreement, if
not an implied ratification of Atty. Ventura's acts.

On March 13, 1970 the court rendered a decision in which the terms and conditions of the Compromise Agreement are reproduced, and the
Consolidated Report of the Commissioners is extensively quoted. The rationale and dispositive portion of the decision read:

What is fair and just compensation?

"Just compensation includes all elements of value that inheres in the property, but it does not exceed market value fairly
determined. The sum required to be paid the owner does not depend upon the usage to which he has devoted his land but
is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for
which the property is adoptable and needed or likely to be needed in the reasonably near future is to be considered, not
necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market
value while the property is privately held."

The term fair and just compensation as applied in expropriation or eminent domain proceedings need not necessarily be
applied in the present case. In expropriation proceedings the government is the party involved and its use is for public
purpose. In the instant case, however, private parties are involved and the use of the land is a private venture and for
profit.

It appears that defendants' properties are practically adjacent to plaintiff's plant site. It also appears that practically all the
surrounding areas were acquired by the plaintiff by purchase.

In the report submitted by the commissioner representing the plaintiff, it is claimed that the surrounding areas were
acquired thru purchase by the plaintiff in the amount of less than P1.00 per square meter. On the other hand, it appears
 from the reports submitted by the commissioners representing the defendants that there were some recorded sales around
the area from P20.00 to P25.00 per square meter and there were subdivision lots which command even higher prices.

The properties are reported to consist of mineral land which are rocky and barren containing limestone and shale. From
viewpoint of the owners their property which is described as rocky and barren mineral land must necessarily command a
higher price, and this Court believes that the plaintiff will adopt the same attitude from the viewpoint of its business.

While it may be true that the plaintiff acquired properties within the area in question at a low price, we cannot overlook the
fact that this was so at the time when plaintiff corporation was not yet in operation and that the land owners were not as
yet aware of the potential value of their landholdings.

Irrespective of the different classifications of the properties owned by the defendants, and considering the benefits that will
enure to the plaintiff and bearing in mind the property rights and privileges to which the property owners are entitled both
under the constitution and the mining law, coupled with the fact that the plaintiff had already taken advantage of the
properties even long before the rightful acquisition of the same, this Court believes that the just and fair market value of
the land should be in the amount P15.00 per square meter.

In view of the above findings, the plaintiff pursuant to the compromise agreement, is hereby ordered to pay the
defendants the amount of P15.00 per square meter for the subject properties, and upon full payment, the restraining order
earlier issued by this Court shall be deemed lifted.

On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the judgment,
being based on a compromise agreement, is not appealable and is, on the other hand, immediately executory. The other two defendants,
Moises Angeles and Ignacio Vicente, likewise filed their respective motions for execution. These motions were granted by the court in its
Order of April 14, 1970.

On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14, 1970 Order, alleging that it had an opposition to the
defendants' motions for execution, and that the Compromise Agreement had been repudiated by the plaintiff corporation through its Vice
President, as earlier manifested by the plaintiff. The plaintiff prayed for ten days from the date of the hearing of the motion within which to
file its written opposition to the motions for execution. Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21, 1970.

On April 22, 1970 the plaintiff filed with the court a motion for new trial on the ground that the decision of the court dated March 13, 1970 is
null and void because it was based on the Compromise Agreement of January 30, 1969 which was itself null and void for want of a special
authority by the plaintiff's lawyers to enter into the said agreement. The plaintiff also prayed that the decision dated March 13, 1970 and the
Order dated April 14, 1970 granting the defendants' motions for execution, be set aside. Defendant Juan Bernabe filed on April 27, 1970 an
opposition to the plaintiff's motion on the grounds that the decision of the court is in accordance with law, for three lawyers for the plaintiff
signed the Compromise Agreement, and one of them, Atty. Cardenas, was an official representative of plaintiff corporation, hence, when he
signed the Compromise Agreement, he did so in the dual capacity of lawyer and representative of the management of the corporation; that
the plaintiff itself pursued, enforced and implemented the agreement by appointing Mr. Larry Marquez as its duly accredited Commissioner;
and that the plaintiff is conclusively bound by the acts of its lawyers in entering into the Compromise Agreement.

In the meantime, or on April 24, 1970, the court issued an Order setting aside its Order of April 14, 1970 under which the defendants'
motions for execution of judgment had been granted, and gave the plaintiff ten days within which to file an opposition to the defendants'
motions for execution.

On May 9, 1970 the plaintiff filed an opposition to the motions for execution of judgment, on the grounds that the decision dated March 13,
1970 is contrary to law for it is based on a compromise agreement executed by the plaintiff's lawyers who had no special power of attorney as
required by Article 1878 of the Civil Code, or any special authority as required by Section 23, Rule 138 of the Rules of Court; and that the
judgment is void for lack of jurisdiction of the court because the same is based on a void compromise agreement.

On May 18, 1970 the court issued an Order setting aside its decision dated March 13, 1970, denying the defendants' motions for execution of
judgment, and setting for June 23, 1970 a pre-trial conference in the case. The three defendants moved for reconsideration, but their motions
were denied in an Order dated July 18, 1970.

It is in these factual premises that the defendants in Civil Case No. SM-201 came to this Court by means of the present petitions. In G.R. No.
L-32473, petitioners Vicente and Angeles pray this Court to issue a writ of preliminary injunction, and, after hearing, to annul and set aside
the Order dated May 18,1970 issued by respondent Judge setting aside the decision dated March 13, 1970; to declare the said decision legal,
effective and immediately executory; to dissolve the writ of preliminary mandatory injunction issued by respondent Judge on September 30,
1967 commanding petitioners to allow private respondent to enter their respective properties and excavate thereon; to make the preliminary
injunction permanent; and to award treble costs in favor of petitioners and against private respondent. In G.R. No. L-32483, petitioner Juan
Bernabe prays this Court to issue a writ of preliminary injunction or, at least a temporary restraining order, and, after hearing, to annul and
set aside the Order dated April 24, 1970 issued by respondent Judge setting aside his Order of April 14, 1970 and allowing private respondent
to file an opposition to petitioners' motion for execution, the Order dated May 18, 1970, and the Order dated July 18, 1970. Petitioner
Bernabe also seeks the reinstatement of the trial court's decision dated May 13, 1970 and its Order dated April 14, 1970 granting his motion
for execution of judgment, and an award in his favor of attorney's fees and of actual, moral and exemplary damages.

At issue is whether the respondent court, in setting aside its decision of March 13, 1970 and denying the motions for execution of said
decision, had acted without or in excess of its jurisdiction or with grave abuse of discretion. We hold that said court did not, in view of the
following considerations:

1. Special powers of attorney are necessary, among other cases, in the following: to compromise and to renounce the right to appeal from a
judgment. 1 Attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing, and in taking
appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority, compromise their clients' litigation, or
receive anything in discharge of their clients' claims but the full amount in cash. 2

The Compromise Agreement dated January 30, 1969 was signed only by the lawyers for petitioners and by the lawyers for private respondent
corporation. It is not disputed that the lawyers of respondent corporation had not submitted to the Court any written authority from their
client to enter into a compromise.

This Court has said that the Rules 3 "require, for attorneys to compromise the litigation of their clients, a special authority. And while the same
does not state that the special authority be in writing the court has every reason to expect that, if not in writing, the same be duly established
by evidence other than the self-serving assertion of counsel himself that such authority was verbally given him." 4

2. The law specifically requires that "juridical persons may compromise only in the form and with the requisites which may be necessary to
alienate their property." 5 Under the corporation law the power to compromise or settle claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of Directors. The right of the Directors "to compromise a disputed claim against the
corporation rests upon their right to manage the affairs of the corporation according to their honest and informed judgment and discretion as
to what is for the best interests of the corporation." 6 This power may however be delegated either expressly or impliedly to other corporate
officials or agents. Thus it has been stated, that as a general rule an officer or agent of the corporation has no power to compromise or settle
a claim by or against the corporation, except to the extent that such power is given to him either expressly or by reasonable implication from
the circumstances. 7 It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded that the Board of
Directors of the HI Cement Corporation had authorized its lawyers to enter into the said compromise agreement.

Petitioners claim that private respondent's attorneys admitted twice in open court on January 30, 1969, that they were authorized to
compromise their client's case, which according to them, was never denied by the said lawyers in any of the pleadings filed by them in the
case. The claim is unsupported by evidence. On the contrary, in private respondent's "Reply to Defendant Bernabe's Answer Dated November
8, 1969," said counsels categorically denied that they ever represented to the court that they were authorized to enter into a compromise.
Indeed, the complete transcript of stenographic notes taken at the proceedings on January 30, 1969 are before Us, and nowhere does it
appear therein that respondent corporation's lawyers ever made such a representation. In any event, assuming arguendo that they did, such
a self-serving assertion cannot properly be the basis for the conclusion that the respondent corporation had in fact authorized its lawyers to
compromise the litigation.

3. Petitioners however insist that there was tacit ratification on the part of the corporation, because it nominated Mr. Larry Marquez as its
commissioner pursuant to the agreement, paid his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's
administrative manager, not only did not object but even affixed his signature to the agreement. It is also argued that respondent corporation
having represented, through its lawyers, to the court and to petitioners that said lawyers had authority to bind the corporation and having
induced by such representations the petitioners to sign the compromise agreement, said respondent is now estopped from questioning the
same.

The infirmity of these arguments is in their assumption that Atty. Cerdenas as administrative manager had authority to bind the corporation
or to compromise the case. Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or
other governing body, unless conferred by the charter of the corporation. A corporation officer's power as an agent of the corporation must
therefore be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the acts of board of
directors, formally expressed or implied from a habit or custom of doing business. 8 In the case at bar no provision of the charter and by-laws
of the corporation or any resolution or any other act of the board of directors of HI Cement Corporation has been cited, from which We could
reasonably infer that the administrative manager had been granted expressly or impliedly the power to bind the corporation or the authority
to compromise the case. Absent such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would be
legally ineffectual.

4. As regards the nomination of Mr. Marquez as commissioner, counsel for respondent corporation has explained — and this has not been
disproven — that Atty. Cardenas, apparently on his own, submitted the same to the court. There is no iota of proof that at the time of the
submission to the Court, on February 26, 1969, of the name of Mr. Marquez, respondent corporation knew of the contents of the compromise
agreement. As matter of fact, according to the manifestation of Atty. Ventura to the court, it was only on September 1, 1969 that he sent to
Mr. Antonio Diokno, Vice-President of the corporation, a copy of the compromise agreement for the approval by the board of directors and on
October 22, 1969, Mr. Diokno informed him that the approval of the Board cannot be obtained, as under the agreement the corporation is
deprived of its right to appeal from the judgement.

In the absence of any proof that the governing body of respondent corporation had knowledge, either actual or constructive, or the contents
of the compromise agreement before September 1, 1969, why should the nomination of Mr. Marquez as commissioner, by Attys. Ventura,
Cardenas and Magpantay, on February 26, 1969, be considered as a form of tacit ratification of the compromise agreement by the
corporation? In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must be shown that the governing
body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it
relates. 9 It cannot be assumed also that Atty. Cardenas, as administrative manager of the corporation, had authority to ratify. For ratification
can never be made "on the part of the corporation by the same persons who wrongfully assume the power to make the contract, but the
ratification must be by the officer or governing body having authority to make such contract and, as we have seen, must be with full
knowledge." 10

5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the case at bar, except those made by Attys. Ventura, Cardenas
and Magpantay, petitioners have not demonstrated any act or declaration of the corporation amounting to false representation or
concealment of material facts calculated to mislead said petitioners. The acts or conduct for which the corporation may be liable under the
doctrine of estoppel must be those of the corporation, its governing body or authorized officers, and not those of the purported agent who is
himself responsible for the misrepresentation. 11

It having been found by the trial court that "the counsel for the plaintiff entered into the compromise agreement without the written authority
of his client and the latter did not ratify, on the contrary it repudiated and disowned the same ...", 12 We therefore declare that the orders of
the court a quo subject of these two petitions, have not been issued in excess of its jurisdictional authority or in grave abuse of its discretion.
WHEREFORE, the petitions in these two cases are hereby dismissed. Costs against the petitioners.
G.R. No. 74336 April 7, 1997

J. ANTONIO AGUENZA, petitioner,

vs.
METROPOLITAN BANK & TRUST CO., VITALIADO P. ARRIETA, LILIA PEREZ, PATRICIO PEREZ and THE INTERMEDIATE
APPELLATE COURT, respondents.

HERMOSISIMA, JR., J.:

Before us is a petition for review on certiorari seeking the reversal of the Decision 1 of the Intermediate Appellate Court (now the Court of
Appeals) 2 finding petitioner J. Antonio Aguenza liable under a continuing surety agreement to pay private respondent Metropolitan Bank &
Trust Company (hereafter, Metrobank) a loan jointly obtained by the General Manager and a bookkeeper of Intertrade a corporation of which
petitioner is President and in whose behalf petitioner had, in the past, obtained credit lines.

The following facts are not disputed:

On February 28, 1977, the Board of Directors of Intertrade, through a Board Resolution, authorized and empowered petitioner and private
respondent Vitaliado Arrieta, Intertrade's President and Executive Vice-President, respectively, to jointly apply for and open credit lines with
private respondent Metrobank. Pursuant to such authority, petitioner and private respondent Arrieta executed several trust receipts from May
to June, 1977, the aggregate value of which amounted to P562,443.46, with Intertrade as the entrustee and private respondent Metrobank as
the entruster.

On March 14, 1977, petitioner and private respondent Arrieta executed a Continuing Suretyship Agreement whereby both bound themselves
jointly and severally with Intertrade to pay private respondent Metrobank whatever obligation Intertrade incurs, but not exceeding the
amount P750,000.00.

In this connection, private respondent Metrobank's Debit Memo to Intertrade dated March 22, 1978 showed full settlement of the letters of
credit covered by said trust receipts in the total amount P562,443.46.

On March 21, 1978, private respondents Arrieta and Lilia P. Perez, bookkeeper in the employ of Intertrade, obtained P500,000.00 loan from
private respondent Metrobank. Both executed Promissory Note in favor or said bank in the amount of P500,000,00. Under said note, private
respondents Arrieta and Perez promised to pay said amount, jointly and severally, in twenty five (25) equal installments of P20,000.00 each
starting on April 20, 1979 with interest of 18.704% per annum, and in case of default, a further 8 % per annum.

Private respondents Arrieta and Perez defaulted in the payment of several installments thus resulting in the entire obligation becoming due
and demandable. In 1979, private respondent Metrobank instituted suit against Intertrade, Vitaliado Arrieta, Lilia Perez and her husband,
Patricio Perez, to collect not only the unpaid principal obligation, but also interests, fees and penalties, exemplary damages, as well as
attorney's fees and costs of suit.

More than a year after private respondent Metrobank filed its original complaint, it filed an Amended Complaint dated August 30, 1980 for the
sole purpose of impleading petitioner as liable for the loan made by private respondents Arrieta and Perez on March 21, 1978,
notwithstanding the fact that such liability is being claimed on account of a Continuing Suretyship Agreement dated March 14, 1977 executed
by petitioner and private respondent Arrieta especifically to guarantee the credit line applied for by and granted to, Intertrade, through
petitioner and private respondent Arrieta who were specially given authority by Intertrade on February 28, 1977 to open credit lines with
private respondent Metrobank. The obligations incurred by Intertrade under such credit lines were completely paid as evidenced by private
respondent Metrobank's debit memo in the full amount of P562,443.46.

After hearing on the merits, the trial court rendered its decision absolving petitioner from liability and dismissing private respondent
Metrobank's complaint against him, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1) Declaring that the Promissory Note dated March 21, 1978, marked as Exhibit A is the responsibility only of defendant
Vitaliado P. Arrieta and Lilia P. Perez, in their personal capacity and to the exclusion of defendant Intertrade and Marketing
Co., Inc.;

2) Ordering defendants Vitaliado P. Arrieta and Lilia P. Perez to pay, jointly and severally, the plaintiff the sum of
P1,062,898.92, due, of September 15, 1982, plus interest, fees and penalties due from that date pursuant to the
stipulations in the promissory note until the whole obligations shall have been paid and finally settled;

3) Ordering defendants Vitaliado P. Arrieta and Lilia Perez to pay, jointly and severally, the plaintiff the sum of P44,000.00
by way of attorney's fees and other litigation expenses, albeit there is no award for exemplary damages;

4) Declaring defendant Patricio Perez, as conjugal partner of defendant Lilia Perez, as jointly and severally liable with her
for what the latter is ordered to pay per this Decision;

5) Dismissing this case insofar as defendants Intertrade and Marketing Co., Inc. and J. Antonio Aguenza are concerned,
although their respective counterclaims against the plaintiff are also ordered dismissed.

Costs of suit shall be paid, jointly and severally, by defendant Vitaliado Arrieta and Lilia Perez.

SO ORDERED. 3

Private respondents Arrieta and spouses Perez appealed the foregoing decision to the respondent Court of Appeals.

On February 11, 1986, respondent appellate court promulgated the herein assailed decision, the dispositive portion of which reads:

WHEREFORE, the appealed decision is SET ASIDE and another one entered ordering Intertrade & Marketing Co., Inc., and
J. Antonio Aguenza, jointly and severally:

1) to pay the Bank the principal of P440,000.00 plus its interest of 18.704% per annum computed from April 15, 1979
until full payment;
 2) to pay the Bank the sum equivalent to 8% of P440,000.00 as penalty, computed from July 19, 1978 until full payment;

3) to pay the Bank the sum of P15,000.00 as attorney's fees.

The complaint is dismissed as against Lilia Perez, Patricio Perez and Vitaliado P. Arrieta who are absolved from liability.

All counterclaims are dismissed.

Costs against Intertrade and Aguenza, jointly and severally.

SO ORDERED.

In setting aside the decision of the trial court, respondent Court of Appeals ratiocinated such reversal in this wise:

No dispute exists as to the promissory note and the suretyship agreement. The controversy centers on whether the note
was a corporate undertaking and whether the suretyship agreement covered the obligation in the note.

As far as Intertrade is concerned, it seems clear from its answer that the loan evidenced by the note was a corporate
liability. Paragraph 1.3 of the answer admits ". . . defendant's obtention of the loan from the plaintiff . . ."; the affirmative
defenses admit default, and invoking the defense of usury, plead adjustment of excessive interest which Intertrade refused
to make.

On the basis of this admission, it is no longer in point to discuss, as the appealed decision does, the question of the
capacity in which Arrieta and Perez signed the promissory note, Intertrade's admission of its corporate liability being
admission also that the signatories signed the note in a representative capacity. The Bank itself gave corroboration with its
insistence on Intertrade's liability under the note. . .

The stated purpose of the note is "operating capital." It cannot be contended that the words "operating capital" refer to the
capital requirements of Perez and Arrieta. In the first place, it was not shown that they were in business for themselves.
Besides, Perez was only a bookkeeper of Intertrade with a salary of P800.00 a month . . . Their combined resources would
not have been sufficient to justify a business loan of the note's magnitude. From these follows the only logical conclusion:
that Arrieta and the Perez spouses are not liable on the note.

The surety agreement presents a different problem.

There is no question that Aguenza signed the agreement . . . Its second paragraph shows, typewritten in bold capitals, that
the agreement was executed "for and in consideration of any existing indebtedness to the Bank of INTERTRADE &
MARKETING COMPANY, INC." Nowhere in its entire text is it shown that its execution was for the benefit of Perez or
Arrieta.

Aguenza feigns ignorance of the promissory note and claims his knowledge of it came only when he received summons.
This is difficult to believe. As Intertrade's first letter to the Bank . . . shows, the Board of Directors and principal
stockholders met to discuss the obligation. Aguenza was at the time president of Intertrade and acting chairman of its
board . . .

Aguenza also argues that the suretyship was executed to enable Intertrade to avail of letters of credit to finance
importations, which had all been paid in full, and therefore the agreement was thereby terminated. Again, the agreement
shows up the fallacy of this argument. The document is boldly denominated "CONTINUING SURETYSHIP," and paragraph
VI thereof stipulates it to be a continuing one, "to remain in force until written notice shall have been received by the Bank
that it has been revoked by the surety . . . " In other words, the option to cancel, in writing, was given to the sureties; the
evidence does not show any written notice of such cancellation. . . .

And, the argument that the agreement was executed as security for letters of credit that had already been paid is in itself
confirmation that the suretyship was meant to benefit Intertrade. The trust receipts . . . and the bills of exchange . . . are
all in the name of Intertrade.

The suretyship is both retrospective and prospective in its operation. Its wording covers all obligations of Intertrade
existing as of its date as well as those that may exist thereafter. Hence, its coverage extends to the promissory note as
well. 4

Understandably, petitioner lost no time in bringing this case before us via a petition for review on certiorari on the following grounds:

THE RESPONDENT COURT ERRED IN REVERSING AND [SETTING] ASIDE THE FINDING OF THE TRIAL COURT THAT THE
LOAN OF P500,000.00 PROCURED 21 MARCH 1978 BY RESPONDENTS VITALIADO ARRIETA AND LILIA PEREZ IS NOT A
CORPORATE LIABILITY OF RESPONDENT INTERTRADE AND THAT PETITIONER IS NOT LIABLE THEREON UNDER THE
"CONTINUING SURETYSHIP AGREEMENT" DATED 4 MARCH 1977.

THE CONCLUSION OF THE RESPONDENT COURT THAT THE LOAN OF P500,000.00 PROCURED 21 MARCH 1978 BY
RESPONDENT VITALIADO ARRIETA AND LILIA PEREZ IS A CORPORATE LIABILITY OF RESPONDENT INTERTRADE AND
CONSEQUENTLY RENDERING PETITIONER LIABLE IN HIS PERSONAL CAPACITY AS A SURETY UNDER THE "CONTINUING
SURETYSHIP" OF 4 MARCH 1977, IS GROSSLY ERRONEOUS AND PREMISED ON A MISAPPREHENSION OF FACTS.

THE CONCLUSIONS AND CONSTRUCTION REACHED BY RESPONDENT COURT FROM THE FACTS AND EVIDENCE OF
RECORD, ARE INCORRECT RESULTING IN AN ERRONEOUS DECISION GRAVELY PREJUDICIAL TO THE SUBSTANTIAL
RIGHTS OF PETITIONER. 5

The petition has merit,.

The principal reason for respondent appellate court's reversal of the trial court's absolution of petitioner is its finding that the loan made by
private respondent Arrieta and Lilia Perez were admitted by Intertrade to be its own obligation.

After a careful scrutiny of the records, however, we find and we so rule that there is neither factual nor legal basis for such a finding by
respondent Appellate Court.
First, the general rule that "the allegations, statements, or admissions contained in a pleading are conclusive as against the pleader" 6 is not
an absolute and inflexible rule 7 and is subject to exceptions. Rule 129, Section 4, of the Rules of Evidence, provides:

Sec. 4. Judicial admissions. — An admission, verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable
mistake or that no such admission was made. (Emphasis supplied).

In other words, an admission in a pleading on which a party goes to trial may be contradicted by showing that it was made by
improvidence or mistake or that no such admission was made, i.e., "not in the sense in which the admission was made to appear or
the admission was taken out of context." 8

In the case at bench, we find that the respondent Court of Appeals committed an error in appreciating the "Answer" filed by the lawyer of
Intertrade as an admission of corporate liability for the subject loan. A careful study of the responsive pleading filed by Atty. Francisco
Pangilinan, counsel for Intertrade, would reveal that there was neither express nor implied admission of corporate liability warranting the
application of the general rule. Thus, the alleged judicial admission may be contradicted and controverted because it was taken out of context
and no admission was made at all.

In any event, assuming arguendo that the responsive pleading did contain the aforesaid admission of corporate liability, the same may not
still be given effect at all. As correctly found by the trial court, the alleged admission made in the answer by the counsel for Intertrade was
"without any enabling act or attendant ratification of corporate act," 9 as would authorize or even ratify such admission. In the absence of
such ratification or authority, such admission does not bind the corporation.

Second, the respondent appellate court likewise adjudged Intertrade liable because of the two letters emanating from the office of Mr. Arrieta
which the respondent court considered "as indicating the corporate liability of the corporation." 10 These documents and admissions cannot
have the effect of a ratification of an unauthorized act. As we elucidated in the case of Vicente v. Geraldez, 11 "ratification can never be made
on the part of the corporation by the same persons who wrongfully assume the power to make the contract, but the ratification must be by
the officer as governing body having authority to make such contract." In other words, the unauthorized act of respondent Arrieta can only be
ratified by the action of the Board of Directors and/or petitioner Aguenza jointly with private respondent Arrieta.

We must emphasize that Intertrade has a distinct personality separate from its members. The corporation transacts its business only through
its officers or agents. Whatever authority these officers or agents may have is derived from the Board of Directors or other governing body
unless conferred by the charter of the corporation. An officer's power as an agent of the corporation must be sought from the statute, charter,
the by-laws, as in a delegation of authority to such officer, or the acts of the Board of Directors formally expressed or implied from a habit or
custom of doing business. 12

Thirdly, we note that the only document to evidence the subject transaction was the promissory note dated March 21, 1978 signed by private
respondents Arrieta and Lilia Perez. There is no indication in said document as to what capacity the two signatories had in affixing their
signatures thereon.

It is noted that the subject transaction is a loan contract for P500,000.00 under terms and conditions which are stringent, if not onerous. The
power to borrow money is one of those cases where even a special power of attorney is required. 13 In the instant case, them is invariably a
need of an enabling act of the corporation to be approved by its Board of Directors. As round by the trial court, the records of this case is
bereft of any evidence that Intertrade through its Board of Directors, conferred upon Arrieta and Lilia Perez the authority to contract a loan
with Metrobank and execute the promissory note as a security therefor. Neither a board resolution nor a stockholder's resolution was
presented by Metrobank to show that Arrieta and Lilia Perez were empowered by Intertrade to execute the promissory note. 14

The respondents may argue that the actuation of Arrieta and Liliah Perez was in accordance with the ordinary course of business usages and
practices of Intertrade. However, this contention is devoid of merit because the prevailing practice in Intertrade was to explicitly authorize an
officer to contract loans in behalf of the corporation. This is evidenced by the fact that previous to the controversy, the Intertrade Board of
Directors, through a board resolution, jointly empowered and authorized petitioner and respondent Arrieta to negotiate, apply for, and open
credit lines with Metrobank's. 15 The participation of these two was mandated to be joint and not separate and individual.

In the case at bench, only respondent Arrieta, together with a bookkeeper of the corporation, signed the promissory notes, without the
participation and approval of petitioner Aguenza. Moreover, the enabling corporate act on this particular transaction has not been obtained.
Neither has it been shown that any provision of the charter or any other act of the Board of Directors exists to confer power on the Executive
Vice President acting alone and without the concurrence of its President, to execute the disputed document. 16

Thus, proceeding from the premise that the subject loan was not the responsibility of Intertrade, it follows that the undertaking of Arrieta and
the bookkeeper was not an undertaking covered by the Continuing Suretyship Agreement. The rule is that a contract of surety is never
presumed; it must be express and cannot extend to more than what is stipulated, 17 It is strictly construed against the creditor, every doubt
being resolved against enlarging the liability of the surety.

The present obligation incurred in subject contract of loan, as secured by the Arrieta and Perez promissory note, is not the obligation of the
corporation and petitioner Aguenza, but the individual and personal obligation of private respondents Arrieta and Lilia Perez.

WHEREFORE, the petition is GRANTED, and the questioned decision of the Court of Appeals 18 dated February 11, 1986 is REVERSED and SET
ASIDE. The judgment of the trial court dated February 29, 1984 is hereby REINSTATED. No Costs. SO ORDERED.
G.R. No. L-68555 March 19, 1993

PRIME WHITE CEMENT CORPORATION, petitioner,

vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.

De Jesus & Associates for petitioner.

Padlan, Sutton, Mendoza & Associates for private respondent.

CAMPOS, JR., J.:

Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement Corporation seeking the reversal of the decision * of
the then Intermediate Appellate Court, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed in toto. 1

The facts, as found by the trial court and as adopted by the respondent Court are hereby quoted, to wit:

On or about the 16th day of July, 1969, plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo
C. Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to
act as the exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire
Mindanao area for a term of five (5) years and proving (sic) among others that:

a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with
20,000 bags (94 lbs/bag) of white cement per month;

b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement,
FOB Davao and Cagayan de Oro ports;

c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any
bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of the
corporation and that upon certification by the boat captain on the bill of lading that the goods have been
loaded on board the vessel bound for Davao the said bank or banking institution shall release the
corresponding amount as payment of the goods so shipped.

Right after the plaintiff entered into the aforesaid dealership agreement, he placed an advertisement in a national,
circulating newspaper the fact of his being the exclusive dealer of the defendant corporation's white cement products in
Mindanao area, more particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R and R-1) and was even
congratulated by his business associates, so much so, he was asked by some of his businessmen friends and close
associates if they can be his
sub-dealer in the Mindanao area.

Relying heavily on the dealership agreement, plaintiff sometime in the months of September, October, and December,
1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the
Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the
said commodity, by September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was assured
by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant
corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening of the requisite
letter of credit to cover the price of the due initial delivery for the month of September, 1970 (Exhibit B), looking forward
to the defendant corporation's duty to comply with the dealership agreement. In reply to the aforesaid letter of the
plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said defendant
decided to impose the following conditions:

a. Delivery of white cement shall commence at the end of November, 1970;

b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered;

c. The price of white cement was priced at P13.30 per bag;

d. The price of white cement is subject to readjustment unilaterally on the part of the defendant;

e. The place of delivery of white cement shall be Austurias (sic);

f. The letter of credit may be opened only with the Prudential Bank, Makati Branch;

g. Payment of white cement shall be made in advance and which payment shall be used by the
defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the
procurement of materials in the manufacture of white cement. (Exhibit C).

xxx xxx xxx

Several demands to comply with the dealership agreement (Exhibits D, E, G, I, R, L, and N) were made by the plaintiff to
the defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was
constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation
of, and pursuant to the said dealership agreement.

Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting, the
defendant corporation, in violation of, and with evident intention not to be bound by the terms and conditions thereof,
entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao
(Exhibit T) hence, this suit. (Plaintiff's Record on Appeal, pp. 86-90). 2
After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as
moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate court affirmed the said decision mainly on the following
basis, and We quote:

There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement Exhibit "A", they were
the President and Chairman of the Board, respectively, of defendant-appellant corporation. Neither is the genuineness of
the said agreement contested. As a matter of fact, it appears on the face of the contract itself that both officers were duly
authorized to enter into the said agreement and signed the same for and in behalf of the corporation. When they,
therefore, entered into the said transaction they created the impression that they were duly clothed with the authority to
do so. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract
was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. 3

In this petition for review, petitioner Prime White Cement Corporation made the following assignment of errors. 4

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM
THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE
CORPORATION ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.

II

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED
JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION.

III

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE, PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW
CIVIL CODE.

IV

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER.

IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE
DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED
USUAL, COURSE OF JUDICIAL PROCEEDINGS.

There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred by the President and Chairman
of the Board of petitioner corporation is a valid and enforceable contract. We do not agree with the conclusion of the respondent Court that it
is.

Under the Corporation Law, which was then in force at the time this case arose, 5 as well as under the present Corporation Code, all corporate
powers shall be exercised by the Board of Directors, except as otherwise provided by law. 6Although it cannot completely abdicate its power
and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the
absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the
board should ratify the same expressly or impliedly. Implied ratification may take various forms — like silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. 7 Furthermore, even in the
absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the
ordinary course of business, provided the same is reasonable under the circumstances. 8 These rules are basic, but are all general and thus
quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a
person outside the corporation.

The situation is quite different where a director or officer is dealing with his own corporation. In the instant case respondent Te was not an
ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a
"self-dealing" director.

A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. 9 In case his interests conflict
with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It
springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the
stockholders." 10 In the case of Gokongwei v. Securities and Exchange Commission, this Court quoted with favor from Pepper v.
Litton, 11 thus:

. . . He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. . . . He
cannot utilize his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by
doing indirectly through the corporation what he could not do directly. He cannot use his power for his personal advantage
and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter
how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that
it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of
the cestuis. . . . .

On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable
under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. Section 32 of the
Corporation Code provides, thus:

Sec. 32. Dealings of directors, trustees or officers with the corporation. — A contract of the corporation with one or more
of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are
present:
 1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of Directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a
director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That
the contract is fair and reasonable under the circumstances.

Although the old Corporation Law which governs the instant case did not contain a similar provision, yet the cited provision substantially
incorporates well-settled principles in corporate law. 12

Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person other than a
director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the petitioner corporation
changes the whole situation. First of all, We believe that the contract was neither fair nor reasonable. The "dealership agreement" entered
into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting September, 1970,
at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known, or at least must be presumed to know,
that at that time, prices of commodities in general, and white cement in particular, were not stable and were expected to rise. At the time of
the contract, petitioner corporation had not even commenced the manufacture of white cement, the reason why delivery was not to begin
until 14 months later. He must have known that within that period of six years, there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag was P14.50, and by the middle of
1975, it was already P37.50 per bag. Despite this, no provision was made in the "dealership agreement" to allow for an increase in price
mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness on his
part as a director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the
contract is also a basis which renders a contract entered into by the President, without authority from the Board of Directors, void or voidable,
although it may have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of five years was
not fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to resell the cement to his "new dealers" Henry
Wee 13 and Gaudencio Galang 14 stipulated as follows:

The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.00 per bag
(94 lbs).

The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang, on October 13, 1967. A similar contract with
Prudencio Lim was made on December 29, 1969. 15 All of these contracts were entered into soon after his "dealership agreement" with
petitioner corporation, and in each one of them he protected himself from any increase in the market price of white cement. Yet, except for
the contract with Henry Wee, the contracts were for only two years from October, 1970. Why did he not protect the corporation in the same
manner when he entered into the "dealership agreement"? For that matter, why did the President and the Chairman of the Board not do so
either? As director, specially since he was the other party in interest, respondent Te's bounden duty was to act in such manner as not to
unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the
corporation; he was attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the stockholders
ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was therefore not valid and this Court cannot
allow him to reap the fruits of his disloyalty.

As a result of this action which has been proven to be without legal basis, petitioner corporation's reputation and goodwill have been
prejudiced. However, there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title
XVIII of the Civil Code in favor of a corporation.

In view of the foregoing, the Decision and Resolution of the Intermediate Appellate Court dated March 30, 1984 and August 6, 1984,
respectively, are hereby SET ASIDE. Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20,000.00
for attorney's fees, plus the cost of suit and expenses of litigation. SO ORDERED.
G.R. No. L-18287 March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellee,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.

-----------------------------

G.R. No. L-18155 March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellant,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.

Vicente J. Francisco for plaintiff-appellee.

The Government Corporate Counsel for defendant-appellant.

REYES, J.B.L., J.:

Appeal by the Government Service Insurance System from the decision of the Court of First Instance of Rizal (Hon. Angel H. Mojica,
presiding), in its Civil Case No. 2088-P, entitled "Trinidad J. Francisco, plaintiff, vs. Government Service Insurance System, defendant", the
dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered: (a) Declaring null and void the consolidation in the name of the defendant, Government
Service Insurance System, of the title of the VIC-MARI Compound; said title shall be restored to the plaintiff; and all payments
made by the plaintiff, after her offer had been accepted by the defendant, must be credited as amortizations on her loan; and (b)
Ordering the defendant to abide by the terms of the contract created by plaintiff's offer and it's unconditional acceptance, with costs
against the defendant.

The plaintiff, Trinidad J. Francisco, likewise appealed separately (L-18155), because the trial court did not award the P535,000.00 damages
and attorney's fees she claimed. Both appeals are, therefore, jointly treated in this decision.

The following facts are admitted by the parties: On 10 October 1956, the plaintiff, Trinidad J. Francisco, in consideration of a loan in the
amount of P400,000.00, out of which the sum of P336,100.00 was released to her, mortgaged in favor of the defendant, Government Service
Insurance System (hereinafter referred to as the System) a parcel of land containing an area of 18,232 square meters, with twenty-one (21)
bungalows, known as Vic-Mari Compound, located at Baesa, Quezon City, payable within ten (10) years in monthly installments of P3,902.41,
and with interest of 7% per annum compounded monthly.

On 6 January 1959, the System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-mortgagor was in
arrears on her monthly installments in the amount of P52,000.00. Payments made by the plaintiff at the time of foreclosure amounted to
P130,000.00. The System itself was the buyer of the property in the foreclosure sale.

On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter to the general manager of the defendant corporation, Mr.
Rodolfo P. Andal, the material portion of which recited as follows:

Yesterday, I was finally able to collect what the Government owed me and I now propose to pay said amount of P30,000 to
the GSIS if it would agree that after such payment the foreclosure of my daughter's mortgage would be set aside. I am
aware that the amount of P30,000 which I offer to pay will not cover the total arrearage of P52,000 but as regards the
balance, I propose this arrangement: for the GSIS to take over the administration of the mortgaged property and to collect
the monthly installments, amounting to about P5,000, due on the unpaid purchase price of more than 31 lots and houses
therein and the monthly installments collected shall be applied to the payment of Miss Francisco's arrearage until the same
is fully covered. It is requested, however, that from the amount of the monthly installments collected, the sum of P350.00
be deducted for necessary expenses, such as to pay the security guard, the street-caretaker, the Meralco Bill for the street
lights and sundry items.

It will be noted that the collectible income each month from the mortgaged property, which as I said consists of
installments amounting to about P5,000, is more than enough to cover the monthly amortization on Miss Francisco's loan.
Indeed, had she not encountered difficulties, due to unforeseen circumstances, in collecting the said installments, she
could have paid the amortizations as they fell due and there would have been really no need for the GSIS to resort to
foreclosure.

The proposed administration by the GSIS of the mortgaged property will continue even after Miss Francisco's account shall
have been kept up to date. However, once the arrears shall have been paid, whatever amount of the monthly installments
collected in excess of the amortization due on the loan will be turned over to Miss Francisco.

I make the foregoing proposal to show Francisco's sincere desire to work out any fair arrangement for the settlement of
her obligation. I trust that the GSIS, under the broadminded policies of your administration, would give it serious
consideration.

Sincerely,.

s/ Vicente J. Francisco
t/ VICENTE J. FRANCISCO

On the same date, 20 February 1959, Atty. Francisco received the following telegram:.

VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.

GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED PROPERTY OF YOUR DAUGHTER

ANDAL"
On 28 February 1959, Atty. Francisco remitted to the System, through Andal, a check for P30,000.00, with an accompanying letter, which
reads:

I am sending you herewith BPI Check No. B-299484 for Thirty Thousand Pesos (P30,000.00) in accordance with my letter of
February 20th and your reply thereto of the same date, which reads:

GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED PROPERTY OF YOUR DAUGHTER

xxx xxx xxx

The defendant received the amount of P30,000.00, and issued therefor its official receipt No. 1209874, dated 4 March 1959. It did not,
however, take over the administration of the compound. In the meantime, the plaintiff received the monthly payments of some of the
occupants thereat; then on 4 March 1960, she remitted, through her father, the amount of P44,121.29, representing the total monthly
installments that she received from the occupants for the period from March to December 1959 and January to February 1960, minus
expenses and real estate taxes. The defendant also received this amount, and issued the corresponding official receipt.

Remittances, all accompanied by letters, corresponding to the months of March, April, May, and June, 1960 and totalling P24,604.81 were
also sent by the plaintiff to the defendant from time to time, all of which were received and duly receipted for.

Then the System sent three (3) letters, one dated 29 January 1960, which was signed by its assistant general manager, and the other two
letters, dated 19 and 26 February 1960, respectively, which were signed by Andal, asking the plaintiff for a proposal for the payment of her
indebtedness, since according to the System the one-year period for redemption had expired.

In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting against the System's request for proposal of payment and inviting its
attention to the concluded contract generated by his offer of 20 February 1959, and its acceptance by telegram of the same date, the
compliance of the terms of the offer already commenced by the plaintiff, and the misapplication by the System of the remittances she had
made, and requesting the proper corrections.

By letter, dated 31 May 1960, the defendant countered the preceding protest that, by all means, the plaintiff should pay attorney's fees of
P35,644.14, publication expenses, filing fee of P301.00, and surcharge of P23.64 for the foreclosure work done; that the telegram should be
disregarded in view of its failure to express the contents of the board resolution due to the error of its minor employees in couching the
correct wording of the telegram. A copy of the excerpts of the resolution of the Board of Directors (No. 380, February 20, 1959) was attached
to the letter, showing the approval of Francisco's offer —

... subject to the condition that Mr. Vicente J. Francisco shall pay all expenses incurred by the GSIS in the foreclosure of the
mortgage.

Inasmuch as, according to the defendant, the remittances previously made by Atty. Francisco were allegedly not sufficient to pay off her
daughter's arrears, including attorney's fees incurred by the defendant in foreclosing the mortgage, and the one-year period for redemption
has expired, said defendant, on 5 July 1960, consolidated the title to the compound in its name, and gave notice thereof to the plaintiff on 26
July 1960 and to each occupant of the compound.

Hence, the plaintiff instituted the present suit, for specific performance and damages. The defendant answered, pleading that the binding
acceptance of Francisco's offer was the resolution of the Board, and that Andal's telegram, being erroneous, should be disregarded. After trial,
the court below found that the offer of Atty. Francisco, dated 20 February 1959, made on behalf of his daughter, had been unqualifiedly
accepted, and was binding, and rendered judgment as noted at the start of this opinion.

The defendant-appellant corporation assigns six (6) errors allegedly committed by the lower court, all of which, however, are resolvable on
the single issue as to whether or not the telegram generated a contract that is valid and binding upon the parties.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without
prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

We find no reason for altering the conclusion reached by the court below that the offer of compromise made by plaintiff in the letter, Exhibit
"A", had been validly accepted, and was binding on the defendant. The terms of the offer were clear, and over the signature of defendant's
general manager, Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. There was nothing in the
telegram that hinted at any anomaly, or gave ground to suspect its veracity, and the plaintiff, therefore, can not be blamed for relying upon
it. There is no denying that the telegram was within Andal's apparent authority, but the defense is that he did not sign it, but that it was sent
by the Board Secretary in his name and without his knowledge. Assuming this to be true, how was appellee to know it? Corporate
transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its
responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil.
634, 654-655, that —

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to
the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out
of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had
been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits
one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through
such agent, be estopped from denying his authority; and where it is said "if the corporation permits" this means the same as "if the
thing is permitted by the directing power of the corporation."

It has also been decided that —

A very large part of the business of the country is carried on by corporations. It certainly is not the practice of persons dealing with
officers or agents who assume to act for such entities to insist on being shown the resolution of the board of directors authorizing
the particular officer or agent to transact the particular business which he assumes to conduct. A person who knows that the officer
or agent of the corporation habitually transacts certain kinds of business for such corporation under circumstances which necessarily
show knowledge on the part of those charged with the conduct of the corporate business assumes, as he has the right to assume,
that such agent or officer is acting within the scope of his authority. (Curtis Land & Loan Co. vs. Interior Land Co., 137 Wis. 341,
118 N.W. 853, 129 Am. St. Rep. 1068; as cited in 2 Fletcher's Encyclopedia, Priv. Corp. 263, perm. Ed.)
Indeed, it is well-settled that —

If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such
officers or agents. (2 Fletcher's Encyclopedia, Priv. Corp. 255, Perm. Ed.)

Hence, even if it were the board secretary who sent the telegram, the corporation could not evade the binding effect produced by the
telegram..

The defendant-appellant does not disown the telegram, and even asserts that it came from its offices, as may be gleaned from the letter,
dated 31 May 1960, to Atty. Francisco, and signed "R. P. Andal, general manager by Leovigildo Monasterial, legal counsel", wherein these
phrases occur: "the telegram sent ... by this office" and "the telegram we sent your" (emphasis supplied), but it alleges mistake in couching
the correct wording. This alleged mistake cannot be taken seriously, because while the telegram is dated 20 February 1959, the defendant
informed Atty. Francisco of the alleged mistake only on 31 May 1960, and all the while it accepted the various other remittances, starting on
28 February 1959, sent by the plaintiff to it in compliance with her performance of her part of the new contract.

The inequity of permitting the System to deny its acceptance become more patent when account is taken of the fact that in remitting the
payment of P30,000 advanced by her father, plaintiff's letter to Mr. Andal quoted verbatim the telegram of acceptance. This was in itself
notice to the corporation of the terms of the allegedly unauthorized telegram, for as Ballentine says:

Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to
matters within the scope of his authority, is notice to the corporation, whether he communicates such knowledge or not. (Ballentine,
Law on Corporations, section 112.)

since a corporation cannot see, or know, anything except through its officers.

Yet, notwithstanding this notice, the defendant System pocketed the amount, and kept silent about the telegram not being in accordance with
the true facts, as it now alleges. This silence, taken together with the unconditional acceptance of three other subsequent remittances from
plaintiff, constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393).

ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute
an act which necessarily implies an intention to waive his right.

Nowhere else do the circumstances call more insistently for the application of the equitable maxim that between two innocent parties, the one
who made it possible for the wrong to be done should be the one to bear the resulting loss..

The defendant's assertion that the telegram came from it but that it was incorrectly worded renders unnecessary to resolve the other point on
controversy as to whether the said telegram constitutes an actionable document..

Since the terms offered by the plaintiff in the letter of 20 February 1959 (Exhibit "A") provided for the setting aside of the foreclosure effected
by the defendant System, the acceptance of the offer left the account of plaintiff in the same condition as if no foreclosure had taken place. It
follows, as the lower court has correctly held, that the right of the System to collect attorneys' fees equivalent to 10% of the due
(P35,694.14) and the expenses and charges of P3,300.00 may no longer be enforced, since by the express terms of the mortgage contract,
these sums were collectible only "in the event of foreclosure."

The court a quo also called attention to the unconscionability of defendant's charging the attorney's fees, totalling over P35,000.00; and this
point appears well-taken, considering that the foreclosure was merely extra-judicial, and the attorneys' work was limited to requiring the
sheriff to effectuate the foreclosure. However, in view of the parties' agreement to set the same aside, with the consequential elimination of
such incidental charges, the matter of unreasonableness of the counsel fees need not be labored further.

Turning now to the plaintiff's separate appeal (Case G.R. No. L-18155): Her prayer for an award of actual or compensatory damages for
P83,333.33 is predicated on her alleged unrealized profits due to her inability to sell the compound for the price of P750,000.00 offered by
one Vicente Alunan, which sale was allegedly blocked because the System consolidated the title to the property in its name. Plaintiff reckons
the amount of P83,333.33 by placing the actual value of the property at P666,666.67, a figure arrived at by assuming that the System's loan
of P400,000.00 constitutes 60% of the actual value of the security. The court a quo correctly refused to award such actual or compensatory
damages because it could not determine with reasonable certainty the difference between the offered price and the actual value of the
property, for lack of competent evidence. Without proof we cannot assume, or take judicial notice, as suggested by the plaintiff, that the
practice of lending institutions in the country is to give out as loan 60% of the actual value of the collateral. Nor should we lose sight of the
fact that the price offered by Alunan was payable in installments covering five years, so that it may not actually represent true market values.

Nor was there error in the appealed decision in denying moral damages, not only on account of the plaintiff's failure to take the witness stand
and testify to her social humiliation, wounded feelings, anxiety, etc., as the decision holds, but primarily because a breach of contract like that
of defendant, not being malicious or fraudulent, does not warrant the award of moral damages under Article 2220 of the Civil Code (Ventanilla
vs. Centeno, L-14333, 28 Jan. 1961; Fores vs. Miranda, L-12163, 4 March 1959).

There is no basis for awarding exemplary damages either, because this species of damages is only allowed in addition to moral, temperate,
liquidated, or compensatory damages, none of which have been allowed in this case, for reasons herein before discussed (Art. 2234, Civil
Code; Velayo vs. Shell Co. of P.I., L-7817, Res. July 30, 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27, 1953, 49 O.G. No. 2,
515).
As to attorneys' fees, we agree with the trial court's stand that in view of the absence of gross and evident bad faith in defendant's refusal to
satisfy the plaintiff's claim, and there being none of the other grounds enumerated in Article 2208 of the Civil Code, such absence precludes a
recovery. The award of attorneys' fees is essentially discretionary in the trial court, and no abuse of discretion has been shown.

FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the defendant Government Service Insurance
System, in G.R. No.L-18287.
G.R. No. L-53820 June 15, 1992

YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,

vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman,
CONSTANCIO B. MALAGNA, respondents.

DAVIDE, JR., J.:

Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072-R, 1 promulgated on 21
December 1979, reversing the decision 2 of the then Court of First Instance (now Regional Trial Court) of Leyte dated 20 November 1975 in
Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation."

The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Board of private respondent
Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS, which describes
itself as "a business concern of single proprietorship," 3 and is represented by its manager, Mr. Henry Yao; the letter reads as follows:

PRIME WHITE CEMENT CORPORATION

602 Cardinal Life Building
Herran Street, Manila

Yao Ka Sin
Tacloban City

Gentlemen:

We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit:

1). Commodity — Prime White Cement

2). Price — At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag
net, FOB Asturias Cebu.

3). Quality — As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the
Philippines.

4). Quantity — Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed
monthly quantity of Fifteen Thousand (15,000) bags minimum effective from June, 1973 to August
1973.

5). Delivery Schedule — Shipment be made within four (4) days upon receipt of your shipping
instruction.

6). Bag/Container — a) All be made of Standard Kraft (water resistant paper, 4 ply, with bursting
strength of 220 pounds, and b) Breakage allowance — additional four percent (4%) over the quantity of
each shipment.

7). Terms of Payment — Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND
(P243,000.00) payable on the signing of this contract and the balance to be paid upon presentation of
corresponding shipping documents.

It is understood that in the event of a delay in our shipment, you hold the option to discount any price differential resulting
from a lower market price vis-a-vis the contract price. In addition, grant (sic) you the option to extend this contract until
the complete delivery of Forty Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the
option to renew this contract under the same price, terms and conditions.

Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction.
Thank You.

Very truly yours,

PRIME WHITE CEMENT CORPORATION

BY: (SGD) CONSTANCIO B. MAGLANA

President & Chairman

CONFORME:

YAO KA SIN TRADING

BY: (SGD) HENRY YAO

WITNESSES:

(SGD) T. CATINDIG (SGD) ERNESTO LIM

RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO HUNDRED
FORTY THREE THOUSAND ONLY (P243,000.00) in the form of Producers' Bank of the Philippines Check No. C-153576
dated June 7, 1973.

PRIME WHITE CEMENT CORPORATION

BY:
 (SGD) CONSTANCIO B. MAGLANA
President & Chairman 4

This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro Catindig,
Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid Bank). 5

The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a contract that binds the PWCC. The
trial court rule in favor of the petitioner, but the respondent Court held otherwise.

The records disclose the following material operative facts:

In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC
disapproved the same; the rejection is evidenced by the following Minutes (Exhibit "10"):

the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to
by them, but must be understood as a new and separate contract, and has in no way to do with the letter-offer which they
(sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation.

On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". Pursuant, however, to its decision with
respect to the 10,000 bags of cement, it is issued the corresponding Delivery Order (Exhibit "4") and Official Receipt No. 0394 (Exhibit "5")
for the payment of the same in the amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A".

YKS accepted without protest both the Delivery and Official Receipts.

While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown to Mr. Henry Yao; since no one
would sign a receipt for it, the original was left at the latter's office and this fact was duly noted in Exhibit "1" (Exhibit "l-A").

On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or
taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC
reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you
correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6 Unfortunately,
no copy of the said 4 August 1973 letter of YKS was presented in evidence.

On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August 1973. Enclosed in the reply
was a copy of Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied
having received it. Likewise, no copy of the so-called 15 August 1973 letter was presented in evidence.

On 10 September 1973, YKS, through Henry Yao, wrote a letter 9

to PWCC as a follow-up to the letter of 15 August 1973; YKS insisted on the
delivery of 45,030 bags of white cement. 10

On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated 24
August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu. 11

On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the terms of Exhibit "A" and
informing the latter that it is exercising the option therein stipulated.

On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973 telegram, but this was returned to
sender as unclaimed. 13

As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement.

On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation under
Exhibit "A". 14

On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the
unenforceability of Exhibit "A". 15

On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC.
The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No. 5064.

In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged that:
(a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its President and
Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A" be approved by the Board of
Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never consummated
and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under a separate contract
prepared by the Board; (f) the rejection by the Board of Exhibit "A" was made known to YKS through various letters sent to it, copies of which
were attached to the Answer as Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only
10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is solely to blame for the failure
to take complete delivery of 10,000 bags for it did not send its boat or truck to PWCC's plant; and (i) YKS has, therefore, no cause of action.

In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of
P500,000.00 and attorney's fees in the sum of P10,000.00.

On 24 July 1974, YKS filed its Answer to the Counterclaim. 21

Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that according to the By-Laws of
PWCC, the Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in behalf of the
corporation, all contracts or agreements which the corporation enters into," subject to the qualification that "all the president's actuations,
prior to and after he had signed and executed said contracts, shall be given to the board of directors of defendant Corporation." Furthermore,
it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC participation in the
same, and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and
financial involvement of around P10 million therein. 23
During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to make
the offer and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To
enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President,
subject only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the powers of the President
is "to operate and conduct the business of the corporation according to his own judgment and discretion, whenever the same is not expressly
limited by such orders, directives or resolutions." 25 Per standard practice of the corporation, contracts should first pass through the
marketing and intelligence unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over
contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal counsel is to review proposed
contracts before they are submitted to the Board. While the president. may be tasked with the preparation of a contract, it must first pass
through the legal counsel and the comptroller of the corporation. 26

On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, the dispositive portion of
which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

(1) Ordering defendant: to complete the delivery of 45,000 bags of prime white cement at 94 lbs. net
per bag at the price agreed, with a breakage allowance of empty bags at 4% over the quantity agreed;

(2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as exemplary damages;
P3,000.00 as attorney's fees; and the costs of these proceedings.

SO ORDERED. 27

In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws — granting its Board of Directors the power to enter
into an agreement or contract of any kind with any person through the President, — to mean that the latter may enter into such contract or
agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the declared objects
and purpose of the corporation and existing laws." It then concluded:

It is obvious therefore, that it is not the whole membership of the board of directors who actually enters into any contract
with any person in the name and for and in behalf of the corporation, but only its president. It is likewise crystal clear that
this automatic representation of the board by the president is limited only by the "declared objects and purpose of the
corporation and existing provisions of law." 28

It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the
orders, directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not
expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the business of the
corporation according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the
board of directors. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of such judgment and
discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved by the Board of Directors. Finally, in the light of
the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter
into" (Exhibit "I-1"), it concluded that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board
thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation.

The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price; it
was exercised before compliance with the original contract by PWCC; and the repudiation of the original contract by PWCC was deemed a
withdrawal of the option before acceptance by the petitioner.

Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following Assignment
of Errors:

THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE
BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT
AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE.

II

THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY DAMAGES
AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31

while the private respondent cited the following errors:

THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE
PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED
PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE
DEFENDANTS BOARD OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE
DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO
PLAINTIFF.

II

THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE
AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT.

III

THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND
REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000 BAGS
OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM
THOSE WHICH APPEAR IN EXHIBIT "A".
 IV

THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY
CLEAR AND INDUBITABLE EVIDENCE. 32

In its decision 33 promulgated on 21 December 1979, the respondent Court reversed the decision of the trial court, thus:

WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's complaint is dismissed with costs. Plaintiff
is ordered to pay defendant corporation P25,000.00 exemplary damages, and P10,000.00 attorney's fees.

SO ORDERED.

Such conclusion is based on its findings, to wit:

Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised
and principally financed by the National Investment and Development Corporation (NIDC), a subsidiary investment of the
Philippine National Bank (PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial
institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is very material to the issue of
whether defendant corporations president can bind the corporation with his own act.

Second, for failure to deny under oath the following actionable documents in support of defendant's counterclaim:

1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of
white cement delivered to plaintiff was not by reason of the letter contract, Exhibit "A", which was
totally disapproved by defendant corporation's board of directors, clearly stating that "If within ten (10)
days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from
our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers
Bank of the Philippines, per instruction of the Board." (Annex "I" to defendant's Answer).

2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only committed to you and
which you accordingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to
you as of August 1, 1973" (Annex "2" of defendant's Answer).

3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3"
to defendant's Answer).

4. Letter to stores dated August 21, 1973,

5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at P24.30 per
bag (Annex "5", to defendant's Answer).

plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8 Sec. 8,
Rules of Court) but also the allegations therein (Rule 9, Sec. 1, Rules of Court). All of the foregoing documents tend to
prove that the letter-offer, Exhibit "A", was rejected by defendant corporation's Board of Directors and plaintiff was duly
notified thereof and that the P243,000.00 check was considered by both parties as payment of the 10,000 bags of cement
under a separate transaction. As proof of which plaintiff did not complain nor protest until February 9, 1974, when he
threatened legal action.

Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was
subject to the approval of the board of directors of defendant corporation. We find consistency herein because according to
the Corporation Law, and the By-Laws of defendant corporation, all corporate commitments and business are conducted
by, and contracts entered into through, the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or
"8").

Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is
concerned, was an unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized
by the Board of Directors of defendant corporation nor was his, actuation ratified by the Board, the agreement is
unenforceable (Art. 1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of Manila, 43
O-G. 3224).

While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the
By-Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without
first securing the authority and consent of the Board of Directors. Whatever authority Maglana may have must be derived
from the Board of Directors of defendant corporation. A corporate officers power as an agent must be sought from the law,
the articles of incorporation and the By-Laws or from a resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board
of Liquidators vs. Kalaw, 20 SCRA 987).

It clearly results from the foregoing that the judgment appealed from is untenable. Having no cause of action against
defendant corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards
in its favor. . . . 34

Its motion for reconsideration having been denied by the respondent Court in its resolution 35 dated 15 April 1980, petitioner filed the instant
petition based on the following grounds:

1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B.
Maglana in behalf of the respondent corporation binds the said corporation.

2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract.

3. That the option to renew the contract as contained in Exhibit "A" is enforceable.

4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the
instrument but not to one who is not a party to the instrument and Sec. 1, Rule 9 of the said Rules with regards (sic) to
 denying under oath refers only to allegations of
usury. 36

We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to submit simultaneously their
Memoranda, which the parties subsequently complied with. 39

Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither
pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. It also eluded the attention of the trial
court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In
the caption of both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is:

YAO KA SIN TRADING,

owned and operated by
YAO KA SIN. 40

and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin." 41 In the body of the
petition, it is described as "a single proprietorship business concern." 42 It also appears that, as gathered from the decision of the trial court,
no Yao Ka Sin testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it
was in representation of the plaintiff" that he signed Exhibit "A" 43 Under Section 1, Rule 3 of the Rules of Court, only natural or juridical
persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, 44 this Court held that a single
proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring
suit in court:

The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by
a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business
name, and pair taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship
nor empower it to file or defend an action in court. 45

Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46

The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. However, it is now too
late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court
on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this issue before the respondent
Court and this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to cure such defect is
expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be
summarily corrected at any stage of the action provided no prejudice is caused thereby to the adverse party;" and that "[a] sole
proprietorship does not, of coarse, possess any juridical personality separate and apart from the personality of the owner of the enterprise
and the personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin should be deemed as
the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court stated nearly eighty (80) years ago in Alonso vs.
Villamor: 48

No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case
back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense,
the same interests, the same witnesses, and the same evidence. The name of the plaintiff would constitute the only
difference between the old trial and the new. In our judgment there is not enough in a name to justify such action.

And now to the merits of the petition.

The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and Chairman,
was not empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because the Maglana has the power to
enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent:

a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any kind with any person in the
name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of
the corporation and the existing provisions of law. (Exhibit "8-A"); and

b) The power of the Chairman of the Board of Directors to "execute and sign, for and in behalf of the corporation, all
contracts or agreements which the corporation may enter into" (Exhibit "I-1").

And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the private respondent, pursuant
to the doctrine laid down by this Court in Francisco vs. Government Service Insurance
System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for clothing him with apparent authority.

We are not persuaded.

Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter,
by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer
or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or
members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private
persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such
powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has
caused persons dealing with the officer or agent to believe that it has conferred. 52

While there can be no question that Mr. Maglana was an officer — the President and Chairman — of private respondent corporation at the
time he signed Exhibit "A", the above provisions of said private respondent's By-Laws do not in any way confer upon the President the
authority to enter into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the latter.
Nevertheless, to expedite or facilitate the execution of the contract, only the President — and not all the members of the Board, or so much
thereof as are required for the act — shall sign it for the corporation. This is the import of the words through the president in Exhibit "8-A"
and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which
the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised through the Board of
Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any
power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman of the corporation.
Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be
presumed that he has authority to make contract and do acts within the course of its ordinary business," 53 We find such inapplicable in this
case. We note that the private corporation has a general manager who, under its By-Laws has, inter alia, the following powers: "(a) to have
the active and direct management of the business and operation of the corporation, conducting the same accordingly to the order, directives
or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active and
in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in
the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties.

Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power
to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that
"[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound
thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise
a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time." 54 Also, "if
a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will
be estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with such officers or
agents." 55 This "apparent authority may result from (1) the general manner, by which the corporation holds out an officer or agent as having
power to act or, in other words, the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56

It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to
execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor
of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no
contract can be signed by the president without first being approved by the Board of Directors; such approval may only be given after the
contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel.

The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court
found sufficient evidence, based on the conduct and actuations of the corporations concerned, of apparent authority conferred upon the
officer involved which bound the corporations on the basis of ratification. In the first case, it was established that the offer of compromise
made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the signature of
defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. It was sent by the
GSIS Board Secretary and defendant did not disown the same. Moreover, in a letter remitting the payment of P30,000 advanced by her
father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly
unauthorized telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court then ruled
that:

This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff,
constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393).

Art. 1393. Ratification may be effected expressly or tactly it is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act which necessarily implies an
intention to waive his right

In the second case, this Court found:

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its
acts and through acquiescence, practically laid aside the by-laws requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows:

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a
right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it,
has been execrated, before it is revoked by the other contracting party.

The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract binding
upon the private respondent. It was effectively disapproved and rejected by the Board of Directors which, at the same time, considered the
amount of P243,000.00 received Mr. Maglana as payment for 10,000 bags of white cement, treated as an entirely different contract, and
forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw
cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of
the Philippines, per instruction of the Board." 57Petitioner received the copy of this notification and thereafter accepted without any protest
the Delivery Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that
petitioner had in fact agreed to a new transaction involving only 10,000 bags of white cement.

The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot
rise higher than its source. In any event, the option granted in. this case is without any consideration Article 1324 of the Civil Code expressly
provides that:

When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something
paid or promised.

while Article 1749 of the same Code provides:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
Accordingly, even if it were accepted, it can not validly bind the private respondent. 58

The fourth ground is, however, meritorious.

Section 8, Rule 8 of the Rules of Court provides:

Sec. 8. How to contest genuineness of such documents — When an action or defense is founded upon a written
instrument, copied in or attached in the corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear, to
be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.

It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, the above quoted rule
is not applicable. 59 While the respondent Court, erred in holding otherwise, the challenged decision must, nevertheless, stand in view of the
above disquisitions on the first to the third grounds of the petition.

WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A. G.R. No. 61072-R promulgated on
21 December 1979. Cost against the petitioner.
G.R. No. 123892 May 21, 2001

JASMIN SOLER, petitioner,

vs.
COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and NIDA LOPEZ, respondents.

PARDO, J.:

Appeal via certiorari from a decision of the Court of Appeals,1 declaring that there was no perfected contract between petitioner Jazmin Soler
and The Commercial Bank of Manila (COMBANK FOR BREVITY, formerly Boston Bank of the Philippines) for the renovation of its Ermita
Branch, thereby denying her claim for payment of professional fees for services rendered.

The antecedent facts are as follows:

Petitioner Jazmin Soler is a Fine Arts graduate of the University of Sto. Tomas, Manila. She is a well known licensed professional interior
designer. In November 1986, her friend Rosario Pardo asked her to talk to Nida Lopez, who was manager of the COMBANK Ermita Branch for
they were planning to renovate the branch offices.2

Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the latter's sister. During their meeting,
petitioner was hesitant to accept the job because of her many out of town commitments, and also considering that Ms. Lopez was asking that
the designs be submitted by December 1986, which was such a short notice. Ms. Lopez insisted, however, because she really wanted
petitioner to do the design for renovation. Petitioner acceded to the request. Ms. Lopez assured her that she would be compensated for her
services. Petitioner even told Ms. Lopez that her professional fee was ten thousand pesos (P10,000.00), to which Ms. Lopez acceded.3

During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to what was to be renovated, which
included a provision for a conference room, a change in the carpeting and wall paper, provisions for bookshelves, a clerical area in the second
floor, dressing up the kitchen, change of the ceiling and renovation of the tellers booth. Ms. Lopez again assured petitioner that the bank
would pay her fees.4

After a few days, petitioner requested for the blueprint of the building so that the proper design, plans and specifications could be given to
Ms. Lopez in time for the board meeting in December 1986. Petitioner then asked her draftsman Jackie Barcelon to go to the jobsite to make
the proper measurements using the blue print. Petitioner also did her research on the designs and individual drawings of what the bank
wanted. Petitioner hired Engineer Ortanez to make the electrical layout, architects Frison Cruz and De Mesa to do the drafting. For the
services rendered by these individuals, petitioner paid the engineer P4,000.00, architects Cruz and de Mesa P5,000.00 and architect Barcelon
P6,000.00. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their quotation. So come December 1986, the lay
out and the design were submitted to Ms. Lopez. She even told petitioner that she liked the designs.5

Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the demands. In February 1987, by
chance petitioner and Ms. Lopez saw each other in a concert at the Cultural Center of the Philippines. Petitioner inquired about the payment
for her services, Ms. Lopez curtly replied that she was not entitled to it because her designs did not conform to the bank's policy of having a
standard design, and that there was no agreement between her and the bank.6

To settle the controversy, petitioner referred the matter to her lawyers, who wrote Ms. Lopez on May 20, 1987, demanding payment for her
professional fees in the amount of P10,000.00 which Ms. Lopez ignored. Hence, on June 18, 1987, the lawyers wrote Ms. Lopez once again
demanding the return of the blueprint copies petitioner submitted which Ms. Lopez refused to return.7

On October 13, 1987, petitioner filed at the Regional Trial Court of Pasig, Branch 153 a complaint against COMBANK and Ms. Lopez for
collection of professional fees and damages.8

In its answer, COMBANK stated that there was no contract between COMBANK and petitioner;9 that Ms. Lopez merely invited petitioner to
participate in a bid for the renovation of the COMBANK Ermita Branch; that any proposal was still subject to the approval of the COMBANK's
head office.10

After due trial, on November 19, 1990, the trial court rendered a decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants
jointly and severally, to pay plaintiff the following, to wit:

"1. P15,000.00 representing the actual and compensatory damages or at least a reasonable compensation for the services rendered
based on a quantum meruit;

"2. P5,000.00 as attorney's fees, and P2,000.00 as litigation expenses;

"3. P5,000.00 as exemplary damages; and

"4. The cost of suit.

"SO ORDERED."11

On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed their notice of appeal.12 On December 5, 1990, the trial court ordered13 the
records of the case elevated to the Court of Appeals.14

In the appeal, COMBANK reiterated that there was no contract between petitioner, Nida Lopez and the bank. 15Whereas, petitioner maintained
that there was a perfected contract between her and the bank which was facilitated through Nida Lopez. According to petitioner there was an
offer and an acceptance of the service she rendered to the bank.16

On October 26, 1995, the Court of Appeals rendered its decision the relevant portions of which state:

"After going over the record of this case, including the transcribed notes taken during the course of the trial, We are convinced that
the question here is not really whether the alleged contract purportedly entered into between the plaintiff and defendant Lopez is
enforceable, but whether a contract even exists between the parties.

"Article 1318 of the Civil Code provides that there is no contract unless the following requisites concur:
 "(1) consent of the contracting parties;

"(2) object certain which is the subject matter of the contract;

"(3) cause of the obligation which is established.

xxx

"The defendant bank never gave its imprimatur or consent to the contract considering that the bidding or the question of renovating
the ceiling of the branch office of defendant bank was deferred because the commercial bank is for sale. It is under privatization.
xxx

"At any rate, we find that the appellee failed to prove the allegations in her complaint. xxx

"WHEREFORE, premises considered, the appealed decision (dated November 19, 1990) of the Regional Trial Court (Branch 153) in
Pasig (now 55238, is hereby REVERSED. No pronouncement as to costs.

"SO ORDERED."17

Hence, this petition.18

Petitioner forwards the argument that:

1. The Court of Appeals erred in ruling that there was no contract between petitioner and respondents, in the absence of the
element of consent;

2. The Court of Appeals erred in ruling that respondents merely invited petitioner to present her proposal;

3. The Court of Appeals erred in ruling that petitioner knew that her proposal was still subject to bidding and approval of the board
of directors of the bank;

4. The Court of Appeals erred in reversing the decision of the trial court.

We find the petition meritorious.

We see that the issues raised boil down to whether or not there was a perfected contract between petitioner Jazmin Soler and respondents
COMBANK and Nida Lopez, and whether or not Nida Lopez, the manager of the bank branch, had authority to bind the bank in the
transaction.

The discussions between petitioner and Ms. Lopez was to the effect that she had authority to engage the services of petitioner. During their
meeting, she even gave petitioner specifications as to what was to be renovated in the branch premises and when petitioners requested for
the blueprints of the building, Ms. Lopez supplied the same.

Ms. Lopez was aware that petitioner hired the services of people to help her come up with the designs for the December, 1986 board meeting
of the bank. Ms. Lopez even insisted that the designs be rushed in time for presentation to the bank. With all these discussion and
transactions, it was apparent to petitioner that Ms. Lopez indeed had authority to engage the services of petitioner.1âwphi1.nêt

The next issue is whether there was a perfected contract between petitioner and the Bank.

"A contract is a meeting of the minds between two persons whereby one binds himself to give something or to render some service to bind
himself to give something to render some service to another for consideration. There is no contract unless the following requisites concur: 1.
Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; and 3. Cause of the obligation which is
established.19

"A contract undergoes three stages:

"(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement
of the parties;

"(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

"(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract."20

In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November 1986, and discussed the details of
the work, the first stage of the contract commenced. When they agreed to the payment of the ten thousand pesos (P10,000.00) as
professional fees of petitioner and that she should give the designs before the December 1986 board meeting of the bank, the second stage
of the contract proceeded, and when finally petitioner gave the designs to Ms. Lopez, the contract was consummated.

Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms. Lopez assured petitioner that she would
be paid.

It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has
in good faith dealt with it through such agent, be estopped from denying the agent's authority. 21

Also, petitioner may be paid on the basis of quantum meruit. "It is essential for the proper operation of the principle that there is an
acceptance of the benefits by one sought to be charged for the services rendered under circumstances as reasonably to notify him that the
lawyer performing the task was expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent undue
enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it." 22
We note that the designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of the bank as branch manager used
such designs for presentation to the board of the bank. Thus, the designs were in fact useful to Ms. Lopez for she did not appear to the board
without any designs at the time of the deadline set by the board.

IN VIEW WHEREOF, the decision appealed from is REVERSED and SET ASIDE. The decision of the trial court23 is REVIVED,
REINSTATED and AFFIRMED. No costs. SO ORDERED.
G.R. No. 115849 January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

DECISION

PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the
buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent
authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank)
repudiate such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for specific performance,
does the filing of a "derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or
implementation of the sale violate the ban against forum-shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the
Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals 1 in CA-G.R CV No. 35756 and the
Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6
of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant
bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to
the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa,
Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-
106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed
price of Five and One Half Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of
P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to
immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration
of the same deed and transfer of the six (6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P200,000.00
each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages ;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a
Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred
this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court
assigned the case to the undersigned ponente for the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution
organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal
age and was, at all times material to this case, Head-Manager of the Property Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio
Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition.

The Facts

The facts of this case are summarized in the respondent Court's Decision3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total
area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-
106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the
bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and
thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met with
defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held
pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the
advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa,
Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREA

T-106932 113,580 sq. m.
T-106933 70,899 sq. m.
T-106934 52,246 sq. m.
T-106935 96,768 sq. m.
T-106936 187,114 sq. m.
T-106937 481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh.
"C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doña Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme Industrial
Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to amend
my previous offer and I now propose to buy the said lot at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987
between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer,
attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following
letter (Exh. "E"):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

 Re: 101 Hectares of Land
in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to
purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE
HUNDRED THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since
1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant
Rivera wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa, Laguna is under study
yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as
a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its
decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of
P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the payment and the letter. Instead,
the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exh, "H" and "H-1").
Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement." Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna,
and which are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5
million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated
follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same
lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed amount of P5.5 million at
your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of
December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our Conservator for proper disposition"
However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment
(Exh. "L" and "L-1"), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs' letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION

Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5 million
as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937
and registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots.
Please inform us of the date of documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final
demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit "N"). As recounted
by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of defendant's answer to amended
complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that
his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-compliance with the obligations under what the plaintiffs considered to
be a perfected contract of sale.
 (10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivers and Acting
Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale,
The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the
property, and that there was no meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to
intervene in the trial court, alleging that as owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in
resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on the ground that it was
filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's
decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed
with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the
assignment of the latters' rights in the matter in litigation to said private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank,
through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case") — purportedly a "derivative suit"
— with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to
declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale" 4 In his answer,
Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-
trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.

In their Petition6 and Memorandum7, petitioners summarized their position as follows:

I.

The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and
Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous
management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:

I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be
questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by; respondent
Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the
contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said
contract?

5) Did the respondent Court commit any reversible error in its findings of facts?
 The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that
a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues
in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple
petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the
pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the
instant petition pending before this Court involves "identical parties or interests represented, rights asserted and reliefs sought (as that)
currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so
interwined that a judgement or resolution in either case will constitute res judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the "Second
Case" (assuming the Bank is the real party in interest in a derivative suit), it was plaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the
action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide";

4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law.12, where non-resident litigants are given the option to
choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the
principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it
is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried in a particular court or
jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence, according to Words and Phrases14, "a litigant is
open to the charge of "forum shopping" whenever he chooses a forum with slight connection to factual circumstances surrounding his suit,
and litigants should be encouraged to attempt to settle their differences without imposing undue expenses and vexatious situations on the
courts".

In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in
conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to
commence personal actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of
pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a
vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each remedy being available independently of the others
— although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action, This was the
original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their
lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted
to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of
justice. It had created extreme inconvenience to some of the parties to the action.

Thus, "forum shopping" had acquired a different concept — which is unethical professional legal practice. And this necessitated or
had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused
and mis-used to assure scheming litigants of dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And
even before that, the Court had prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a
reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by
appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with
litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative
processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case,
where the court in which the second suit was brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19,
also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis pendentia are present or where a final judgment
in one case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such parties as
represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on
the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will,
regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine,
of auter action pendant.
 xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or interests
represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal
known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned.
The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts
to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July
15, 1986, which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions
for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one
case is bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either
case, forum shopping could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints or
petitions, and for imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against
the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties
or interests represented, identity of rights or causes and identity of reliefs sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private
respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint 21 in the Second Case seeks to declare such purported sale involving the same real property "as unenforceable as
against the Bank", which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the
Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief
being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property
to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different
actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein — PNOC in the
case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs. Petitioner asks
this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve the
Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the complaint before the lower court
petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T Andres Bonifacio",
and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One can see
that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same,
that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive of the COA of October 10, 1988
disapproving the sale. (emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court despite the
pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably involve the
same transactions, the same essential facts and circumstances. The petitioners' claim of absence of identity simply because the
PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is
specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of September 1,
1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee
banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the
same: the prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained
took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus
oficio. It remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises was plain and patent: the
filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the
acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum
based on essentially the same facts, The adoption of this latter recourse renders the petitioners amenable to disciplinary action and
both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case
(Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not
principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". In the caption itself,
petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of a
derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holdsstock in order to
protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real
party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the
Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own,
hold or control over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That
being so, then they really represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of
interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from its shareholders. But
the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that
the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly
where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and
applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to
circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity of parties, causes of
action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff —
instead of filing a responsive pleading in the other case — setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means
negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as
underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did
not make any denial or raise any defense or counter-claim therein In the case before us however, petitioners filed a responsive pleading to
the complaint — as a result of which, the issues were joined.

Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive pleadings, the petitioners became plaintiffs
themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case.

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and
parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the
same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon
the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract
of sale will directly conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said sale.
Indeed, a final decision in one would constitute res judicata in the other 28.

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the dismissal of both
cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the
proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second
Case to show good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments of due
process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and
particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes They are warned that a repetition of the same will be dealt with more severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the
substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of
sale as the ultimate issue. Holding that a valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of
six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond
cavil that the bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was
looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this
purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early
August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is
clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their
appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-
office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise
acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide the Committee with necessary information about the property such as
original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the
property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which
the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and
it is the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the
right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to
entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss
information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the officer from whom
official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera
confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point
(TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to
sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he was saying
that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the
committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two
week's (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the
committee and he would relay the decision of the committee to me.

Q — Please answer the question.

A — He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would
relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one
of the members.
 What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank's
internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter
dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio
Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of
intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator
and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of
August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis,"
such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure,
total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded
in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the
Committee and that price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose
Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these declarations, the
bank's submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due Committee of the bank,
claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit
that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early
August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in
charge of the negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to
plaintiffs. From the facts, the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept
offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later
say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine
of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of
an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against
any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v.
GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No.
103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established."

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with
an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is,
however, a dispute on the first and third requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is
unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to
accept." 30 They disputed the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which
the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a
petition under Rule 45 such as this, errors of fact — if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a
reversible error. In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and
meticulously discussed their findings. This is basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Rivera's authority to act
and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are
questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of
consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special
reference to banks, was laid out in Prudential Bank vs. Court of Appeals31, where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's
apparent representation yields to the principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers
in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p. 417). A bank holding out
its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds
even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability
depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict
care in the selection and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the
matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission, Rivera was already the person in charge of the Bank's acquired assets
(TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the
buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25 million (TSN,
July 30, 1990, p. 12);
 (f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p.
18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the Bank's offer of P5.5
million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank,
confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April
26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to
parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's
advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court, through Justice Jose A. R. Melo, affirmed the
doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out
by similar circumstances surrounding his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek to establish
Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera's self-serving testimony and
various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with
knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the
evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33.

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for the Bank in three
criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had
already made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown
that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely
associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said
criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17, 1987 extinguished the
Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J"
(letter dated September 17, 1987)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting
with Beaumont vs. Prieto 37.

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which
reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5
million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note
that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting "was
meant to have the offerors improve on their position of P5.5. million."38However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private respondents' evidence is more
in keeping with truth and logic — that during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price
has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)"39. Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million
price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting
this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's counter-offer
of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such
delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer
made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human
experience, truth and good faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on appeal and should thus
be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not
adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as
they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592). 40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below
cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process
(Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157
SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to
controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to
avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as
appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42:

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it
was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby
would be unenforceable by action — there being no note, memorandum or writing subscribed by the Bank to evidence such contract.
(Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on September
30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale
was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations
omitted). Stated simply, the banks' letter of September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987,
constitute in law a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from Janolo's
August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda — since they include the names of the
parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new" offer which was
accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral
testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners — by such utter failure to object — are deemed to have
waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is a plenty —
and the silence of petitioners all throughout the presentation makes the evidence binding on them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him we were
able to meet Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they
intends (sic) to have, sir.

Q What do you mean?.

A That is the amount they want, sir.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's counter-offer of 5.5 million
was the defendant's bank (sic) final offer?

A He said in a day or two, he will make final acceptance, sir.

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and
he said that was already passed upon by the committee. What the bank expects which was contrary to what Mr. Rivera stated. And
he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible.

Q What was your response to the answer of Mr. Luis Co?

A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio
[Rivera] was with us at the time at his office.

Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank Building during this
meeting?

A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q By Mr. Co you are referring to?

A Mr. Luis Co.

Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is
P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

 Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within his power to
reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by the Committee?

A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and
Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke
or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as
the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds
that a bank or a non-bank financial intermediary performing quasi-banking functions is in a state of continuing inability or
unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator to take charge of the assets, liabilities, and the management of that institution, collect all monies
and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the
management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any
provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale was raised for the first
time in this Petition — as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to the
basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or
overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to
Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the
sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated — not the contract — but the authority of Rivera
to make a binding offer — and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is
reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located
at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a "contract to sell and buy"
with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I.
Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff
and officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority,
power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of the Central
Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the
corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January,
1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary
discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and
banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law. We also
have no personal interest in any of the properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION
Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed
out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and
(the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution 44. If the legislature itself cannot revoke an
existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be
defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors.
What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be
only to bring court actions to assail such contracts — as he has already done so in the instant case. A contrary understanding of the law would
simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become
solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third
parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not
reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45, we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of
Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules
of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising
the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R. No. L-27488, June 30,
1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might
have been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20,
1984, 127 SCRA 596). "Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs.
Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46, we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence and the
credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such
evidence all over again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the
lower court. The Supreme Court is not a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp. 47:

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive
and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts
is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made
is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the
judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above
grounds present to justify the re-evaluation of the findings of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company Inc. vs. Hon. Court of Appeals, et
al. 48 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of this Court to assess
and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here,
the findings of both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were not only contrary to the
evidence on record but have no bases at all," specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator Romey, after Rivera presented the same for discussion" and (2) "the
meeting with Co was not to scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5 million"
Hence, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual findings.

The first point was clearly passed upon by the Court of Appeals 50, thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's
counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such counter-offer price had been determined by the Past
Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee . .
. Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and
definitive price at which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987 between the
plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank
official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered
(TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible" and "at best equivocal
and considering the gratuitous and self-serving character of these declarations, the bank's submissions on this point do not inspire belief."

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, as he
would have been in the best position to establish their thesis. Under the rules on evidence 51, such suppression gives rise to the presumption
that his testimony would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by both the trial court and the
respondent Court, and instead, it was respondent's submissions that were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the
petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals 52. We have studied
both the records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are
supported by a preponderance of competent and credible evidence. The inferences and conclusions are seasonably based on evidence duly
identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and
dependability to its findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court did
not correspond to petitioners' claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is
no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common
agreement thereon. Indeed, conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are conclusive upon this Court,
absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better position to observe the
demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on appeal [viz., the
extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts entered into by the Bank's officers] —
which per se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues
— the perfection of the contract of sale and its enforceability, which required the determination of questions of fact. While the Supreme Court
is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did
so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth,
magnitude and vigor by which the parties through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and
"there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people depend on (it) for investments, deposits and well
as employment. As of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other)
offers to buy the subject properties for a substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes to overriding
considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against
forum-shopping, which must be upheld under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject properties may currently command a much higher
price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the
Bank acquired these properties at a foreclosure sale for no more than P3.5 million 54. That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding obligation and to reap the
benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in
price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot
stamp its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The assailed
Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same
or similar acts will be dealt with more severely. Costs against petitioners. SO ORDERED.
G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the
nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine
Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February
4, 1981, and a Detached Assignment 4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition
for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI
to petitioner Traders Royal Bank (TRB).

In the said petition, TRB stated that:

3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . .,
whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED
THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended
to complete the assignment through the registration of the transfer in the name of PhilFinance, which authorization is
specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said
bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in
consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered
to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those
previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial No. D891
(Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE &
11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in
favor of petitioner were dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to
have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance
transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby
"irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal
agent." . . .

9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments (Annexes
"B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of
the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof;

10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding
petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto
attached as Annex "E" and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for
registration, to wit:

"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered)
by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate
shall be issued to the transferee of the registered holder thereof."

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing
executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision;

12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership
over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines' Motion for
Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance
Corporation (Filriters), the registered owner of the subject CBCI as respondent.

For its part, Filriters interjected as Special Defenses the following:

11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company
under the Insurance Code;
 13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the
prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria,
then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of
directors of Filriters, and without any clearance or authorization from the Insurance Commissioner, executed a detached
assignment purportedly assigning CBCI No. 891 to Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-Treasury of Filriters
(both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters
and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its policies,
executed similar detached assignment forms transferring the CBCI to plaintiff;

xxx xxx xxx

15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and
consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB
Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and
such null and void;

a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning
(Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of directors of Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code
for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal
act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;

d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and against
public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in
fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a
registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute
owner and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to
plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are
payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction made
in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and its
assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from the
Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or substantially all" of the
assets of Filriters, which requires the affirmative action of the stockholders (Section 40, Corporation [sic] Code. 7

In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI No. D891 in favor of
Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and
effect. The dispositive portion of the decision reads:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and
against the plaintiff Traders Royal Bank:

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI by
PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the
proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of P10,000 as
attorney's fees; and

(d) to pay the costs.

SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals 10
, but their appeals likewise failed. The findings of the fact of the
said court are hereby reproduced:

The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated
November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance).
Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant
Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting
Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note
on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the
title to CBCI No. D891.

Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the
Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial
Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when CB prayed
in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the
ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11

In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties and from any defense
available to prior parties among themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all
parties liable thereon. 12

In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred by negotiation.

Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without consideration, and did not
conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness", which provided that any "assignment of registered certificates shall not be valid unless made . . . by the registered owner
thereof in person or by his representative duly authorized in writing."

Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having acquired the certificate
through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its
financing operations.

Said the Court:

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not
have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular No. 769
which has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank
and which the latter can register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.

SO ORDERED. 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations have identical
corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of
the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters.
Thus, there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of
consideration.

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable
instruments law (Act 2031).

The pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND PESOS.

xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement
revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as acknowledgment of an
obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:

As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered owner
hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is inscribed thereon. It
lacks the words of negotiability which should have served as an expression of consent that the instrument may be
transferred by negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else,
thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for
money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is
the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is
totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time.

As held in Caltex (Philippines), Inc. v. Court of Appeals, :

16

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is,
from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can
be legally ascertained. While the writing may be read in the light of surrounding circumstance in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court
in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties meant must be determined by what they
said.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments
law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?

The following are the appellate court's pronouncements on the matter:

Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the
instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value received",
there was really no consideration involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters,
a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. 769,
series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness",
under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that
any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or
by his representative duly authorized in writing.

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not
have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769
which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank
and which the latter can register with the Central Bank

Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance, though separate
corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused
registration by the Central Bank.

Says the petitioner;

Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the principle of
piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI
purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the
latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without
its authority.

xxx xxx xxx

We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by
Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be
consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals
should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be
construed as payment to Filriters. 17

We disagree with Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in
cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a
mere alter ego or business conduit of a person. 18

Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or
crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons
dealing with the corporate entity which the law aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than
the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else
which could lead the court under circumstance to disregard their corporate personalities.

Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel &
Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of
indebtedness from Philfinance.

On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on notice, and
prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing
to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:

TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or
any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof
shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof, in
person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer
fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The bank or
any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is
registered as herein authorized, the person in whose name the same is registered as the absolute owner of this Certificate,
for the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate
shall be overdue.

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an
authorization from Filriters.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI
owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations Governing Central Bank
Certificates of Indebtedness, Section 3, Article V of which provides that:

Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be valid unless made at the
office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this
purpose, the transferee may be designated as the representative of the registered owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with
corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation
liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith. 23

The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is considered part of the
law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for
and in favor of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is,
the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal
to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi
quod de jure potest — no man can do anything except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by law 24 to be
maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given
before the court on May 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value
of P5000,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime
in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.

Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before
1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve
of the company.

Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of
the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in government securities or government
binds. This is how this CBCI came to be purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the anauthorized use or distribution
of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the
maintenance of the required reserve fund.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED. SO ORDERED.
G.R. No. 71694 August 16, 1991

NYCO SALES CORPORATION, petitioner,

vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR. II, INTERMEDIATE APPELLATE COURT,
FIRST CIVIL CASES DIVISION, respondents.

ABC Law Offices for petitioner.

Valera, Urmeneta & Associates for private respondent.

PARAS, J.:p

In this petition for review on certiorari, petitioner challenges the April 22, 1985 decision * and the July 16, 1985 resolution * of the then
Intermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance Corporation v. Nyco Sales Corporation, et al." which affirmed with
modification the July 20, 1983 decision ** of the Regional Trial Court, National Capital Region, Manila, Branch II in the same case docketed
as Civil Case No. 125909 ordering petitioner to pay respondent the amount of P60,000.00 as principal obligation plus corresponding interest,
the sum of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.

It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose president and general manager is Rufino
Yao, is engaged in the business of selling construction materials with principal office in Davao City. Sometime in 1978, the brothers Santiago
and Renato Fernandez (hereinafter referred to as the Fernandezes), both acting in behalf of Sanshell Corporation, approached Rufino Yao for
credit accommodation. They requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance Corporation
(hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or about November 15, 1978, the Fernandezes went to Yao for
the purpose of discounting Sanshell's post-dated check which was a BPI-Davao Branch Check No. 499648 dated February 17, 1979 for the
amount of P60,000.00. The said check was payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao, endorsed the
check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Sanshell then
made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco in favor of BA
Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao, while Sanshell was represented by the Fernandez brothers.
Under the said Deed, the subject of the discounting was the aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of
assignment was the Continuing Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful
and prompt payment and discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check, however, was dishonored by the
drawee bank upon presentment for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,1979 for the same amount in favor of BA Finance. It was a Security Bank and Trust Company check
bearing the number 183157, which was again dishonored when it was presented for payment. Despite repeated demands, Nyco and the
Fernandezes failed to settle the obligation with BA Finance, thus prompting the latter to institute an action in court (Ibid., p 28). Nyco and the
Fernandezes, despite having been served with summons and copies of the complaint, failed to file their answer and were consequently
declared in default. On May 16, 1980, the lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the
sum of P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's fees in the amount of P3, 000. 00 as well as the costs of
suit (Rollo, pp. 51-52). Nyco, however, moved to set aside the order of default, to have its answer admitted and to be able to implead
Sanshell. The prayer was granted through an order dated June 23, 1980, wherein the decision of the court was set aside only as regards
Nyco. Trial ensued once more until the court reached a second decision which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco Sales Corporation by
ordering the latter to pay the former the following:

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from February 1, 1979 until fully
paid;

2) The amount of P100,000.00 as and for attorney's fees; and

3) One-third (1/3) of the costs of this suit.

With respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands.

The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez and Renato B.
Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-claim dated May 29, 1980 was ever
received by said Fernandez brothers, even as it is noted that the latter have not been declared in default with respect to
said cross-claim, nor were evidence adduced in connection therewith.

As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco Sales Corporation did not
properly implead said corporation which should have been by way of a third-party complaint instead of a mere cross-claim.
The same observations are noted as regard this cross-claim against Sanshell as those made with respect to the Fernandez
brothers.

SO ORDERED.

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by ordering that the interest should run from
February 19, 1979 until paid and not from February 1, 1979. Nyco's subsequent motion for reconsideration was denied (Ibid., pp. 33, 62).
Hence, the present recourse.

The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored checks.

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court erred in affirming its liability for the BPI
check despite a similar finding of liability for the SBTC check rendered by the same lower court; b) that it was actually discharged of its
liability over the SBTC check when BA Finance failed to give it a notice of dishonor; c) that there was novation when BA Finance accepted the
SBTC check in replacement of the BPI check; and d) that it cannot be held liable for its Presidents unauthorized acts.

The petition is devoid of merit.

An assignment of credit is the process of transferring the right of the assignor to the assignee, who would then be allowed to proceed against
the debtor. It may be done either gratuitously or generously, in which case, the assignment has an effect similar to that of a sale.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its existence and legality) and the person of
the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach of the above warranties, the assignor-
vendor should be held answerable therefor. There is no question then that the assignor-vendor is indeed liable for the invalidity of whatever
he as signed to the assignee-vendee.

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of assignment in favor of BA Finance with
Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the check covered thereby is merely an incidental
or collateral matter. This particular check merely evidenced the credit which was actually assigned to BA Finance. Thus, the designation is
immaterial as it could be any other check. Both the lower and the appellate courts recognized this and so it is utterly misplaced to say that
Nyco is being held liable for both the BPI and the SBTC checks. It is only what is represented by the said checks that Nyco is being asked to
pay. Indeed, nowhere in the dispositive parts of the decisions of the courts can it be gleaned that BA Finance may recover from the two
checks.

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter but also by the findings of
the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts before, during and after the dishonor
(Rollo, p. 40). More importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be liable to BA Finance
as its assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it
from such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not
from the dishonoring of the check alone (See Art. 1628, Civil Code).

Novation is the third defense set up by petitioner Nyco. It insists that novation took place when BA Finance accepted the SBTC check in
replacement of the BPI cheek. Such is manifestly untenable.

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another
which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed
(Mondragon v. Intermediate Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February 5,
1990). Secondly, the old and the new obligations must be incompatible on every point. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence If they cannot, they are incompatible and the latter obligation
novates the first (Mondragon v. Intermediate Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). In the instant case, there was no
express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because
both checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two
distinct obligations, such is inapplicable to this case.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's President) to even apply to BA Finance for credit
accommodation. It supports its argument with the fact that it did not issue a Board resolution giving Yao such authority. However, the very
evidence on record readily belies Nyco's contention. Its corporate By-Laws clearly provide for the powers of its President, which include, inter
alia, executing contracts and agreements, borrowing money, signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that there was already a previous transaction of discounting
of checks involving the same personalities wherein any enabling resolution from Nyco was dispensed with and yet BA Finance was able to
collect from Nyco and Sanshell was able to discharge its own undertakings. Such effectively places Nyco under estoppel in pais which arises
when one, by his acts, representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such facts (Panay Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June
29,1989). Nyco remained silent in the course of the transaction and spoke out only later to escape liability. This cannot be countenanced.
Nyco is estopped from denying Rufino Yao's authority as far as the latter's transactions with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is AFFIRMED. SO ORDERED.

G.R. No. 125778 June 10, 2003

INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner,

vs.
COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents.

DECISION

CARPIO-MORALES, J.:

The present petition for review on certiorari assails the Court of Appeals Decision1 of January 25, 1996 and Resolution2 of July 11, 1996.

The material facts of the case are as follows:

On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase Agreement3 (the Agreement), sold to Asia Industries, Inc.
(private respondent) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the outstanding shares
of stock of FARMACOR, INC. (FARMACOR).4 The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of petitioner
and private respondent, respectively.5

Under paragraph 7 of the Agreement, petitioner as seller made warranties and representations among which were "(iv.) [t]he audited
financial statements of FARMACOR at and for the year ended December 31, 1977... and the audited financial statements of FARMACOR as of
September 30, 1978 being prepared by S[ycip,] G[orres,] V[elayo and Co.]... fairly present or will present the financial position of FARMACOR
and the results of its operations as of said respective dates; said financial statements show or will show all liabilities and commitments of
FARMACOR, direct or contingent, as of said respective dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of
September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00)."6

The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of September 30, 1978, which was
moved to October 31, 1978, and to the mode of payment of the purchase price.7

The Agreement, as amended, provided that pending submission by SGV of FARMACOR’s audited financial statements as of October 31, 1978,
private respondent may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained
amount of P7,500,000.00, private respondent may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; 8 and that
if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, petitioner shall pay the difference
within 5 days from date of receipt of the audited financial statements.9

Respondent paid petitioner a total amount of P 12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on
November 2, 1978.10

From the STATEMENT OF INCOME AND DEFICIT attached to the financial report11 dated November 28, 1978 submitted by SGV, it appears
that FARMACOR had, for the ten months ended October 31, 1978, a deficit of P11,244,225.00. 12 Since the stockholder’s equity amounted to
P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to
P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00.

The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and
the shortfall in the guaranteed net worth of P13,224,225.00. Private respondent having already paid petitioner P12,000,000.00, it was
entitled to a refund of P5,744,225.00.

Petitioner thereafter proposed, by letter13 of January 24, 1980, signed by its president, that private respondent’s claim for refund be reduced
to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of
P759,570.00. To the proposal respondent agreed. Petitioner, however, weiched on its promise. Petitioner’s total liability thus stood at
P4,853,503.00 (P4,093,993.00 plus P759,570.00)14 exclusive of interest.15

On April 5, 1983, private respondent filed a complaint16 against petitioner with the Regional Trial Court of Makati, one of two causes of action
of which was for the recovery of above-said amount of P4,853,503.0017 plus interest.

Denying private respondent’s claim, petitioner countered that private respondent failed to pay the balance of the purchase price and
accordingly set up a counterclaim.

Finding for private respondent, the trial court rendered on November 27, 1991 a Decision,18 the dispositive portion of which reads:

WHEREFORE, judgment is rendered in favor of plaintiff and against defendant (a) ordering the latter to pay to the former the sum of
P4,853,503.0019 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney’s
fees and the costs of suit; and (b) dismissing the counterclaim.

SO ORDERED.

On appeal to the Court of Appeals, petitioner raised the following errors:

THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT LIABLE UNDER THE FIRST CAUSE OF ACTION PLEADED BY THE PLAINTIFF.

THE TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES AND IN DISMISSING THE COUNTERCLAIM.

THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE PLAINTIFF, THE ALLEGED BREACH OF WARRANTIES AND
REPRESENTATION NOT HAVING BEEN SHOWN, MUCH LESS ESTABLISHED BY THE PLAINTIFF.20

By Decision of January 25, 1996, the Court of Appeals affirmed the trial court’s decision. Petitioner’s motion for reconsideration of the decision
having been denied by the Court of Appeals by Resolution of July 11, 1996, the present petition for review on certiorari was filed, assigning
the following errors:
 I

THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE LETTER OF THE PRESIDENT OF THE PETITIONER IS NOT BINDING ON THE
PETITIONER BEING ULTRA VIRES.

II

THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE PETITIONER AS A CORPORATION.

III

THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE IS NO BREACH OF WARRANTIES AND REPRESENTATION AS ALLEGED BY
THE PRIVATE RESPONDENT.

IV

THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER TO PAY ATTORNEY’S FEES AND IN SUSTAINING THE DISMISSAL OF THE
COUNTERCLAIM.18 (Underscoring in the original)

Petitioner argues that the January 24, 1980 letter-proposal (for the reduction of private respondent’s claim for refund upon petitioner’s
promise to pay the cost of NOCOSII superstructures in the amount of P759,570.00) which was signed by its president has no legal force and
effect against it as it was not authorized by its board of directors, it citing the Corporation Law which provides that unless the act of the
president is authorized by the board of directors, the same is not binding on it.

This Court is not persuaded.

The January 24, 1980 letter signed by petitioner’s president is valid and binding. The case of People’s Aircargo and Warehousing Co., Inc. v.
Court of Appeals19 instructs:

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly
bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having x x x powers,
attributes and properties expressly authorized by law or incident to its existence."

Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the
Philippines:

SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or
trustees x x x.

Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation
is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person
may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions
and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in
the general course of business, viz:

A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do
so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred.

xxx

[A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in
which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in
its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but
the vesting of a corporate officer with power to bind the corporation.

x x x (Emphasis and underscoring supplied)

As correctly argued by private respondent, an officer of a corporation who is authorized to purchase the stock of another corporation has the
implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the
Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated
therein.21

Petitioner further argues that when the Agreement was executed on September 1, 1978, its financial statements were extensively examined
and accepted as correct by private respondent, hence, it cannot later be disproved "by resorting to some scheme such as future financial
auditing;"22 and that it should not be bound by the SGV Report because it is self-serving and biased, SGV having been hired solely by private
respondent, and the alleged shortfall of FARMACOR occurred only after the execution of the Agreement.

This Court is not persuaded either.

The pertinent provisions of the Agreement read:

7. Warranties and Representations - (a) SELLER warrants and represents as follows:

xxx

(iv) The audited financial statements of FARMACOR as at and for the year ended December 31, 1977 and
the audited financial statements of FARMACOR as at September 30, 1978 being prepared by SGV pursuant toparagraph 6(b) fair
ly present or will present the financial position of FARMACOR and the results of its operations as of said respective dates; said
financial statements show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said respective
dates; and the receivables set forth in said financial statements are fully due and collectible, free and clear of any set-offs, defenses, claims
and other impediments to their collectibility.

(v) The Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos
(P12,000,000.00), Philippine Currency.1âwphi1

x x x (Underscoring in the original; emphasis supplied)23

True, private respondent accepted as correct the financial statements submitted to it when the Agreement was executed on September 1,
1978. But petitioner expressly warranted that the SGV Reports "fairly present or will present the financial position of FARMACOR." By such
warranty, petitioner is estopped from claiming that the SGV Reports are self-serving and biased.1âwphi1

As to the claim that the shortfall occurred after the execution of the Agreement, the declaration of Emmanuel de Asis, supervisor in the
Accounting Division of SGV and head of the team which conducted the auditing of FARMACOR, that the period covered by the audit was from
January to October 1978 shows that the period before the Agreement was entered into (on September 1, 1978) was covered.24

As to petitioner’s assigned error on the award of attorney’s fees which, it argues, is bereft of factual, legal and equitable justification, this
Court finds the same well-taken.

On the matter of attorney’s fees, it is an accepted doctrine that the award thereof as an item of damages is the exception rather than the
rule, and counsel’s fees are not to be awarded every time a party wins a suit. The power of the court to award
attorney’s fees under Article 2208 of the Civil Code demands
factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for the award of attorney’s fees.25

x x x (Emphasis and underscoring supplied; citations omitted)

WHEREFORE, the instant petition is PARTLY GRANTED. The assailed decision of the Court of Appeals affirming that of the trial court is
modified in that the award of attorney’s fees in favor of private respondent is deleted. The decision is affirmed in other respects. SO
ORDERED.
G.R. No. L-17716 July 31, 1962

LUNETA MOTOR COMPANY, petitioner,

vs.
A.D. SANTOS, INC., ET AL., respondents.

Jose Agbulos for petitioner.

Graciano C. Regala and Angel A. Sison for respondents.

DIZON, J.:

Appeal from the decision of the Public Service Commission in case No. 123401 dismissing petitioner's application for the approval of the sale
in its favor, made by the Sheriff of the City of Manila, of the certificate of public convenience granted before the war to Nicolas Concepcion
(Commission Cases Nos. 60604 and 60605, reconstituted after the war in Commission Case No. 1470) to operate a taxicab service of 27 units
in the City of Manila and therefrom to any point in Luzon.

It appears that on December 31, 1941, to secure payment of a loan evidenced by a promissory note executed by Nicolas Concepcion and
guaranteed by one Placido Esteban in favor of petitioner, Concepcion executed a chattel mortgage covering the above mentioned certificate in
favor of petitioner.

To secure payment of a subsequent loan obtained by Concepcion from the Rehabilitation Finance Corporation (now Development Bank of the
Philippines) he constituted a second mortgage on the same certificate. This second mortgage was approved by the respondent Commission,
subject to the mortgage lien in favor of petitioner.

The certificate was later sold to Francisco Benitez, Jr., who resold it to Rodi Taxicab Company. Both sales were made with assumption of the
mortgage in favor of the RFC, and were also approved provisionally by the Commission, subject to petitioner's lien.

On October 10, 1953 petitioner filed an action to foreclose the chattel mortgage executed in its favor by Concepcion (Civil Case No. 20853 of
the Court of First Instance of Manila) in view of the failure of the latter and his guarantor, Placido Esteban, to pay their overdue account.

While the above case was pending, the RFC also instituted foreclosure proceedings on its second chattel mortgage, and as a result of the
decision in its favor therein rendered, the certificate of public convenience was sold at public auction in favor of Amador D. Santos for
P24,010.00 on August 31, 1956. Santos immediately applied with the Commission for the approval of the sale, and the same was approved
on January 26, 1957, subject to the mortgage lien in favor of petitioner.

On June 9, 1958 the Court of First Instance of Manila rendered judgment in Civil Case No. 20853, amended on August 1, 1958, adjudging
Concepcion indebted to petitioner in the sum of P15,197.84, with 12% interest thereon from December 2, 1941 until full payment, plus other
assessments, and ordered that the certificate of public convenience subject matter of the chattel mortgage be sold at public auction in
accordance with law. Accordingly, on March 3, 1959 said certificate was sold at public auction to petitioner, and six days thereafter the Sheriff
of the City of Manila issued in its favor the corresponding certificate of sale. Thereupon petitioner filed the application mentioned heretofore
for the approval of the sale. In the meantime and before his death, Amador D. Santos sold and transferred (Commission Case No. 1272231)
all his rights and interests in the certificate of public convenience in question in favor of the now respondent A.D. Santos, Inc., who opposed
petitioner's application.

The record discloses that in the course of the hearing on said application and after petitioner had rested its case, the respondent A. D. Santos,
Inc., with leave of court, filed a motion to dismiss based on the following grounds:

a) under the petitioner's Articles of Incorporation, it was not authorized to engage in the taxicab business or operate as a common
carrier;

b) the decision in Civil Case No. 20853 of the Court of First Instance of Manila did not affect the oppositor nor its predecessor
Amador D. Santos inasmuch as neither of them had been impleaded into the case;

c) that what was sold to the petitioner were only the "rights, interests and participation" of Nicolas Concepcion in the certificate that
had been granted to him which were no longer existing at the time of the sale.

On October 18, 1960, the respondent Commission, after considering the memoranda submitted by the parties, rendered the appealed
decision sustaining the first ground relied upon in support thereof, namely, that under petitioner's articles of incorporation it had no authority
to engage in the taxicab business or operate as a common carrier, and that, is a result, it could not acquire by purchase the certificate of
public convenience referred to above. Hence, the present appeal interposed by petitioner who claims that, in accordance with the Corporation
Law and its articles of incorporation, it can acquire by purchase the certificate of public convenience in question, maintaining inferentially that,
after acquiring said certificate, it could make use of it by operating a taxicab business or operate is a common carrier by land.

There is no question that a certificate of public convenience granted to the public operator is liable to execution (Raymundo vs. Luneta Motor
Co., 58 Phil. 889) and may be acquired by purchase. The question involved in the present appeal, however, is not only whether, under the
Corporation Law and petitioner's articles of incorporation, it may acquire by purchase a certificate of public convenience, such as the one in
question, but also whether, after its acquisition, petitioner may hold the certificate and thereunder operate as a common carrier by land.

It is not denied that under Section 13 (5) of the Corporation Law, a corporation created thereunder may purchase, hold, etc., and otherwise
deal in such real and personal property is the purpose for which the corporation was formed may permit, and the transaction of its lawful
business may reasonably and necessarily require. The issue here is precisely whether the purpose for which petitioner was organized and the
transaction of its lawful business reasonably and necessarily require the purchase and holding by it of a certificate of public convenience like
the one in question and thus give it additional authority to operate thereunder as a common carrier by land.

Petitioner claims in this regard that its corporate purposes are to carry on a general mercantile and commercial business, etc., and that it is
authorized in its articles of incorporation to operate and otherwise deal in and concerning automobiles and automobile accessories' business in
all its multifarious ramification (petitioner's brief p. 7) and to operate, etc., and otherwise dispose of vessels and boats, etc., and to own and
operate steamship and sailing ships and other floating craft and deal in the same and engage in the Philippine Islands and elsewhere in the
transportation of persons, merchandise and chattels by water; all this incidental to the transportation of automobiles (id. pp. 7-8 and Exhibit
B).

We find nothing in the legal provision and the provisions of petitioner's articles of incorporation relied upon that could justify petitioner's
contention in this case. To the contrary, they are precisely the best evidence that it has no authority at all to engage in the business of land
transportation and operate a taxicab service. That it may operate and otherwise deal in automobiles and automobile accessories; that it may
engage in the transportation of persons by water does not mean that it may engage in the business of land transportation — an entirely
different line of business. If it could not thus engage in the line of business, it follows that it may not acquire an certificate of public
convenience to operate a taxicab service, such as the one in question, because such acquisition would be without purpose and would have no
necessary connection with petitioner's legitimate business.

In view of the conclusion we have arrived at on the decisive issue involved in this appeal, we deem it unnecessary to resolve the other
incidental questions raised by petitioner.

WHEREFORE, the appealed decision is affirmed, with costs.

G.R. No. 104102 August 7, 1996

CENTRAL TEXTILE MILLS, INC., petitioner,

vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION, REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARD-NATIONAL
CAPITAL REGION, and UNITED CMC TEXTILE WORKERS UNION, respondents.

ROMERO, J.:p

On December 20, 1990, respondent Regional Tripartite Wages and Productivity Board-National Capital Region (the Board) issued
Wage Order No. NCR-02 (WO No. NCR-02), which took effect on January 9, 1991. Said wage order mandated a P12.00 increase in
the minimum daily wage of all employees and workers in the private sector in the NCR, but exempted from its application distressed
employers whose capital has been impaired by at least twenty-five percent (25%) in the preceding year.

The "Guidelines on Exemption From Compliance With the Prescribed Wage/Cost of Living Allowance Increase Granted by the
Regional Tripartite Wage and Productivity Boards," issued on February 25, 1991, defined "capital" as the "paid-up capital at the end
of the last full accounting period (in case of corporations)." Under said guidelines, "(a)n applicant firm may be granted exemption
from payment of the prescribed increase in wage/cost-of-living allowance for a period not to exceed one (1) year from effectivity of
the
order . . . when accumulated losses at the end of the period under review have impaired by at least 25 percent the paid-up capital
at the end of the last full accounting period preceding the application."

By virtue of these provisions, petitioner filed on April 11, 1991 its application for exemption from compliance with WO No. NCR-02
due to financial losses.

In an order dated October 22, 1991, the Board's Vice-Chairman, Ernesto Gorospe, disapproved petitioner's application for exemption
after concluding from the documents submitted that petitioner sustained an impairment of only 22.41%.

On February 4, 1992, petitioner's motion for reconsideration was dismissed by the Board for lack of merit. The Board, except for
Vice-Chairman Gorospe who took no part in resolving the said motion for reconsideration, opined that according to the audited
financial statements submitted by petitioner to them, to the Securities and Exchange Commission and to the Bureau of Internal
Revenue, petitioner had a total paid-up capital of P305,767,900.00 as of December 31, 1990, which amount should be the basis for
determining the capital impairment of petitioner, instead of the authorized capital stock of P128,000,000.00 which it insists should
be the basis of computation.

The Board also noted that petitioner did not file with the SEC the August 15, 1990 resolution of its Board of Directors, concurred in
by its stockholders representing at least two-thirds of its outstanding capital stock, approving an increase in petitioner's authorized
capital stock from P128,000,000.00 to P640,000,000.00. Neither did it file any petition to amend its Articles of Incorporation
brought about by such increase in its capitalization.

Petitioner maintains in the instant action that its authorized capital stock, not its unauthorized paid-up capital, should be used in
arriving at its capital impairment for 1990. Citing two SEC Opinions dated August 10, 1971, and July 28, 1978, interpreting Section
38 of the Corporation Code, it claims that "the capital stock of a corporation stand(s) increased or decreased only from and after
approval and the issuance of the certificate of filing of increase of capital stock."

We agree.

The guidelines on exemption specifically refer to paid-up capital, not authorized capital stock, as the basis of capital impairment for
exemption from WO No. NCR-02. The records reveal, however, that petitioner included in its total paid-up capital payments on
advance subscriptions, although the proposed increase in its capitalization had not yet been approved by, let alone presented for the
approval of, the SEC. As observed by the Board in its order of February 4, 1992, "the aforementioned (r)esolution (of August 15,
1990) has not been filed by the corporation with the SEC, nor was a petition to amend its Articles of Incorporation by reason of the
increase in its capitalization filed by the same."

It is undisputed that petitioner incurred a net loss of P68,844,222.49

in 1990, and its authorized capital stock as of that time stood at P128,000,000.00. 1 On August 15, 1990, a Board resolution
increasing the capital stock of the corporation was affirmed by the requisite number of stockholders. Although no petition to that
effect was ever submitted to the SEC for its approval, petitioner already started receiving subscriptions and payments on the
proposed increase, which it allegedly held conditionally, that is, pending approval of the same by the SEC. In its Memorandum,
however, petitioner admitted, without giving any reason therefor, that it indeed "received 'subscriptions' and 'payments' to the said
proposed increase in capital stock, even in the absence of SEC approval of the increase as required by the Corporation
Code." 2 Thus, by the end of 1990, the corporation had a subscribed capital stock of P482,748,900.00 and, after deducting
P176,981,000.00 in subscriptions receivables, a total paid-up capital of P305,767,900.00. 3 P177,767,900.00 of this sum constituted
the unauthorized increase in its subscribed capital stock, which are actually payments on future issues of shares.

These payments cannot as yet be deemed part of petitioner's paid-up capital, technically speaking, because its capital stock has not
yet been legally increased. Thus, its authorized capital stock in the year when exemption from WO No. NCR-02 was sought stood at
P128,000,000.00, which was impaired by losses of nearly 50%. Such payments constitute deposits on future subscriptions, money
which the corporation will hold in trust for the subscribers until it files a petition to increase its capitalization and a certificate of filing
of increase of capital stock is approved and issued by the SEC. 4 As a trust fund, this money is still withdrawable by any of the
subscribers at any time before the issuance of the corresponding shares of stock, unless there is a pre-subscription agreement to
the contrary, which apparently is not present in the instant case. Consequently, if a certificate of increase has not yet been issued
by the SEC, the subscribers to the unauthorized issuance are not to be deemed as stockholders possessed of such legal rights as the
rights to vote and dividends. 5

The Court observes that the subject wage order exempts from its coverage employers whose capital has been impaired by at least
25% because if impairment is less than this percentage, the employer can still absorb the wage increase. In the case at hand,
petitioner's capital held answerable for the additional wages would include funds it only holds in trust, which to reiterate may not be
deemed par of its paid-up capital, the losses of which shall be the basis of the 25% referred to above. To include such funds in the
paid-up capital would be prejudicial to the corporation as an employer considering that the records clearly show that it is entitled to
exemption, even as the anomaly was brought about by an auditing error.

Another issue, raised late in the proceedings by respondents, is the alleged non-exhaustion of administrative remedies by petitioner.
They claim that the questioned order of the Board should have first been appealed to the National Wages and Productivity
Commission (the Commission), as provided for under Section 9 of the "Revised Guidelines on Exemption From Compliance With the
Prescribed Wage/Cost of Living Allowance Increases Granted by the Regional Tripartite Wages and Productivity Boards."
Petitioner explained that at the time it filed the instant petition for certiorari on March 6, 1992, the procedure governing applications
for exemption from compliance with wage orders was the original guidelines, which took effect on February 25, 1991. Under Section
6 of said guidelines, the denial by the Board of a request for reconsideration shall be final and immediately executory. Appeal to the
Commission as an optional remedy 6 was only made available after the issuance of the revised guidelines on September 25, 1992.
Hence, petitioner cannot be faulted for not having first appealed the questioned orders. It must be added that since no order,
resolution or decision of the Commission is being assailed in this petition, it should be dropped as party respondent, as prayed for in
its manifestation and motion dated June 22, 1992. 7

In order to avoid any similar controversy, petitioner is reminded to adopt a more systematic and precise accounting procedure
keeping in mind the various principles and nuances surrounding corporate practice.

WHEREFORE, the petition is hereby GRANTED. The assailed orders of the Regional Tripartite Wages and Productivity Board-National
Capital Region, dated October 22, 1991 and February 4, 1992, are ANNULLED and SET ASIDE. Said Board is also hereby mandated
to issue another order granting the application of petitioner Central Textile Mills, Inc. for exemption from Wage Order No. NCR-02
fro the year ending December 31, 1990. No pronouncement as to cost. SO ORDERED.
G.R. No. L-48237 June 30, 1987

MADRIGAL & COMPANY, INC., petitioner,

vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and MADRIGAL
CENTRAL OFFICE EMPLOYEES UNION, respondents.

No. L-49023

MADRIGAL & COMPANY, INC., petitioner,

vs.
HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents.

SARMIENTO, J.:

These are two petitions for certiorari and prohibition filed by the petitioner, the Madrigal & Co., Inc. The facts are undisputed.

The petitioner was engaged, among several other corporate objectives, in the management of Rizal Cement Co.,
Inc.1 Admittedly, the petitioner and Rizal Cement Co., Inc. are sister companies. 2 Both are owned by the same or practically the
same stockholders.3 On December 28, 1973, the respondent, the Madrigal Central Office Employees Union, sought for the renewal of its
collective bargaining agreement with the petitioner, which was due to expire on February 28, 1974.4 Specifically, it proposed a wage increase
of P200.00 a month, an allowance of P100.00 a month, and other economic benefits.5 The petitioner, however, requested for a deferment in
the negotiations.

On July 29, 1974, by an alleged resolution of its stockholders, the petitioner reduced its capital stock from 765,000 shares to 267,366
shares.6 This was effected through the distribution of the marketable securities owned by the petitioner to its stockholders in exchange for
their shares in an equivalent amount in the corporation.7

On August 22, 1975, by yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366 shares to
110,085 shares, again, through the same scheme.8

After the petitioner's failure to sit down with the respondent union, the latter, on August 28, 1974, commenced Case No. LR-5415 with the
National Labor Relations Commission on a complaint for unfair labor practice.9 In due time, the petitioner filed its position paper, 10 alleging
operational losses. Pending the resolution of Case No. LR-5415, the petitioner, in a letter dated November 17, 1975, 11 informed the
Secretary of Labor that Rizal Cement Co., Inc., "from which it derives income" 12 "as the General Manager or Agent" 13 had "ceased operating
temporarily." 14 "In addition, "because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. due to lack of
business incentives and prospects, and in order to prevent further losses," 15it had to reduce its capital stock on two occasions "As the
situation, therefore, now stands, the Madrigal & Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of
retrenchment, of its employees and operations." 16 The petitioner then requested that it "be allowed to effect said reorganization gradually
considering all the circumstances, by phasing out in at least three (3) stages, or in a manner the Company deems just, equitable and
convenient to all concerned, about which your good office will be apprised accordingly." 17 The letter, however, was not verified and neither
was it accompanied by the proper supporting papers. For this reason, the Department of Labor took no action on the petitioner's request.

On January 19, 1976, the labor arbiter rendered a decision 18 granting, among other things, a general wage increase of P200.00 a month
beginning March 1, 1974 plus a monthly living allowance of P100.00 monthly in favor of the petitioner's employees. The arbiter specifically
found that the petitioner "had been making substantial profits in its operation" 19 since 1972 through 1975. The petitioner appealed.

On January 29, 1976, the petitioner applied for clearance to terminate the services of a number of employees pursuant supposedly to its
retrenchment program. On February 3, 1976, the petitioner applied for clearance to terminate 18 employees more. 20 On the same date, the
respondent union went to the Regional Office (No. IV) of the Department of Labor (NLRC Case No. R04-2-1432-76) to complain of illegal
lockout against the petitioner. 21Acting on this complaint, the Secretary of 22 Labor, in a decision dated December 14, 1976, 22 found the
dismissals "to be contrary to law" 23 and ordered the petitioner to reinstate some 40 employees, 37 of them with backwages. 24 The petitioner
then moved for reconsideration, which the Acting Labor Secretary, Amado Inciong, denied. 25

Thereafter, the petitioner filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Legal Affairs, affirmed
with modification the Labor Department's decision, thus:

xxx xxx xxx

1. Eliseo Dizon, Eugenio Evangelista and Benjamin Victorio are excluded from the order of reinstatement.

2. Rogelio Meneses and Roberto Taladro who appear to have voluntarily retired and paid their retirement pay, their cases are left to
the judgment of the Secretary of Labor who is in a better position to assess appellant's allegation as to their retirement.

3. The rest are hereby reinstated with six (6) months backwages, except Aleli Contreras, Teresita Eusebio and Norma Parlade who
are to be reinstated without backwages.

SO ORDERED. 26

xxx xxx xxx

On May 15, 1978, the petitioner came to this court. (G.R. No. 48237.)

Meanwhile, on May 25, 1977, the National Labor Relations Commission rendered a decision affirming the labor arbiter's judgment in Case No.
LR-5415. 27 The petitioner appealed to the Secretary of Labor. On June 9, 1978, the Secretary of Labor dismissed the appeal. 28 Following
these successive reversals, the petitioner came anew to this court. (G.R. No. 49023.)

By our resolution dated October 9, 1978, we consolidated G.R. No. 48237 with G.R. No. 49023. 29 We likewise issued temporary restraining
orders. 30

In G.R. No. 48237, the petitioner argues, that.

xxx xxx xxx

I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE WAS NO VALID COMPLIANCE WITH THE CLEARANCE REQUIREMENT.

II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT THERE IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION, MUCH LESS FOR UNION-
BUSTING PURPOSES.

III. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN ORDERING THE REINSTATEMENT OF THE REST OF AFFECTED MEMBERS OF
RESPONDENT UNION WITH SIX (6) MONTHS BACKWAGES, EXCEPT ALELI CONTRERAS, TERESITA EUSEBIO AND NORMA PARLADE WHO ARE
TO BE REINSTATED WITHOUT BACKWAGES.

IV. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN LEAVING TO THE JUDGMENT OF RESPONDENT SECRETARY THE CASES OF ROGELIO
MENESES AND ROBERTO TALADRO WHO HAD VOLUNTARILY RETIRED AND PAID THEIR RETIREMENT PAY. 31

xxx xxx xxx

while in G.R. No. 49023, it submits that:

xxx xxx xxx

1. RESPONDENT MINISTER ERRED IN AFFIRMING THE DECISION EN BANC OF THE NATIONAL LABOR RELATIONS COMMISSION DESPITE
CLEAR INDICATIONS IN THE RECORD THAT THE AWARD WAS PREMATURE IN THE ABSENCE OF A DEADLOCK IN NEGOTIATION AND THE
FAILURE ON THE PART OF THE LABOR ARBITER TO RESOLVE THE MAIN IF NOT ONLY ISSUE OF REFUSAL TO BARGAIN, THEREBY DEPRIVING
PETITIONER OF ITS RIGHT TO DUE PROCESS.

2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK IN NEGOTIATION, RESPONDENT MINISTER ERRED NEVERTHELESS IN NOT
FINDING THAT THE ECONOMIC BENEFITS GRANTED IN THE FORM OF SALARY INCREASES ARE UNFAIR AND VIOLATIVE OF THE MANDATORY
GUIDELINES PRESCRIBED UNDER PRESIDENTIAL DECREE NO. 525 AND IGNORING THE UNDISPUTED FACT THAT PETITIONER HAD
VIRTUALLY CEASED OPERATIONS AFTER HAVING TWICE DECREASED ITS CAPITAL STOCKS AND, THEREFORE, NOT FINANCIALLY CAPABLE
TO ABSORB SUCH AWARD OF BENEFITS. 32

xxx xxx xxx

There is no merit in these two (2) petitions.

As a general rule, the findings of administrative agencies are accorded not only respect but even finality. 33 This is especially true with respect
to the Department of Labor, which performs not only a statutory function but carries out a Constitutional mandate as well. 34 Our jurisdiction,
as a rule, is confined to cases of grave abuse of discretion. 35 But for certiorari to lie, there must be such arbitrary and whimsical exercise of
power, or that discretion was exercised despotically. 36

In no way can the questioned decisions be seen as arbitrary. The decisions themselves show why.

Anent Case No. R04-2-1432-76 (G.R. No. 48237), we are satisfied with the correctness of the respondent Presidential Assistant for Legal
Affairs' findings. We quote:

xxx xxx xxx

In urging reversal of the appealed decision, appellant contends that (1) its letter dated November 17, 1975, constitute "substantial
compliance with the clearance requirement to terminate;" and (2) individual appellees' dismissal had no relation to any union
activities, but was the result of an honest-to-goodness retrenchment policy occasioned by loss of income due to cessation of
operation.

We find the first contention to be without merit. Aside from the fact that the controversial letter was unverified, with not even a
single document submitted in support thereof, the same failed to specify the individual employees to be affected by the intended
retrenchment. Not only this, but the letter is so vague and indefinite regarding the manner of effecting appellant's retrenchment
plan as to provide the Secretary of (sic) a reasonable basis on which to determine whether the request for retrenchment was valid
or otherwise, and whether the mechanics in giving effect thereto was just or unjust to the employees concerned. In fact, to be
clearly implied from the letter is that the implementary measures needed to give effect to the intended retrenchment are yet to be
thought of or concretized in the indefinite future, measures about which the office of the Secretary "will be apprised accordingly." All
these, and more, as correctly found by the Acting Secretary, cannot but show that the letter is insufficient in form and substance to
constitute a valid compliance with the clearance requirement. That being so, it matters little whether or not complainant union or
any of its members failed to interpose any opposition thereto.

It cannot be over-emphasized that the purpose in requiring a prior clearance by the Secretary of Labor, in cases of shutdown or
dismissal of employees, is to afford said official ample opportunity to examine and determine the reasonableness of the request.
This is made imperative in order to give meaning and substance to the constitutional mandate that the State must "afford protection
to labor," and guarantee their "security of tenure." Indeed, the rules require that the application for clearance be filed ten (10) days
before the intended shutdown or dismissal, serving a copy thereof to the employees affected in order that the latter may register
their own individual objections against the grant of the clearance. But how could this requirement of notice to the employees have
been complied with, when, as observed by the Acting Secretary in his modificatory decision dated June 30, 1977 "the latter of
November 17, 1975 does not even state definitely the employees involved" upon whom service could be made.

With respect to appellant's second contention, we agree with the Acting Secretary's findings that individual appellee's dismissal was
an offshoot of the union's demand for a renegotiation of the then validly existing collective bargaining Agreement.

xxx xxx xxx

The pattern of appellant's acts after the decision of the Labor Arbiter in Case No. LR-5415 has convinced us that its sole objective
was to render moot and academic the desire of the union to exercise its right to bargain collectively with management, especially so
when it is considered in the light of the fact that under the said decision the demand by the union for wage increase and allowances
was granted. What renders appellant's motive suspect was its haste in terminating the services of individual appellees, without
waiting the outcome of its appeal in Case No. LR-5415. The amount involved by its offer to pay double separation could very well
have been used to pay the salaries of those employees whose services were sought to be terminated, until the resolution of its
appeal with the NLRC, since anyway, if its planned retrenchment is found to be justifiable and done in good faith, its only liability is
to answer for the separation pay provided by law. By and large, therefore, we agree with the Acting Secretary that, under the
circumstances obtaining in this case, "respondent's action [was] a systematic and deliberate attempt to get rid of complainants
because of their union activities.
 We now come to the individual cases of Aleli Contreras, Teresita Eusebio and Norma Parlade. It is appellant's claim that these three
(3) should not be reinstated inasmuch as they have abandoned their work by their continued absences, and moreover in the case of
Contreras, she failed to oppose the application for clearance filed against her on October 24, 1975. However, appellant's payrolls for
December 16-31, 1975, January 1-15, 1976 and January 16-31, 1976, show that the three (3) were "on leave without pay." As
correctly appreciated by the Acting Secretary, these "payrolls prove, first, that "leave" has been granted to these employees, and,
second, that it is a practice in the company to grant "leaves without pay" without loss of employment status, to those who have
exhausted their authorized leaves." As regards, Norma Parlade, the records show that she "truly incurred illness and actually
underwent surgery in Oct., 1975." As to Aleli Contreras, there is no showing that the Secretary of Labor or appellant ever acted on
the clearance. If we were to follow the logic of appellant, Contreras should not have been included in the application for clearance
filed on Feb. 3, 1976. The fact that she was included shows that up to that time, she was still considered as a regular employee. It
was for these reasons, coupled with the length of service that these employees have rendered appellant, that the Acting Secretary
ordered their reinstatement but without backwages. 37

With respect Lo Case No. LR-5415 (G.R. No. 49023), we are likewise content with the findings of the National Labor Relations Commission.
Thus:

Appellant now points that the only issue certified to compulsory arbitration is "refusal to bargain" and it is, therefore, premature to
dictate the terms of the CBA on the assumption that there was already a deadlock in negotiation. Appellant further contends that,
assuming there was deadlock in negotiation, the economic benefits granted are unreasonable and violative of the guideline
prescribed by P.D. 525.

On the other hand, it is the union's stance that its economic demands are justified by, the persistent increase in the cost of living
and the substantial earnings of the company from 1971 to 1975.

It bears to stress that although the union's petition was precipitated by the company's refusal to bargain, there are glaring
circumstances pointing out that the parties also submitted "deadlock" to arbitration. The petition itself is couched in general terms,
praying for arbitration of the union's "dispute" with the respondent concerning proposed changes in the collective bargaining
agreement." It is supported with a copy of the proposed changes which just goes to show that the union, aside from the issue
concerning respondent's refusal to bargain, sought determination of the merit of its proposals. On the part of the appellant
company, it pleaded financial incapacity to absorb the proposed economic benefits during the initial stage of the proceedings below.
Even the evidence and arguments proferred below by both parties are relevant to deadlock issue. In the face of these factual
environment, it is our view that the Labor Arbiter below did not commit a reversible error in rendering judgment on the proposed
CBA changes. At any rate, the minimum requirements of due process was satisfied because as heretofore stated, the appellant was
given Opportunity, and had in fact, presented evidence and argument in avoidance of the proposed CBA changes.

We do not also subscribe to appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations.
On the contrary, whatever may be the reason behind such reductions, it is indicative of an intention to keep the company a going
concern. So much so that until now almost four (4) years later, it is still very much in existence and operational as before.

We now come to the question concerning the equitableness of the economic benefits granted below. It requires no evidence to show
that the employees concerned deserve some degree of upliftment due to the unabated increase in the cost of living especially in
Metro Manila. Of course the company would like us to believe that it is losing and is therefore not financially capable of improving
the present CBA to favor its employees. In support of such assertion, the company points that the profits reflected in its yearly
Statement of Income and Expenses are dividends from security holdings. We, however, reject as puerile its suggestion to dissociate
the dividends it received from security holdings on the pretext that they belong exclusively to its stockholders. The dividends
received by the company are corporate earnings arising from corporate investment which no doubt are attended to by the
employees involved in this proceedings. Otherwise. it would not have been reflected as part of profits in the company's yearly
financial statements. In determining the reasonableness of the economic grants below, we have, therefore, scrutinized the
company's Statement of Income and Expenses from 1972 to 1975 and after equating the welfare of the employees with the
substantial earnings of the company, we find the award to be predicated on valid justifications.

The salary increase we herein sanction is also in keeping with the rational that made imperative the enactment of the Termination
Pay Law since in case the respondent company really closes down, the employees will receive higher separation pay or retirement
benefits to tide them over while seeking another employment. 38

What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business operations but confronted with the
demand of the union for wage increases, decided to evade its responsibility towards the employees by a devised capital reduction. While the
reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members,
who, by then, had agitated for wage increases. In the face of the petitioner company's piling profits, the unionists had the right to demand for
such salary adjustments.

That the petitioner made quite handsome profits is clear from the records. The labor arbiter stated in his decision in the collective agreement
case (Case No. LR-5415):

A clear scrutiny of the financial reports of the respondent [herein petitioner] reveals that it had been making substantial profits in
the operation.

In 1972, when it still had 765,000 common shares, of which 305,000 were unissued and 459,000 outstanding capitalized at
P16,830,000.00, the respondent made a net profit of P2,403,211.58. Its total assets were P70,821,317.81.

In 1973, based on the same capitalization, its profit increased to P2,724,465.33. Its total assets increased to P83,240,473.73.

In 1974, although its capitalization was reduced from P16,830,000.00 to P11,230,459.36, its profits were further increased to
P2,922,349.70. Its assets were P78,842,175.75.

The reduction in its assets by P4,398,297.98 was due to the fact that its capital stock was reduced by the amount of P5,599,540.54.

In 1975, for the period of only six months, the respondent reported a net profit of P547,414.72, which when added to the surplus of
P5,591.214.19, makes a total surplus of P6,138,628.91 as of June 30, 1975. 39

The petitioner would, however, have us believe that it in fact sustained losses. Whatever profits it earned, so it claims were in the nature of
dividends "declared on its shareholdings in other companies in the earning of which the employees had no participation whatsoever." 40 "Cash
dividends," according to it, "are the absolute property of the stockholders and cannot be made available for disposition if only to meet the
employees' economic demands." 41
There is no merit in this contention. We agree with the National Labor Relations Commission that "[t]he dividends received by the company
are corporate earnings arising from corporate investment." 42 Indeed, as found by the Commission, the petitioner had entered such earnings
in its financial statements as profits, which it would not have done if they were not in fact profits. 43

Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the reach of the petitioner's creditors since the
petitioner had received them as compensation for its management services in favor of the companies it managed as a shareholder thereof. As
such shareholder, the dividends paid to it were its own money, which may then be available for wage increments. It is not a case of a
corporation distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property of the
stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case,
the right to a share in such dividends, by way of salary increases, may not be denied its employees.

Accordingly, this court is convinced that the petitioner's capital reduction efforts were, to begin with, a subterfuge, a deception as it were, to
camouflage the fact that it had been making profits, and consequently, to justify the mass layoff in its employee ranks, especially of union
members. They were nothing but a premature and plain distribution of corporate assets to obviate a just sharing to labor of the vast profits
obtained by its joint efforts with capital through the years. Surely, we can neither countenance nor condone this. It is an unfair labor practice.

As we observed in People's Bank and Trust Company v. People's Bank and Trust Co. Employees Union: 44

xxx xxx xxx

As has been held by this Court in Insular Lumber Company vs. CA, et al., L-23875, August 29, 1969, 29 SCRA 371, retrenchment
can only be availed of if the company is losing or meeting financial reverses in its operation, which certainly is not the case at bar.
Undisputed is the fact, that the Bank "at no time incurred losses. " As a matter of fact, "the net earnings of the Bank would be in the
average of P2,000,000.00 a year from 1960 to 1969 and, during this period of nine (9) years, the Bank continuously declared
dividends to its stockholders." Thus the mass lay-off or dismissal of the 65 employees under the guise of retrenchment policy of the
Bank is a lame excuse and a veritable smoke-screen of its scheme to bust the Union and thus unduly disturb the employment tenure
of the employees concerned, which act is certainly an unfair labor practice. 45

Yet, at the same tune, the petitioner would claim that "the phasing out of its operations which brought about the retrenchment of the affected
employees was mainly dictated be the necessity of its stockholders in their capacity as heirs of the late Don Vicente Madrigal to partition the
estate left by him." 46 It must be noted, however, that the labor cases were tried on the theory of losses the petitioner was supposed to have
incurred to justify retrenchment. The petitioner cannot change its theory in the Supreme Court. Moreover, there is nothing in the records that
will substantiate this claim. But what is more important is the fact that it is not impossible to partition the Madrigal estate — assuming that
the estate is up for partition — without the petitioner's business closing shop and inevitably, without the petitioner laying off its employees.

As regards the question whether or not the petitioner's letter dated November 17, 1975 47 was in substantial compliance with legal clearance
requirements, suffice it to state that apart from the Secretary of Labor's valid observation that the same "did not constitute a sufficient
clearance as contemplated by law, " 48 the factual circumstances show that the letter in question was itself a part of the "systematic and
deliberate attempt to get rid of [the union members] because of their union activities." 49 Hence, whether or not the said letter complied with
the legal formalities is beside the point since under the circumstances, retrenchment was, in all events, unjustified. Parenthetically, the
clearance required under Presidential Decree No. 850 has been done away with by Batas Blg. 130, approved on August 21, 1981.

During the pendency of these petitions, the petitioner submitted manifestations to the effect that certain employees have accepted retirement
benefits pursuant to its retrenchment scheme. 50 This is a matter of defense that should be raised before the National Labor Relations
Commission.

To do away with the protracted process of determining the earnings acquired by the employees as a result of ad interim employment, and to
erase any doubt as to the amount of backwages due them, this court, in line with the precedent set in Mercury Drug Co., Inc. v. Court of
Industrial Relations, 51 affirmed in a long line of decisions that came later, 52 hereby fixes the amount of backwages at three (3) years pay
reckoned at the increased rates decreed by the labor arbiter in Case No. LR-5415 without deduction or qualification.

WHEREFORE, the petitions are hereby DISMISSED. Subject to the modification as to the amount of backwages hereby awarded, the
challenged decisions are AFFIRMED. The temporary restraining orders are LIFTED. With costs against the petitioner. This decision is
IMMEDIATELY EXECUTORY. SO ORDERED.
G.R. No. 117897 May 14, 1997

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION, petitioners,
vs.
COURT OF APPEALS and IGLESIA NI CRISTO, respondents.

HERMOSISIMA, JR., J.:

The subject of this petition for review is the Decision of the public respondent Court of Appeals, 1 dated October 28, 1994, setting aside the
portion of the Decision of the Securities and Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the
sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni
Cristo (INC, for short) and the Islamic Directorate of the Philippines, Inc., Carpizo Group, (IDP, for short).

The following facts appear of record.

Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by
Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to
establish an Islamic Center in Quezon City for the construction of a "Mosque (prayer place), Madrasah (Arabic School), and other religious
infrastructures" so as to facilitate the effective practice of Islamic faith in the area. 2

Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora,
Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, was covered by two titles:
Transfer Certificate of Title Nos. RT-26520 (176616) 3 and RT-26521 (170567), 4 both registered in the name of IDP.

It appears that in 1971, the Board of Trustees of the IDP was composed of the following per Article 6 of its Articles of Incorporation:

Senator Mamintal Tamano 5

Congressman Ali Dimaporo
Congressman Salipada Pendatun
Dean Cesar Adib Majul
Sultan Harun Al-Rashid Lucman
Delegate Ahmad Alonto
Commissioner Datu Mama Sinsuat
Mayor Aminkadra Abubakar 6

According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared
by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada
Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution.

Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda
Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on October 3, 1986, the SEC, in a suit
between these two contending groups, came out with a Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group and
the Abbas Group as IDP board members to be null and void. The dispositive portion of the SEC Decision reads:

WHEREFORE, judgment is hereby rendered declaring the elections of both the petitioners 7 and respondents 8 as null and
void for being violative of the Articles of Incorporation of petitioner corporation. With the nullification of the election of the
respondents, the approved by-laws which they certified to this Commission as members of the Board of Trustees must
necessarily be likewise declared null and void. However, before any election of the members of the Board of Trustees could
be conducted, there must be an approved by-laws to govern the internal government of the association including the
conduct of election. And since the election of both petitioners and respondents have been declared null and void, a vacuum
is created as to who should adopt the by-laws and certify its adoption. To remedy this unfortunate situation that the
association has found itself in, the members of the petitioning corporation are hereby authorized to prepare and adopt
their by-laws for submission to the Commission. Once approved, an election of the members of the Board of Trustees shall
immediately be called pursuant to the approved by-laws.

SO ORDERED. 9

Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986 Decision, and, thus, no valid election of the
members of the Board of Trustees of IDP was ever called. Although the Carpizo Group 10 attempted to submit a set of by-laws, the SEC found
that, aside from Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of
the IDP, thus rendering the adoption of the by-laws likewise null and void.

On April 20, 1989, without having been properly elected as new members of the Board of Trustee of IDP, the Carpizo Group caused to be
signed an alleged Board Resolution 11 of the IDP, authorizing the sale of the subject two parcels of land to the private respondent INC for a
consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale 12 dated April 20, 1989.

On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a
petition before the SEC, docketed as SEC Case No. 4012, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo
Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.

Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with
Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-90-
6937, to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. Likewise, INC
filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the
owner's duplicate copy of TCT Nos. RT-26521 and RT-26520 covering the aforementioned two parcels of land, so that the sale in INC's favor
may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed
in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group.

The IDP-Tamano Group, on June 11, 1991, sought to intervene in Civil Case No. Q-90-6937 averring, inter alia:

xxx xxx xxx

2. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. Farouk Carpizo,
et. al., who, through false schemes and machinations, succeeded in executing the Deed of Sale between the IDP and the
Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the subject of the case at bar;
 3. That the said case before the SEC is docketed as Case No. 04012, the main issue of which is whether or not the
aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void, hence, Intervenor's legal interest in the
instant case. A copy of the said case is hereto attached as Annex "A";

4. That, furthermore, Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic
Directorate of the Philippines;

xxx xxx xxx 13

Private respondent INC opposed the motion arguing, inter alia, that the issue sought to be litigated by way of intervention is an intra-
corporate dispute which falls under the jurisdiction of the SEC. 14

Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied petitioner's motion to intervene on the ground of lack of
juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in nature,
jurisdiction thereto properly pertaining to the SEC. 15

Apprised of the pendency of SEC Case No. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the
outcome of said case, Judge Reyes, on September 12, 1991, rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo
Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession
thereof to INC. 16

Thereupon, Judge Reyes in another Order, dated March 2, 1992, pertaining also to Civil Case No. Q-90-6937, treated INC as the rightful
owner of the real properties and disposed as follows:

WHEREFORE, Leticia P. Ligon is hereby ordered to produce and/or surrender to plaintiff 17 the owner's copy of RT-26521
(170567) and RT-26520 (176616) in open court for the registration of the Deed of Absolute Sale in the latter's name and
the annotation of the mortgage executed in her favor by herein defendant Islamic Directorate of the Philippines on the new
transfer certificate of title to be issued to plaintiff.

SO ORDERED. 18

On April 6, 1992, the above Order was amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. RT-
26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2, 1992." 19

Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari, docketed as CA-G.R No. SP-27973, assailing the foregoing Orders
of Judge Reyes. The appellate court dismissed her petition on October 28, 1992. 20

Undaunted, Ligon filed a petition for review before the Supreme Court which was docketed as G.R. No. 107751.

In the meantime, the SEC, on July 5, 1993, finally came out with a Decision in SEC Case No. 4012 in this wise:

1. Declaring the by-laws submitted by the respondents 21

as unauthorized, and hence, null and void.

2. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by
Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc. 22 null and void;

3. Declaring the election of the Board of Directors, 23 of the corporation from 1986 to 1991 as null and void;

4. Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and
void.

No pronouncement as to cost.

SO ORDERED. 24

Private respondent INC filed a Motion for Intervention, dated September 7, 1993, in SEC Case No. 4012, but the same was denied on account
of the fact that the decision of the case had become final and executory, no appeal having been taken therefrom. 25

INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil action for certiorari, docketed as CA-G.R
SP No. 33295. On October 28, 1994, the court a quo promulgated a Decision in CA-G.R. SP No. 33295 granting INC's petition. The portion of
the SEC Decision in SEC Case No. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the
Court of Appeals.

Thus, the IDP-Tamano Group brought the instant petition for review, dated December 21, 1994, submitting that the Court of Appeals gravely
erred in:

1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale;

2) Encouraging multiplicity of suits; and

3) Not applying the principles of estoppel and laches. 26

While the above petition was pending, however, the Supreme Court rendered judgment in G.R. No. 107751 on the petition filed by Mrs.
Leticia P. Ligon. The Decision, dated June 1, 1995, denied the Ligon petition and affirmed the October 28, 1992 Decision of the Court of
Appeals in CA-G.R. No. SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate
copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in
INC's favor may be properly registered.

Before we rule upon the main issue posited in this petition, we would like to point out that our disposition in G.R. No. 107751 entitled, "Ligon
v. Court of Appeals," promulgated on June 1, 1995, in no wise constitutes res judicata such that the petition under consideration would be
barred if it were the ease. Quite the contrary, the requisites or res judicata do not obtain in the case at bench.
Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam, to wit:

Effect of judgment. — The effect of a judgment or final order rendered by a court or judge of the Philippines, having
jurisdiction to pronounce the judgment or order, may be as follows:

xxx xxx xxx

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that
could have been raised in relation thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same
title and in the same capacity;

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been
adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto.

Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c) is referred to as
"conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second case where such
judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on
the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the first case wherein judgment is
rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no identity of cause of action,
the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to
matters merely involved therein. This is what is termed "conclusiveness of judgment." 27

Neither of these concepts of res judicata find relevant application in the case at bench. While there may be identity of subject matter (IDP
property) in both cases, there is no identity of parties. The principal parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as petitioner,
and the Iglesia Ni Cristo, as private respondent. The IDP, as represented by the 1971 Board of Trustees or the Tamano Group, was only made
an ancillary party in G.R. No. 107751 as intervenor. 28 It was never originally a principal party thereto. It must be noted that intervention is
not an independent action, but is merely collateral, accessory, or ancillary to the principal action. It is just an interlocutory proceeding
dependent on or subsidiary to the case between the original parties. 29 Indeed, the IDP-Tamano Group cannot be considered a principal party
in G.R. No. 107751 for purposes of applying the principle of res judicata since the contrary goes against the true import of the action of
intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of
the intervenor as a mere subordinate party in the main case whose right may be said to be only in aid of the right of the original party. 30 It is
only in the present case, actually, where the IDP-Tamano Group became a principal party, as petitioner, with the Iglesia Ni Cristo, as private
respondent. Clearly, there is no identity of parties in both cases.

In this connection, although it is true that Civil Case No. Q-90-6937, which gave rise to G.R. No. 107751, was entitled, "Iglesia Ni Kristo,
Plaintiff v. Islamic Directorate of the Philippines, Defendant," 31 the IDP can not be considered essentially a formal party thereto for the simple
reason that it was not duly represented by a legitimate Board of Trustees in that case. As a necessary consequence, Civil Case No. Q-90-
6937, a case for Specific Performance with Damages, a mere action in personam, did not become final and executory insofar as the true IDP
is concerned since petitioner corporation, for want of legitimate representation, was effectively deprived of its day in court in said case. Res
inter alios judicatae nullum allis praejudicium faciunt. Matters adjudged in a cause do not prejudice those who were not parties to
it. 32 Elsewise put, no person (natural or juridical) shall be affected by a proceeding to which he is a stranger. 33

Granting arguendo, that IDP may be considered a principal party in Ligon, res judicata as a "bar by former judgment" will still not set in on
the ground that the cause of action in the two cases are different. The cause of action in G.R. No. 107751 is the surrender of the owner's
duplicate copy of the transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present case is the
validity of the Carpizo Group-INC Deed of Absolute Sale.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that any mention at all in Ligon as to the
validity of the disputed Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which
is: Who between Ligon and INC has the better right of possession over the owner's duplicate copy of the TCTs covering the IDP property?
G.R. No. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not
the principal thrust of Ligon. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the
sale, thru a legitimate Board of Trustees.

In any case, while it is true that the principle of res judicata is a fundamental component of our judicial system, it should be disregarded if its
rigid application would involve the sacrifice of justice to technicality. 34

The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SEC's
Decision in SEC Case No. 4012 which declared the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and private
respondent INC null and void?

We rule in the affirmative.

There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the
legitimate Board of Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue
of Sections 3 and 5(c) of Presidential Decree No. 902-A:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnership or
associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in
the Philippines . . . .

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

c) Controversies in the selection or appointment of directors, trustees, officers, or managers of such corporations,
partnerships or associations. . . . .
 If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare who is not the legitimate IDP
Board. This is precisely what the SEC did in SEC Case No. 4012 when it adjudged the election of the Carpizo Group to the IDP Board
of Trustees to be null and
void. 35 By this ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees.
Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or
disposition of ID property.

It must be noted that SEC Case No. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the Carpizo
Group. As far back as October 3, 1986, the SEC, in Case No. 2687, 36 in a suit between the Carpizo Group and the Abbas Group, already
declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of
Incorporation. 37 Nothing thus becomes more settled than that the IDP-Carpizo Group with whom private respondent INC contracted is a fake
Board.

Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of
the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the
New Civil Code lays down the essential requisites of contracts:

There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

All these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. As succinctly
put by Tolentino, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. 38 In this
case, the IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed
Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on the
part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect
whatsoever.

The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with Section 40 of the
Corporation Code pertaining to the disposition of all or substantially all assets of the corporation:

Sec. 40. Sale or other disposition of assets. — Subject to the provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon terms and
conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money
or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote
of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock
corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called
for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee
in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his
appraisal right under the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was
incorporated.

xxx xxx xxx

The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or
disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be
valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora
property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham
Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to
appear to be. Apparently, there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the
Board of Trustees. 39

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio.

Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction, the same
not being an intra-corporate dispute.

The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered moot and
academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP, owner of the subject property. No end of
substantial justice will be served if we reverse the SEC's conclusion on the matter, and remand the case to the regular courts for further
litigation over an issue which is already determinable based on what we have in the records.

It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case. No. Q-90-
6937, a case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. The legitimate
IDP Board could have been granted ample opportunity before the regional trial court to shed light on the true status of the Carpizo Board and
settled the matter as to the validity of the sale then and there. But INC, wanting to acquire the property at all costs and threatened by the
participation of the legitimate IDP Board in the civil suit, argued for the denial of the motion averring, inter alia, that the issue sought to be
litigated by the movant is intra-corporate in nature and outside the jurisdiction of the regional trial court. 40 As a result, the motion for
intervention was denied. When the Decision in SEC Case No. 4012 came out nullifying the sale, INC came forward, this time, quibbling over
the issue that it is the regional trial court, and not the SEC, which has jurisdiction to rule on the validity of the sale. INC is here trifling with
the courts. We cannot put a premium on this clever legal maneuverings of private respondent which, if countenanced, would result in a failure
of justice.

Furthermore, the Court observes that the INC bought the questioned property from the Carpizo Group without even seeing the owner's
duplicate copy of the titles covering the property. This is very strange considering that the subject lot is a large piece of real property in
Quezon City worth millions, and that under the Torrens System of Registration, the minimum requirement for one to be a good faith buyer for
value is that the vendee at least sees the owner's duplicate copy of the title and relies upon the same. 41 The private respondent, presumably
knowledgeable on the aforesaid workings of the Torrens System, did not take heed of this and nevertheless went through with the sale with
undue haste. The unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being presented with the
owner's copy of the titles casts very serious doubt on the rightfulness of its position as vendee in the transaction.

WHEREFORE, the petition is GRANTED. The Decision of the public respondent Court of Appeals dated October 28, 1994 in CA-G.R. SP No.
33295 is SET ASIDE. The Decision of the Securities and Exchange Commission dated July 5, 1993 in SEC Case No. 4012 is REINSTATED. The
Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the name of respondent Iglesia
Ni Cristo, if one has already been made. If new titles have been issued in the name of Iglesia Ni Cristo, the Register of Deeds is hereby
ordered to cancel the same, and issue new ones in the name of petitioner Islamic Directorate of the Philippines. Petitioner corporation is
ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest, if
the same was actually received by IDP. Otherwise, INC may run after Engineer Farouk Carpizo and his group for the amount of money paid.
SO ORDERED.
G.R. No. L-17504 & L-17506 February 28, 1969

RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena Salas, as
stockholders on their own behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other stockholders thereof who
may wish to join in this action, plaintiffs-appellants,
vs.
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and RAMON A.
YULO, defendants-appellants.

San Juan, Africa and Benedicto for plaintiffs-appellants.

Vicente Hilado and Gianzon, Sison, Yulo and Associates for defendants-appellants.

CAPISTRANO, J.:

This was a representative or derivative suit commenced on October 20, 1953, in the Court of First Instance of Manila by four minority
stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado Araneta and three other directors of the corporation.

The complaint comprising the period November, 1946 to October, 1952, stated five causes of action, to wit: (1) for alleged illegal and ultra-
vires acts consisting of self-dealing irregular loans, and unauthorized investments; (2) for alleged gross mismanagement; (3) for alleged
forfeiture of corporate rights warranting dissolution; (4) for alleged damages and attorney's fees; and (5) for receivership.

Plaintiffs prayed, in substance, as follows:

Under the FIRST CAUSE OF ACTION, that the defendant J. Amado Araneta and his individual co-defendants be ordered to render an
accounting of all transactions made and carried out by them for defendant corporation, and "to collect, produce and/or pay to the defendant
corporation the outstanding balance of the amounts so diverted and still unpaid to defendant corporation";

Under the SECOND CAUSE OF ACTION, that the individual defendants be held liable and be ordered to pay to the defendant corporation
"whatever amounts may be recovered by the plaintiffs in Civil Case No. 20122, entitled 'Francisco Rodriguez vs. Ma-ao Sugar Central Co.'"; to
return to the defendant corporation all amounts withdrawn by way of discretionary funds or backpay, and to account for the difference
between the corporation's crop loan accounts payable and its crop loan accounts receivable;

Under the THIRD CAUSE OF ACTION, that the corporation be dissolved and its net assets be distributed to the stockholders; and

Under the FOURTH CAUSE OF ACTION, that the defendants be ordered "to pay the sum of P300,000.00 by way of compensatory, moral and
exemplary damages and for expenses of litigation, including attorney's fees and costs of the suit."

THE FIFTH CAUSE OF ACTION was an application for the provisional remedy of receivership.

In their answer originally filed on December 1, 1953, and amended on February 1, 1955, defendants denied "the allegations regarding the
supposed gross mismanagement, fraudulent use and diversion of corporate funds, disregard of corporate requirements, abuse of trust and
violation of fiduciary relationship, etc., supposed to have been discovered by plaintiffs, all of which are nothing but gratuitous, unwarranted,
exaggerated and distorted conclusions not supported by plain and specific facts and transactions alleged in the complaint."

BY WAY OF SPECIAL DEFENSES, the defendants alleged, among other things: (1) that the complaint "is premature, improper and unjustified";
(2) that plaintiffs did not make an "earnest, not simulated effort" to exhaust first their remedies within the corporation before filing their
complaint; (3) that no actual loss had been suffered by the defendant corporation on account of the transactions questioned by plaintiffs; (4)
that the payments by the debtors of all amounts due to the defendant corporation constituted a full, sufficient and adequate remedy for the
grievances alleged in the complaint and (5) that the dissolution and/or receivership of the defendant corporation would violate and impair the
obligation of existing contracts of said corporation.

BY WAY OF COUNTERCLAIM, the defendants in substance further alleged, among others, that the complaint was premature, improper and
malicious, and that the language used was "unnecessarily vituperative abusive and insulting, particularly against defendant J. Amado Araneta
who appears to be the main target of their hatred." Wherefore, the defendant sought to recover "compensation for damages, actual, moral,
exemplary and corrective, including reasonable attorney's fees."

After trial, the Lower Court rendered its Decision (later supplemented by an Order resolving defendants' Motion for Reconsideration), the
dispositive portion of which reads:

IN VIEW WHEREOF, the Court dismisses the petition for dissolution but condemns J. Amado Araneta to pay unto Ma-ao Sugar
Central Co., Inc. the amount of P46,270.00 with 8% interest from the date of the filing of this complaint, plus the costs; the Court
reiterates the preliminary injunction restraining the Ma-ao Sugar Central Co., Inc. management to give any loans or advances to its
officers and orders that this injunction be as it is hereby made, permanent; and orders it to refrain from making investments in
Acoje Mining, Mabuhay Printing, and any other company whose purpose is not connected with the Sugar Central business; costs of
plaintiffs to be borne by the Corporation and J. Amado Araneta.

From this judgment both parties appealed directly to the Supreme Court.

Before taking up the errors respectively, assigned by the parties, we should state that the following findings of the Lower Court on the
commission of corporate irregularities by the defendants have not been questioned by the defendants:

1. Failure to hold stockholders' meetings regularly. No stockholders' meetings were held in 1947, 1950 and 1951;

2. Irregularities in the keeping of the books. Untrue entries were made in the books which could not simply be considered as
innocent errors;

3. Illegal investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining, P7,000.00. The investments were made not in
pursuance of the corporate purpose and without the requisite authority of two-thirds of the stockholders;

4. Unauthorized loans to J. Amado Araneta totalling P132,082.00 (which, according to the defendants, had been fully paid), in
violation of the by-laws of the corporation which prohibits any director from borrowing money from the corporation;

5. Diversion of corporate funds of the Ma-ao Sugar Central Co., Inc. to:
 J. Amado Araneta & Co. P243,415.62

Luzon Industrial Corp. 585,918.17

Associated Sugar 463,860.36

General Securities 86,743.65

Bacolod Murcia 501,030.61

Central Azucarera del Danao 97,884.42

Talisay-Silay 4,365.90

The Court found that sums were taken out of the funds of the Ma-ao Sugar Central Co., Inc. and delivered to these affiliated companies, and
vice versa, without the approval of the Ma-ao Board of Directors, in violation of Sec. III, Art. 6-A of the by-laws.

The errors assigned in the appeal of the plaintiffs, as appellants, are as follows:

I.

THE LOWER COURT ERRED IN HOLDING THAT THE INVESTMENT OF CORPORATE FUNDS OF THE MA-AO SUGAR CENTRAL CO., INC.,
IN THE PHILIPPINE FIBER PROCESSING CO., INC. WAS NOT A VIOLATION OF SEC. 17-½ OF THE CORPORATION LAW.

II.

THE LOWER COURT ERRED IN NOT FINDING THAT THE MA-AO SUGAR CENTRAL CO., INC. WAS INSOLVENT.

III.

THE LOWER COURT ERRED IN HOLDING THAT THE DISCRIMINATORY ACTS COMMITTED AGAINST PLANTERS DID NOT CONSTITUTE
MISMANAGEMENT.

IV.

THE LOWER COURT ERRED IN HOLDING THAT ITS CULPABLE ACTS WERE INSUFFICIENT FOR THE DISSOLUTION OF THE
CORPORATION.

The portions of the Decision of the Lower Court assailed by the plaintiffs as appellants are as follows:

(1) ".... Finally, as to the Philippine Fiber, the Court takes it that defendants admit having invested P655,000.00 in shares of stock of
this company but that this was ratified by the Board of Directors in Resolutions 60 and 80, Exhibits "R" and "R-2"; more than that,
defendants contend that since said company was engaged in the manufacture of sugar bags it was perfectly legitimate for Ma-ao
Sugar either to manufacture sugar bags or invest in another corporation engaged in said manufacture, and they quote authorities
for the purpose, pp. 28-31, memorandum; the Court is persuaded to believe that the defendants on this point are correct, because
while Sec. 17-1/2 of the Corporation Law provides that:

No corporation organized under this act shall invest its funds in any other corporation or business or for any purpose other
than the main purpose for which it was organized unless its board of directors has been so authorized in a resolution by
the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the
voting power on such proposal at the stockholders' meeting called for the purpose.

the Court is convinced that that law should be understood to mean as the authorities state, that it is prohibited to the Corporation to
invest in shares of another corporation unless such an investment is authorized by two-thirds of the voting power of the
stockholders, if the purpose of the corporation in which investment is made is foreign to the purpose of the investing corporation
because surely there is more logic in the stand that if the investment is made in a corporation whose business is important to the
investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the Power of
the Board of Directors; the only trouble here is that the investment was made without any previous authority of the Board of
Directors but was only ratified afterwards; this of course would have the effect of legalizing the unauthorized act but it is an
indication of the manner in which corporate business is transacted by the Ma-ao Sugar administration, the fact that off and on, there
would be passed by the Board of Directors, resolutions ratifying all acts previously done by the management, e.g. resolutions passed
on February 25, 1947, and February 25, 1952, by the Board of Directors as set forth in the affidavit of Isidro T. Dunca p. 127, etc.
Vol. 1. (Decision, pp. 239-241 of Record on Appeal.)

xxx xxx xxx

(2) "On the other hand, the Court has noted against plaintiffs that their contention that Ma-ao Sugar is on the verge of bankruptcy
has not been clearly shown; against this are Exh. C to Exh. C-3 perhaps the best proof that insolvency is still far is that this action
was filed in 1953 and almost seven years have passed since then without the company apparently getting worse than it was before;
..." (Decision, pp. 243-244, supra.)

xxx xxx xxx

(3) "As to the crop loan anomalies in that instead of giving unto the planters the entire amount alloted for that, the Central withheld
a certain portion for their own use, as can be seen in Appendix A of Exh. C-1, while the theory of plaintiffs is that since between the
amount of P3,791,551.78 the crop loan account payable, and the amount of P1,708,488.22, the crop loan receivable, there is a
difference of P2,083,063.56, this would indicate that this latter sum had been used by the Central itself for its own purposes; on the
other hand, defendants contend that the first amount did not represent the totality of the crop loans obtained from the Bank for the
purpose of relending to the planters, but that it included the Central's own credit line on its 40% share in the standing crop; and
that this irregularity amounts to a grievance by plaintiffs as planters and not as stockholders, the Court must find that as to this
count, there is really reason to find that said anomaly is not a clear basis for the derivative suit, first, because plaintiffs' evidence is
not very sufficient to prove clearly the alleged diversion in the face of defendants' defense; there should have been a showing that
the Central had no authority to make the diversion; and secondly, if the anomaly existed, there is ground to hold with defendants
that it was an anomaly pernicious not to the Central but to the planters; it was not even pernicious to the stockholders.
 Going to the discriminatory acts of J. Amado Araneta, namely, manipulation of cane allotments, withholding of molasses and alcohol
shares, withholding of trucking allowance, formation of rival planters associations, refusal to deal with legitimate planters group,
Exh. S; the Court notices that as to the failure to provide hauling transportation, this in a way is corroborated by Exh. 7, that part
containing the decision of the Court of First Instance of Manila, civil 20122, Francisco Rodriguez v. Ma-ao Sugar; for the reason,
however, that even if these were true, those grievances were grievances of plaintiffs as planters and not as stockholders — just as
the grievance as to the crop loans already adverted to, — this Court will find insufficient merit on this count. (Decision, pp. 230-
231, supra.)

xxx xxx xxx

(4) "...; for the Court must admit its limitations and confess that it cannot pretend to know better than the Board in matters where
the Board has not transgressed any positive statute or by-law especially where as here, there is the circumstance that presumably,
an impartial representative in the Board of Directors, — the one from the Philippine National Bank, — against whom apparently
plaintiffs have no quarrel, does not appear to have made any protest against the same; the net result will be to hold that the
culpable acts proved are not enough to secure a dissolution; the Court will only order the correction of abuses, proved as already
mentioned; nor will the Court grant any more damages one way or the other. (Decision, p. 244, supra.)

On the other hand, the errors assigned in the appeal of the defendants as appellants are as follows:

I.

THE LOWER COURT ERRED IN ADJUDGING J. AMADO ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO., INC., THE AMOUNT OF
P46,270.00, WITH 8% INTEREST FROM THE DATE OF FILING OF THE COMPLAINT.

II.

THE LOWER COURT ERRED IN NOT ORDERING THE PLAINTIFFS TO PAY THE DEFENDANTS, PARTICULARLY J. AMADO ARANETA, THE
DAMAGES PRAYED FOR IN THE COUNTERCLAIM OF SAID DEFENDANTS.

The portions of the Decision of the Lower Court assailed by the defendants as appellants are as follows:

(1) "As to the alleged juggling of books in that the personal account of J. Amado Araneta of P46,270.00 was closed on October 31,
1947 by charges transferred to loans receivable nor was interest paid on this amount, the Court finds that this is related to charge
No. 1, namely, the granting of personal loans to J. Amado Araneta; it is really true that according to the books, and as admitted by
defendants, J. Amado Araneta secured personal loans; in 1947, the cash advance to him was P132,082.00 (Exh. A); the Court has
no doubt that this was against the By-Laws which provided that:

The Directors shall not in any case borrow money from the Company. (Sec. III, Art. 7);

the Court therefore finds this count to be duly proved; worse, the Court also finds that as plaintiffs contend, while the books of the
Corporation would show that the last balance of P46,270.00 was written off as paid, as testified to by Auditor Mr. Sanchez, the
payment appeared to be nothing more than a transfer of his loan receivable account, stated otherwise, the item was only
transferred from the personal account to the loan receivable account, so that again the Court considers established the juggling of
the books; and then again, it is also true that the loans were secured without any interest and while it is true that in the Directors'
meeting of 21 October, 1953, it was resolved to collect 8%, the Court does not see how such a unilateral action of the Board could
bind the borrowers. Be it stated that defendants have presented in evidence Exh. 5 photostatic copy of the page in loan receivable
and it is sought to be proved that J. Amado Araneta's debt was totally paid on 31 October, 1953; to the Court, in the absence of
definite primary proof of actual payment having found out that there had already been a juggling of books, it cannot just believe
that the amount had been paid as noted in the books. (Decision, pp. 233-235 of Record on Appeal.)

(2) "With respect to the second point in the motion for reconsideration to the effect that the Court did not make any findings of fact
on the counterclaim of defendants, although the Court did not say that in so many words, the Court takes it that its findings of fact
on pages 17 to 21 of its decision were enough to justify a dismissal of the counterclaim, because the counterclaims were based on
the fact that the complaint was premature, improper, malicious and that the language is unnecessarily vituperative abusive and
insulting; but the Court has not found that the complaint is premature; nor has the Court found that the complaint was malicious;
these findings can be gleaned from the decision with respect to the allegation that the complaint was abusive and insulting, the
Court does not concur; for it has not seen anything in the evidence that would justify a finding that plaintiffs and been actuated by
bad faith, nor is there anything in the complaint essentially libelous; especially as the rule is that allegations in pleading where
relevant, are privileged even though they may not clearly proved afterwards; so that the Court has not seen any merit in the
counterclaims; and the Court had believed that the decision already carried with it the implication of the dismissal of the
counterclaims, but if that is not enough, the Court makes its position clear on this matter in this order, and clarifies that it has
dismissed the counterclaims of defendant; ..." (Order of September 3, 1960, pp. 248-249, supra.)

Regarding Assignment of Errors Nos. 2, 3 and 4 contained in the brief of the plaintiffs as appellants, it appears to us that the Lower Court was
correct in its appreciation (1) that the evidence presented did not show that the defendant Ma-ao Sugar Company was insolvent (2) that the
alleged discriminatory acts committed by the defendant Central against the planters were not a proper subject of derivative suit, but, at most,
constituted a cause of action of the individual planters; and (3) that the acts of mismanagement complained of and proved do not justify a
dissolution of the corporation.

Whether insolvency exists is usually a question of fact, to be determined from an inventory of the assets and their value, as well as
a consideration of the liabilities.... But the mere impairment of capital stock alone does not establish insolvency there being other
evidence as to the corporation being a going concern with sufficient assets. Also, the excess of liabilities over assets does not
establish insolvency, when other assets are available. (Fletcher Cyc. of the Law of Private Corporations, Vol. 15A, 1938 Ed pp. 34-
37; Emphasis supplied).

But relief by dissolution will be awarded in such cases only where no other adequate remedy is available, and is not available where
the rights of the stockholders can be, or are, protected in some other way. (16 Fletcher Cyc. Corporations, 1942 Ed., pp. 812-813,
citing "Thwing v. McDonald", 134 Minn. 148, 156 N.W. 780, 158 N.W. 820, 159 N.W. 564, Ann. Cas. 1918 E 420; Mitchell v. Bank of
St. Paul, 7 Minn. 252).

The First Assignment of Error in the brief of the plaintiffs as appellants, contending that the investment of corporate funds by the Ma-ao Sugar
Co., Inc., in another corporation (the Philippine Fiber Processing Co., Inc.) constitutes a violation of Sec. 17-½ of the Corporation Law,
deserves consideration.

Plaintiffs-appellants contend that in 1950 the Ma-ao Sugar Central Co., Inc., through its President, J. Amado Araneta,, subscribed for
P300,000.00 worth of capital stock of the Philippine Fiber Processing Co. Inc., that payments on the subscription were made on September
20, 1950, for P150,000.00, on April 30, 1951, for P50,000.00, and on March 6, 1952, for P100,000.00; that at the time the first two
payments were made there was no board resolution authorizing the investment; and that it was only on November 26, 1951, that the
President of Ma-ao Sugar Central Co., Inc., was so authorized by the Board of Directors.

In addition, 355,000 shares of stock of the same Philippine Fiber Processing Co., Inc., owned by Luzon Industrial, corporation were
transferred on May 31, 1952, to the defendant Ma-ao Sugar Central Co., Inc., with a valuation of P355,000.00 on the basis of P1.00 par value
per share. Again the "investment" was made without prior board resolution, the authorizing resolution having been subsequentIy approved
only on June 4, 1952.

Plaintiffs-appellants also contend that even assuming, arguendo, that the said Board Resolutions are valid, the transaction, is still wanting in
legality, no resolution having been approved by the affirmative vote of stockholders holding shares in the corporation entitling them to
exercise at least two-thirds of the voting power, as required in Sec. 17-½ of the Corporation Law.

The legal provision invoked by the plaintiffs, as appellants, Sec. 17-½ of the Corporation Law, provides:

No corporation organized under this act shall invest its funds in any other corporation or business, or for any purpose other than the
main purpose for which it was organized, unless its board of directors has been so authorized in a resolution by the affirmative vote
of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal
at a stockholders' meeting called for the purpose ....

On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the Corporation Law, which provides:

SEC. 13. — Every corporation has the power:

xxx xxx xxx

(9) To enter into any obligation or contract essential to the proper administration of its corporate affairs or necessary for the proper
transaction of the business or accomplishment of the purpose for which the corporation was organized;

(10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of incorporation, to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities and other evidences of indebtedness of any domestic or
foreign corporation.

A reading of the two afore-quoted provisions shows that there is need for interpretation of the apparent conflict.

In his work entitled "The Philippine Corporation Law," now in its 5th edition, Professor Sulpicio S. Guevara of the University of the Philippines,
College of Law, a well-known authority in commercial law, reconciled these two apparently conflicting legal provisions, as follows:

j. Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish its purpose as stated in its
articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an
act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares
of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of
the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established
by the Corporation Law; namely, (a) that no agricultural or mining corporation shall in anywise be interested in any other
agricultural or mining corporation; or (b) that a non-agricultural or non-mining corporation shall be restricted to own not more than
15% of the voting stock of any agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not
for the purpose of bringing about a monopoly in any line of commerce or combination in restraint of trade. (The Philippine
Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89.) (Emphasis ours.)lawphi1.nêt

40. Power to invest corporate funds. — A private corporation has the power to invest its corporate funds in any other corporation or
business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been
so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at
least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further,
that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the
stockholders is not necessary. (Id., p. 108.) (Emphasis ours.)

We agree with Professor Guevara.

We therefore agree with the finding of the Lower Court that the investment in question does not fall under the purview of Sec. 17- ½ of the
Corporation Law.

With respect to the defendants' assignment of errors, the second (referring to the counterclaim) is clearly without merit. As the Lower Court
aptly ruled in its Order of September 3, 1960 (resolving the defendants' Motion for Reconsideration) the findings of fact were enough to
justify a dismissal of the counterclaim, "because the counterclaims were based on the fact that the complaint was premature, improper,
malicious and that the language is unnecessarily vituperative abusive and insulting; but the Court has not found that the complaint is
premature; nor has the Court found that the complaint was malicious; these findings can be gleaned from the decision; with respect to the
allegation that the complaint was abusive and insulting, the Court does not concur; for it has not seen anything in the evidence that would
justify a finding that plaintiffs had been actuated by bad faith, nor is there anything in the complaint essentially libelous especially as the rule
is that allegations in pleadings where relevant, are privileged even though they may not be clearly proved afterwards; ..."

As regards defendants' first assignment of error, referring to the status of the account of J. Amado Araneta in the amount of P46,270.00, this
Court likewise agrees with the finding of the Lower Court that Exhibit 5, photostatic copy of the page on loans receivable does not constitute
definite primary proof of actual payment, particularly in this case where there is evidence that the account in question was transferred from
one account to another. There is no better substitute for an official receipt and a cancelled check as evidence of payment.

In the judgment, the lower court ordered the management of the Ma-ao Sugar Central Co., Inc. "to refrain from making investments in Acoje
Mining, Mabuhay Printing and any other company whose purpose is not connected with the sugar central business." This portion of the
decision should be reversed because, Sec. 17-½ of the Corporation Law allows a corporation to "invest its fund in any other corporation or
business, or for any purpose other than the main purpose for which it was organized," provided that its board of directors has been so
authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power.
IN VIEW OF ALL THE FOREGOING, that part of the judgment which orders the Ma-ao Sugar Central Co., Inc. "to refrain from making
investments in Acoje Mining, Mabuhay Printing, and any other: company whose purpose is not connected with the sugar central business," is
reversed. The other parts of the judgment are, affirmed. No special pronouncement as to costs.
G.R. No. L-21601 December 28, 1968

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.

RESOLUTION

ZALDIVAR, J.:

Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for reconsideration is based on two sets of
grounds — the first set consisting of four principal grounds, and the second set consisting of five alternative grounds, as follows:

Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law applicable to the agency or management contract in question,
namely, Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of which said agency was effectively revoked and
terminated in 1945 when, as stated in paragraph 20 of the complaint, "defendant voluntarily ... prevented plaintiff from resuming
management and operation of said mining properties."

2. The court erred in holding that paragraph II of the management contract (Exhibit C) suspended the period of said contract.

3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of this Supreme Court, that the
management agreement was only suspended but not extended on account of the war.

4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, but considering only the first claim
and ignoring the prescriptibility of the other claims.

Alternative Grounds:

5. The court erred in holding that the period of suspension of the contract on account of the war lasted from February 1942 to June
26, 1948.

6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as damages (a) 10% of the cash dividends
declared and paid in December, 1941; (b) the management fee of P2,500.00 for the month of January, 1942; and (c) the full
contract price for the extended period of sixty months, since these damages were neither demanded nor proved and, in any case,
not allowable under the general law of damages.

7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to issue and deliver to appellant
shares of stock together with fruits thereof.

8. The court erred in awarding to appellant an undetermined amount of shares of stock and/or cash, which award cannot be
ascertained and executed without further litigation.

9. The court erred in rendering judgment for attorney's fees.

We are going to dwell on these grounds in the order they are presented.

1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real nature of the management contract
entered into by and between Lepanto and Nielson, and the law that is applicable on said contract. Lepanto now asserts for the first time and
this is done in a motion for reconsideration - that the management contract in question is a contract of agency such that it has the right to
revoke and terminate the said contract, as it did terminate the same, under the law of agency, and particularly pursuant to Article 1733 of the
Old Civil Code (Article 1920 of the New Civil Code).

We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings filed by Lepanto in the lower court, its
memorandum and its brief on appeal, and never did it assert the theory that it has the right to terminate the management contract because
that contract is one of agency which it could terminate at will. While it is true that in its ninth and tenth special affirmative defenses, in its
answer in the court below, Lepanto pleaded that it had the right to terminate the management contract in question, that plea of its right to
terminate was not based upon the ground that the relation between Lepanto and Nielson was that of principal and agent but upon the ground
that Nielson had allegedly not complied with certain terms of the management contract. If Lepanto had thought of considering the
management contract as one of agency it could have amended its answer by stating exactly its position. It could have asserted its theory of
agency in its memorandum for the lower court and in its brief on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of
this Court, that a party cannot change his theory on appeal — that is, that a party cannot raise in the appellate court any question of law or of
fact that was not raised in the court below or which was not within the issue made by the parties in their pleadings (Section 19, Rule 49 of the
old Rules of Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern Motors, Inc.
vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina
vs. Somes, 24 Phil 49).

At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings, this Court cannot sustain the same.

Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1) Nielson was to manage and operate
the mining properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson was authorized to represent Lepanto in entering, on
Lepanto's behalf, into contracts for the hiring of laborers, purchase of supplies, and the sale and marketing of the ores mined. All these,
Lepanto claims, show that Nielson was, by the terms of the contract, destined to execute juridical acts not on its own behalf but on behalf of
Lepanto under the control of the Board of Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency.
Lepanto then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code), regardless of any term or
period stipulated in the contract, and it was in pursuance of that right that Lepanto terminated the contract in 1945 when it took over and
assumed exclusive management of the work previously entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an
agent is not entitled to damages since the law gives to the principal the right to terminate the agency at will.

Because of Lepanto's new theory We consider it necessary to determine the nature of the management contract — whether it is a contract of
agency or a contract of lease of services. Incidentally, we have noted that the lower court, in the decision appealed from, considered the
management contract as a contract of lease of services.
Article 1709 of the Old Civil Code, defining contract of agency, provides:

By the contract of agency, one person binds himself to render some service or do something for the account or at the request of
another.

Article 1544, defining contract of lease of service, provides:

In a lease of work or services, one of the parties binds himself to make or construct something or to render a service to the other
for a price certain.

In both agency and lease of services one of the parties binds himself to render some service to the other party. Agency, however, is
distinguished from lease of work or services in that the basis of agency is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer, while the agent represents his principal. Manresa, in his "Commentarios
al Codigo Civil Español" (1931, Tomo IX, pp. 372-373), points out that the element of representation distinguishes agency from lease of
services, as follows:

Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos en las concordancias, expresan
claramente esta idea de la representacion, "hacer alguna cosa por cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer
alguna cosa para el mandante o en su nombre" dice el Codigo de Napoleon, y en tales palabras aparece vivo y luminoso el concepto
y la teoria de la representacion, tan fecunda en ensenanzas, que a su sola luz es como se explican las diferencias que separan el
mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de la gestion de negocios.

En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en verdad, para el dueno que remunera la
labor, pero ni se le representa ni se obra en su nombre....

On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code has defined the contract of agency in
more explicit terms, as follows:

By the contract of agency a person binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter.

There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, as agency "does not stop with
the agency because the purpose is to enter into other contracts." The most characteristic feature of an agency relationship is the agent's
power to bring about business relations between his principal and third persons. "The agent is destined to execute juridical acts (creation,
modification or extinction of relations with third parties). Lease of services contemplate only material (non-juridical) acts." (Reyes and Puno,
"An Outline of Philippine Civil Law," Vol. V, p. 277).

In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine the nature of the management
contract in question. Under the contract, Nielson had agreed, for a period of five years, with the right to renew for a like period, to explore,
develop and operate the mining claims of Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to market the
metallic products recovered therefrom which may prove to be marketable, as well as to render for Lepanto other services specified in the
contract. We gather from the contract that the work undertaken by Nielson was to take complete charge subject at all times to the general
control of the Board of Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a sufficient and
competent staff and of sufficient and capable laborers, of the prospecting and development of the mine, of the erection and operation of the
mill, and of the benefication and marketing of the minerals found on the mining properties; and in carrying out said obligation Nielson should
proceed diligently and in accordance with the best mining practice. In connection with its work Nielson was to submit reports, maps, plans
and recommendations with respect to the operation and development of the mining properties, make recommendations and plans on the
erection or enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties as from time to time may
reasonably be required to investigate and make recommendations without cost or expense to Lepanto. Nielson was also to "act as purchasing
agent of supplies, equipment and other necessary purchases by Lepanto, provided, however, that no purchase shall be made without the
prior approval of Lepanto; and provided further, that no commission shall be claimed or retained by Nielson on such purchase"; and "to
submit all requisition for supplies, all constricts and arrangement with engineers, and staff and all matters requiring the expenditures of
money, present or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve of Lepanto for the sale and
marketing of the minerals mined from said properties, when said products are in a suitable condition for marketing."1

It thus appears that the principal and paramount undertaking of Nielson under the management contract was the operation and development
of the mine and the operation of the mill. All the other undertakings mentioned in the contract are necessary or incidental to the principal
undertaking — these other undertakings being dependent upon the work on the development of the mine and the operation of the mill. In the
performance of this principal undertaking Nielson was not in any way executing juridical acts for Lepanto, destined to create, modify or
extinguish business relations between Lepanto and third persons. In other words, in performing its principal undertaking Nielson was not
acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one who was performing
material acts for an employer, for a compensation.

It is true that the management contract provides that Nielson would also act as purchasing agent of supplies and enter into contracts
regarding the sale of mineral, but the contract also provides that Nielson could not make any purchase, or sell the minerals, without the prior
approval of Lepanto. It is clear, therefore, that even in these cases Nielson could not execute juridical acts which would bind Lepanto without
first securing the approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an agent.

Lepanto contends that the management contract in question being one of agency it had the right to terminate the contract at will pursuant to
the provision of Article 1733 of the old Civil Code. We find, however, a proviso in the management contract which militates against this stand
of Lepanto. Paragraph XI of the contract provides:

Both parties to this agreement fully recognize that the terms of this Agreement are made possible only because of the faith or
confidence that the Officials of each company have in the other; therefore, in order to assure that such confidence and faith shall
abide and continue, NIELSON agrees that LEPANTO may cancel this Agreement at any time upon ninety (90) days written notice, in
the event that NIELSON for any reason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to
prosecute the operation and development of the properties herein described, in good faith and in accordance with approved mining
practice.

It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto could not terminate the
agreement at will. Lepanto could terminate or cancel the agreement by giving notice of termination ninety days in advance only in the event
that Nielson should prosecute in bad faith and not in accordance with approved mining practice the operation and development of the mining
properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease to prosecute the operation and development of the
mining properties by reason of acts of God, strike and other causes beyond the control of Nielson.

The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made possible only because of the faith and
confidence of the officials of each company have in the other" in paragraph XI of the management contract does not qualify the relation
between Lepanto and Nielson as that of principal and agent based on trust and confidence, such that the contractual relation may be
terminated by the principal at any time that the principal loses trust and confidence in the agent. Rather, that phrase simply implies the
circumstance that brought about the execution of the management contract. Thus, in the annual report for 19362, submitted by Mr. C. A.
Dewit, President of Lepanto, to its stockholders, under date of March 15, 1937, we read the following:

To the stockholders

The incorporation of our Company was effected as a result of negotiations with Messrs. Nielson & Co., Inc., and an offer by these
gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936, reading as follows:

Messrs. Cookes and Lednicky,

Present

Re: Mankayan Copper Mines

GENTLEMEN:

After an examination of your property by our engineers, we have decided to offer as we hereby offer to underwrite the
entire issue of stock of a corporation to be formed for the purpose of taking over said properties, said corporation to have
an authorized capital of P1,750,000.00, of which P700,000.00 will be issued in escrow to the claim-owners in exchange for
their claims, and the balance of P1,050,000.00 we will sell to the public at par or take ourselves.

The arrangement will be under the following conditions:

1. The subscriptions for cash shall be payable 50% at time of subscription and the balance subject to the call of the Board
of Directors of the proposed corporation.

2. We shall have an underwriting and brokerage commission of 10% of the P1,050,000.00 to be sold for cash to the public,
said commission to be payable from the first payment of 50% on each subscription.

3. We will bear the cost of preparing and mailing any prospectus that may be required, but no such prospectus will be sent
out until the text thereof has been first approved by the Board of Directors of the proposed corporation.

4. That after the organization of the corporation, all operating contract be entered into between ourselves and said
corporation, under the terms which the property will be developed and mined and a mill erected, under our supervision,
our compensation to be P2,000.00 per month until the property is put on a profitable basis and P2,500.00 per month plus
10% of the net profits for a period of five years thereafter.

5. That we shall have the option to renew said operating contract for an additional period of five years, on the same basis
as the original contract, upon the expiration thereof.

It is understood that the development and mining operations on said property, and the erection of the mill thereon, and
the expenditures therefor shall be subject to the general control of the Board of Directors of the proposed corporation, and,
in case you accept this proposition, that a detailed operating contract will be entered into, covering the relationships
between the parties.

Yours very truly,

(Sgd.) L. R. Nielson

Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for One Million Fifty Thousand
Pesos (P1,050,000.00) in shares of our Company and their underwriting and brokerage commission has been paid. More than fifty
per cent of these subscriptions have been paid to the Company in cash. The claim owners have transferred their claims to the
Corporation, but the P700,000.00 in stock which they are to receive therefor, is as yet held in escrow.

Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the Management of the property under the
control of the Board of Directors. A modification in the Management Contract was made with the consent of all the then
stockholders, in virtue of which the compensation of Messrs. Nielson & Co., was increased to P2,500.00 per month when mill
construction began. The formal Management Contract was not entered into until January 30, 1937.

Manila, March 15, 1937

(Sgd.) C. A. DeWitt President

We can gather from the foregoing statements in the annual report for 1936, and from the provision of paragraph XI of the Management
contract, that the employment by Lepanto of Nielson to operate and manage its mines was principally in consideration of the know-how and
technical services that Nielson offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted by
Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record is it shown that Lepanto considered
Nielson as its agent and that Lepanto terminated the management contract because it had lost its trust and confidence in Nielson.

The contention of Lepanto that it had terminated the management contract in 1945, following the liberation of the mines from Japanese
control, because the relation between it and Nielson was one of agency and as such it could terminate the agency at will, is, therefore,
untenable. On the other hand, it can be said that, in asserting that it had terminated or cancelled the management contract in 1945, Lepanto
had thereby violated the express terms of the management contract. The management contract was renewed to last until January 31, 1947,
so that the contract had yet almost two years to go — upon the liberation of the mines in 1945. There is no showing that Nielson had ceased
to prosecute the operation and development of the mines in good faith and in accordance with approved mining practice which would warrant
the termination of the contract upon ninety days written notice. In fact there was no such written notice of termination. It is an admitted fact
that Nielson ceased to operate and develop the mines because of the war — a cause beyond the control of Nielson. Indeed, if the
management contract in question was intended to create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of
the contract should not have been inserted because, as provided in Article 1733 of the old Civil Code, agency is essentially revocable at the
will of the principal — that means, with or without cause. But precisely said paragraph XI was inserted in the management contract to provide
for the cause for its revocation. The provision of paragraph XI must be given effect.

In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will
give effect to all,3 and if some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual.4
It is Our considered view that by express stipulation of the parties, the management contract in question is not revocable at the will of
Lepanto. We rule that this management contract is not a contract of agency as defined in Article 1709 of the old Civil Code, but a contract of
lease of services as defined in Article 1544 of the same Code. This contract can not be unilaterally revoked by Lepanto.

The first ground of the motion for reconsideration should, therefore, be brushed aside.

2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this Court erred, in holding that paragraph
11 of the management contract suspended the period of said contract, in holding that the agreement was not only suspended but was
extended on account of the war, and in holding that the period of suspension on account of the war lasted from February, 1942 to June 26,
1948. We are going to discuss these three grounds together because they are interrelated.

In our decision we have dwelt lengthily on the points that the management contract was suspended because of the war, and that the period
of the contract was extended for a period equivalent to the time when Nielson was unable to perform the work of mining and milling because
of the adverse effects of the war on the work of mining and milling.

It is the contention of Lepanto that the happening of those events, and the effects of those events, simply suspended the performance of the
obligations by either party in the contract, but did not suspend the period of the contract, much less extended the period of the contract.

We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We are not persuaded to reconsider the
rulings that We made in Our decision.

We want to say a little more on these points, however. Paragraph II of the management contract provides as follows:

In the event of inundation, flooding of the mine, typhoon, earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, fire, injury to the machinery or other event or cause reasonably beyond the control of NIELSON
and which adversely affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and without liability or
breach of the terms of this Agreement, the same shall remain in suspense, wholly or partially during the terms of such inability.
(Emphasis supplied)

A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any of the events enumerated therein,
which adversely affects the work of mining and milling, the agreement is deemed suspended for as long as Nielson is unable to perform its
work of mining and milling because of the adverse effects of the happening of the event on the work of mining and milling. During the period
when the adverse effects on the work of mining and milling exist, neither party in the contract would be held liable for non-compliance of its
obligation under the contract. In other words, the operation of the contract is suspended for as long as the adverse effects of the happening
of any of those events had impeded or obstructed the work of mining and milling. An analysis of the phraseology of the above-quoted
paragraph II of the management contract readily supports the conclusion that it is the agreement, or the contract, that is suspended. The
phrase "the same" can refer to no other than the term "Agreement" which immediately precedes it. The "Agreement" may be wholly or
partially suspended, and this situation will depend on whether the event wholly or partially affected adversely the work of mining and milling.
In the instant case, the war had adversely affected — and wholly at that — the work of mining and milling. We have clearly stated in Our
decision the circumstances brought about by the war which caused the whole or total suspension of the agreement or of the management
contract.

LEPANTO itself admits that the management contract was suspended. We quote from the brief of LEPANTO:

Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of the mine in 1945, at the
precise time when defendant was at the feverish phase of rehabilitation and although the contract had already been suspended.
(Lepanto's Brief, p. 9).

... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the same and because, as
provided in the agreement, the contract was suspended by reason of the war (Lepanto's Brief, pp. 9-10).

Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force majeure, such as war, adversely
affects the work of mining and milling. (Lepanto's Brief, p. 49).

Lepanto is correct when it said that the obligations under the contract were suspended upon the happening of any of the events enumerated
in paragraph II of the management contract. Indeed, those obligations were suspended because the contract itself was suspended. When we
talk of a contract that has been suspended we certainly mean that the contract temporarily ceased to be operative, and the contract becomes
operative again upon the happening of a condition — or when a situation obtains — which warrants the termination of the suspension of the
contract.

In Our decision We pointed out that the agreement in the management contract would be suspended when two conditions concur, namely:
(1) the happening of the event constituting a force majeure that was reasonably beyond the control of Nielson, and (2) that the event
constituting the force majeure adversely affected the work of mining and milling. The suspension, therefore, would last not only while the
event constituting the force majeure continued to occur but also for as long as the adverse effects of the force majeure on the work of mining
and milling had not been eliminated. Under the management contract the happening alone of the event constituting the force majeure which
did not affect adversely the work of mining and milling would not suspend the period of the contract. It is only when the two conditions
concur that the period of the agreement is suspended.

It is not denied that because of the war, in February 1942, the mine, the original mill, the original power plant, the supplies and equipment,
and all installations at the Mankayan mines of Lepanto, were destroyed upon order of the United States Army, to prevent their utilization by
the enemy. It is not denied that for the duration of the war Nielson could not undertake the work of mining and milling. When the mines were
liberated from the enemy in August, 1945, the condition of the mines, the mill, the power plant and other installations, was not the same as
in February 1942 when they were ordered destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, the work of
mining and milling could not be undertaken by Nielson under the same favorable circumstances that obtained before February 1942. The work
of mining and milling, as undertaken by Nielson in January, 1942, could not be resumed by Nielson soon after liberation because of the
adverse effects of the war, and this situation continued until June of 1948. Hence, the suspension of the management contract did not end
upon the liberation of the mines in August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to be
reconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects of the war on the work of mining
and milling had ended, because it was on that date that the operation of the mines and the mill was resumed. The period of suspension
should, therefore, be reckoned from February 1942 until June 26, 1948, because it was during this period that the war and the adverse
effects of the war on the work of mining and milling had lasted. The mines and the installations had to be rehabilitated because of the adverse
effects of the war. The work of rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26, 1948
when, as stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the official return to operation of this
company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).

Lepanto would argue that if the management contract was suspended at all the suspension should cease in August of 1945, contending that
the effects of the war should cease upon the liberation of the mines from the enemy. This contention cannot be sustained, because the period
of rehabilitation was still a period when the physical effects of the war — the destruction of the mines and of all the mining installations —
adversely affected, and made impossible, the work of mining and milling. Hence, the period of the reconstruction and rehabilitation of the
mines and the installations must be counted as part of the period of suspension of the contract.

Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines because soon after the liberation
of the mines Nielson insisted to resume the management work, and that Nielson was under obligation to reconstruct the mill in the same way
that it was under obligation to construct the mill in 1937. This contention is untenable. It is true that Nielson insisted to resume its
management work after liberation, but this was only for the purpose of restoring the mines, the mill, and other installations to their operating
and producing condition as of February 1942 when they were ordered destroyed. It is not shown by any evidence in the record, that Nielson
had agreed, or would have agreed, that the period of suspension of the contract would end upon the liberation of the mines. This is so
because, as found by this Court, the intention of the parties in the management contract, and as understood by them, the management
contract was suspended for as long as the adverse effects of the force majeure on the work of mining and milling had not been removed, and
the contract would be extended for as long as it was suspended. Under the management contract Nielson had the obligation to erect and
operate the mill, but not to erect or reconstruct the mill in case of its destruction by force majeure.

It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the contract as terminated upon the
liberation of the mines because then Nielson would be placed in a situation whereby it would have to suffer the adverse effects of the war on
the work of mining and milling. The evidence shows that as of January 1942 the operation of the mines under the management of Nielson
was already under beneficial conditions, so much so that dividends were already declared by Lepanto for the years 1939, 1940 and 1941. To
make the management contract immediately operative after the liberation of the mines from the Japanese, at the time when the mines and
all its installations were laid waste as a result of the war, would be to place Nielson in a situation whereby it would lose all the benefits of
what it had accomplished in placing the Lepanto mines in profitable operation before the outbreak of the war in December, 1941. The record
shows that Nielson started its management operation way back in 1936, even before the management contract was entered into. As early as
August 1936 Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it was the result of
those negotiations that Lepanto was incorporated; that it was Nielson that helped to capitalize Lepanto, and that after the formation of the
corporation (Lepanto) Nielson immediately assumed the management of the mining properties of Lepanto. It was not until January 30, 1937
when the management contract in question was entered into between Lepanto and Nielson (Exhibit A).

A contract for the management and operation of mines calls for a speculative and risky venture on the part of the manager-operator. The
manager-operator invests its technical know-how, undertakes back-breaking efforts and tremendous spade-work, so to say, in the first years
of its management and operation of the mines, in the expectation that the investment and the efforts employed might be rewarded later with
success. This expected success may never come. This had happened in the very case of the Mankayan mines where, as recounted by Mr.
Lednicky of Lepanto, various persons and entities of different nationalities, including Lednicky himself, invested all their money and failed. The
manager-operator may not strike sufficient ore in the first, second, third, or fourth year of the management contract, or he may not strike ore
even until the end of the fifth year. Unless the manager-operator strikes sufficient quantity of ore he cannot expect profits or reward for his
investment and efforts. In the case of Nielson, its corps of competent engineers, geologists, and technicians begun working on the Mankayan
mines of Lepanto since the latter part of 1936, and continued their work without success and profit through 1937, 1938, and the earlier part
of 1939. It was only in December of 1939 when the efforts of Nielson started to be rewarded when Lepanto realized profits and the first
dividends were declared. From that time on Nielson could expect profit to come to it — as in fact Lepanto declared dividends for 1940 and
1941 — if the development and operation of the mines and the mill would continue unhampered. The operation, and the expected profits,
however, would still be subject to hazards due to the occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force
majeure, which would result in the destruction of the mines and the mill. One of these diverse causes, or one after the other, may consume
the whole period of the contract, and if it should happen that way the manager-operator would reap no profit to compensate for the first
years of spade-work and investment of efforts and know-how. Hence, in fairness to the manager-operator, so that he may not be deprived of
the benefits of the work he had accomplished, the force majeure clause is incorporated as a standard clause in contracts for the management
and operation of mines.

The nature of the contract for the management and operation of mines justifies the interpretation of the force majeure clause, that a period
equal to the period of suspension due to force majeure should be added to the original term of the contract by way of an extension. We,
therefore, reiterate the ruling in Our decision that the management contract in the instant case was suspended from February, 1942 to June
26, 1948, and that from the latter date the contract had yet five years to go.

3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in reversing the finding of the trial court that
Nielson's action has prescribed, by considering only the first claim and ignoring the prescriptibility of the other claims.

This ground of the motion for reconsideration has no merit.

In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the cause of action prescribes in ten
years.5 Inasmuch as there are different claims which accrued on different dates the prescriptive periods for all the claims are not the same.
The claims of Nielson that have been awarded by this Court are itemized in the dispositive part of the decision.

The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, which is equivalent to 10% of the
cash dividends declared by Lepanto in December, 1941. As we have stated in Our decision, this claim accrued on December 31, 1941, and the
right to commence an action thereon started on January 1, 1942. We declared that the action on this claim did not prescribe although the
complaint was filed on February 6, 1958 — or after a lapse of 16 years, 1 month and 5 days — because of the operation of the moratorium
law.

We declared that under the applicable decisions of this Court 6 the moratorium period of 8 years, 2 months and 8 days should be deducted
from the period that had elapsed since the accrual of the cause of action to the date of the filing of the complaint, so that there is a period of
less than 8 years to be reckoned for the purpose of prescription.

This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as follows:

Enforcement of payments of all debts and other monetary obligations payable in the Philippines, except debts and other monetary
obligations entered into in any area after declaration by Presidential Proclamation that such area has been freed from enemy
occupation and control, is temporarily suspended pending action by the Commonwealth Government. (41 O.G. 56-57; Emphasis
supplied)

Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before December 8, 1941) and those
contracted subsequent to December 8, 1941 and during the Japanese occupation. Republic Act No. 342, approved on July 26, 1948, lifted the
moratorium provided for in Executive Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had not filed war damage
claims with the United States War Damage Commission. In other words, after the effectivity of Republic Act No. 342, the debt moratorium
was limited: (1) to debts and other monetary obligations which were contracted after December 8, 1941 and during the Japanese occupation,
and (2) to those pre-war (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war damage claims. That
was the situation up to May 18, 1953 when this Court declared Republic Act No. 342 unconstitutional.7 It has been held by this Court,
however, that from March 10, 1945 when Executive Order No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared
unconstitutional — or a period of 8 years, 2 months and 8 days — the debt moratorium was in force, and had the effect of suspending the
period of prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in Executive Order No. 32 was continued
by Republic Act No. 342 "only with respect to debtors of pre-war obligations or those incurred prior to December 8, 1941," and that "the
moratorium was lifted and terminated with respect to obligations incurred after December 8, 1941."9

This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did not lift the moratorium in relations
thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan C. Ysmael, et al., L-16741, Jan. 31, 1962, this Court said:

Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948, lifted the moratorium on debts
contracted during the Japanese occupation. The court has already held that Republic Act No. 342 did not lift the moratorium on
debts contracted during the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified Executive Order No. 32 as to
pre-war debts, making the protection available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct.
3, 1952).

We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to Nielson had not prescribed.

What we have stated herein regarding the non-prescription of the cause of action of the claim involved in the first item in the award also
holds true with respect to the second item in the award, which refers to Nielson's claim for management fee of P2,500.00 for January, 1942.
Lepanto admits that this second item, like the first, is a monetary obligation. The right of action of Nielson regarding this claim accrued on
January 31, 1942.

As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That is the reason why in Our decision
We did not discuss the question of prescription regarding these items. The claims of Nielson involved in these items are based on the
management contract, and Nielson's cause of action regarding these claims prescribes in ten years. Corollary to Our ruling that the
management contract was suspended from February, 1942 until June 26, 1948, and that the contract was extended for five years from June
26, 1948, the right of action of Nielson to claim for what is due to it during that period of extension accrued during the period from June 26,
1948 till the end of the five-year extension period or until June 26, 1953. And so, even if We reckon June 26, 1948 as the starting date of the
ten-year period in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the awards in the decision, it is
obvious that when the complaint was filed on February 6, 1958 the ten-year prescriptive period had not yet lapsed.

In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed because of the arbitration clause in
the Management contract. We are satisfied that there is evidence that Nielson had asked for arbitration, and an arbitration committee had
been constituted. The arbitration committee, however, failed to bring about any settlement of the differences between Nielson and Lepanto.
On June 25, 1957 counsel for Lepanto definitely advised Nielson that they were not entertaining any claim of Nielson. The complaint in this
case was filed on February 6, 1958.

4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in awarding as damages (a) 10% of the cash
dividends declared and paid in December, 1941; (b) the management fee of P2,500.00 for the month of January 1942; and (c) the full
contract price for the extended period of 60 months, since the damages were never demanded nor proved and, in any case, not allowable
under the general law on damages."

We have stated in Our decision that the original agreement in the management contract regarding the compensation of Nielson was modified,
such that instead of receiving a monthly compensation of P2,500.00 plus 10% of the net profits from the operation of the properties for the
preceding month,11 Nielson would receive a compensation of P2,500.00 a month, plus (1) 10% of the dividends declared and paid, when and
as paid, during the period of the contract, and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of
any amount expended during the year out of surplus earnings for capital account.

It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by Lepanto. 12Nielson, therefore, should receive
the equivalent of 10% of this amount, or the sum of P17,500.00. We have found that this amount was not paid to Nielson.

In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash disbursement book, allegedly for 1941, in an
effort to show that this amount of P17,500.00 had been paid to Nielson. It appears, however, in this photographic copy of page 127 of the
cash disbursement book that the sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc." The entry does not make
any reference to dividends or participation of Nielson in the profits. On the other hand, in the photographic copy of page 89 of the 1941 cash
disbursement book, also attached to the motion for reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts.
Pay. Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in the profits based on dividends
declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not stated that any dividend was declared in October 1941. On the
contrary it is stated in Exhibit L that dividends were declared in December 1941. We cannot entertain this piece of evidence for several
reasons: (1) because this evidence was not presented during the trial in the court below; (2) there is no showing that this piece of evidence is
newly discovered and that Lepanto was not in possession of said evidence when this case was being tried in the court below; and (3)
according to Exhibit L cash dividends of P175,000.00 were declared in December, 1941, and so the sum of P17,500.00 which appears to have
been paid to Nielson in October 1941 could not be payment of the equivalent of 10% of the cash dividends that were later declared in
December, 1941.

As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We have also found that Nielson is
entitled to be paid this amount, and that this amount was not paid by Lepanto to Nielson. Whereas, Lepanto was able to prove that it had
paid the management fees of Nielson for November and December, 1941,13 it was not able to present any evidence to show that the
management fee of P2,500.00 for January, 1942 had been paid.

It having been declared in Our decision, as well as in this resolution, that the management contract had been extended for 5 years, or sixty
months, from June 27, 1948 to June 26, 1953, and that the cause of action of Nielson to claim for its compensation during that period of
extension had not prescribed, it follows that Nielson should be awarded the management fees during the whole period of extension, plus the
10% of the value of the dividends declared during the said period of extension, the 10% of the depletion reserve that was set up, and the
10% of any amount expended out of surplus earnings for capital account.

5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in ordering Lepanto to issue and deliver to
Nielson shares of stock together with fruits thereof.

In Our decision, We declared that pursuant to the modified agreement regarding the compensation of Nielson which provides, among others,
that Nielson would receive 10% of any dividends declared and paid, when and as paid, Nielson should be paid 10% of the stock dividends
declared by Lepanto during the period of extension of the contract.

It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and on August 22, 1950, it declared
stock dividends worth P2,000,000.00). In other words, during the period of extension Lepanto had declared stock dividends worth
P3,000,000.00. We held in Our decision that Nielson is entitled to receive l0% of the stock dividends declared, or shares of stock worth
P300,000.00 at the par value of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of stocks as well as all the
fruits or dividends that accrued to said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as compensation for its services under the
management contract is a violation of the Corporation Law, and that it was not, and it could not be, the intention of Lepanto and Nielson — as
contracting parties — that the services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto. We have
assiduously considered the arguments adduced by Lepanto in support of its contention, as well as the answer of Nielson in this connection,
and We have arrived at the conclusion that there is merit in the contention of Lepanto.

Section 16 of the Corporation Law, in part, provides as follows:

No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for circulation as money, and no
corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for: (1) property actually
received by it at a fair valuation equal to the par or issued value of the stock or bonds so issued; and in case of disagreement as to
their value, the same shall be presumed to be the assessed value or the value appearing in invoices or other commercial
documents, as the case may be; and the burden or proof that the real present value of the property is greater than the assessed
value or value appearing in invoices or other commercial documents, as the case may be, shall be upon the corporation, or for
(2) profits earned by it but not distributed among its stockholders or members; Provided, however, That no stock or bond dividend
shall be issued without the approval of stockholders representing not less than two-thirds of all stock then outstanding and entitled
to vote at a general meeting of the corporation or at a special meeting duly called for the purpose.

No corporation shall make or declare any dividend except from the surplus profits arising from its business, or divide or distribute its
capital stock or property other than actual profits among its members or stockholders until after the payment of its debts and the
termination of its existence by limitation or lawful dissolution: Provided, That banking, savings and loan, and trust corporations may
receive deposits and issue certificates of deposit, checks, drafts, and bills of exchange, and the like in the transaction of the ordinary
business of banking, savings and loan, and trust corporations. (As amended by Act No. 2792, and Act No. 3518; Emphasis
supplied.)

From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which shares of stock may be issued are: (1)
cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name "stock dividends" only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash or property then those shares do not fall under the category of "stock
dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in
payment of its indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of property,
because services is equivalent to property.14 Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or
part of the stocks issued when the increase of the capitalization of a corporation is properly authorized. In other words, it is the shares of
stock that are originally issued by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or
property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original capitalization or from
the increased capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person already a stockholder in
exchange for services rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one
who is not a stockholder of a corporation.

A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is, what the term
itself implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A stock dividend of a corporation is
a dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits. 15 So, a stock dividend is actually two
things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at par. 16 When a corporation
issues stock dividends, it shows that the corporation's accumulated profits have been capitalized instead of distributed to the stockholders or
retained as surplus available for distribution, in money or kind, should opportunity offer. Far from being a realization of profits for the
stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock has been transferred from surplus to
assets and no longer available for actual distribution.17 Thus, it is apparent that stock dividends are issued only to stockholders. This is so
because only stockholders are entitled to dividends. They are the only ones who have a right to a proportional share in that part of the
surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder; the proportional interest of
each stockholder remains the same.18If a stockholder is deprived of his stock dividends - and this happens if the shares of stock forming part
of the stock dividends are issued to a non-stockholder — then the proportion of the stockholder's interest changes radically. Stock dividends
are civil fruits of the original investment, and to the owners of the shares belong the civil fruits.19

The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the enterprise which the
corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It means the fund actually set
aside, and declared by the directors of the corporation as dividends and duly ordered by the director, or by the stockholders at a corporate
meeting, to be divided or distributed among the stockholders according to their respective interests.20

It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can not be issued to a person who is not a
stockholder in payment of services rendered. And so, in the case at bar Nielson can not be paid in shares of stock which form part of the
stock dividends of Lepanto for services it rendered under the management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining
the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. And
this conclusion of Ours finds support in the record.

We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson regarding the application and
interpretation of certain provisions of the original contract particularly with regard to the 10% participation of Nielson in the net profits, so
that some adjustments had to be made. In the minutes of the meeting of the Board of Directors of Lepanto on August 21, 1940, We read the
following:

The Chairman stated that he believed that it would be better to tie the computation of the 10% participation of Nielson & Company,
Inc. to the dividend, because Nielson will then be able to definitely compute its net participation by the amount of the dividends
declared. In addition to the dividend, we have been setting up a depletion reserve and it does not seem fair to burden the 10%
participation of Nielson with the depletion reserve, as the depletion reserve should not be considered as an operating expense. After
a prolonged discussion, upon motion duly made and seconded, it was —

RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement with Nielson & Company, Inc.,
modifying Paragraph V of management contract of January 30, 1937, effective January 1, 1940, in such a way that Nielson &
Company, Inc. shall receive 10% of any dividends declared and paid, when and as paid during the period of the contract and at the
end of each year, 10% of any depletion reserve that may be set up and 10% of any amount expended during the year out of surplus
earnings for capital account. (Emphasis supplied.)

From the sentence, "The Chairman stated that he believed that it would be better to tie the computation of the 10% participation of Nielson &
Company, Inc., to the dividend, because Nielson will then be able to definitely compute its net participation by the amount of the dividends
declared" the idea is conveyed that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was to make the value of the
dividends declared — whether the dividends were in cash or in stock — as the basis for determining the amount of compensation that should
be paid to Nielson, in the proportion of 10% of the cash value of the dividends so declared. It does not mean, however, that the
compensation of Nielson would be taken from the amount actually declared as cash dividend to be distributed to the stockholder, nor from the
shares of stocks to be issued to the stockholders as stock dividends, but from the other assets or funds of the corporation which are not
burdened by the dividends thus declared. In other words, if, for example, cash dividends of P300,000.00 are declared, Nielson would be
entitled to a compensation of P30,000.00, but this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends
to the stockholders but from some other funds or assets of the corporation which are not included in the amount to answer for the cash
dividends thus declared. This is so because if the P30,000.00 would be taken out from the P300,000.00 declared as cash dividends, then the
stockholders would not be getting P300,000.00 as dividends but only P270,000.00. There would be a dilution of the dividend that corresponds
to each share of stock held by the stockholders. Similarly, if there were stock dividends worth one million pesos that were declared, which
means an issuance of ten million shares at the par value of ten centavos per share, it does not mean that Nielson would be given 100,000
shares. It only means that Nielson should be given the equivalent of 10% of the aggregate cash value of those shares issued as stock
dividends. That this was the understanding of Nielson itself is borne out by the fact that in its appeal brief Nielson urged that it should be paid
"P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on November 28, 1949 and August 20, 1950...."21

We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of stock worth P300,000.00 based on the
stock dividends declared on November 28, 1949 and on August 20, 1950, together with all the fruits accruing thereto. Instead, We declare
that Nielson is entitled to payment by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock dividends
worth P3,000,000.00 which were declared on November 28, 1949 and on August 20, 1950, with interest thereon at the rate of 6% from
February 6, 1958.

6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in awarding to Nielson an undetermined
amount of shares of stock and/or cash, which award can not be ascertained and executed without further litigation.

In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock dividends in payment of its compensation
under the management contract, We do not consider it necessary to discuss this ground of the motion for reconsideration. The awards in the
present case are all reduced to specific sums of money.

7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in rendering judgment or attorney's fees.

The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision We have stated the reason why the
award of P50,000.00 for attorney's fees is considered by this Court as reasonable.

Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense that instead of awarding Nielson shares
of stock worth P300,000.00 at the par value of ten centavos (P0.10) per share based on the stock dividends declared by Lepanto on
November 28, 1949 and August 20, 1950, together with their fruits, Nielson should be awarded the sum of P300,000.00 which is an amount
equivalent to 10% of the cash value of the stock dividends thus declared, as part of the compensation due Nielson under the management
contract. The dispositive portion of the decision should, therefore, be amended, to read as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in lieu thereof another,
ordering the appellee Lepanto to pay the appellant Nielson the different amounts as specified hereinbelow:

(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of December, 1941, with legal interest
thereon from the date of the filing of the complaint;

(2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal interest thereon from the date of the filing
of the complaint;

(3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month period of extension of the
management contract, with legal interest thereon from the date of the filing of the complaint;

(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends declared during the period of
extension of the management contract, with legal interest thereon from the date of the filing of the complaint;

(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock dividends declared on November 28,
1949 and August 20, 1950, with legal interest thereon from the date of the filing of the complaint;

(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88), equivalent to 10% of the depletion reserve
set up during the period of extension, with legal interest thereon from the date of the filing of the complaint;

(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos (P694,364.76), equivalent to 10% of the
expenses for capital account during the period of extension, with legal interest thereon from the date of the filing of the complaint;

(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and

(9) The costs. It is so ordered.

G.R. No. 127937 July 28, 1999

NATIONAL TELECOMMUNICATIONS COMMISSION, petitioner,

vs.
HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, respondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking to modify the October 30, 1996
Decision 1 and the January 27, 1997 Resolution 2 of the Court of Appeals 3 in CA-G.R. SP No. 34063.1âwphi1.nêt

The antecedent facts that matter can be culled as follows:

Sometime in 1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT)
the following assessment notices and demands for payment:

1. the amount of P7,495,161.00 as
the said year, 1988, computed at
stock as at December 31, 1987
P1,277,934,390.00 (Billion) and
P1,499,032,175.00 (Billion).
supervision and regulation fee under Section 40 (e) of the PSA for
P0.50 per P100.00 of the Protestant's (PLDT) outstanding capital
which then consisted of Serial Preferred Stock amounting to
Common Stock of P221,097,785 (Million) or a total of

2. the amount of P9.0 Million as permit fee under Section 40 (f) of the PSA for the approval of the
protestant's increase of its authorized capital stock from P2.7 Billion to P4.5 Billion; and

3. the amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section 40 (g) of the PSA
in connection with the Commission's decisions in NTC Cases Nos. 86-13 and 87-008 respectively,
approving the Protestant's equity participation in the Fiber Optic Interpacific Cable systems and X-5
Service Improvement and Expansion Program. 4

In its two letter-protests 5 dated February 23, 1988 and July 14, 1988, and position papers 6 dated November 8, 1990 and March 12, 1991,
respectively, the PLDT challenged the aforesaid assessments, theorizing inter alia that:

(a) The assessments were being made to raise revenues and not as mere reimbursements for actual regulatory expenses
in violation of the doctrine in PLDT vs. PSC, 66 SCRA 341 [1975];

(b) The assessment under Section 40 (e) should only have been on the basis of the par values of private respondent's
outstanding capital stock;

(c) Petitioner has no authority to compel private respondents payment of the assessed fees under Section 40 (f) for the
increase of its authorized capital stock since petitioner did not render any supervisory or regulatory activity and incurred
no expenses in relation thereto.

xxx xxx xxx 7

On September 29, 1993, the NTC rendered a Decision 8 in NTC Case No. 90-223, denying the protest of PLDT and disposing thus:

FOR ALL THE FOREGOING, finding PLDT's protest to be without merit, the Commission has no alternative but to uphold the
law and DENIES the protest of PLDT. Unless otherwise restrained by a competent court of law, the Common Carrier
Authorization Department (CCAD) is hereby directed to update its assessments and collections on PLDT and all public
telecommunications carriers for the payment of the fees in accordance with the provisions of Section 40 (e) (f) and (g) of
the Revised NTC Schedule of Fees and Charges.

This decision takes effect immediately.

SO ORDERED.

On October 22, 1993, PLDT interposed a Motion for Reconsideration, 9 which was denied by NTC in an Order 10issued on May 3, 1994.

On May 12, 1994, PLDT appealed the aforesaid Decision to the Court of Appeals, which came out with its questioned Decision of October 30,
1996, modifying the disposition of NTC as follows:

WHEREFORE, the assailed decision and order of the respondent Commission dated September 29, 1993 and May 03, 1994,
respectively, in NTC Case No. 90-223 are hereby MODIFIED. The Commission is ordered to recompute its assessments and
demands for payment from petitioner PLDT as follows.

A. For annual supervision and regulation fees (SRF) under Section 40 (e) of the Public Service Act, as amended, they
should be computed at fifty centavos for each one hundred pesos or fraction thereof of the par value of the capital stock
subscribed or paid excluding stock dividends, premiums or capital in excess of par.

B. For permit fees for the approval of petitioner's increase of authorized capital stock under Section 40 (f) of the same Act,
they should be computed at fifty for each one hundred pesos or fraction thereof, regardless of any regulatory service or
expense incurred by respondent.

On November 20, 1996, NTC moved for partial reconsideration of the abovementioned Decision, with respect to the basis of the assessment
under Section 40 (e), i.e., par value of the subscribed capital stock. It also sought a partial reconsideration of the fee of fifty (P0.50) centavos
for the issuance or increasing of the capital stock under Section 40 (f). 11

With the denial of its motions for reconsideration by the Resolution of the Court of Appeals dated January 27, 1997, petitioner found its way
to this Court via the present Petition; posing as sole issue:
 WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPUTATION OF SUPERVISION AND
REGULATION FEES UNDER SECTION 40 (F) OF THE PUBLIC SERVICE ACT SHOULD BE BASED ON THE PAR VALUE
OF THE SUBSCRIBED CAPITAL STOCK.

Simply put, the submission of NTC is that the fee under Section 40 (e) should be based on the market value of PLDT's outstanding capital
stock inclusive of stock dividends and premium, and not on the par value of PLDT's capital stock excluding stock dividends and premium, as
contended by PLDT.

Succinct and clear is the ruling of this Court in the case of Philippine Long Distance Telephone Company vs. Public Service Commission, 66
SCRA 341, that the basis for computation of the fee to be charged by NTC on PLDT, is " the capital stock subscribed or paid and not,
alternatively, the property and equipment."

The law in point is clear and categorical. There is no room for construction. It simply calls for application. To repeat, the fee in question is
based on the capital stock subscribed or paid, nothing less nothing more.

It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the power to exercise the State
inherent powers of Police Power, Eminent Domain and Taxation, the distinction between police power and the power to tax, which could be
significant if the exercising authority were mere political subdivisions (since delegation by it to such political subdivisions of one power does
not necessarily include the other), would not be of any moment when, as in the case under consideration, Congress itself exercises the power.
All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional infirm.

The term "capital" and other terms used to describe the capital structure of a corporation are of universal acceptance, and their usages have
long been established in jurisprudence. Briefly, capital refers to the value of the property or assets of a corporation. The capital subscribed is
the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which need not necessarily be,
and can be more than, the par value of the shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares. In the case of stock dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that can loosely be termed as the "trust fund" of the corporation. The
"Trust Fund" doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors
may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the
stockholder (except in the redemption of redeemable shares) without violating this principle. Thus, dividends must never impair the
subscribed capital; subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the
subscribed capital as the consideration therefor. 12

In the same way that the Court in PLDT vs. PSC has rejected the "value of the property and equipment" as being the proper basis for the fee
imposed by Section 40(e) of the Public Service Act, as amended by Republic Act No. 3792, so also must the Court disallow the idea of
computing the fee on "the par value of [PLDT's] capital stock subscribed or paid excluding stock dividends, premiums, or capital in excess of
par." Neither, however, is the assessment made by the National Telecommunications Commission on the basis of the market value of the
subscribed or paid-in capital stock acceptable since it is itself a deviation from the explicit language of the law.

From the pleadings on hand, it can be gleaned that the assessment for supervision and regulation fee under Section 40(e) made by NTC for
1988, computed at P0.50 per 100 of PLDT's outstanding capital stock as of December 31, 1987, amounted to P7,495,161.00. The same was
based on the amount of P1,277,934,390.00 of serial preferred stocks and P221,097,785.00 of common stocks or a total of
P1,499,032,175.00. The assessment was reported to include stock dividends, premium on issued common shares and premium on preferred
shares converted into common stock. 13 The actual capital paid or the amount of capital stock paid and for which PLDT received actual
payments were not disclosed or extant in the records before the Court. The only other item available is the amount assessed by petitioner
from PLDT, which had been based on market value of the outstanding capital stock on given dates. 14

All things studiedly considered, and mindful of the aforesaid ruling of this Court in the case of Philippine Long Distance Telephone Company
vs. Public Service Commission, it should be reiterated that the proper basis for the computation of subject fee under Section 40(e) of the
Public Service Act, as amended by Republic Act No. 3792, is "the capital stock subscribed or paid and not, alternatively, the property and
equipment.1âwphi1.nêt

WHEREFORE, the decision of the Court of Appeals, dated October 30, 1996, and its Resolution, dated January 27, 1997, in CA G.R. SP No.
34063, as well as the decision of the National Telecommunication Commission, dated September 29, 1993, and Order, dated May 3, 1994, in
NTC case No. 90-223, are hereby SET ASIDE and the National Telecommunication Commission is hereby ordered to make a re-computation of
the fee to be imposed on Philippine Long Distance Telephone Company on the basis of the latter's capital stock subscribed or paid and strictly
in accordance with the foregoing disquisition and conclusion. No pronouncement as to costs. SO ORDERED.
G.R. No. 59114 March 18, 1991

JOSE G. RICAFORT, CONRADO T. CALALANG, NATIONWIDE DEVELOPMENT CORPORATION and AGUINALDO DEVELOPMENT
CORPORATION, petitioners,
vs.
HON. FELIX L. MOYA, Judge, CFI, Davao, Br. II, BLACK MOUNTAIN, INC., TETRA MANAGEMENT CORPORATION and the ENERGY
CORPORATION, respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Reymundo P.G. Villarica and Siguion Reyna, Montecillo & Ongsiako for private respondents.

NARVASA, J.:

With this judgment, the Court writes finis to a controversy principally involving two (2) groups of individuals, which has given rise to no less
than eleven (11) actions and proceedings: three (3) in the Court of First Instance, two (2) in the Securities and Exchange Commission, and
six (6) in this Court.

The roots of the controversy go as far back as 1978, to a deed of sale executed on April 18 of that year by Daniel R. Aguinaldo and D.R.
Aguinaldo Corporation (DRACOR), as vendors, and Jose Ricafort and Conrado Calalang, as vendees. By that deed:

1) Aguinaldo and DRACOR sold to Jose Ricafort and Conrado Calalang all their shares of stock and subscriptions in three (3) corporations,
namely:

a) ADECOR (Aguinaldo Development Corporation ),

b) MARBLECORP (Philippine Marble Corporation), and

c) NADECOR (Nationwide Development Corporation);

2) Aguinaldo bound himself to convey nine (9) parcels of rice land in Saug, Davao del Norte, held in trust by him, to the real or beneficial
owner, ADECOR;

3) As security for payment of the balance of the price (a down payment having been made on execution of the deed of sale) Ricafort and
Calalang bound themselves:

1) To pledge to Aguinaldo all the shares of stock in the three (3) corporations, subject of the sale; and

2) To mortgage to Aguinaldo the nine (9) "Saug lots."

The pledge of the stock certificates was effected on the same day, April 18, 1978.

On August 18, 1980, at the stockholders' meeting of NADECOR, Daniel R. Aguinaldo, Dominador Aytona, Conrado Calalang, Jose G. Ricafort,
and five (5) others were elected directors. These directors later elected Aytona, Aguinaldo, and Romeo H. Borsoto as, respectively, Chairman,
President and Secretary.

A month later, or on September 26, 1980, Aguinaldo executed the Deed of Reconveyance of the nine "Saug lots" in favor of ADECOR, as
called for by the Deed of Sale of April 18, 1978, supra. But the related stipulation—that Ricafort and Calalang cause the mortgage of those
lots in Aguinaldo's favor as security for the payment of the balance of the price fixed in the sale of April 18, 1978—was not complied with.
Ricafort and Calalang refused to fulfill that prestation because, according to them, the deed of reconveyance of the "Saug lots" executed by
Aguinaldo in favor of ADECOR dated September 26, 1980, was fatally defective as it did not bear the signature of Aguinaldo's wife, Helen
Leontovich. For some undisclosed reason, the latter never saw fit to remedy the omission until very, very much later, after the controversy
between the parties had worsened and spawned bitter litigation in various courts, as will now be briefly narrated.

CIVIL CASE No. 38117, CFI, Rizal

The first case was commenced on October 6, 1980. On that day Civil Case No. 38117 was instituted by Ricafort and Calalang in the then
Court of First Instance of Rizal. The stated cause: breach of the contract of sale of April 18, 1978 by Aguinaldo's failure to make a valid
transfer of the nine "Saug lots;" the prayer: that Aguinaldo's obligation to make the conveyance be deemed waived and correspondingly, that
Ricafort and Calalang, as vendees, be deemed discharged from their own obligation to pay the balance of the price, and the pledge of the
stock purchased by them be considered discharged and released.

Aguinaldo reacted by instructing a Notary Public, Wilfred Neis, to conduct the auction sale of the pledged stock (of DRACOR; ADECOR and
NADECOR, supra). Atty. Neis scheduled the sale on October 10, 1980. This gave rise to the second litigation between the parties.

CIVIL CASE NO. 135262, Manila

On October 8, 1980, Ricafort and Calalang brought suit against Aguinaldo and Notary Public Neis in the Court of First Instance of Manila,
which was docketed as Civil Case No. 135262. They asked that the latter be stopped from proceeding with the auction sale of the stock in
question on October 10, 1980, or at any other time thereafter. They also applied for a preliminary injunction pending determination of the
merits of the action.

Ricafort and Calalang later amended the complaint to incorporate their cause of action in Civil Case No. 38117 of the Court of First Instance at
Pasig, supra. Case No. 38117 thus became functus officio. Consequently, Ricafort and Calalang caused its dismissal by filing with the Pasig
Court a notice to that effect dated November 6, 1980, in accordance with Section 1, Rule 17 of the Rules of Court. 1

Temporary Restraining Order

On October 8, 1980, a temporary restraining order was issued by Judge Tomas Maddela, to whose sala Civil Case No. 135262 had been
raffled, enjoining the auction sale of the pledged stock subject of the contract of sale of April 18, 1978.

Three more amendments of the complaint were thereafter sought by Ricafort and Calalang through separate motions.
The first amendment sought to add a plea:

a) for reformation of the contract of sale of April 18, 1978 to include all of the shares of stock in NADECOR of Aguinaldo, DRACOR
and all their nominees (totaling 67% of the outstanding stock in NADECOR); and

b) for a preliminary injunction against Aguinaldo to prohibit him from representing himself as the controlling stockholder of
NADECOR and attempting to sell that corporation's so-called "Kingking Mining Claims" in Pantukan, Davao del Norte.

The amendment was allowed by Order dated April 20, 1981.

The second amendment impleaded NADECOR as additional defendant, and prayed that it also be enjoined from offering the Kingking Mining
Claims for sale. The amendment was admitted by Order issued on June 25, 1981.

These mining claims, by the way, are embraced in nine (9) Lode Lease Contracts docketed as LLC-V-908 to V-910; V-935, V-948, V-949, V-
966, V-1074 and V-1075;2 and there is evidence on record that said claims constitute practically all the assets of NADECOR.

The third amendment added averments of fraud relative to the transfer by Aguinaldo to himself of ADECOR shares in a foreign company,
Sawyer-Adecor International, Inc. (SAICOR). This amendment was approved by Order dated February 5, 1982.

Preliminary Injunctions by Manila CFI (CC 135262) Re Kingking Mining Claims, etc.

Several injunctive orders were thereafter issued against Aguinaldo and his group by the Trial Court mainly as regards the Kingking Mining
Claims in Davao del Norte. These resulted mainly from an Operating Agreement involving said Kingking Claims executed on March 25, 1981
between Aguinaldo, in representation of NADECOR, on the one hand, and a consortium made up of Black Mountain, Inc., Tetra Management
Corporation, and Energy Corporation, on the other. On March 30, 1981 the Court enjoined the NADECOR Board from ratifying that Operating
Agreement of March 25, 1981.

On April 20, 1981, the Court stopped (a) the auction sale of the pledged shares of stock which had been re-scheduled by Notary Public Wilfred
Neis at Aguinaldo's instance, and (b) Aguinaldo from representing himself as the controlling stockholder of NADECOR and offering its Kingking
Claims for sale.

On June 29, 1981, the Court issued another Order (a) declaring Aguinaldo and the NADECOR directors guilty of contempt of court for having,
despite the injunction of March 30, 1981, approved and confirmed the Operating Agreement involving the Kingking Claims entered into by
NADECOR with Black Mountain, etc., administering an admonition on them, and (b) NULLIFYING said Operating Agreement.

And on September 15, 1981 yet another Order was rendered by the Trial Court, prohibiting Aguinaldo from voting or selling the ADECOR
shares in Sawyer-Adecor International Corporation (SAICOR), which he had caused to be transferred to his name.

At about this time, Ricafort and Calalang perceived what they believed to be a plot by the Aguinaldo-Aytona group to exclude them and
SAICOR from the management of NADECOR. It appears that Aguinaldo and his group had refused to convoke the stockholders of NADECOR
for the annual meeting for the year 1981 which, under the by-laws 3 should have been called on the third Monday of August. So on August
17, 1981, the Ricafort Group, and the President of SAICOR, Carol Garvice, who was in the country at the time, went to the main offices of
NADECOR, and proceeded to hold a meeting for the declared purpose of electing the directors for the incoming year, and otherwise
transacting corporate business. Dominador Aytona, Daniel Aguinaldo's colleague and counsel, moved to postpone the meeting, drawing
attention to a temporary restraining order supposedly issued by the Superior Court of California dated August 14, 1981. The majority of the
stockholders then present however voted against the postponement, opining inter alia that the restraining order of the California Court was
not enforceable in the Philippines. Aytona then questioned Garvice's qualification to take part in the stockholders' meeting. He was reminded
that as early as May, 1981, he already knew Garvice to be the President of SAICOR. When the majority of the stockholders expressed their
firm wish to continue with the meeting, Aguinaldo and Aytona walked out.

The stockholders then elected as directors, Conrado Calalang, Jose Ricafort and five (5) others. The stockholders also rejected the aforesaid
operating agreement of March 25, 1981 between NADECOR, represented by the Aguinaldo-Aytona Group, and the consortium of Black
Mountain, Inc., Energy Corporation, and Tetra Management Corporation. The stockholders instead approved the proposed operating
agreement with Benguet Corporation. The directors-elect then organized the NADECOR Board: they elected the corporate officers headed by
Calalang as chairman and president. The Secretary's Certificate attesting to these events was in due course filed with the Securities and
Exchange Commission.

On that day, too, NADECOR, represented by the new officers, entered into an Operating Agreement with Benguet Corporation for the
operation by the latter of the company's KINGKING MINES. This was the second such agreement involving the Kingking Mines . 4

Litigation in Securities & Exchange Commission

The area of conflict now widened, to include litigation in the Securities and Exchange Commission. Two (2) cases were instituted in that quasi-
judicial agency: SEC Case No. 2143, in 1981 and SEC Case No. 2878, in 1984.

SEC Case No. 2143

SEC Case No. 2143 was commenced by complaint dated September 24, 1981 of NADECOR, represented by its newly elected directors and
officers (the Ricafort-Calalang Group), against Aguinaldo, Aytona and a certain Romeo H. Borsoto. The complaint alleged that despite the
election of the new officers at the stockholders' meeting of August 17, 1981, the defendants continued to fraudulently represent themselves
as the legitimate officers of NADECOR and to exclude said officers-elect from the exercise of their rights. The complaint also adverted to the
defendants' allegedly malicious refusal to perform their ministerial duty to issue notices of the annual stockholders' meeting, supra.

Acting on the application for preliminary injunction contained in the complaint, an order was issued on September 28, 1981 by SEC Director
and Hearing Officer Sixto Villanueva (a) prohibiting the defendants "from acting and representing themselves as officers of NADECOR until
further orders," and (b) setting the hearing on the preliminary injunction on October 7, 1981.

On October 7, 1981 and various dates thereafter, the complainants presented evidence in substantiation of their plea for a preliminary
injunction. Defendants refused to adduce proof of their own. They contented themselves with presenting their Answer to the Complaint, and
an opposition to the application for preliminary injunction. And instead of submitting countervailing evidence, they filed various motions to lift
the temporary restraining order of September 28, 1981. They also attempted to present Calalang and Ricafort as hostile witnesses at the
injunction hearing and caused issuance of subpoena towards this end. Those processes were however quashed by the Hearing Officer who
ordered said defendants instead to submit a proposal for a stipulation or a request for admission of the facts as to which examination of
Calalang and Ricafort was being sought. The defendants ignored the order and renewed their attempts to have Calalang and Ricafort testify
as their hostile witnesses.
Then, without awaiting resolution of the application for preliminary injunction by the Hearing Officer (who was still waiting for the defendants
to submit their evidence), said defendants brought the matter up to the Securities and Exchange Commission en banc (by filing with that
body a petition for certiorari and mandamus, with application for preliminary injunction). The Hearing Officer, Director Villanueva, thereafter
denied the defendants' motions to lift the restraining order of September 28, 1981. The defendants thereupon filed a supplemental petition
with the Commission en banc, asking that the Healing Officer's own restraining order of September 28, 1981 be itself restrained. They later
moved to be allowed to continue exercising functions as officers of NADECOR.

CIVIL CASE NO. 143, CFI, DAVAO

Still another action was begun at about this time. On November 6, 1981, the consortium of Black Mountain, Inc., Energy Corporation and
Tetra Management Corporation filed a complaint in the Court of First Instance of Davao, which was docketed as Civil Case No. 143. Named
defendants were Benguet Corporation, NADECOR, and the directors of NADECOR, including Ricafort and Calalang. The complaint sought to
enjoin them from interfering with Black Mountain's possession of NADECOR's Kingking mines and recover damages. The Trial Court issued a
temporary restraining Order to this effect on November 11, 1981.

Ricafort and his co-defendants moved to dismiss the complaint for failure to state a cause of action. They argued that the complaint contained
no averment—in any case, it was an uncontroverted fact—that NADECOR's agreement with Black Mountain, Inc., et al. for the operation of
the Kingking Mining Claims had never been approved by the NADECOR stockholders owning the majority of the capital stock, although such
approval was required by Section 44 of the Corporation Code for any contract, such as the one in question, "whereby a corporation
undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service
contracts, operating agreements or otherwise . . .," and it appearing that the agreement with Black Mountain embraced 93.5% of the total
number and area of NADECOR's mining claims and NADECOR had no other mining properties or business.

The Trial Court denied the motion to dismiss in an Order dated December 15,1981.

All the foregoing actions in turn generated proceedings in the Supreme Court.

PROCEEDINGS INSTITUTED IN SUPREME COURT

G.R. No. 60376 (Aguinaldo, et al. v. Hon. T.P. Maddela, et al. [RTC No. 135262])

On November 20, 1981, Aguinaldo, Neis and NADECOR filed with this Court a petition for certiorari and prohibition with application for
preliminary injunction, assailing Manila CFI Judge Maddela's alleged failure to act on Civil Case No. 135262. This was docketed as G.R. No.
60376.

Petitioners Aguinaldo, et al., later filed on June 15, 1982, a supplemental petition:

(1) to annul and enjoin enforcement of Judge Maddela's temporary restraining order dated March 30, 1981—stopping the NADECOR
Board (then controlled by the Aguinaldo-Aytona Group) from approving the Operating Agreement with Black Mountain, Inc. involving
the Kingking Mines; and

(2) to nullify and set aside other adverse orders, dated April 20, 1981, June 25, 1981, June 26, 1981, and Sept. 15, 1981.

G.R. No. 59114 (Ricafort, et al. v. Hon. Felix Moya, et al. [Davao RTC CC 143])

For their part, Ricafort and Calalang, together with NADECOR and ADECOR, filed with this Court on December 17, 1981 a petition
for certiorari, against Judge Felix L. Moya of the Davao CFI (Branch II), Black Mountain, Inc., Tetra Management Corporation and Energy
Corporation. The petition was later amended on January 26, 1982. The petitioners sought annulment of three orders of Judge Moya, to wit:

(1) the temporary restraining order issued on November 11, 1981;

(2) the order of December l5, 1981, denying the petitioners' motion to dismiss the action (on the ground that the Operating
Agreement of Black Mountain, Inc., et al. with NADECOR had not been approved by stockholders holding the majority of the capital
stock as required by the Corporation Code, supra); and

(3) the order of January 20, 1982, denying their motion to quash the contempt charges against them.

Due Course to G.R. Nos. 60376 & 59114

Both petitions in G.R. Nos. 60376 and 59114 were given due course in virtue of a Resolution of this Court dated August 23, 1982.

After Black Mountain, Inc., filed on September 9, 1982, a motion alleging chiefly that G.R. No. 59114 had been rendered moot by Letter of
Instructions No. 1349 issued by former President Marcos on August 1, 1983, both "Kingking Claims Cases," G.R. No. 59114 and G.R. No.
60376, lay fallow for some three years.

A word about said Letter of Instructions No. 1349. It advised the consortium of Black Mountain, Inc., Energy Corporation, and Tetra
Management Corporation to implement the operating agreement involving the NADECOR's Kingking mining property in Pantukan, Davao. It
superseded Letter of Instructions Nos. 1210, dated March 9, 1982, directing that said property be immediately put into production and that a
company called "North Davao Mining Corporation" undertake the development of said Kingking mining property. 5

G.R. No. 61377 (Aguinaldo, Aytona, Borsoto v. SEC, Ricafort, et al. [RE SEC Case. No. 2143])

A third certiorari action involving substantially the same parties was commenced in this Court on August 13, 1982. That action, docketed as
G.R. No. 61377, concerned SEC Case No. 2143 in which, it will be recalled, the Aguinaldo-Aytona Group had presented to the Commission en
banc a petition and supplemental petition impugning certain actuations of the Hearing Officer including the latter's temporary restraining
Order. In this Court the Aguinaldo-Aytona Group complained of the alleged inaction of the Securities and Exchange Commission en banc on
their petition to nullify the same which had resulted to their disadvantage, and prayed for invalidation of said Hearing Officer's restraining
order.

G.R. Nos. 88895 and 88095

Still another proceeding in connection with SEC Case No. 2143 was instituted in this Court by the Aytona Group, although much, much later,
in 1988. That stemmed from a motion submitted by the Aytona Group in said SEC Case No. 2143 for a preliminary injunction to stop the
Ricafort-Calalang Group from calling and holding the annual stockholders' meeting of NADECOR on August 15, 1988 pursuant to the By-Laws.
When that motion was denied, Aytona went to the Court of Appeals which, however, sustained the SEC's denial of the preliminary injunction.
Aytona then appealed to this Court, his petitions being docketed here as G.R. Nos. 88895 and 88095. Later, Aytona moved to withdraw and
dismiss that appeal, but the appeal was instead denied by this Court for failure to comply with the requisites of the Rules of Court.

G.R. Nos. 77274-75 (Dominador R. Aytona, as Executor of the Estate of Deceased Daniel R. Aguinaldo vs. Conrado T. Calalang, et al. [RE CC
Q-45704])

One more proceeding on appeal involving the same parties was added to this Court's docket sometime in 1987. This was G.R. Nos. 77274-75.
It had its origin in yet another action filed by Aytona, this time with the Regional Trial Court at Quezon City, on August 15, 1985. He filed the
case as a stockholder of NADECOR and as executor of the estate of Daniel R. Aguinaldo, who had died in the meantime. Named as defendants
were Conrado T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de Castro, (as officers of NADECOR), and Sawyer-
Adecor International, Inc. (SAICOR) and Benguet Corporation. The suit was chiefly grounded on an order of preliminary injunction of the
Superior Court of California enjoining several specified stockholders of NADECOR from voting a large bloc of NADECOR shares owned by
SAICOR, pending judicial determination of ownership of 1.2 million SAICOR shares of stock, registered in the name of the late D.R. Aguinaldo.
The Quezon City Court issued a temporary restraining order on August 16, 1985 enjoining defendants from voting the SAICOR shares at the
annual stockholders' meeting set on August 19, 1985, and all other meetings.

The defendants, the Ricafort-Calalang Group, promptly moved to dismiss the action on the ground of (1) lack of jurisdiction of the Court over
of the subject-matter; (2) non-enforceability of the foreign order of injunction, hence, failure of the complaint founded thereon to state a
cause of action; and (3) failure of plaintiffs counsel to indicate his IBP number. The motion was denied by Order dated October 25, 1985; and
a writ of preliminary injunction subsequently issued against the defendants on November 5, 1975. Ricafort and his co-defendants challenged
that order of denial before the Court of Appeals by way of a petition for certiorari and prohibition. SAICO filed a separate petition
for certiorari and prohibition against the same order also before the Court of Appeals. The cases were consolidated; and judgment was
rendered thereon in due course on November 28, 1986, annulling and setting aside the Order of the Court a quo of October 25, 1985 and the
order for a preliminary injunction of November 5, 1985. Aytona's motion for reconsideration was later denied by the Court of Appeals, in a
Resolution dated January 23, 1987.

Aytona appealed to this Court. His appeal was docketed as G.R. Nos. 77274-75 (Dominador R. Aytona, as Executor of the Estate of Deceased
Daniel R. Aguinaldo vs. Conrado T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de Castro, and Sawyer- Adecor
International, Inc.)

G.R. No. 75098 (Ricafort, et al. v. Hon. T. Maddela, et al. [Case No. 135262])

One more proceeding in this Court has to be mentioned: G.R. No. 75098, which was an appeal by certiorari by Ricafort and Calalang against
the Order of Judge Maddela of June 10, 1986 in Civil Case No. 135262. Said order was issued by Judge Maddela in connection with hearings
that this Court instructed him to conduct, on a motion of the Aytona Group that the auction sale of the pledged stock should proceed in view
of certain recent developments. The instruction was contained in a Resolution dated July 8, 1985 in G.R. No. 60376.

G.R. No. 75098 was later consolidated with G.R. No. 60376 by this Court's Resolution of November 5, 1986.

Intervention by the Office of the President

It appears that the Office of the President of the Philippines took some interest in the Kingking mining property of' NADECOR and issued two
letters of instructions concerning it. The first, LOI No. 1210, dated March 9, 1982, directed that the mining property be immediately put into
production and that a firm known as "North Davao Mining Corporation" undertake its development. The second, LOI No. 1349, dated August
1, 1983, advised Black Mountain, Inc., the Energy Corporation, and the Tetra Management Corporation to implement their operating
agreement involving said Kingking mining property in Pantukan, Davao. 6

FINAL DISPOSITION OF SUPREME COURT AND SEC CASES

G.R. NOS. 60376 AND 75058 (Judgment on Compromise)

A compromise was arrived at by the parties in G.R. Nos. 60376 and 75098. It was embodied and approved in a Resolution dated March 16,
1988, dictated at a hearing presided over by the Chairman of the First Division, in the presence of the parties and their counsel. Basically the
compromise provided for the consummation of the deed of sale of April 18, 1978 through the compliance by the parties with their yet
unfulfilled prestations as well as the obligations thereto related. The Resolution approving said compromise declared that those contractual
and related commitments should be fulfilled on March 21, 1988, and that thereupon, "G.R. Nos. 60376 and 75098, as well as the case thereto
related, Civil Case No. 135262 of the Regional Trial Court of Manila, shall be ordered dismissed, closed, and terminated."

On March 23, 1988, this Court promulgated another Resolution declaring the compromise approved by the Resolution of March 16, 1988 to
have been fully executed to all the parties' satisfaction. It also ordered the Register of Deeds of Davao to cancel the transfer certificates of
title covering the nine (9) "Saug lots" still in the name of Daniel R. Aguinaldo and to issue new ones in the name of ADECOR. Finally, the
Resolution declared "G.R. No. 75098 DISMISSED, CLOSED AND TERMINATED, and G.R. No. 60376 and Civil Case No. 135262 DISMISSED
only insofar as they involve the subject matter of this compromise agreement." Later, however, the parties having reached a complete
settlement, the case was ordered dismissed by this Court, by Resolution of August 14, 1989. (Rollo, G.R. Nos. 60376 and 75098, p. 2298)

G.R. Nos. 77274-75

Decision was rendered in G.R. Nos. 77274-75 (Dominador R. Aytona, as Executor of the Estate of Deceased Daniel R. Aguinaldo vs. Conrado
T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de Castro, and Sawyer-Adecor International, Inc.) on June 20,
1988. 7 This Court ruled that QC RTC Case Q-45704 involved a controversy arising out of intra-corporate relations between and among
stockholders and thus fell within the original and exclusive jurisdiction of the Securities and Exchange Commission; moreover, there was as
yet no foreign judgment to be enforced by Philippine Courts, the petitioners' action in the Regional Trial Court being founded on a mere
interlocutory order.

G.R. No. 61377

Decision was also promulgated by the Court in G.R. No. 61377 on June 30, 1988, dismissing the petition. 8 It held that the challenged
temporary restraining order of the Hearing Officer in SEC Case No. 2143, like those issued by Regional Trial Courts, lapsed after twenty (20)
days; that the Securities and Exchange Commission still had jurisdiction and indeed the obligation to proceed with the hearing on the merits
of Case No. 2143 and issue appropriate orders pursuant thereto, subject to review by the Court of Appeals and the Supreme Court; and that
since petitioners (defendants) had not yet finished presenting evidence on such matters affecting the corporate affairs of NADECOR as the
validity of proxy votes, alleged usurpation of corporate powers, claims of majority status, issuance of notices—evidentiary issues the
resolution of which is primarily lodged with the Securities and Exchange Commission, the latter ought to continue to hear and then decide the
respective lights of parties in NADECOR.
SEC Case No. 2143

On July 31, 1989, a Joint Manifestation was presented by the Ricafort Group and the Aytona Group in SEC Case No. 2143, briefly to the
following effect:

1) the Aytona Group will no longer question the 1989 NADECOR annual stockholders' meeting and the election of directors on that
occasion, as well as the organizational meeting of the board of directors;

2) both groups waive any and all claims for damages they may have against each other in the case;

3) the Aytona Group will not move for reconsideration, appeal, or in any way question the decision which may be rendered in the
case pursuant to the joint manifestation.

Acting thereon, Hearing Officer Alberto P. Atas rendered an Order on August 9, 1989, ruling that

1. (The Commission had decided to) . . . recognize and affirm the validity of the annual stockholders' meeting of Nationwide
Development Corporation held on August 17, 1981, the election of petitioners as directors of the Corporation in that meeting, and
the validity of the organizational meeting of such board electing the officers of the corporation; . . .

2. . . . all claims for damages of the parties against each other related to this action are hereby considered waived," and

3. Case No. 2143 was "considered CLOSED."

SEC Case No. 2878

To complete the picture, mention must be made of one other action in the Securities and Exchange Commission between the same parties,
SEC. Case No. 2878. That case was filed by the Ricafort-Calalang Group to enjoin the Aytona Group from continuing to act and represent
themselves as Directors and/or officers of NADECOR. The Ricafort Group alleged that they were duly elected as directors of NADECOR at the
annual stockholders' meeting on August 20, 1984, and later, elected as officers of the firm by the directors; that the meeting was adjourned
by Calalang, as Chairman, in view of the objections by Aytona (presenting TRO by RTC, QC) to the voting of SAICO's 7,000 shares at the
election of directors; that after adjournment, however, Aytona and his group elected themselves officers of NADECOR. A temporary
restraining order was issued by Hearing Officer Emmanuel Sison, followed, after presentation of evidence, by a preliminary injunction, against
the Aytona Group. Aytona moved for reconsideration of the Order of injunction, dated October 14, 1985, but his motion was denied by order
dated January 17, 1986.

On May 25, 1989, the decision in said SEC Case No. 2878 was handed down by Hearing Officer Felipe S. Tongco. Tongco ruled that the only
issue concerned the validity of the adjournment of the meeting of August 20, 1984 by Calalang; that as to the question regarding the election
of Aytona, et al. as directors after said adjournment, the same had been mooted by the subsequent and indisputably valid election of Calalang
and his group in 1986 and 1987; that the validity of the acts of the Aytona Group as pseudo directors and officers had to be determined; that
the evidence sufficiently established that the annual stockholders' meeting of August 20, 1984 had been validly adjourned by Calalang; that
the election of the Aytona Group as directors following the adjournment was therefore void ab initio; and that group's acts as directors and
officers of NADECOR were also null and void.

Remaining Proceedings and Resolution Thereof

Thus, the only proceedings left undecided are Civil Case No. 143 of the Regional Trial Court of Davao, and G.R. No. 59114, related to Case
No. 143.

The main issue in these two (2) cases is the validity of the Operating Agreement relative to the Kingking Mines entered into on March 25,
1981 between NADECOR, then represented by the Aguinaldo-Aytona Group, and the consortium composed of Black Mountain, Inc., Tetra
Management Corporation, and Energy Corporation.

The facts and considerations hereunder summarized, developed beyond dispute in the various legal proceedings above surveyed, dictate a
declaration of the invalidity of said Agreement of March 25, 1981.

1. On March 30, 1981, in Civil Case No. 135262, the Manila Trial Court enjoined the NADECOR Board (controlled by the Aguinaldo-
Aytona Group) from ratifying this Operating Agreement.

2. On April 20, 1981, the same Court inter alia stopped Aguinaldo from representing himself as the controlling stockholder of
NADECOR and offering its Kingking Claims for sale.

3. On June 29, 1981, the Court issued another Order (a) declaring Aguinaldo and the NADECOR directors guilty of contempt of court
for having, despite the injunction of March 30, 1981, approved and confirmed the Operating Agreement involving the Kingking
Claims entered into by NADECOR with Black Mountain, etc., administering an admonition on them, and (b) NULLIFYING said
Operating Agreement.

4. The Ricafort-Calalang Group validly elected directors at the annual stockholders meeting of NADECOR on August 17, 1981; and
said directors thereafter validly elected the officers of the corporation at the organizational meeting of the board.

5. The same group (Ricafort-Calalang) had been validly re-elected since then, in 1985, 1986, 1987. An attempt of the Aguinaldo-
Aytona group to have its members elected as directors at the stockholders' meeting of August 19, 1985 was declared null and void.

6. At the annual meeting of August 17, 1981, too, the NADECOR stockholders rejected the operating agreement executed on March
25, 1981 by NADECOR, then acting through the Aguinaldo-Aytona Group, and the Black Mountain Consortium, supra. The
stockholders also approved the proposed Agreement with Benguet Corporation for the operation by the latter of the
company's KINGKING MINES. The agreement with Benguet Corporation was subsequently signed and executed.

7. On January 22, 1987, President Corazon C. Aquino issued Memorandum Order No. 69, entitled "RESCINDING LETTER OF
INSTRUCTION NOS. 1210 AND 1349, DATED MARCH 9, 1982 AND AUGUST 1, 1983," treating directly of the "approved operating
agreement involving the Kingking mining property in Pantukan, Davao" of the consortium composed of Black Mountain, Inc., Energy
Corporation, and Tetra Management Corporation . 9 The memorandum reads as follows:

Letter of Instructions Nos. 1210, dated March 9, 1982, directing that the Kingking mining property in Pantukan, Davao, covered by
mining lease contracts issued in the name of the Nationwide Development Corporation be immediately put into production and that
 the North Davao Mining Corporation undertake the development of the Kingking mining property; and Letter of Instructions No.
1349, dated August 1, 1983, advising the Black Mountain, Inc., the Energy Corporation, and the Tetra Management Corporation to
implement the approved operating agreement involving the Kingking mining property in Pantukan, Davao, are hereby rescinded and
revoked.

This Memorandum Order takes effect immediately.

This memorandum Order was sent on February 18, 1987, by Presidential Staff Director Melquiades T. de la Cruz to Director
Benjamin Gonzales of the Bureau of Mines and Geo-Sciences, and Carlos G. Dominguez, Secretary of Natural Resources, evidently
for implementation. These acts, according to Ricafort and Calalang , 10 "rectified the "great prejudice" caused to . . . (them) by the
'unjust awards by then President Marcos of the operation of the Kingking mines to "crony" North Davao Mining Corporation which
had no operating agreement from the claim owners and then to "cronies" Black Mountain, Inc., et al. which had a spurious operating
agreement from Aguinaldo with a court-cancelled board of directors' ratification and no stockholders' approval . . ."

It was evidently on account of Memorandum Order No. 69 of President Aquino that NADECOR (the Ricafort-Calalang Group) finally
succeeded in getting possession of the mines; this, sometime in December, 1989, NADECOR was granted authority by the Secretary
of Natural Resources "to enter the area" and "proceed with exploration and development activities" subject to certain specified
conditions, one of which was that NADECOR itself shall conduct said exploration and development activities and not contract said
activities to an operator . . ."

8. As admitted by the respondents, Black Mountain, Inc. "ceased operations and became bankrupt years before Marcos was booted
out of office."

9. The Operating Agreement with the Black Mountain Consortium of March 25, 1981 was never ratified by the NADECOR
stockholders; indeed, it was explicitly rejected by said stockholders. Considering that the Kingking Mines comprise all or
substantially all the assets of NADECOR, the operating agreement of March 25, 1981 had to be ratified by the stockholders in order
to be valid and effective. This, in accordance with Section 44 of the Corporation Code. 11 That no such ratification was ever given
constitutes yet another reason to invalidate the same.

Under these circumstances—the agreement executed on March 25, 1981 was entered into in defiance of valid orders of a court of competent
jurisdiction and was in fact subsequently nullified by it; it was entered into against the wishes of the majority of the stockholders and
directors and in truth, was not only not ratified by the majority of said stockholders as required by the Corporation Code, but explicitly
rejected and disowned by them at a meeting duly convoked, said stockholders thereafter approving an operating agreement with Benguet
Corporation; the agreement was sought to be vindicated and enforced by individuals who no longer represented the majority of the
stockholders of NADECOR, over the objection and against the wishes of the legitimate majority; the authority granted to the consortium
(Black Mountain, Inc., Energy Corporation, and Tetra Management Corporation) to implement the agreement of March 25, 1981 was
rescinded and revoked by the Office of the President of the Philippines; and one of the companies in said consortium is now, admittedly, no
longer capable on account of bankruptcy of complying with its contractual commitments—it is impossible to accord the agreement any validity
or effect whatsoever.

It thus clearly appears, not only that upon purely legal considerations, the operating agreement of March 25, 1981 is, if not outrightly void,
unenforceable for want of requisite valid ratification and conferred upon private respondents no actionable, vindicable rights, but also that,
from a practical standpoint, any issue about said respondents' rights under the agreement has been mooted by supervening events effectively
precluding their exercise in any case.

WHEREFORE, the petition is GRANTED. Civil Case No. 143 of the Regional Trial Court of Davao is DISMISSED, and the restraining order of
November 11, 1981 issued therein, if still extant, is DISSOLVED. Costs against private respondents. SO ORDERED.
G.R. No. 111448 January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT CORPORATION, respondents.

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution (Amending Decision) dated August 5,
1993 of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a parcel of commercial lot
consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by
Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated as "Authority To Sell
Real Estate"2 to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a
buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority
from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter.5 Zenaida
Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the
order of Dieselman. Polintan received the check and signed an "Acknowledgement Receipt" 6 indicating that the amount of P300,000.00
represents the partial payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution of Dieselman
authorizing the sale of the property. However, Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax
receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman.7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but
required AF Realty to finalize the sale at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment of
P300,000.00 and is willing to pay the balance.9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier
delivered by Polintan.10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a
complaint for specific performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to
execute and deliver a final deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it did not
authorize any person to enter into such transaction on its behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale 13 of the same
property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the
balance of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene in Civil Case No. 56278. Midas
alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF
Realty. The trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF
Realty.14 Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that
Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the
notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly
deposited in escrow by Midas with a bank was not established.1âwphi1.nêt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and deliver to plaintiffs the final
deed of sale of the property covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila
District II, including the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the amount of
P50,000.00 and to pay the costs.

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED."15

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and exemplary damages, and in
dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale between Dieselman and AF
Realty was perfected. Midas further averred that there was no bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court holding that since Cruz, Jr. was not
authorized in writing by Dieselman to sell the subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale
between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and
Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00
as attorney's fees.16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an Amending Decision, the
dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that only defendant Mr. Manuel
Cruz, Jr. should be made liable to pay the plaintiffs the damages and attorney's fees awarded therein, plus the amount of
P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to
plaintiffs.

"SO ORDERED."17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:

"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, verbally and in writing, Cruz, Jr. to
sell the property in question or to look for buyers and negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale of the subject property, it
should be noted that Cruz, Jr. could not confer on Polintan any authority which he himself did not have. Nemo dat quod non habet.
In the same manner, Felicisima Noble could not have possessed authority broader in scope, being a mere extension of Polintan's
purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the
alleged sale of the subject property was effected through persons who were absolutely without any authority whatsoever from
Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of the purchase price of the
subject property is equally untenable. The sale of land through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records bear out that Midas
purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was subsequently annotated on the title of the
property by plaintiffs on 15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly operated
prospectively and did not retroact to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of
sale between Midas and Dieselman is a document duly certified by notary public under his hand and seal. x x x. Such a deed of sale
being public document acknowledged before a notary public is admissible as to the date and fact of its execution without further
proof of its due execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114)
and to prove the defects and lack of consent in the execution thereof, the evidence must be strong and not merely preponderant x x
x."18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized by the board.20 Absent such valid delegation/authorization, the rule is
that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of directors of respondent Dieselman to
sell or to negotiate the sale of the lot, much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority
precludes him from conferring any authority to Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima
Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here, there is acceptance of the
benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively
binds respondent Dieselman.22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence. This is well
stressed in Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by
special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a
natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents when once appointed, or members acting in their stead, are subject to thesame rules,
liabilities, and incapacities as are agents of individuals and private persons." (Emphasis supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void." (Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the
supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:
 "ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of
Appeals,24 the sale was authorized by a board resolution of respondent Dieselman dated May 27, 1988.1âwphi1.nêt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF Realty and against respondent
Cruz, Jr.. The award was made by reason of a breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are no
persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the
offer to sell the property, admitted in her testimony25that a board resolution from respondent Dieselman authorizing the sale is necessary to
bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written authority
was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly,
respondent Cruz, Jr. should not be held liable for damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED with MODIFICATION in the sense that
the award of damages and attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of
P300,000.00. Costs against petitioners. SO ORDERED.
G.R. No. 109491 February 28, 2001

ATRIUM MANAGEMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT
CORPORATION, respondents.

----------------------------------------

G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner,

vs.
COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION,respondents.

PARDO, J.:

What is before the Court are separate appeals from the decision of the Court of Appeals,1 ruling that Hi-Cement Corporation is not liable for
four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation.

On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four
postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de
Leon,2 treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co.,
Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for
payment, the drawee bank dishonored all four checks for the common reason "payment stopped". Atrium, thus, instituted this action after its
demand for payment of the value of the checks was denied.3

After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T.
Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million corresponding to the
value of the four checks, plus interest and attorney's fees.4

On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court,
absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de
Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de
Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration.5

At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T.
Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment
for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February
9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in
payment for petroleum products.6

Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of Hi-Cement,
Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon
instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject checks would secure as
collateral.7

On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads:

"WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence,
judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally
the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid,
plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorney's fees and the cost of suit."

All other claims are, for lack of merit dismissed.

SO ORDERED."8

In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals.9

Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check.
Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the rediscounted checks. 10

Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it
could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any
consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. Henry.11

On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which
reads:

"Judgement is hereby rendered:

(1) dismissing the plaintiff's complaint as against defendants Hi-Cement Corporation and Antonio De las Alas;

(2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of
TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus
P20,000.00 for attorney's fees.

(3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-
Cement Corporation, the sum of P20,000.00 as and for attorney's fees.

With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon.
 So ordered."12

Hence, the recourse to this Court.13

The issues raised are the following:

In G. R. No. 109491 (Atrium, petitioner):

1. Whether the issuance of the questioned checks was an ultra vires act;

2. Whether Atrium was not a holder in due course and for value; and

3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as attorney's
fees.14

In G. R. No. 121794 (de Leon, petitioner):

1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry;

2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course;

3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable
for the value of the checks, which were declared to be issued without consideration;

4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorney's fees and costs.15

We affirm the decision of the Court of Appeals.

We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued
the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil
delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in
payment for hydro oil delivered by E.T. Henry to Hi-Cement?

Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting
operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient
evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the
corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million
pesos.

It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it
was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act.

"An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law"16 The term "ultra vires" is "distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated."17

The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as
corporate officers and authorized signatories of the check.

"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when:

"1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

"2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;

"3. He agrees to hold himself personally and solidarily liable with the corporation; or

"4. He is made, by a specific provision of law, to personally answer for his corporate action."18

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for
the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only
to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is,
"that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage
to the corporation. Hence, Ms. de Leon may be held personally liable therefor.1âwphi1.nêt

The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52
defines a holder in due course, thus:

"A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if
such was the fact;

(c) That he took it in good faith and for value;

 (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it."

In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium
was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be
considered a holder in due course.

However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded
from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the
instrument.19

The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable.20 One such defense is absence or failure of consideration.21

We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions.

WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are
hereby AFFIRMED in toto. No costs. SO ORDERED.
G.R. No. 122452 January 29, 2001

TAM WING TAK, petitioner,

vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 35) and ZENON DE
GUIA (in his capacity as Chief State Prosecutor), respondents.

QUISUMBING, J.:

This is a petition for review on certiorari of the decision of the Regional Trial Court of Manila, Branch 35, dated September 14, 1995, which
dismissed herein petitioner's special civil action for mandamus and sustained the Letter-Order of respondent Chief State Prosecutor. The latter
dismissed petitioner's appeal from the resolution of the City Prosecutor of Quezon City, which, in turn, dismissed petitioner's complaint
against Vic Ang Siong for violation of the Bouncing Checks Law or B.P. Blg. 22.

The factual background of this case is as follows:

On November 11, 1992, petitioner, in his capacity as director of Concord-World Properties, Inc., (Concord for brevity), a domestic
corporation, filed an affidavit-complaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong with violation of B.P. Blg. 22.
Docketed by the Prosecutor as I.S. No. 93-15886, the complaint alleged that a check for the amount of P83,550,000.00, issued by Vic Ang
Siong in favor of Concord, was dishonored when presented for encashment.

Vic Ang Siong sought the dismissal of the case on two grounds: First, that petitioner had no authority to file the case on behalf of Concord,
the payee of the dishonored check, since the firm's board of directors had not empowered him to act on its behalf. Second, he and Concord
had already agreed to amicably settle the issue after he made a partial payment of P19,000,000.00 on the dishonored check.1âwphi1.nêt

On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-15886 on the following grounds: (1) that petitioner lacked the requisite
authority to initiate the criminal complaint for and on Concord's behalf; and (2) that Concord and Vic Ang Siong had already agreed upon the
payment of the latter's balance on the dishonored check.

A copy of the City Prosecutor's resolution was sent by registered mail to petitioner in the address he indicated in his complaint-affidavit.
Notwithstanding that petitioner was represented by counsel, the latter was not furnished a copy of the resolution.

On June 27, 1994, petitioner's counsel was able to secure a copy of the resolution dismissing I.S. No. 93-15886. Counting his 15-day appeal
period from said date, petitioner moved for reconsideration on July 7, 1994.

On October 21, 1994, the City Prosecutor denied petitioner's motion for reconsideration. Petitioner's counsel received a copy of the denial
order on November 3, 1994.

On November 7, 1994, petitioner's lawyer filed a motion to extend the period to appeal by an additional 15 days counted from November 3,
1994 with the Chief State Prosecutor. He manifested that it would take time to communicate with petitioner who is a Hong Kong resident and
enable the latter to verify the appeal as procedurally required.

On November 8, 1994, petitioner appealed the dismissal of his complaint by the City Prosecutor to the Chief State Prosecutor. The appeal was
signed by petitioner's attorney only and was not verified by petitioner until November 23, 1994.

On December 8, 1994, the Chief State Prosecutor dismissed the appeal for having been filed out of time. Petitioner's lawyer received a copy
of the letter-resolution dismissing the appeal on January 20, 1995.

On January 30, 1995, petitioner moved for reconsideration.

On March 9, 1995, respondent Chief State Prosecutor denied the motion for reconsideration.

Petitioner then filed Civil Case No. 95-74394 for mandamus with the Regional Trial Court of Quezon City to compel the Chief State Prosecutor
to file or cause the filing of an information charging Vic Ang Siong with violation of B.P. Blg. 22.

On September 14, 1995, the trial court disposed of the action as follows:

WHEREFORE, for utter lack of merit, the petition for mandamus of petitioner is DENIED and DISMISSED.

SO ORDERED.1

Petitioner moved for reconsideration, but the trial court denied this motion in its order dated October 24, 1995.

Hence, the instant petition.

Before this Court, petitioner claims respondent judge committed grave errors of law in sustaining respondent Chief State Prosecutor whose
action flagrantly contravenes: (1) the established rule on service of pleadings and orders upon parties represented by counsel; (b) the basic
principle that except in private crimes, any competent person may initiate a criminal case; and (3) the B.P. Blg. 22 requirement that
arrangement for full payment of a bounced check must be made by the drawer with the drawee within five (5) banking days from notification
of the check's dishonor.2

We find pertinent for our resolution the following issues:

(1) Was there valid service of the City Prosecutor's resolution upon petitioner?

(2) Will mandamus lie to compel the City Prosecutor to file the necessary information in court?

In upholding respondent Chief State Prosecutor, the court a quo held:

It is generally accepted principle in the service of orders, resolutions, processes and other papers to serve them on the party or his
counsel, either in his office, if known, or else in the residence, also if known. As the party or his counsel is not expected to be
 present at all times in his office or residence, service is allowed to be made with a person in charge of the office, or with a person of
sufficient discretion to receive the same in the residence.

In the case under consideration, it is not disputed that the controverted Resolution dismissing the complaint of the petitioner against
Vic Ang Siong was served on the former by registered mail and was actually delivered by the postmaster on April 9, 1994 at said
petitioner's given address in the record at No. 5 Kayumanggi Street, West Triangle, Quezon City. The registered mail was in fact
received by S. Ferraro. The service then was complete and the period for filing a motion for reconsideration or appeal began to toll
from that date. It expired on April 24, 1994. Considering that his motion for reconsideration was filed only on July 7, 1994, the same
was filed beyond the prescribed period, thereby precluding further appeal to the Office of the respondent. 3

Petitioner, before us, submits that there is no such "generally accepted practice" which gives a tribunal the option of serving pleadings,
orders, resolutions, and other papers to either the opposing party himself or his counsel. Petitioner insists that the fundamental rule in this
jurisdiction is that if a party appears by counsel, then service can only be validly made upon counsel and service upon the party himself
becomes invalid and without effect. Petitioner relies upon Rule 13, Section 2 of the Rules of Court4 and our ruling in J.M. Javier Logging Corp.
v. Mardo, 24 SCRA 776 (1968) to support his stand. In the J.M. Javier case, we held:

[W]here a party appears by attorney, notice to the former is not a notice in law, unless service upon the party himself is ordered by
the court…5

The Solicitor General, for respondents, contends that the applicable rule on service in the present case is Section 2 of the Department of
Justice (DOJ) Order No. 223,6 which allows service to be made upon either party or his counsel. Respondents argue that while a preliminary
investigation has been considered as partaking of the nature of a judicial proceeding, 7 nonetheless, it is not a court proceeding and hence,
falls outside of the ambit of the Rules of Court.

We agree with petitioner that there is no "generally accepted practice" in the service of orders, resolutions, and processes, which allows
service upon either the litigant or his lawyer. As a rule, notice or service made upon a party who is represented by counsel is a
nullity,8 However, said rule admits of exceptions, as when the court or tribunal order service upon the party9 or when the technical defect is
waived.10

To resolve the issue on validity of service, we must make a determination as to which is the applicable rule – the on service in the Rules of
Court, as petitioner insists or the rule on service in DOJ Order No. 223?

The Rules of Court were promulgated by this Court pursuant to Section 13, Article VII of the 1935 Constitution11(now Section 5 [5], Article
VIII of the Constitution)12 to govern "pleadings, practice and procedure in all courts of the Philippines." The purpose of the Rules is clear and
does not need any interpretation. The Rules were meant to govern court (stress supplied) procedures and pleadings. As correctly pointed out
by the Solicitor General, a preliminary investigation, notwithstanding its judicial nature, is not a court proceeding. The holding of a preliminary
investigation is a function of the Executive Department and not of the Judiciary. 13 Thus, the rule on service provided for in the Rules of Court
cannot be made to apply to the service of resolutions by public prosecutors, especially as the agency concerned, in this case, the Department
of Justice, has its own procedural rules governing said service.

A plain reading of Section 2 of DOJ Order No. 223 clearly shows that in preliminary investigation, service can be made upon the party himself
or through his counsel. It must be assumed that when the Justice Department crafted the said section, it was done with knowledge of the
pertinent rule in the Rules of Court and of jurisprudence interpreting it. The DOJ could have just adopted the rule on service provided for in
the Rules of Court, but did not. Instead, it opted to word Section 2 of DOJ Order No. 223 in such a way as to leave no doubt that in
preliminary investigations, service of resolutions of public prosecutors could be made upon either the party or his counsel.

Moreover, the Constitution provides that "Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless
disapproved by the Supreme Court."14 There is naught in the records to show that we have disapproved and nullified Section 2 of DOJ Order
No. 223 and since its validity is not an issue in the instant case, we shall refrain from ruling upon its validity.

We hold that there was valid service upon petitioner pursuant to Section 2 of DOJ Order No. 223.

On the issue of whether mandamus will lie. In general, mandamus may be resorted to only where one's right is founded clearly in law and not
when it is doubtful.15 The exception is to be found in criminal cases where mandamus is available to compel the performance by the public
prosecutor of an ostensibly discretionary function, where by reason of grave abuse of discretion on his part, he willfully refuses to perform a
duty mandated by law.16Thus, mandamus may issue to compel a prosecutor to file an information when he refused to do so in spite of
theprima facie evidence of guilt.17

Petitioner takes the stance that it was grave abuse for discretion on the part of respondent Chief State Prosecutor to sustain the dismissal of
I.S. No. 93-15886 on the grounds that: (1) Vic Ang Siong's obligation which gave rise to the bounced check had already been extinguished by
partial payment and agreement to amicably settle balance, and (2) petitioner had no standing to file the criminal complaint since he was
neither the payee nor holder of the bad check. Petitioner opines that neither ground justifies dismissal of his complaint.

Petitioner's stand is unavailing. Respondent Chief State Prosecutor in refusing to order the filing of an information for violation of B.P. Blg. 22
against Vic Ang Siong did not act without or in excess of jurisdiction or with grave abuse of discretion.

First, with respect to the agreement between Concord and Victor Ang Siong to amicably settle their difference, we find this resort to an
alternative dispute settlement mechanism as not contrary to law, public policy, or public order. Efforts of parties to solve their disputes
outside of the courts are looked on with favor, in view of the clogged dockets of the judiciary.

Second, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner.
Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the
bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code 18,
read in relation to Section 23,19 it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or
turstees.20 Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concord's board of
director to sue Victor And Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the board of
directors had no such power or authority to sue on Concord's behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to
prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on
a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the
suit.21 There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear
legal right which would warrant the overturning of the decision of public respondents to dismiss the complaint against Vic Ang Siong. A public
prosecutor, by the nature of his office, is under no compulsion to file a criminal information where no clear legal justification has been shown,
and no sufficient evidence of guilt nor prima facie case has been presented by the petitioner.22 No reversible error may be attributed to the
court a quo when it dismissed petitioner's special civil action for mandamus.1âwphi1.nêt
WHEREFORE, the instant petition is DISMISSED for lack of merit. Costs against petitioner. SO ORDERED.
G.R. No. 143377 February 20, 2001

SHIPSIDE INCORPORATED, petitioner,

vs.
THE HON. COURT OF APPEALS [Special Former Twelfth Division], HON. REGIONAL TRIAL COURT, BRANCH 26 (San Fernando
City, La Union) & The REPUBLIC OF THE PHILIPPINES, respondents.

MELO, J.:

Before the Court is a petition for certiorari filed by Shipside Incorporated under Rule 65 of the 1997 Rules on Civil Procedure against the
resolutions of the Court of Appeals promulgated on November 4, 1999 and May 23, 2000, which respectively, dismissed a petition for
certiorari and prohibition and thereafter denied a motion for reconsideration.

The antecedent facts are, undisputed:

On October 29, 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael Galvez, over four parcels of land - Lot 1 with 6,571
square meters; Lot 2, with 16,777 square meters; Lot 3 with 1,583 square meters; and Lot 4, with 508 square meters.

On April 11, 1960, Lots No. 1 and 4 were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana, Regina Bustos, and Erlinda
Balatbat in a deed of sale which was inscribed as Entry No. 9115 OCT No.0-381 on August 10, 1960. Consequently, Transfer Certificate No. T-
4304 was issued in favor of the buyers covering Lots No. 1 and 4.

Lot No. 1 is described as:

A parcel of land (Lot 1, Plan PSU-159621, L.R. Case No. N-361; L.R.C. Record No. N-14012, situated in the Barrio of Poro,
Municipality of San Fernando, Province of La Union, bounded on the NE, by the Foreshore; on the SE, by Public Land and property of
the Benguet Consolidated Mining Company; on the SW, by properties of Rafael Galvez (US Military Reservation Camp Wallace) and
Policarpio Munar; and on the NW, by an old Barrio Road. Beginning at a point marked "1" on plan, being S. 74 deg. 11'W., 2670.36
from B.L.L.M. 1, San Fernando, thence

S. 66 deg. 19'E., 134.95 m. to point 2; S.14 deg. 57'W., 11.79 m. to point 3;

S. 12 deg. 45'W., 27.00 m. to point 4; S. 12 deg. 45'W, 6.90 m. to point 5;

N. 69 deg., 32'W., 106.00 m. to point 6; N. 52 deg., 21'W., 36.85 m. to point 7;

N. 21 deg. 31'E., 42.01 m. to the point of beginning; containing an area of SIX THOUSAND FIVE HUNDRED AND SEVENTY - ONE
(6,571) SQUARE METERS, more or less. All points referred to are indicated on the plan; and marked on the ground; bearings true,
date of survey, February 4-21, 1957.

Lot No. 4 has the following technical description:

A parcel of land (Lot 4, Plan PSU-159621, L.R. Case No. N-361 L.R.C. Record No. N-14012), situated in the Barrio of Poro,
Municipality of San Fernando, La Union. Bounded on the SE by the property of the Benguet Consolidated Mining Company; on the S.
by property of Pelagia Carino; and on the NW by the property of Rafael Galvez (US Military Reservation, Camp Wallace). Beginning
at a point marked "1" on plan, being S. deg. 24'W. 2591.69 m. from B.L.L.M. 1, San Fernando, thence S. 12 deg. 45'W., 73.03 m.
to point 2; N. 79 deg. 59'W., 13.92 m. to point 3; N. 23 deg. 26'E., 75.00 m. to the point of beginning; containing an area of FIVE
HUNDED AND EIGHT (508) SQUARE METERS, more or less. All points referred to are indicated in the plan and marked on the
ground; bearings true, date of survey, February 4-21, 1957.

On August 16, 1960, Mamaril, et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company. The deed of sale covering the aforesaid
property was inscribed as Entry No. 9173 on TCT No. T-4304. Subsequently, Transfer Certificate No. T-4314 was issued in the name of
Lepanto Consolidated Mining Company as owner of Lots No. 1 and 4.

On February 1, 1963, unknown to Lepanto Consolidated Mining Company, the Court of First Instance of La Union, Second Judicial District,
issued an Order in Land Registration Case No. N- 361 (LRC Record No. N-14012) entitled "Rafael Galvez, Applicant, Eliza Bustos, et al.,
Parties-In-Interest; Republic of the Philippines, Movant" declaring OCT No. 0-381 of the Registry of Deeds for the Province of La Union issued
in the name of Rafael Galvez, null and void, and ordered the cancellation thereof.

The Order pertinently provided: Accordingly, with the foregoing, and without prejudice on the rights of incidental parties concerned
herein to institute their respective appropriate actions compatible with whatever cause they may have, it is hereby declared and this
court so holds that both proceedings in Land Registration Case No. N-361 and Original Certificate No. 0-381 of the Registry of Deeds
for the province of La Union issued in virtue thereof and registered in the name of Rafael Galvez, are null and void; the Register of
Deeds for the Province of La Union is hereby ordered to cancel the said original certificate and/or such other certificates of title
issued subsequent thereto having reference to the same parcels of land; without pronouncement as to costs.

On October 28, 1963, Lepanto Consolidated Mining Company sold to herein petitioner Lots No. 1 and 4, with the deed being entered in TCT
No. 4314 as entry No. 12381. Transfer Certificate of Title No. T-5710 was thus issued in favor of the petitioner which starting since then
exercised proprietary rights over Lots No. 1 and 4.

In the meantime, Rafael Galvez filed his motion for reconsideration against the order issued by the trial court declaring OCT No. 0-381 null
and void. The motion was denied on January 25, 1965. On appeal, the Court of Appeals ruled in favor of the Republic of the Philippines in a
Resolution promulgated on August 14, 1973 in CA-G.R. No. 36061-R. 1âwphi1.nêt

Thereafter, the Court of Appeals issued an Entry of Judgment, certifying that its decision dated August 14, 1973 became final and executory
on October 23, 1973.

On April 22, 1974, the trial court in L.R.C. Case No. N-361 issued a writ of execution of the judgment which was served on the Register of
Deeds, San Fernando, La Union on April 29, 1974.

Twenty four long years, thereafter, on January 14, 1999, the Office of the Solicitor General received a letter dated January 11, 1999 from Mr.
Victor G. Floresca, Vice-President, John Hay Poro Point Development Corporation, stating that the aforementioned orders and decision of the
trial court in L.R.C. No. N-361 have not been executed by the Register of Deeds, San Fernando, La Union despite receipt of the writ of
execution.
On April 21, 1999, the Office of the Solicitor General filed a complaint for revival of judgment and cancellation of titles before the Regional
Trial Court of the First Judicial Region (Branch 26, San Fernando, La Union) docketed therein as Civil Case No. 6346 entitled, "Republic of the
Philippines, Plaintiff, versus Heirs of Rafael Galvez, represented by Teresita Tan, Reynaldo Mamaril, Elisa Bustos, Erlinda Balatbat, Regina
Bustos, Shipside Incorporated and the Register of Deeds of La Union, Defendants."

The evidence shows that the impleaded defendants (except the Register of Deeds of the province of La Union) are the successors-in- interest
of Rafael Galvez (not Reynaldo Galvez as alleged by the Solicitor General) over the property covered by OCT No. 0-381, namely: (a) Shipside
Inc. which is presently the registered owner in fee simple of Lots No. 1 and 4 covered by TCT No. T -5710, with a total area of 7,079 square
meters; (b) Elisa Bustos, Jesusito Galvez, and Teresita Tan who are the registered owners of Lot No. 2 of OCT No. 0-381; and (c) Elisa
Bustos, Filipina Mamaril, Regina Bustos and Erlinda Balatbat who are the registered owners of Lot No. 3 of OCT No. 0-381, now covered by
TCT No. T-4916, with an area of 1,583 square meters.

In its complaint in Civil Case No.6346, the Solicitor General argued that since the trial court in LRC Case No. 361 had ruled and declared OCT
No. 0-381 to be null and void, which ruling was subsequently affirmed by the Court of Appeals, the defendants-successors-in-interest of
Rafael Galvez have no valid title over the property covered by OCT No. 0-381, and the subsequent Torrens titles issued in their names should
be consequently cancelled.

On July 22, 1999, petitioner Shipside, Inc. filed its Motion to Dismiss, based on the following grounds: (1) the complaint stated no cause of
action because only final and executory judgments may be subject of an action for revival of judgment; (2) .the plaintiff is not the real party-
in-interest because the real property covered by the Torrens titles sought to be cancelled, allegedly part of Camp Wallace (Wallace Air
Station), were under the ownership and administration of the Bases Conversion Development Authority (BCDA) under Republic Act No. 7227;
(3) plaintiff's cause of action is barred by prescription; {4) twenty-five years having lapsed since the issuance of the writ of execution, no
action for revival of judgment may be instituted because under Paragraph 3 of Article 1144 of the Civil Code, such action may be brought only
within ten (10) years from the time the judgment had been rendered.

An opposition to the motion to dismiss was filed by the Solicitor General on August 23, 1999, alleging among others, that: (1) the real party-
in-interest is the Republic of the Philippines; and (2) prescription does not run against the State.

On August 31, 1999, the trial court denied petitioner's motion to dismiss and on October 14, 1999, its motion for reconsideration was likewise
turned down.

On October 21, 1999, petitioner instituted a petition for certiorari and prohibition with the Court of Appeals, docketed therein as CA-G.R. SP
No. 55535, on the ground that the orders of the trial court denying its motion to dismiss and its subsequent motion for reconsideration were
issued in excess of jurisdiction.

On November 4, 1999, the Court of Appeals dismissed the petition in CA-G.R. SP No. 55535 on the ground that the verification and
certification in the petition, tinder the signature of Lorenzo Balbin, Jr., was made without authority, there being no proof therein that Balbin
was authorized to institute the petition for and in behalf and of petitioner.

On May 23, 2000, the Court of Appeals denied petitioner's, motion for reconsideration on the grounds that: (1) a complaint filed on behalf of
a corporation can be made only if authorized by its Board of Directors, and in the absence thereof, the petition cannot prosper and be granted
due course; and (2) petitioner was unable to show that it had substantially complied with the rule requiring proof of authority to institute an
action or proceeding.

Hence, the instant petition.

In support of its petition, Shipside, Inc. asseverates that:

1. The Honorable Court of Appeals gravely abused its discretion in dismissing the petition when it made a conclusive legal
presumption that Mr. Balbin had no authority to sign the petition despite the clarity of laws, jurisprudence and Secretary's certificate
to the contrary;

2. The Honorable Court of Appeals abused its discretion when it dismissed the petition, in effect affirming the grave abuse of
discretion committed by the lower court when it refused to dismiss the 1999 Complaint for Revival of a 1973 judgment, in violation
of clear laws and jurisprudence.

Petitioner likewise adopted the arguments it raised in the petition' and comment/reply it filed with the Court of Appeals, attached to its
petition as Exhibit "L" and "N", respectively.

In his Comment, the Solicitor General moved for the dismissal of the instant petition based on the following considerations: (1) Lorenzo
Balbin, who signed for and in behalf of petitioner in the verification and certification of non-forum shopping portion of the petition, failed to
show proof of his authorization to institute the petition for certiorari and prohibition with the Court of Appeals, thus the latter court acted
correctly in dismissing the same; (2) the real party-in-interest in the case at bar being the Republic of the Philippines, its claims are
imprescriptible.

In order to preserve the rights of herein parties, the Court issued a temporary restraining order on June 26, 2000 enjoining the trial court
from conducting further proceedings in Civil Case No. 6346.

The issues posited in this case are: (1) whether or not an authorization from petitioner's Board of Directors is still required in order for its
resident manager to institute or commence a legal action for and in behalf of the corporation; and (2) whether or not the Republic of the
Philippines can maintain the action for revival of judgment herein.

We find for petitioner.

Anent the first issue:

The Court of Appeals dismissed the petition for certiorari on the ground that Lorenzo Balbin, the resident manager for petitioner, who was the
signatory in the verification and certification on non-forum shopping, failed to show proof that he was authorized by petitioner's board of
directors to file such a petition.

A corporation, such as petitioner, has no power except those expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and
agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers (Premium Marble Resources, Inc. v. CA, 264 SCRA 11 [1996]). In turn, physical acts of the corporation, like
the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act
of the board of directors.

It is undisputed that on October 21, 1999, the time petitioner's Resident Manager Balbin filed the petition, there was no proof attached
thereto that Balbin was authorized to sign the verification and non-forum shopping certification therein, as a consequence of which the
petition was dismissed by the Court of Appeals. However, subsequent to such dismissal, petitioner filed a motion for reconsideration,
attaching to said motion a certificate issued by its "board secretary stating that on October 11, 1999, or ten days prior to the filing of the
petition, Balbin had been authorized by petitioner's board of directors to file said petition.

The Court has consistently held that the requirement regarding verification of a pleading is formal, not jurisdictional (Uy v. LandBank, G.R.
No. 136100, July 24, 2000). Such requirement is simply a condition affecting the form of the pleading, non-compliance with which does not
necessarily render the pleading fatally defective. Verification is simply intended to secure an assurance that the allegations in the pleading are
true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith. The court may
order the correction of the pleading if verification is lacking or act on the pleading although it is not verified, if the attending circumstances
are such that strict compliance with the rules may be dispensed with in order that the ends of justice may thereby be served.

On the other hand, the lack of certification, against forum shopping is generally not curable by the submission thereof after the filing of the
petition. Section 5, Rule 45 of the 1997 Rules of civil Procedure provides that the failure of the petitioner to submit the required documents
that should accompany the petition, including the certification against forum shopping, shall be sufficient ground for the dismissal thereof. The
same rule applies to certifications against forum shopping signed by a person on behalf of a corporation which are unaccompanied by proof
that said signatory is authorized to file a petition on behalf of the corporation.

In certain exceptional circumstances, however, the Court has allowed the belated filing of the certification. InLoyola v. Court of Appeals, et.
al. (245 SCRA 477 [1995]), the Court considered the filing of the certification one day after the filing of an election protest as substantial
compliance with the requirement. In Roadway Express, Inc. v. Court of Appeals, et. al. (264 SCRA 696 [1996]), the Court allowed the filing of
the certification 14 days before the dismissal of the petition. In "Uy v. LandBank, supra, the Court had dismissed Uy's petition for lack of
verification and certification against non-forum shopping. However, it subsequently reinstated the petition after Uy submitted a motion to
admit certification and non-forum shopping certification. In all these cases, there were special circumstances or compelling "reasons that
justified the relaxation of the rule requiring verification and certification on non-forum shopping.

In the instant case, the merits of petitioner' case should be considered special circumstances or compelling reasons that justify tempering the
requirement in regard to the certificate of non-forum shopping. Moreover, inLoyola, Roadway, and Uy, the Court excused non-compliance with
the requirement as to the certificate of non-forum shopping. With more reason should we allow the instant petition since petitioner herein did
submit a certification on non-forum shopping, failing only to show proof that the signatory was authorized to do so. That petitioner
subsequently submitted a secretary's certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise, mitigates
this oversight.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory, nonetheless the requirements
must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping (Bernardo v.
NLRC, .255 SCRA 108 [1996]). Lastly, technical rules of procedure should be used to promote, not frustrate justice. While the swift
unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal.

Now to the second issue:

The action instituted by the Solicitor General in the trial court is one for revival of judgment which is governed by Article 1144(3) of the Civil
Code and Section 6, Rule 39 of the 1997 Rules on Civil Procedure. Article 1144(3) provides that an action upon a judgment "must be brought
within 10 years from the time the right of action accrues." On the other hand, Section 6, Rule 39 provides that a final and executory
judgment or order may be executed on motion within five (5) years from the date of its entry, but that after the lapse of such time, and
before it is barred by the statute of limitations, a judgment may be enforced by action. Taking these two provisions into consideration, it is
plain that an action for revival of judgment must be brought within ten years from the time said judgment becomes final.

From the records of this, case, it is clear that the judgment sought to be revived became final on October 23, 1973. On the other hand, the
action for revival of judgment was instituted only in 1999, or more than twenty-five (25) years after the judgment had become final. Hence,
the action is barred by extinctive prescription considering that 'such an action can be instituted only within ten (10) years from the time the
cause of action accrues.

The Solicitor General, nonetheless, argues that the State's cause , of action in the cancellation of the land title issued to petitioner's
predecessor-in-interest is imprescriptible because it is included in Camp Wallace, which belongs to the government.

The argument is misleading.

While it is true that prescription does not run against the State, the same may not be invoked by the government in this case since it is no
longer interested in the subject matter. While Camp Wallace may have belonged to the government at the time Rafael Galvez's title was
ordered cancelled in Land Registration Case No. N-361, the same no longer holds true today.

Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, created the Bases Conversion and
Development Authority Section 4 pertinently provides:

Section 4. Purposes of the Conversion Authority. - The Conversion Authority shall have the following purposes:

(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station, O'Donnell
Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila military camps which may be transferred to it by the President;

Section 2 of Proclamation No. 216, issued on July 27, 1993, also provides:

Section 2. Transfer of Wallace Air Station Areas to the Bases Conversion and Development Authority. - All areas covered by the
Wallace Air Station as embraced and defined by the 1947 Military Bases Agreement between the Philippines and the United States of
America, as amended, excluding those covered by Presidential Proclamations and some 25-hectare area for the radar and
communication station of the Philippine Air Force, are hereby transferred to the Bases Conversion Development Authority ...

With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest to protect. Consequently, the Republic is not
a real party in interest and it may not institute the instant action. Nor may it raise the defense of imprescriptibility, the same being applicable
only in cases where the government is a party in interest. Under Section 2 of Rule 3 of the 1997 Rules of Civil Procedure, "every action must
be prosecuted or defended in the name of the real party in interest." To qualify a person to be a real party in interest in whose name an
action must be prosecuted, he must appear to be the present real owner of the right sought to enforced (Pioneer Insurance v. CA, 175 SCRA
668 [1989]). A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. And by real interest is meant a present substantial interest, as distinguished from a mere expectancy, or a future,
contingent, subordinate or consequential interest (Ibonilla v. Province of Cebu, 210 SCRA 526 [1992]). Being the owner of the areas covered
by Camp Wallace, it is the Bases Conversion and Development Authority, not the Government, which stands to be benefited if the land
covered by TCT No. T-5710 issued in the name of petitioner is cancelled.

Nonetheless, it has been posited that the transfer of military reservations and their extensions to the BCDA is basically for the purpose of
accelerating the sound and balanced conversion of these military reservations into alternative productive uses and to enhance the benefits to
be derived from such property as a measure of promoting the economic and social development, particularly of Central Luzon and, in general,
the country's goal for enhancement (Section 2, Republic Act No. 7227). It is contended that the transfer of these military reservations to the
Conversion Authority does not amount to an abdication on the part of the Republic of its interests, but simply a recognition of the need to
create a body corporate which will act as its agent for the realization of its program. It is consequently asserted that the Republic remains to
be the real party in interest and the Conversion Authority merely its agent.

We, however, must not lose sight of the fact that the BCDA is an entity invested with a personality separate and distinct from the
government. Section 3 of Republic Act No. 7227 reads:

Section 3. Creation of the Bases Conversion and Development Authority. - There is hereby created a body corporate to be known as
the Conversion Authority which shall have the attribute of perpetual succession and shall be vested with the powers of a corporation.

It may not be amiss to state at this point that the functions of government have been classified into governmental or constituent and
proprietary or ministrant. While public benefit and public welfare, particularly, the promotion of the economic and social development of
Central Luzon, may be attributable to the operation of the BCDA, yet it is certain that the functions performed by the BCDA are basically
proprietary in nature. The promotion of economic and social development of Central Luzon, in particular, and the country's goal for
enhancement, in general, do not make the BCDA equivalent to the Government. Other corporations have been created by government to act
as its agents for the realization of its programs, the SSS, GSIS, NAWASA arid the NIA, to count a few, and yet, the Court has ruled that these
entities, although performing functions aimed at promoting public interest and public welfare, are not government-function corporations
invested with governmental attributes. It may thus be said that the BCDA is not a mere agency of the Government but a corporate body
performing proprietary functions.

Moreover, Section 5 of Republic Act No. 7227 provides:

Section 5. Powers of the Conversion Authority. - To carry out its objectives under this Act, the Conversion Authority is hereby vested
with the following powers:

(a) To succeed in its corporate name, to sue and be sued in such corporate name and to adopt, alter and use a corporate
seal which shall be judicially noticed;

Having the capacity to sue or be sued, it should thus be the BCDA which may file an action to cancel petitioner's title, not the Republic, the
former being the real party in interest. One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff
in an action (Ralla v. Ralla, 199 SCRA 495 [1991]). A suit may be dismissed if the plaintiff or the defendant is not a real party in interest. If
the suit is not brought in the name of the real party in interest, a motion to dismiss may be filed, as was done by petitioner in this case, on
the ground that the complaint states no cause of action (Tanpingco v. IAC, 207 SCRA 652 [1992]).

However, E.B. Marcha Transport Co., Inc. v. IAC (147 SCRA 276 [1987]) is cited as authority that the Republic is the proper party to sue for
the recovery of possession of property which at the time of the institution of the suit was no longer held by the national government but by
the Philippine Ports Authority .In E.B. Marcha, the Court ruled:

It can be said that in suing for the recovery of the rentals, the Republic of the Philippines, acted as principal of the Philippine Ports
Authority, directly exercising the commission it had earlier conferred on the latter as its agent. We may presume that, by doing so,
the Republic of the Philippines did not intend .to retain the said rentals for its own use, considering that by its voluntary act it had
transferred the land in question to the Philippine Ports Authority effective July 11, 1974. The Republic of the Philippines had simply
sought to assist, not supplant, the Philippine Ports Authority, whose title to the disputed property it continues to recognize, We may
expect then that the said rentals, once collected by the Republic of the Philippines, shall be turned over by it to the Philippine Ports
Authority conformably to the purposes of P.D. No. 857.

E.B. Marcha is, however, not on all fours with the case at bar. In the former, the Court considered the Republic a proper party to sue since
the claims of the Republic and the Philippine Ports Authority against the petitioner therein were the same. To dismiss the complaint in E.B.
Marcha would have brought needless delay in the settlement of the matter since the PPA would have to refile the case on the same claim
already litigated upon. Such is not the case here since to allow the government to sue herein enables it to raise the issue of imprescriptibility,
a claim which is not available to the BCDA. The rule that prescription does not run against the State does not apply to corporations or artificial
bodies created by the State for special purposes, it being said that when the title of the Republic has been divested, its grantees, although
artificial bodies of its own creation, are in the same category as ordinary persons (Kingston v. LeHigh Valley Coal Co., 241 Pa 469). By raising
the claim of imprescriptibility, a claim which cannot be raised by the BCDA, the Government not only assists the BCDA, as it did in E.B.
Marcha, it even supplants the latter, a course of action proscribed by said case.

Moreover, to recognize the Government as a proper party to sue in this case would set a bad precedent as it would allow the Republic to
prosecute, on behalf of government-owned or controlled corporations, causes of action which have already prescribed, on the pretext that the
Government is the real party in interest against whom prescription does not run, said corporations having been created merely as agents for
the realization of government programs.

Parenthetically, petitioner was not a party to the original suit for cancellation of title commenced by the Republic twenty-seven years for
which it is now being made to answer, nay, being made to suffer financial losses.

It should also be noted that petitioner is unquestionably a buyer in good faith and for value, having acquired the property in 1963, or 5 years
after the issuance of the original certificate of title, as a third transferee. If only not to do violence and to give some measure of respect to the
Torrens System, petitioner must be afforded some measure of protection.

One more point.

Since the portion in dispute now forms part of the property owned and administered by the Bases Conversion and Development Authority, it
is alienable and registerable real property.

We find it unnecessary to rule on the other matters raised by the herein parties.
WHEREFORE, the petition is hereby granted and the orders dated August 31, 1999 and October 4, 1999 of the Regional Trial, Court of the
First National Judicial Region (Branch 26, San Fernando, La Union) in Civil Case No. 6346 entitled "Republic of the Philippines, Plaintiff, versus
Heirs of Rafael Galvez, et. al., Defendants" as well as the resolutions promulgated on November 4, 1999 and May 23, 2000 by the Court of
Appeals (Twelfth Division) in

CA-G.R. SP No. 55535 entitled "Shipside, Inc., Petitioner versus Ron. Alfredo Cajigal, as Judge, RTC, San Fernando, La Union, Branch 26, and
the Republic of the Philippines, Respondents" are hereby reversed and set aside. The complaint in Civil Case No. 6346, Regional Trial Court,
Branch 26, San Fernando City, La Union entitled "Republic of the Philippines, Plaintiff, versus Heirs of Rafael Galvez, et al." is ordered
dismissed, without prejudice to the filing of an appropriate action by the Bases Development and Conversion Authority. SO ORDERED.
G.R. No. 149240 July 11, 2002

SOCIAL SECURITY SYSTEM, petitioner,

vs.
COMMISSION ON AUDIT, respondent.

BELLOSILLO, J.:

THE FUNDS contributed to the Social Security System (SSS) are not only imbued with public interest, they are part and parcel of the fruits of
the workers’ labors pooled into one enormous trust fund under the administration of the System designed to insure against the vicissitudes
and hazards of their working lives. In a very real sense, the trust funds are the workers’ property which they could turn to when necessity
beckons and are thus more personal to them than the taxes they pay. It is therefore only fair and proper that charges against the trust fund
be strictly scrutinized for every lawful and judicious opportunity to keep it intact and viable in the interest of enhancing the welfare of their
true and ultimate beneficiaries.

This is a petition for certiorari under Rule 64 of the 1997 Rules of Civil Procedure praying that this Court assess against the workers’ social
security fund the amount of P5,000.00 as contract signing bonus of each official and employee of the SSS. The gratuity emanated from the
collective negotiation agreement (CNA) executed on 10 July 1996 between the Social Security Commission (SSC) in behalf of the SSS and the
Alert and Concerned Employees for Better SSS (ACCESS), the sole and exclusive negotiating agent for employees of the SSS.1 In particular,
Art. XIII of the CNA provided -

As a gesture of good will and benevolence, the Management agrees that once the Collective Negotiation Agreement is approved and
signed by the parties, Management shall grant each official and employee of the SYSTEM the amount of P5,000.00 as contract
signing bonus.2

To fund this undertaking, the SSC allocated P15,000,000.00 in the budgetary appropriation of the SSS.3

On 18 February 1997 the Department of Budget and Management (DBM) declared as illegal the contract signing bonus which the CNA
authorized to be distributed among the personnel of the SSS.4 On 1 July 1997 the SSS Corporate Auditor disallowed fund releases for the
signing bonus since it was "an allowance in the form of additional compensation prohibited by the Constitution." 5

Two (2) years later, in a letter dated 29 September 1999, ACCESS appealed the disallowance to the Commission on Audit (COA). 6 On 5 July
2001 despite the delay in the filing of the appeal, a procedural matter which COA considered to be inconsequential, 7 COA affirmed the
disallowance and ruled that the grant of the signing bonus was improper.8 It held that the provision on the signing bonus in the CNA had no
legal basis since Sec. 16 of RA 7658 (1989)9 had repealed the authority of the SSC to fix the compensation of its personnel.10 Hence the
instant petition which, curiously, was filed in the name of the Social Security System (and not ACCESS) by authority of the officer-in-charge
for the SSS11 through its legal staff.12

Petitioner SSS argues that a signing bonus may be granted upon the conclusion of negotiations leading to the execution of a CNA where it is
specifically authorized by law and that in the case at bar such legal authority is found in Sec. 3, par. (c), of RA 1161 as amended (Charter of
the SSS) which allows the SSC to fix the compensation of its personnel. On the other hand, respondent COA asserts that the authority of the
SSC to fix the compensation of its personnel has been repealed by Secs. 12 and 16 of RA 6758 and is therefore no longer effective.

We find no legitimate and compelling reason to reverse the COA. To begin with, the instant petition is fatally defective. It was filed in the
name of the SSS although no directive from the SSC authorized the instant suit and only the officer-in-charge in behalf of petitioner executed
the purported directive. Clearly, this is irregular since under Sec. 4, par. 10, in relation to par. 7,13 RA 1161 as amended by RA 8282 (The
Social Security Act of 1997,which was already effective14 when the instant petition was filed), it is the SSC as a collegiate body which has the
power to approve, confirm, pass upon or review the action of the SSS to sue in court. Moreover, the appearance of the internal legal staff of
the SSS as counsel in the present proceedings is similarly questionable because under both RA 1161 and RA 8282 it is the Department of
Justice (DoJ) that has the authority to act as counsel of the SSS.15 It is well settled that the legality of the representation of an unauthorized
counsel may be raised at any stage of the proceedings 16 and that such illicit representation produces no legal effect.17 Since nothing in the
case at bar shows that the approval or ratification of the SSC has been undertaken in the manner prescribed by law and that the DoJ has not
delegated the authority to act as counsel and appear herein, the instant petition must necessarily fail. These procedural deficiencies are
serious matters which this Court cannot take lightly and simply ignore since the SSS is in reality confessing judgment to charge expenditure
against the trust fund under its custodianship.

In Premium Marble Resources v. Court of Appeals18 we held that no person, not even its officers, could validly sue in behalf of a corporation in
the absence of any resolution from the governing body authorizing the filing of such suit. Moreover, where the corporate officer’s power as an
agent of the corporation did not derive from such resolution, it would nonetheless be necessary to show a clear source of authority from the
charter, the by-laws or the implied acts of the governing body.19 Unfortunately there is no palpable evidence in the records to show that the
officer-in-charge could all by himself order the filing of the instant petition without the intervention of the SSC, nor that the legal staff of SSS
could act as its counsel and appear therein without the intervention of the DoJ. The power of attorney supposedly authorizing this suit as well
as the signature of the legal counsel appearing on the signing page of the instant petition is therefore ineffectual.

Indeed we find no merit in the claim that the employees and officers of SSS are entitled to the signing bonus provided for in the CNA. In the
first place, the process of collective negotiations in the public sector does not encompass terms and conditions of employment requiring the
appropriation of public funds -

Sec. 13. Terms and conditions of employment or improvements thereof, except those that are fixed by law, may be the subject of
negotiations between duly recognized employees’ organizations and appropriate government authorities. 20

More particularly -

Sec. 3. Those that require appropriation of funds, such as the following, are not negotiable: (a) Increase in salary emoluments and
other allowances not presently provided for by law; (b) Facilities requiring capital outlays; (c) Car plan; (d) Provident fund; (e)
Special hospitalization, medical and dental services; (f) Rice/sugar/other subsidies; (g) Travel expenses; (h) Increase in retirement
benefits.

Sec. 4. Matters that involve the exercise of management prerogatives, such as the following, are likewise not subject to negotiation:
(a) Appointment; (b) Promotion; (c) Assignment/Detail; (d) Reclassification/ upgrading of position; (e) Revision of compensation
structure; (f) Penalties imposed as a result of disciplinary actions; (g) Selection of personnel to attend seminar, trainings, study
grants; (h) Distribution of work load; (I) External communication linkages.21

Petitioner however argues that the charter of SSS authorizes the SSC to fix the compensation of its employees and officers so that in reality
the signing bonus is merely the fruit of the exercise of such fundamental power. On this issue, we have to explain the relevant amendments
to the SSS charter in relation to the passage of RA 6758(1989) entitled "An Act Prescribing a Revised Compensation and Position
Classification in the Government and for other Purposes."
When the signing bonus was bestowed upon each employee and officer of the SSS on 10 July 1996, which was earlier approved by the SSC
on 3 July 1996, the governing charter of the SSS was RA 1161 as amended by Sec. 1, RA 2658, and Sec. 1, PD 735. Under this amended
statute, the SSC was empowered to "appoint an actuary, and such other personnel as may be deemed necessary" and to "fix their
compensation."22 The law also provided that "the personnel of the SSS shall be selected only from civil service eligibles and be subject to civil
service rules and regulations."23

On 9 August 1989 Congress passed RA 6758 which took effect on 1 July 1989.24 Its goal was to "provide equal pay for substantially equal
work and to base differences in pay upon substantive differences in duties and responsibilities, and qualification requirements of the
positions."25 Towards this end, RA 6758 provided for the consolidation of allowances and compensation in the prescribed standardized salary
rates except certain specified allowances26 and such other additional compensation as may be determined by the Department of Budget and
Management.27 The law also repealed "[a]ll laws, decrees, executive orders, corporate charters, and other issuances or parts thereof, that
exempt agencies from the coverage of the System, or that authorize and fix position classification, salaries, pay rates or allowances of
specified positions, or groups of officials and employees or of agencies, which are inconsistent with the System, including the proviso under
Section 2 and Section 16 of Presidential Decree No. 985."28

Although it was the clear policy intent of RA 6758 to standardize salary rates among government personnel, the Legislature under Secs.
1229 and 1730 of the law nonetheless saw the need for equity and justice in adopting the policy of non-diminution of pay when it authorized
incumbents as of 1 July 1989 to receive salaries and/or allowances over and above those authorized by RA 6758. In Philippine Ports Authority
v. Commission on Audit31we held that no financial or non-financial incentive could be awarded to employees of government owned and
controlled corporations aside from benefits which were being received by incumbent officials and employees as of 1 July 1989. This Court also
observed -

The consequential outcome, under sections 12 and 17, is that if the incumbent resigns or is promoted to a higher position, his
successor is no longer entitled to his predecessor’s RATA privilege x x x or to the transition allowance x x x x [A]fter July 1, 1989,
additional financial incentives such as RATA may no longer be given by GOCCs with the exception of those which were authorized to
be continued under Section 12 of RA 6758.

Evidently, while RA 6758 intended to do away with multiple allowances and other incentive packages and the resulting differences in
compensation among government personnel, the statute clearly did not revoke existing benefits being enjoyed by incumbents of government
positions at the time of the passage of RA 6758 by virtue of Secs. 12 and 17 thereof. In previous rulings of this Court, among the financial
and non-financial incentives which we allowed certain government employees to enjoy after the effectivity of RA 6758 were car plan
benefits32 and educational funding assistance33 for incumbents of existing positions as of 1 July 1989 until such gratuity packages were
gradually phased out.

We have no doubt that RA 6758 modified, if not repealed, Sec. 3, par. (c), of RA 1161 as amended, at least insofar as it concerned the
authority of SSC to fix the compensation of SSS employees and officers. This means that whatever salaries and other financial and non-
financial inducements that the SSC was minded to fix for them, the compensation must comply with the terms of RA 6758. Consequently,
only the remuneration which was being offered as of 1 July 1989, and which was then being enjoyed by incumbent SSS employees and
officers, could be availed of exclusively by the same employees and officers separate from and independent of the prescribed standardized
salary rates. Unfortunately, however, the signing bonus in question did not qualify under Secs. 12 and 17 of RA 6758. It was non-existent as
of 1 July 1989 as it accrued only in 1996 when the CNA was entered into by and between SSC and ACCESS. The signing bonus therefore
could not have been included in the salutary provisions of the statute nor would it be legal to disburse to the intended recipients.

Philippine International Trading Corporation v. Commission on Audit34 is instructive on this point. Like the SSS, the Philippine International
Trading Corporation (PITC) is a government-owned and controlled corporation which was created under PD 252 (1973) primarily for the
purpose of promoting and developing Philippine trade in pursuance of national economic development. In the same judgment which affirmed
the car financing program and allied incentives being implemented prior to 1 July 1989 we held that the charter of PITC was impliedly
repealed by RA 6758 -

We deem it necessary though to resolve the third issue as to whether PITC is exempt from PD 985 as subsequently amended by RA
6758. According to petitioner, PITC’s Revised Charter, PD 1071 dated January 25, 1977, as amended by EO 756 dated December
29, 1981, and further amended by EO 1067 dated November 25, 1985, expressly exempted PITC from the Office of the
Compensation and Position Classification (OCPC) rules and regulations. Petitioner cites Section 28 of P.D. 1071; Section 6 of EO
756; and Section 3 of EO 1067. According to the COA in its Decision No. 98-048 dated January 27, 1998, the exemption granted to
the PITC has been repealed and revoked by the repealing provisions of RA 6758, particularly Section 16 thereof which provides:

Sec. 16. Repeal of Special Salary Laws and Regulations. - All laws, decrees, executive orders, corporate charters, and
other issuances or parts thereof, that exempt agencies from the coverage of the System, or that authorize and fix position
classifications, salaries, pay rates or allowances of specified positions, or groups of officials, and employees or of agencies,
which are inconsistent with the System, including the proviso under Section 2 and Section 16 of PD No. 985 are hereby
repealed.

To this, [PITC] argues that RA 6758 which is a law of general application cannot repeal provisions of the Revised Charter of PITC and
its amendatory laws expressly exempting PITC from OCPC coverage being special laws x x x x In the case at bar, the repeal by
Section 16 of RA 6758 of "all corporate charters that exempt agencies from the coverage of the System" was clear and expressed
necessarily to achieve the purposes for which the law was enacted, that is, the standardization of salaries of all employees in
government owned and / or controlled corporations to achieve "equal pay for substantially equal work." Henceforth, PITC should
now be considered as covered by laws prescribing a compensation and position classification system in the government including RA
6758. This is without prejudice, however, as discussed above, to the non-diminution of pay of incumbents as of July 1, 1989 as
provided in Sections 12 and 17 of said law.

So we also rule in the instant case involving the charter of the SSS or RA 1161 as amended.

The enactment of RA 8282 entitled "The Social Security Act of 1997" does not change our holding. While it is true that Sec. 3, par. (c), of RA
8282 expressly exempted the SSS from the provisions of RA 6758 and RA 7430 (The Attrition Law of 1992) thus -

The Commission, upon the recommendation of the SSS President, shall appoint an actuary and such other personnel as may be
deemed necessary; fix their reasonable compensation, allowances and other benefits x x x x [t]hat the personnel of the SSS shall be
selected only from civil service eligibles and be subject to civil service rules and regulations: Provided, finally, That the SSS shall be
exempt from the provisions of Republic Act No. 6758 and Republic Act No. 7430,

it bears emphasis that RA 8282 took effect only on 23 May 1997, i.e., fifteen (15) days after its complete publication in two (2) newspapers of
general circulation on 7 May 199735 and 8 May 1997.36 It holds to reason that the prospective application of the statute renders irrelevant to
the case at bar whatever effects this exemption may have on the power of the SSC to fix the compensation of SSS personnel. Ironically, RA
8282 in fact buttresses our ruling that the signing bonus cannot escape the provisions of RA 6758. The need to expressly stipulate the
exemption of the SSS can only mean that prior to the effectivity of RA 8282, the SSS was subject to RA 6758 and even RA 7430 for,
otherwise, there would have been no reason to rope in such provision in RA 8282.
This Court has been very consistent in characterizing the funds being administered by SSS as a trust fund for the welfare and benefit of
workers and employees in the private sector.37 In United Christian Missionary v. Social Security Commission38 we were unequivocal in
declaring the funds contributed to the Social Security System by compulsion of law as funds belonging to the members which were merely
held in trust by the government, and resolutely imposed the duty upon the trustee to desist from any and all acts which would diminish the
property rights of owners and beneficiaries of the trust fund. Consistent with this declaration, it would indeed be very reasonable to construe
the authority of the SSC to provide for the compensation of SSS personnel in accordance with the established rules governing the
remuneration of trustees -

x x x x the modern rule is to give the trustee a reasonable remuneration for his skill and industry x x x x In deciding what is a
reasonable compensation for a trustee the court will consider the amount of income and capital received and disbursed, the pay
customarily given to agents or servants for similar work, the success or failure of the work of the trustee, any unusual skill which
the trustee had and used, the amount of risk and responsibility, the time consumed, the character of the work done (whether
routine or of unusual difficulty) and any other factors which prove the worth of the trustee’s services to the cestuis x x x x The court
has power to make extraordinary compensation allowances, but will not do so unless the trustee can prove that he has performed
work beyond the ordinary duties of his office and has engaged in especially arduous work.39

On the basis of the foregoing pronouncement, we do not find the signing bonus to be a truly reasonable compensation. The gratuity was of
course the SSC’s gesture of good will and benevolence for the conclusion of collective negotiations between SSC and ACCESS, as the CNA
would itself state, but for what objective? Agitation and propaganda which are so commonly practiced in private sector labor-management
relations have no place in the bureaucracy and that only a peaceful collective negotiation which is concluded within a reasonable time must be
the standard for interaction in the public sector. This desired conduct among civil servants should not come, we must stress, with a price tag
which is what the signing bonus appears to be.

WHEREFORE, the instant Petition for Certiorari under Rule 64, 1997 Rules of Civil Procedure, is DISMISSED. TheDecision No. 2001-123 of
the Commission on Audit and the Notice of Disallowance No. 97-002-0101 (96) of the Social Security System Corporate Auditor prohibiting
the payment of P5,000.00 signing bonus to each employee and officer of the Social Security System as stipulated in Art. XIII of the Collective
Negotiation Agreement and as approved in Resolution No. 593 of the Social Security Commission are AFFIRMED. No pronouncement as to
costs. SO ORDERED.
G.R. No. 146062 June 28, 2001

SANTIAGO ESLABAN, JR., in his capacity as Project Manager of the National Irrigation Administration, petitioner,
vs.
CLARITA VDA. DE ONORIO, respondent.

MENDOZA, J.:

This is a petition for review of the decision1 of the Court of Appeals which affirmed the decision of the Regional Trial Court, Branch 26,
Surallah, South Cotabato, ordering the National Irrigation Administration (NIA for brevity) to pay respondent the amount of P107,517.60 as
just compensation for the taking of the latter’s property.

The facts are as follows:

Respondent Clarita Vda. de Enorio is the owner of a lot in Barangay M. Roxas, Sto. Niño, South Cotabato with an area of 39,512 square
meters. The lot, known as Lot 1210-A-Pad-11-000586, is covered by TCT No. T-22121 of the Registry of Deeds, South Cotabato. On October
6, 1981, Santiago Eslaban, Jr., Project Manager of the NIA, approved the construction of the main irrigation canal of the NIA on the said lot,
affecting a 24,660 square meter portion thereof. Respondent’s husband agreed to the construction of the NIA canal provided that they be
paid by the government for the area taken after the processing of documents by the Commission on Audit.

Sometime in 1983, a Right-of-Way agreement was executed between respondent and the NIA (Exh. 1). The NIA then paid respondent the
amount of P4,180.00 as Right-of-Way damages. Respondent subsequently executed an Affidavit of Waiver of Rights and Fees whereby she
waived any compensation for damages to crops and improvements which she suffered as a result of the construction of a right-of-way on her
property (Exh. 2). The same year, petitioner offered respondent the sum of P35,000.00 by way of amicable settlement pursuant to Executive
Order No. 1035, §18, which provides in part that ―

Financial assistance may also be given to owners of lands acquired under C.A. 141, as amended, for the area or portion subject to
the reservation under Section 12 thereof in such amounts as may be determined by the implementing agency/instrumentality
concerned in consultation with the Commission on Audit and the assessor’s office concerned.

Respondent demanded payment for the taking of her property, but petitioner refused to pay. Accordingly, respondent filed on December 10,
1990 a complaint against petitioner before the Regional Trial Court, praying that petitioner be ordered to pay the sum of P111,299.55 as
compensation for the portion of her property used in the construction of the canal constructed by the NIA, litigation expenses, and the costs.

Petitioner, through the Office of the Solicitor-General, filed an Answer, in which he admitted that NIA constructed an irrigation canal over the
property of the plaintiff and that NIA paid a certain landowner whose property had been taken for irrigation purposes, but petitioner
interposed the defense that: (1) the government had not consented to be sued; (2) the total area used by the NIA for its irrigation canal was
only 2.27 hectares, not 24,600 square meters; and (3) respondent was not entitled to compensation for the taking of her property
considering that she secured title over the property by virtue of a homestead patent under C.A. No. 141.

At the pre-trial conference, the following facts were stipulated upon: (1) that the area taken was 24,660 square meters; (2) that it was a
portion of the land covered by TCT No. T-22121 in the name of respondent and her late husband (Exh. A); and (3) that this area had been
taken by the NIA for the construction of an irrigation canal.2

On October 18, 1993, the trial court rendered a decision, the dispositive portion of which reads:

In view of the foregoing, decision is hereby rendered in favor of plaintiff and against the defendant ordering the defendant, National
Irrigation Administration, to pay to plaintiff the sum of One Hundred Seven Thousand Five Hundred Seventeen Pesos and Sixty
Centavos (P107,517.60) as just compensation for the questioned area of 24,660 square meters of land owned by plaintiff and taken
by said defendant NIA which used it for its main canal plus costs.3

On November 15, 1993, petitioner appealed to the Court of Appeals which, on October 31, 2000, affirmed the decision of the Regional Trial
Court. Hence this petition.

The issues in this case are:

1. WHETHER OR NOT THE PETITION IS DISMISSIBLE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 5, RULE 7 OF
THE REVISED RULES OF CIVIL PROCEDURE.

2. WHETHER OR NOT LAND GRANTED BY VIRTUE OF A HOMESTEAD PATENT AND SUBSEQUENTLY REGISTERED UNDER
PRESIDENTIAL DECREE 1529 CEASES TO BE PART OF THE PUBLIC DOMAIN.

3. WHETHER OR NOT THE VALUE OF JUST COMPENSATION SHALL BE DETERMINED FROM THE TIME OF THE TAKING OR FROM THE
TIME OF THE FINALITY OF THE DECISION.

4. WHETHER THE AFFIDAVIT OF WAIVER OF RIGHTS AND FEES EXECUTED BY RESPONDENT EXEMPTS PETITIONER FROM MAKING
PAYMENT TO THE FORMER.

We shall deal with these issues in the order they are stated.

First. Rule 7, §5 of the 1997 Revised Rules on Civil Procedure provides ―

Certification against forum shopping. ― The plaintiff or principal party shall certify under oath in the complaint or other initiatory
pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has
not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency
and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or
claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report the fact within five (5) days therefrom to the court wherein his aforesaid complaint
or initiatory pleading has been filed.

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 . . . .
By reason of Rule 45, §4 of the 1997 Revised Rules on Civil Procedure, in relation to Rule 42, §2 thereof, the requirement of a certificate of
non-forum shopping applies to the filing of petitions for review on certiorari of the decisions of the Court of Appeals, such as the one filed by
petitioner.

As provided in Rule 45, §5, "The failure of the petitioner to comply with any of the foregoing requirements regarding . . . the contents of the
document which should accompany the petition shall be sufficient ground for the dismissal thereof."

The requirement in Rule 7, §5 that the certification should be executed by the plaintiff or the principal means that counsel cannot sign the
certificate against forum-shopping. The reason for this is that the plaintiff or principal knows better than anyone else whether a petition has
previously been filed involving the same case or substantially the same issues. Hence, a certification signed by counsel alone is defective and
constitutes a valid cause for dismissal of the petition.4

In this case, the petition for review was filed by Santiago Eslaban, Jr., in his capacity as Project Manager of the NIA. However, the verification
and certification against forum-shopping were signed by Cesar E. Gonzales, the administrator of the agency. The real party-in-interest is the
NIA, which is a body corporate. Without being duly authorized by resolution of the board of the corporation, neither Santiago Eslaban, Jr. nor
Cesar E. Gonzales could sign the certificate against forum-shopping accompanying the petition for review. Hence, on this ground alone, the
petition should be dismissed.

Second. Coming to the merits of the case, the land under litigation, as already stated, is covered by a transfer certificate of title registered in
the Registry Office of Koronadal, South Cotabato on May 13, 1976. This land was originally covered by Original Certificate of Title No. (P-
25592) P-9800 which was issued pursuant to a homestead patent granted on February 18, 1960. We have held:

Whenever public lands are alienated, granted or conveyed to applicants thereof, and the deed grant or instrument of conveyance
[sales patent] registered with the Register of Deeds and the corresponding certificate and owner’s duplicate of title issued, such
lands are deemed registered lands under the Torrens System and the certificate of title thus issued is as conclusive and indefeasible
as any other certificate of title issued to private lands in ordinary or cadastral registration proceedings. 5

The Solicitor-General contends, however, that an encumbrance is imposed on the land in question in view of §39 of the Land Registration Act
(now P.D. No. 1529, §44) which provides:

Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered
land who takes a certificate of title for value in good faith shall hold the same free from all encumbrances except those noted on said
certificate, and any of the following encumbrances which may be subsisting, namely:

....

Third. Any public highway, way, private way established by law, or any government irrigation canal or lateral thereof, where the
certificate of title does not state that the boundaries of such highway, way, irrigation canal or lateral thereof, have been determined.

As this provision says, however, the only servitude which a private property owner is required to recognize in favor of the government is the
easement of a "public highway, way, private way established by law, or any government canal or lateral thereof where the certificate of title
does not state that the boundaries thereof have been pre-determined." This implies that the same should have been pre-existing at the time
of the registration of the land in order that the registered owner may be compelled to respect it. Conversely, where the easement is not pre-
existing and is sought to be imposed only after the land has been registered under the Land Registration Act, proper expropriation
proceedings should be had, and just compensation paid to the registered owner thereof.6

In this case, the irrigation canal constructed by the NIA on the contested property was built only on October 6, 1981, several years after the
property had been registered on May 13, 1976. Accordingly, prior expropriation proceedings should have been filed and just compensation
paid to the owner thereof before it could be taken for public use.

Indeed, the rule is that where private property is needed for conversion to some public use, the first thing obviously that the government
should do is to offer to buy it.7 If the owner is willing to sell and the parties can agree on the price and the other conditions of the sale, a
voluntary transaction can then be concluded and the transfer effected without the necessity of a judicial action. Otherwise, the government
will use its power of eminent domain, subject to the payment of just compensation, to acquire private property in order to devote it to public
use.

Third. With respect to the compensation which the owner of the condemned property is entitled to receive, it is likewise settled that it is the
market value which should be paid or "that sum of money which a person, desirous but not compelled to buy, and an owner, willing but not
compelled to sell, would agree on as a price to be given and received therefor." 8 Further, just compensation means not only the correct
amount to be paid to the owner of the land but also the payment of the land within a reasonable time from its taking. Without prompt
payment, compensation cannot be considered "just" for then the property owner is made to suffer the consequence of being immediately
deprived of his land while being made to wait for a decade or more before actually receiving the amount necessary to cope with his
loss.9 Nevertheless, as noted in Ansaldo v. Tantuico, Jr.,10 there are instances where the expropriating agency takes over the property prior to
the expropriation suit, in which case just compensation shall be determined as of the time of taking, not as of the time of filing of the action
of eminent domain.

Before its amendment in 1997, Rule 67, §4 provided:

Order of condemnation. When such a motion is overruled or when any party fails to defend as required by this rule, the court may
enter an order of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the
public use or purpose described in the complaint upon the payment of just compensation to be determined as of the date of the
filing of the complaint. . . .

It is now provided that ―

SEC. 4. Order of expropriation. ― If the objections to and the defense against the right of the plaintiff to expropriate the property
are overruled, or when no party appears to defend as required by this Rule, the court may issue an order of expropriation declaring
that the plaintiff has a lawful right to take the property sought to be expropriated, for the public use or purpose described in the
complaint, upon the payment of just compensation to be determined as of the date of the taking of the property or the filing of the
complaint, whichever came first.

A final order sustaining the right to expropriate the property may be appealed by any party aggrieved thereby. Such appeal,
however, shall not prevent the court from determining the just compensation to be paid.

After the rendition of such an order, the plaintiff shall not be permitted to dismiss or discontinue the proceeding except on such
terms as the court deems just and equitable. (Emphasis added)
Thus, the value of the property must be determined either as of the date of the taking of the property or the filing of the complaint,
"whichever came first." Even before the new rule, however, it was already held in Commissioner of Public Highways v. Burgos11 that the price
of the land at the time of taking, not its value after the passage of time, represents the true value to be paid as just compensation. It was,
therefore, error for the Court of Appeals to rule that the just compensation to be paid to respondent should be determined as of the filing of
the complaint in 1990, and not the time of its taking by the NIA in 1981, because petitioner was allegedly remiss in its obligation to pay
respondent, and it was respondent who filed the complaint. In the case of Burgos,12 it was also the property owner who brought the action for
compensation against the government after 25 years since the taking of his property for the construction of a road.

Indeed, the value of the land may be affected by many factors. It may be enhanced on account of its taking for public use, just as it may
depreciate. As observed in Republic v. Lara:13

[W]here property is taken ahead of the filing of the condemnation proceedings, the value thereof may be enhanced by the public
purpose for which it is taken; the entry by the plaintiff upon the property may have depreciated its value thereby; or there may
have been a natural increase in the value of the property from the time it is taken to the time the complaint is filed, due to general
economic conditions. The owner of private property should be compensated only for what he actually loses; it is not intended that
his compensation shall extend beyond his loss or injury. And what he loses is only the actual value of his property at the time it is
taken. This is the only way that compensation to be paid can be truly just, i.e., "just" not only to the individual whose property is
taken, "but to the public, which is to pay for it" . . . .

In this case, the proper valuation for the property in question is P16,047.61 per hectare, the price level for 1982, based on the appraisal
report submitted by the commission (composed of the provincial treasurer, assessor, and auditor of South Cotabato) constituted by the trial
court to make an assessment of the expropriated land and fix the price thereof on a per hectare basis.14

Fourth. Petitioner finally contends that it is exempt from paying any amount to respondent because the latter executed an Affidavit of Waiver
of Rights and Fees of any compensation due in favor of the Municipal Treasurer of Barangay Sto. Niño, South Cotabato. However, as the
Court of Appeals correctly held:

[I]f NIA intended to bind the appellee to said affidavit, it would not even have bothered to give her any amount for damages caused
on the improvements/crops within the appellee’s property. This, apparently was not the case, as can be gleaned from the
disbursement voucher in the amount of P4,180.00 (page 10 of the Folder of Exhibits in Civil Case 396) issued on September 17,
1983 in favor of the appellee, and the letter from the Office of the Solicitor General recommending the giving of "financial assistance
in the amount of P35,000.00" to the appellee.

Thus, We are inclined to give more credence to the appellee’s explanation that the waiver of rights and fees "pertains only to
improvements and crops and not to the value of the land utilized by NIA for its main canal."15

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION to the extent that
the just compensation for the contested property be paid to respondent in the amount of P16,047.61 per hectare, with interest at the legal
rate of six percent (6%) per annum from the time of taking until full payment is made. Costs against petitioner.1âwphi1.nêtbSO ORDERED.
G.R. No. 76801 August 11, 1995

LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners,

vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

PUNO, J.:

The controversy at bench arose from a complaint filed by private respondents, 1 namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril,
Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its
majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits. 2 The case was docketed as
NLRC-NCR Case No. 2-2176-82.

Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority
shareholders. Her interest in the company vis-a-vis the other shareholders is as follows:

1 Asuncion Lopez Gonzales 7831 shares

2 Teresita Lopez Marquez 7830 shares
3 Arturo F. Lopez 7830 shares
4 Rosendo de Leon 4 shares
5 Benjamin Bernardino 1 share
6 Leo Rivera 1 share

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors.

As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of
petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects,viz: (1) the sale of assets of the
company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some
other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal
was deliberated upon and approved in a special meeting of the board of directors held on April 17, 1978.

It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz:
(a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set
aside, twice a year, a certain sum of money for the gratuity pay of itsretiring employees and to create a Gratuity Fund for the said
contingency; and (b) Resolution No. 10,Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the
period from 1950 up to 1980.

Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died.

On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors,
namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads:

Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows:

(a) Those who will be laid off be given the full amount of gratuity;

(b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on
January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis supplied)

Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents
requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The
relevant, portion of the minutes of the said board meeting reads:

In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those
remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or
before the end of November, 1981 of their respective gratuity.

At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she
sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of
the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC)
against majority shareholder Arturo F. Lopez.

Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2)
installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista
were paid by petitioner corporation.

Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private
respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were
cancelled by petitioner Asuncion Lopez Gonzales.

Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril,
Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private
respondents' repeated demands for their gratuity pay, corporation refused to pay the same. 4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents. 5

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal
focused on the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions
during the Annual Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to
some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6,
dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the
employees' retirement.
On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion
of which states: 6

We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quo committed abuse of
discretion in his decision.

Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . .
which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The
records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants.

On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the
corporate affairs of the corporation. . . .

Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward
Mamaril, who had resigned after filing the complaint on February 8, 1982, were precluded to (sic) receive gratuity because
the said resolutions referred to only retiring employee could not be given credence. A reading of Resolutions dated 17
August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants'
gratuities. This disproves respondents' argument allowing gratuities upon retirement of employees. Additionally, the
proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . .
(wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis
supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized (sic) due to
"power struggle" which was evident between Arturo Lopez and Asuncion Gonzales.

The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of
gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to
stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes
of whatever nature proving mistakes in the award of damages (sic).

With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the
appealed decision.

We affirm.

WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of
merit.

SO ORDERED.

Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on
August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was
not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on
July 24, 1986.

On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a
Minute Resolution dated November 19, 1986. 8

Hence, the petition. As prayed for, we issued a Temporary Restraining Order, 9 enjoining public respondent from enforcing or
executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82. 10

The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are
entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981.

Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their
retained employees, are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special
meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section
28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the
retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts.

At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time
in the in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public
respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the
issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed
resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees
who are yet to retire from employment.

In their comment, 11 private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter,
hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of
petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September
29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner
corporation, including petitioner Asuncion Lopez Gonzales. 12

Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been
passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts
cannot, be raised for the first time on appeal. 13 Hence, petitioners may not invoke any other ground, other than those it specified at
the labor arbiter level, to impugn the validity of the subject resolutions.

We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August
1, 1981, and September 1, 1981, were ultra vires for lack of notice.

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. 14 Thus, directors must act as a body in a meeting called pursuant to the law or the
corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. 15
Be that as it may, jurisprudence 16 tells us that 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. Thus, in one case, 17 it was held:

. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated:

Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the
directors at a subsequent legal meeting, or by the corporations course of conduct
...

Fletcher, supra, further states in sec. 762, at page 1073-1074:

Ratification by directors may be by an express resolution or vote to that effect, or it may be implied
from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or
vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but
it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to
establish a ratification.

In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611 (D.N.D. 1964), the court stated:

Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by
conduct implying approval and adoption of the act in question. Such ratification may be express or may
be inferred from silence and inaction.

In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board
resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2)
installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can
glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she
acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash
Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private
respondents Mila Refuerzo and Florentina Fontecha. 18

We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981,
had estopped them from assailing the validity of said board resolutions.

Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17,
1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra
vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or
articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. 19

The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress,
providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence,
petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions. 20

We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned
from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board resolutions
dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity pay of its
retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982.
Hence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were
already entitled to receive their gratuity pay.

Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the
Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the Corporation
Law (Section 40 of the Corporation Code). We are not persuaded.

The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially
all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the
authorization of the stockholders on record.

It will be observed that, except far Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of
directors. Under the circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject
resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private
respondents' gratuity pay.

IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February
9, 1987 is LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is
AFFIRMED. This decision is immediately executory. Costs against petitioners. SO ORDERED.
G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land situated
in barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original
complaint described the land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record
of Rizal Province and as containing an area of 13 hectares more or less. But the complaint was amended by reducing the area of 6 hectares,
more or less, after the defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The second
amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in
another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after defendant's
surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13 hectares, as shown in his
Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession (of
land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial".
The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error
and without knowledge (of) or interest either personal or thru publication to defendant and/or predecessors in interest." The answer therefore
prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and ordering
him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the land,
and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January,
1940, until he vacates the premises.

VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.

As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by
J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be broughtin the name of, but not necessarily by, the real party in
interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the
plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint
also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing
against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta,
Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture
with another where the nature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff
is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to section 4 of Rule 17,
Rules of Court, which sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are tried by express or implied consent of
the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at my
time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by
the pleadings, the court may allow the pleadings to be amended and shall be so freely when the presentation of the merits of the
action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would
prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party
to meet such evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though not alleged. Thus,
commenting on the provision, Chief Justice Moran says in this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant has himself
raised the point on which recovery is based, and that the appellate court treat the pleadings as amended to conform to the
evidence, although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in dispute "is that
described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant later changed his
lawyer and also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence, however,
is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City,
with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal
province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer
certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under
original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino,
witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by the testimony of his own witness,
Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed by defendant is made up of a part of
lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already mentioned.
This fact also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer
be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the issuance and
entry of the decree. Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the land prior to the
registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the
registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession
under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off.
Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does not prescribed.
(Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose
Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff P132.62
monthly from January, 1940, until he vacates the premises.' But it appears from the record that that reasonable compensation for the use
and occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendant was
13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a month. It is appears from the testimony of J.
A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant. And it
cannot be supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have always
been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim of ownership adverse to the
entire world by defendant and his predecessors in interest.' This assignment of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.

During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pending before
the Court of First Instance of Rizal another action between the same parties and for the same cause and seeking to sustain that allegation
with a copy of the complaint filed in said action. But an examination of that complaint reveals that appellant's allegation is not correct, for the
pretended identity of parties and cause of action in the two suits does not appear. That other case is one for recovery of ownership, while the
present one is for recovery of possession. And while appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the action seeks relief for each individual plaintiff and
not relief for and on behalf of others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
G.R. No. L-40620 May 5, 1979

RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES DE LA
RAMA-BORROMEO, petitioners,
vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental, Branch II, BENJAMIN
LOPUE, SR., BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLES, respondents.

Exequiel T. A Alejandro for petitioners.

Acuña, Lirazan & Associates for private respondents.

CONCEPCION JR., J,:

Petition for certiorari to review the order of the respondent judge, dated January 2, 1975, denying the petitioners' motion to dismiss the
complaint filed in Civil Case No. 10257 of the Court of First Instance of Negros Occidental, entitled, "Benjamin Lopue Sr., et al., plaintiffs,
versus Ricardo Gamboa, et al., defendants," as well as the order dated April 4, 1975, denying the motion for the reconsideration of Said
order.

In the aforementioned Civil Case No. 10257 of the Court of First Instance of Negros Occidental, the herein petitioners, Ricardo L. Gamboa,
Lydia R. Gamboa, Honorio de la Rama, Eduardo de la Rama, and the late Mercedes de la Rama-Borromeo, now represented by her heirs, as
well as Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi, were sued by the herein private respondents, Benjamin Lopue,
Sr., Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles to nullify the issuance of 823 shares of stock of the Inocentes de la Rama, Inc. in
favor of the said defendants. The gist of the complaint, filed on April 4, 1972, is that the plaintiffs, with the exception of Anastacio Dacles who
was joined as a formal party, are the owners of 1,328 shares of stock of the Inocentes de la Rama, Inc., a domestic corporation, with an
authorized capital stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were subscribed and issued, thus leaving 823
shares unissued; that upon the plaintiffs' acquisition of the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then President and
Vice-President of the corporation, respectively, the defendants Mercedes R. Borromeo, Honorio de la Rama, and Ricardo Gamboa, remaining
members of the board of directors of the corporation, in order to forestall the takeover by the plaintiffs of the afore-named corporation,
surreptitiously met and elected Ricardo L. Gamboa and Honorio de la Rama as president and vice-president of the corporation, respectively,
and thereafter passed a resolution authorizing the sale of the 823 unissued shares of the corporation to the defendants, Ricardo L. Gamboa,
Lydia R. Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi Eduardo de la Rama, and Mercedes R. Borromeo, at par value,
after which the defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo Battistuzzi were elected to the board of directors of the
corporation; that the sale of the unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and pre-emptive rights and
made without the approval of the board of directors representing 2/3 of the outstanding capital stock, and is in disregard of the strictest
relation of trust existing between the defendants, as stockholders thereof; and that the defendants Lydia de la Rama-Gamboa, Honorio de la
Rama, and Enzo Battistuzzi were not legally elected to the board of directors of the said corporation and has unlawfully usurped or intruded
into said office to the prejudice of the plaintiffs. Wherefore, they prayed that a writ of preliminary injunction be issued restraining the
defendants from committing, or continuing the performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs' rights in
the corporate properties and funds of the corporation, and from disposing, transferring, selling, or otherwise impairing the value of the 823
shares of stock illegally issued by the defendants; that a receiver be appointed to preserve and administer the property and funds of the
corporation; that defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi be declared as usurpers or intruders into
the office of director in the corporation and, consequently, ousting them therefrom and declare Luisa U. Dacles as a legally elected director of
the corporation; that the sale of 823 shares of stock of the corporation be declared null and void; and that the defendants be ordered to pay
damages and attorney's fees, as well as the costs of suit . 1

Acting upon the complaint, the respondent judge, after proper hearing, directed the clerk of court "to issue the corresponding writ of
preliminary injunction restraining the defendants and/or their representatives, agents, or persons acting in their behalf from the commission
or continuance of any act tending in any way to prejudice, diminish or otherwise injure plaintiffs' rights in the corporate properties and funds
of the corporation Inocentes de la Rama, Inc.' and from disposing, transferring, selling or otherwise impairing the value of the certificates of
stock allegedly issued illegally in their names on February 11, 1972, or at any date thereafter, and ordering them to deposit with the Clerk of
Court the corresponding certificates of stock for the 823 shares issued to said defendants on February 11, 1972, upon plaintiffs' posting a
bond in the sum of P50,000.00, to answer for any damages and costs that may be sustained by the defendants by reason of the issuance of
the writ, copy of the bond to be furnished to the defendants. " 2 Pursuant thereto, the defendants deposited with the clerk of court the
corporation's certificates of stock Nos. 80 to 86, inclusive, representing the disputed 823 shares of stock of the corporation. 3

On October 31, 1972, the plaintiffs therein, now private respondents, entered into a compromise agreement with the defendants Ramon de la
Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi , 4 whereby the contracting parties withdrew their respective claims against each other
and the aforenamed defendants waived and transferred their rights and interests over the questioned 823 shares of stock in favor of the
plaintiffs, as follows:

3. That the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi will waive, cede, transfer or
other wise convey, as they hereby waive, cede, transfer and convey, free from all liens and encumbrances unto the
plaintiffs, in such proportion as the plaintiffs may among themselves determine, all of the rights, interests, participations or
title that the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi Enzo Battistuzzi now have or may have in the
eight hundred twenty-three (823) shares in the capital stock of the corporation INOCENTES DELA RAMA, INC.' which were
issued in the names of the defendants in the above-entitled case on or about February 11, 1972, or at any date thereafter
and which shares are the subject-matter of the present suit.

The compromise agreement was approved by the trial court on December 4, 1972, 5 As a result, the defendants filed a motion to dismiss the
complaint, on November 19, 1974, upon the grounds: (1) that the plaintiffs' cause of action had been waived or abandoned; and (2) that
they were estopped from further prosecuting the case since they have, in effect, acknowledged the validity of the issuance of the disputed
823 shares of stock. The motion was denied on January 2, 1975. 6

The defendants also filed a motion to declare the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi in
contempt of court, for having violated the writ of preliminary injunction when they entered into the aforesaid compromise agreement with the
plaintiffs, but the respondent judge denied the said motion for lack of merit. 7

On February 10, 1975, the defendants filed a motion for the reconsideration of the order denying their motion to dismiss the complaint' and
subsequently, an Addendum thereto, claiming that the respondent court has no jurisdiction to interfere with the management of the
corporation by the board of directors, and the enactment of a resolution by the defendants, as members of the board of directors of the
corporation, allowing the sale of the 823 shares of stock to the defendants was purely a management concern which the courts could not
interfere with. When the trial court denied said motion and its addendum, the defendants filed the instant petition for certiorari for the review
of said orders.

The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is merely interlocutory and
cannot be the subject of a petition for certiorari. The proper procedure to be followed in such a case is to continue with the trial of the case on
the merits and, if the decision is adverse, to reiterate the issue on appeal. It would be a breach of orderly procedure to allow a party to come
before this Court every time an order is issued with which he does not agree.
Besides, the order denying the petitioners' motion to dismiss the complaint was not capriciously, arbitrarily, or whimsically issued, or that the
respondent court lacked jurisdiction over the cause as to warrant the issuance of the writ prayed for. As found by the respondent judge, the
petitioners have not waived their cause of action against the petitioners by entering into a compromise agreement with the other defendants
in view of the express provision of the compromise agreement that the same "shall not in any way constitute or be considered a waiver or
abandonment of any claim or cause of action against the other defendants." There is also no estoppel because there is nothing in the
agreement which could be construed as an affirmative admission by the plaintiff of the validity of the resolution of the defendants which is
now sought to be judicially declared null and void. The foregoing circumstances and the fact that no consideration was mentioned in the
agreement for the transfer of rights to the said shares of stock to the plaintiffs are sufficient to show that the agreement was merely an
admission by the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi of the validity of the claim of the plaintiffs.

The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion to dismiss the complaint,
questioning the trial court's jurisdiction on matters affecting the management of the corporation, is without merit. The well-known rule is that
courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate
power of, 10 action and contractsintra vires entered into by the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. 11 In
the instant case, the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the
interests of the plaintiffs, so that the trial court has jurisdiction over the case.

The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the petitioners in the
name of the corporation in order to secure a binding relief after exhausting all the possible remedies available within the corporation.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. 12 In the
case at bar, however, the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that of the corporation. At
any rate, it is yet too early in the proceedings since the issues have not been joined. Besides, misjoinder of parties is not a ground to dismiss
an action. 13

WHEREFORE, the petition should be, as it is hereby DISMISSED for lack of merit. With costs against the petitioners. SO ORDERED.
A.C. No. 5804 July 1, 2003

BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, complainants,

vs.
ATTY. ERNESTO S. SALUNAT, respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

On November 21, 1997, Benedicto Hornilla and Federico D. Ricafort filed an administrative complaint 1 with the Integrated Bar of the
Philippines (IBP) Commission on Bar Discipline, against respondent Atty. Ernesto S. Salunat for illegal and unethical practice and conflict of
interest. They alleged that respondent is a member of the ASSA Law and Associates, which was the retained counsel of the Philippine Public
School Teachers Association (PPSTA). Respondent’s brother, Aurelio S. Salunat, was a member of the PPSTA Board which approved
respondent’s engagement as retained counsel of PPSTA.

Complainants, who are members of the PPSTA, filed an intra-corporate case against its members of the Board of Directors for the terms
1992-1995 and 1995-1997 before the Securities and Exchange Commission, which was docketed as SEC Case No. 05-97-5657, and a
complaint before the Office of the Ombudsman, docketed as OMB Case No. 0-97-0695, for unlawful spending and the undervalued sale of real
property of the PPSTA. Respondent entered his appearance as counsel for the PPSTA Board members in the said cases. Complainants contend
that respondent was guilty of conflict of interest because he was engaged by the PPSTA, of which complainants were members, and was being
paid out of its corporate funds where complainants have contributed. Despite being told by PPSTA members of the said conflict of interest,
respondent refused to withdraw his appearance in the said cases.

Moreover, complainants aver that respondent violated Rule 15.062 of the Code of Professional Responsibility when he appeared at the
meeting of the PPSTA Board and assured its members that he will win the PPSTA cases.

In his Answer,3 respondent stressed that he entered his appearance as counsel for the PPSTA Board Members for and in behalf of the ASSA
Law and Associates. As a partner in the said law firm, he only filed a "Manifestation of Extreme Urgency" in OMB Case No. 0-97-0695.4 On the
other hand, SEC Case No. 05-97-5657 was handled by another partner of the firm, Atty. Agustin V. Agustin. Respondent claims that it was
complainant Atty. Ricafort who instigated, orchestrated and indiscriminately filed the said cases against members of the PPSTA and its Board.

Respondent pointed out that his relationship to Aurelio S. Salunat was immaterial; and that when he entered into the retainer contract with
the PPSTA Board, he did so, not in his individual capacity, but in representation of the ASSA Law Firm. He denied that he ensured the victory
of the PPSTA Board in the case he was handling. He merely assured the Board that the truth will come out and that the case before the
Ombudsman will be dismissed for lack of jurisdiction, considering that respondents therein are not public officials, but private employees.
Anent the SEC case, respondent alleged that the same was being handled by the law firm of Atty. Eduardo de Mesa, and not ASSA.

By way of Special and Affirmative Defenses, respondent averred that complainant Atty. Ricafort was himself guilty of gross violation of his
oath of office amounting to gross misconduct, malpractice and unethical conduct for filing trumped-up charges against him and Atty. De
Mesa. Thus, he prayed that the complaint against him be dismissed and, instead, complainant Ricafort be disciplined or disbarred.

The complainant was docketed as CBD Case No. 97-531 and referred to the IBP Commission on Bar Discipline. After investigation,
Commissioner Lydia A. Navarro recommended that respondent be suspended from the practice of law for six (6) months. The Board of
Governors thereafter adopted Resolution No. XV-3003-230 dated June 29, 2002, approving the report and recommendation of the
Investigating Commissioner.

Respondent filed with this Court a Motion for Reconsideration of the above Resolution of the IBP Board of Governors.

The pertinent rule of the Code of Professional Responsibility provides:

RULE 15.03. – A lawyer shall not represent conflicting interests except by written consent of all concerned given after a full
disclosure of the facts.

There is conflict of interest when a lawyer represents inconsistent interests of two or more opposing parties. The test is "whether or not in
behalf of one client, it is the lawyer’s duty to fight for an issue or claim, but it is his duty to oppose it for the other client. In brief, if he argues
for one client, this argument will be opposed by him when he argues for the other client." 5 This rule covers not only cases in which
confidential communications have been confided, but also those in which no confidence has been bestowed or will be used. 6 Also, there is
conflict of interests if the acceptance of the new retainer will require the attorney to perform an act which will injuriously affect his first client
in any matter in which he represents him and also whether he will be called upon in his new relation to use against his first client any
knowledge acquired through their connection.7 Another test of the inconsistency of interests is whether the acceptance of a new relation will
prevent an attorney from the full discharge of his duty of undivided fidelity and loyalty to his client or invite suspicion of unfaithfulness or
double dealing in the performance thereof.8

In this jurisdiction, a corporation’s board of directors is understood to be that body which (1) exercises all powers provided for under the
Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all property of the corporation.9 Its members have
been characterized as trustees or directors clothed with a fiduciary character.10 It is clearly separate and distinct from the corporate entity
itself.

Where corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or negligence, and the corporation is
unable or unwilling to institute suit to remedy the wrong, a stockholder may sue on behalf of himself and other stockholders and for the
benefit of the corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to the stockholders. 11 This is
what is known as a derivative suit, and settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is only nominal party. The corporation should be included as a party in the suit.12

Having thus laid a suitable foundation of the basic legal principles pertaining to derivative suits, we come now to the threshold question: can a
lawyer engaged by a corporation defend members of the board of the same corporation in a derivative suit? On this issue, the following
disquisition is enlightening:

The possibility for conflict of interest here is universally recognized. Although early cases found joint representation permissible where no
conflict of interest was obvious, the emerging rule is against dual representation in all derivative actions. Outside counsel must thus be
retained to represent one of the defendants. The cases and ethics opinions differ on whether there must be separate representation from the
outset or merely from the time the corporation seeks to take an active role. Furthermore, this restriction on dual representationshould not be
waivable by consent in the usual way; the corporation should be presumptively incapable of giving valid consent.13 (underscoring ours)
In other jurisdictions, the prevailing rule is that a situation wherein a lawyer represents both the corporation and its assailed directors
unavoidably gives rise to a conflict of interest. The interest of the corporate client is paramount and should not be influenced by any interest
of the individual corporate officials.14 The rulings in these cases have persuasive effect upon us. After due deliberation on the wisdom of this
doctrine, we are sufficiently convinced that a lawyer engaged as counsel for a corporation cannot represent members of the same
corporation’s board of directors in a derivative suit brought against them. To do so would be tantamount to representing conflicting interests,
which is prohibited by the Code of Professional Responsibility.

In the case at bar, the records show that SEC Case No. 05-97-5657, entitled "Philippine Public School Teacher’s Assn., Inc., et al. v. 1992-
1995 Board of Directors of the Philippine Public School Teacher’s Assn. (PPSTA), et al.," was filed by the PPSTA against its own Board of
Directors. Respondent admits that the ASSA Law Firm, of which he is the Managing Partner, was the retained counsel of PPSTA. Yet, he
appeared as counsel of record for the respondent Board of Directors in the said case. Clearly, respondent was guilty of conflict of interest
when he represented the parties against whom his other client, the PPSTA, filed suit.

In his Answer, respondent argues that he only represented the Board of Directors in OMB Case No. 0-97-0695. In the said case, he filed a
Manifestation of Extreme Urgency wherein he prayed for the dismissal of the complaint against his clients, the individual Board Members. By
filing the said pleading, he necessarily entered his appearance therein. 15 Again, this constituted conflict of interests, considering that the
complaint in the Ombudsman, albeit in the name of the individual members of the PPSTA, was brought in behalf of and to protect the interest
of the corporation.

Therefore, respondent is guilty of representing conflicting interests. Considering however, that this is his first offense, we find the penalty of
suspension, recommended in IBP Resolution No. XV-2002-230 dated June 29, 2002, to be too harsh. Instead, we resolve to admonish
respondent to observe a higher degree of fidelity in the practice of his profession.

ACCORDINGLY, respondent Atty. Ernesto Salunat is found GUILTY of representing conflicting interests and is ADMONISHED to observe a
higher degree of fidelity in the practice of his profession. He is further WARNED that a repetition of the same or similar acts will be dealt with
more severely. SO ORDERED.
G.R. No. 142316 November 22, 2001

FRANCISCO A.G. DE LIANO, ALBERTO O. VILLA-ABRILLE, JR., and SAN MIGUEL CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and BENJAMIN A. TANGO, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari praying for the reversal of the Resolution1 dated June 4, 1999 issued by the former Fourteenth
Division of the Court of Appeals in CA-G.R. CV No. 60460, which dismissed the appeal of herein petitioners on procedural grounds as well as
its Resolution of February 23, 2000 which denied their motion for reconsideration.

The relevant facts are:

On March 30, 1998, the Regional Trial Court of Quezon City, Branch 227 issued a Decision 2 in Civil Case No. Q-95-24332,3 the dispositive
portion of which is hereunder quoted:

WHEREFORE, premises considered, defendant San Miguel Corporation is hereby ordered

1. To release to the plaintiff the owner's duplicate copy of TCT No. 299551 in the same [sic] of Benjamin A. Tango;

2. To release to plaintiff the originals of the REM contracts dated December 4, 1990 and February 17, 1992 and to cause the
cancellation of the annotation of the same on plaintiffs [sic] TCT No. 299551;

3. To pay the plaintiff the following sums:

3.1. P100,000.00 as and by way of moral damages;

3.2. P50,000.00 as and by way of attorney's fees;

3.3. costs of suit. SO ORDERED.

In brief, the case involved the cancellation of two (2) real estate mortgages in favor of petitioner San Miguel Corporation (SMC) executed by
private respondent Benjamin A. Tango over his house and lot in Quezon City. The mortgages were third party or accommodation mortgages
on behalf of the spouses Bernardino and Carmelita Ibarra who were dealers of SMC products in Aparri, Cagayan. Other defendants in the case
were Francisco A.G. De Liano and Alberto O. Villa-Abrille, Jr., who are senior executives of petitioner SMC.

SMC, De Liano and Abrille appealed the aforesaid decision to the Court of Appeals. In due time, their counsel, Atty. Edgar B. Afable, filed an
Appellants' Brief4 which failed to comply with Section 13, Rule 44 of the Rules of Court. The appellee (herein private respondent) was quick to
notice these deficiencies, and accordingly filed a "Motion to Dismiss Appeal" 5 dated March 8, 1999. Required to comment,6 the appellants
averred that their brief had substantially complied with the contents as set forth in the rules. They proffered the excuse that the omissions
were only the result of oversight or inadvertence and as such could be considered "harmless" errors. They prayed for liberality in the
application of technical rules, adding that they have a meritorious defense.

On June 4, 1999, the appellate court issued the first assailed resolution7 dismissing the appeal. The Court of Appeals held, as follows:

As pointed out by plaintiff-appellee, the Brief does not contain a Subject Index nor a Table of Cases and Authorities, with page
references. Moreover, the Statement of the Case, Statement of Facts, and Arguments in the Brief has no page reference to the
record. These procedural lapses justify the dismissal of the appeal, pursuant to Section 1 (f), Rule 50 of 1997 Rules of Civil
Procedure, as amended, which reads:

"SECTION 1. Grounds for dismissal of appeal. — An appeal may be dismissed by the Court of Appeals, on its own motion,
or on that of the appellee, on the following grounds:

xxx xxx xxx

(f) Absence of specific assignment of errors in the appellant's brief, or of page references to the record as required in
section 13, paragraphs (a), (c), (d) and (f) of Rule 44;"

xxx xxx xxx

Finally, defendants-appellants, despite having been notified of such defects, still failed to amend their Brief to conform to the Rules,
and instead, argues that these are mere "harmless errors." In the case of Del Rosario v. Court of Appeals, G.R. No.
113899, February 22, 1996, 241 SCRA 553 [1996], the Supreme Court, in sustaining the dismissal of the petitioner's appeal for
non-compliance with the rule on the contents of the Appellant's Brief, ruled that:

"Long ingrained in our jurisprudence is the rule that the right to appeal is a statutory right and a party who seeks to avail
of the right must faithfully comply with the rules. x x x These rules are designed to facilitate the orderly disposition of
appealed cases. In an age where courts are bedeviled by clogged dockets, these rules need to be followed by appellants
with greater fidelity. Their observance cannot be left to the whims and caprices of appellants. x x x

Having ruled as such, the Court need not resolve plaintiff- appellee's contention that the issues raised in the appeal are mere
questions of law.

The appellants (herein petitioners) sought to have the foregoing resolution reconsidered. Simultaneously, through the same counsel, they
filed a "Motion to Admit Amended Defendants-Appellants' Brief."8 The appellate court denied the consolidated motions in its Resolution 9 of
February 23, 2000.

From the denial of their motion for reconsideration, only petitioner SMC interposed the instant petition.10 As grounds for allowance, petitioner
contends that:

A
 THE COURT OF APPEALS ERRED IN DISMISSING SMC's APPEAL ON THE BASIS OF PURE TECHNICALITIES AND EVEN AFTER SMC
HAS CORRECTED THE TECHNICAL DEFECT OF ITS APPEAL.

THE COURT OF APPEALS ERRED IN DISMISSING SMC's APPEAL WITHOUT CONSIDERING ITS MERITS.

1. There are valid grounds to reverse the RTC's award of damages in favor of Tango. The award of damages has no basis
in fact or in law.

2. The appeal involves a question of substance which should have been resolved by the Court of Appeals, to wit: whether a
third party mortgagor can unilaterally withdraw the mortgage without the consent of the debtor and creditor.

The petition has no merit.

The premise that underlies all appeals is that they are merely rights which arise from statute; therefore, they must be exercised in the
manner prescribed by law. It is to this end that rules governing pleadings and practice before appellate courts were imposed. These rules
were designed to assist the appellate court in the accomplishment of its tasks, and overall, to enhance the orderly administration of justice.

In his definition of a brief, Justice Malcolm explained thus:

x x x [L]et it be recalled that the word "brief" is derived from the Latin brevis, and the French briefe, and literally means a short or
condensed statement. The purpose of the brief, as all law students and lawyers know, is to present to the court in concise form the
points and questions in controversy, and by fair argument on the facts and law of the case to assist the court in arriving at a just
and proper conclusion. The brief should be so prepared as to minimize the labor of the court in the examination of the record upon
which the appeal is heard and determined.11 [emphasis supplied]

Relative thereto, Section 13, Rule 44 of the Revised Rules of Court governs the format to be followed by the appellant in drafting his brief, as
follows:

Contents of appellant's brief. — The appellant's brief shall contain, in the order herein indicated, the following:

(a) A subject index of the matter in the brief with a digest of the arguments and page references, and a table of cases alphabetically
arranged, textbooks and statutes cited with references to the pages where they are cited;

(b) An assignment of errors intended to be urged, which errors shall be separately, distinctly and concisely stated without repetition
and numbered consecutively;

(c) Under the heading "Statement of the Case," a clear and concise statement of the nature of the action, a summary of the
proceedings, the appealed rulings and orders of the court, the nature of the judgment and any other matters necessary to an
understanding of the nature of the controversy, with page references to the record;

(d) Under the heading "Statement of Facts," a clear and concise statement in a narrative form of the facts admitted by both parties
and of those in controversy, together with the substance of the proof resulting thereto in sufficient detail to make it clearly
intelligible, with page references to the record;

(e) A clear and concise statement of the issues of fact or law to be submitted to the court for its judgment;

(f) Under the heading "Argument," the appellant's arguments on each assignment of error with page references to the record. The
authorities relied upon shall be cited by the page of the report at which the case begins and the page of the report on which the
citation is found;

(g) Under the heading "Relief," a specification of the order or judgment which the appellant seeks; and

(h) In cases not brought up by record on appeal, the appellant's brief shall contain, as an appendix, a copy of the judgment or final
order appealed from.

This particular rule was instituted with reason, and most certainly, it was not intended to become " a custom more honored in the breach than
in the observance." It has its logic, which is to present to the appellate court in the most helpful light, the factual and legal antecedents of a
case on appeal.

The first requirement of an appellant's brief is a subject index. The index is intended to facilitate the review of appeals by providing ready
reference, functioning much like a table of contents. Unlike in other jurisdiction, there is no limit on the length of appeal briefs or appeal
memoranda filed before appellate courts. The danger of this is the very real possibility that the reviewing tribunal will be swamped with
voluminous documents. This occurs even though the rules consistently urge the parties to be "brief" or "concise" in the drafting of pleadings,
briefs, and other papers to be filed in court. The subject index makes readily available at one's fingertips the subject of the contents of the
brief so that the need to thumb through the brief page after page to locate a party's arguments, or a particular citation, or whatever else
needs to be found and considered, is obviated.

An assignment of errors follows the subject index. It is defined in this wise:

An assignment of errors in appellate procedure is an enumeration by appellant or plaintiff in error of the errors alleged to have been
committed by the court below in the trial of the case upon which he seeks to obtain a reversal of the judgment or decree; it is in the
nature of a pleading, and performs in the appellate court the same office as a declaration or complaint in a court of original
jurisdiction. Such an assignment is appellant's complaint, or pleading, in the appellate court, and takes the place of a declaration or
bill; an appeal without an assignment of errors would be similar to a suit without a complaint, bill, or declaration. The assignment is
appellant's declaration or complaint against the trial judge, charging harmful error, and proof vel non of assignment is within the
record on appeal.

The object of such pleadings is to point out the specific errors claimed to have been committed by the court below, in order to
enable the reviewing court and the opposing party to see on what points appellant or plaintiff in error intends to ask a reversal of
the judgment or decree, and to limit discussion to those points. The office of an assignment of errors is not to point out legal
contentions, but only to inform the appellate court that appellant assigns as erroneous certain named rulings; the function of the
 assignment is to group and bring forward such of the exceptions previously noted in the case on appeal as appellant desires to
preserve and present to the appellant.12

It has been held that a general assignment of errors is unacceptable under the rules. Thus, a statement of the following tenor: that "the Court
of First Instance of this City incurred error in rendering the judgment appealed from, for it is contrary to law and the weight of the evidence,"
was deemed insufficient.13 The appellant has to specify in what aspect of the law or the facts that the trial court erred. The conclusion,
therefore, is that the appellant must carefully formulate his assignment of errors. Its importance cannot be underestimated, as Section 8,
Rule 51 of the Rules of Court will attest:

Questions that may be decided. — No error which does not affect the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to
or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

The rules then require that an appellant's brief must contain both a "statement of the case" and a "statement of facts." A statement of the
case gives the appellate tribunal an overview of the judicial antecedents of the case, providing material information regarding the nature of
the controversy, the proceedings before the trial court, the orders and rulings elevated on appeal, and the judgment itself. These data enable
the appellate court to have a better grasp of the matter entrusted to it for its appraisal.

In turn, the statement of facts comprises the very heart of the appellant's brief. The facts constitute the backbone of a legal argument; they
are determinative of the law and jurisprudence applicable to the case, and consequently, will govern the appropriate relief. Appellants should
remember that the Court of Appeals is empowered to review both questions of law and of facts. Otherwise, where only a pure question of law
is involved, appeal would pertain to this Court. An appellant, therefore, should take care to state the facts accurately though it is permissible
to present them in a manner favorable to one party. The brief must state the facts admitted by the parties, as well as the facts in
controversy. To laymen, the distinction may appear insubstantial, but the difference is clear to the practitioner and the student of law. Facts
which are admitted require no further proof, whereas facts in dispute must be backed by evidence. Relative thereto, the rule specifically
requires that one's statement of facts should be supported by page references to the record. Indeed, disobedience therewith has been
punished by dismissal of the appeal.14 Page references to the record are not an empty requirement. If a statement of fact is unaccompanied
by a page reference to the record, it may be presumed to be without support in the record and may be stricken or disregarded altogether.15

When the appellant has given an account of the case and of the facts, he is required to state the issues to be considered by the appellate
court. The statement of issues is not to be confused with the assignment of errors: they are not one and the same, for otherwise, the rules
would not require a separate statement for each. The statement of issues puts forth the questions of fact or law to be resolved by the
appellate court. What constitutes a question of fact or one of law should be clear by now:

At this point, the distinction between a question of fact and a question of law must be clear. As distinguished from a question of law
which exists "when the doubt or difference arises as to what the law is on certain state of facts"—"there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of alleged facts;" or when the "query necessarily invites calibration of
the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances,
their relation to each other and to the whole and the probabilities of the situation."16

Thereafter, the appellant is required to present his arguments on each assigned error. An appellant's arguments go hand in hand with his
assignment of errors, for the former provide the justification supporting his contentions, and in so doing resolves the issues. It will not do to
impute error on the part of the trial court without substantiation. The mere elevation on appeal of a judgment does not create a presumption
that it was rendered in error. The appellant has to show that he is entitled to the reversal of the judgment appealed, and he cannot do this
unless he provides satisfactory reasons for doing so. It is therefore essential that —

x x x [A]s far as possible, the errors and reasons assigned should be supported by a citation of authorities. The failure to do so has
been said to be inexcusable; and, although a point made in the brief is before the court even though no authorities are cited and
may be considered and will be where a proposition of well established law is stated, the court is not required to search out
authorities, but may presume that counsel has found no case after diligent search or that the point has been waived or abandoned,
and need not consider the unsupported errors assigned, and ordinarily will not give consideration to such errors and reasons unless
it is apparent without further research that the assignments of errors presented are well taken.17

In this regard, the rules require that authorities should be cited by the page of the report at which the case begins,as well as the page of the
report where the citation is found. This rule is imposed for the convenience of the appellate court, for obvious reasons: since authorities relied
upon by the parties are checked for accuracy and aptness, they are located more easily as the appellate court is not bound to peruse volume
upon volume, and page after page, of reports.

Lastly, the appellant is required to state, under the appropriate heading, the reliefs prayed for. In so doing, the appellate court is left in no
doubt as to the result desired by the appellant, and act as the circumstances may warrant.

Some may argue that adherence to these formal requirements serves but a meaningless purpose, that these may be ignored with little risk in
the smug certainty that liberality in the application of procedural rules can always be relied upon to remedy the infirmities. This misses the
point. We are not martinets; in appropriate instances, we are prepared to listen to reason, and to give relief as the circumstances may
warrant. However, when the error relates to something so elementary as to be inexcusable, our discretion becomes nothing more than an
exercise in frustration. It comes as an unpleasant shock to us that the contents of an appellant's brief should still be raised as an issue now.
There is nothing arcane or novel about the provisions of Section 13, Rule 44. The rule governing the contents of appellants' briefs has existed
since the old Rules of Court,18 which took effect on July 1, 1940, as well as the Revised Rules of Court,19 which took effect on January 1,
1964, until they were superseded by the present 1997 Rules of Civil Procedure. The provisions were substantially preserved, with few
revisions.

An additional circumstance impels us to deny the reinstatement of petitioner's appeal. We observed that petitioner submitted an "Amended
Appellant's Brief" to cure the infirmities of the one first filed on its behalf by its lawyer. All things being equal, we would have been inclined to
grant the petition until we realized that the attempt at compliance was, at most, only a cosmetic procedure. On closer scrutiny, the amended
brief was as defective as the first. Where the first brief lacked an assignment of errors but included a statement of issues, the amended brief
suffered a complete reversal: it had an assignment of errors but no statement of issues. The "statement of facts" lacked page references to
the record, a deficiency symptomatic of the first. Authorities were cited in an improper manner, that is, the exact page of the report where
the citation was lifted went unspecified.20 The amended brief did not even follow the prescribed order: the assignment of errors came after
the statement of the case and the statement of facts. No one could be expected to ignore such glaring errors, as in the case at bar. The half-
hearted attempt at submitting a supposedly amended brief only serves to harden our resolve to demand a strict observance of the rules.

We remind members of the bar that their first duty is to comply with the rules, not to seek exceptions. As was expressed more recently in Del
Rosario v. Court of Appeals,21 which was rightfully quoted by the appellate court, we ruled that:

Petitioner's plea for liberality in applying these rules in preparing Appellants' Brief does not deserve any sympathy. Long ingrained in
our jurisprudence is the rule that the right to appeal is a statutory right and a party who seeks to avail of the right must faithfully
comply with the rules. In People v. Marong, we held that deviations from the rules cannot be tolerated. The rationale for this strict
attitude is not difficult to appreciate. These rules are designed to facilitate the orderly disposition of appealed cases. In an age where
 courts are bedeviled by clogged dockets, these rules need to be followed by appellants with greater fidelity. Their observance cannot
be after to the whims and caprices of appellants. In the case at bar, counselor petitioners had all the opportunity to comply with the
above rules. He remained obstinate in his non-observance even when he sought reconsideration of the ruling of the respondent
court dismissing his clients' appeal. Such obstinacy is incongruous with his late plea for liberality in construing the rules on appeal.
[italics supplied]

Anent the second issue, it may prove useful to elucidate on the processing of appeals in the Court of Appeals. In so doing, it will help to
explain why the former Fourteenth Division of the appellate court could not look into the merits of the appeal, as petitioner corporation is
urging us to do now.

The Rules of Court prescribe two (2) modes of appeal from decisions of the Regional Trial Courts to the Court of Appeals. When the trial court
decides a case in the exercise of its original jurisdiction, the mode of review is by an ordinary appeal in accordance with Section 2(a) of Rule
41.22 In contrast, where the assailed decision was rendered by the trial court in the exercise of its appellate jurisdiction, the mode of appeal is
via a petition for review pursuant to Rule 42.23 We are more concerned here about the first mode since the case at bar involves a decision
rendered by the Regional Trial Court exercising its original jurisdiction.

Cases elevated to the Court of Appeals are treated differently depending upon their classification into one of three (3) categories: appealed
civil cases, appealed criminal cases, and special cases.24 Be it noted that all cases are under the supervision and control of the members of
the Court of Appeals in all stages, from the time of filing until the remand of the cases to the courts or agencies of origin. 25 Ordinary appealed
civil cases undergo two (2) stages. The first stage consists of completion of the records. The second stage is for study and report, which
follows when an appealed case is deemed submitted for decision, thus:

When case deemed submitted for judgment. — A case shall be deemed submitted for judgment:

A. In ordinary appeals. —

1) Where no hearing on the merits of the main case is held, upon the filing of the last pleading, brief, or memorandum
required by the Rules or by the court itself, or the expiration of the period for its filing;

2) Where such a hearing is held, upon its termination or upon the filing of the last pleading or memorandum as may be
required or permitted to be filed by the court, or the expiration of the period for its filing.26

At each stage, a separate raffle is held. Thus, a preliminary raffle is held at which time an appealed case is assigned to a Justice for
completion. After completion, when the case is deemed ripe for judgment, a second raffle is conducted to determine the Justice to
whom the case will be assigned for study and report.27 Each stage is distinct; it may happen that the Justice to whom the case was
initially raffled for completion may not be the same Justice who will write the decision thereon.

The aforesaid distinction has a bearing on the case at bar. It becomes apparent that the merits of the appeal can only be looked into during
the second stage. The Justice in-charge of completion exceeds his province should he examine the merits of the case since his function is to
oversee completion only. The prerogative of determining the merits of an appeal pertains properly to the Justice to whom the case is raffled
for study and report. The case at bar did not reach the second stage; it was dismissed during completion stage pursuant to Section 1 (f) of
Rule 50. Consequently, petitioner's contention that the appellate court should have considered the substance of the appeal prior to dismissing
it due to technicalities does not gain our favor.

Generally, the negligence of counsel binds his client. Actually, Atty. Afable is also an employee of petitioner San Miguel Corporation.28 Yet
even this detail will not operate in petitioner's favor. A corporation, it should be recalled, is an artificial being whose juridical personality is
only a fiction created by law. It can only exercise its powers and transact its business through the instrumentalities of its board of directors,
and through its officers and agents, when authorized by resolution or its by-laws.

x x x Moreover, " . x x x a corporate officer or agent may represent and bind the corporation in transactions with third persons to
the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred,
and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.29

That Atty. Afable was clothed with sufficient authority to bind petitioner SMC is undisputable. Petitioner SMC's board resolution of May 5, 1999
attests to that. Coupled with the provision of law that a lawyer has authority to bind his client in taking appeals and in all matters of ordinary
judicial procedure,30 a fortiori then, petitioner SMC must be held bound by the actuations of its counsel of record, Atty. Afable. WHEREFORE,
the instant petition is hereby DENIED for lack of merit, with cost against petitioner San Miguel Corporation. SO ORDERED.
G.R. No. L-43413 August 31, 1937

HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE,

as stockholders for an in behalf and for the benefit of the corporation, Parañaque Rice Mill, Inc. and the other stockholders who
may desire to join, plaintiffs-appellees,
vs.
TEODORICO B. SANTOS, ESTANISLAO MAYUGA, APOLONIO PASCUAL, and BASILISA RODRIGUEZ,defendant-appellants.

P. Masalin and A. Sta. Maria for appellants.

Eulogio P. Revilla and Barrera and Reyes for appellees.

LAUREL, J.:

The plaintiff and the defenant aree all stockholders and member of the board of directors of the "Parañaque Rice Mill, Inc., "a corporation
organized for the purpose of operating a rice mill in the municipality of Parañaque, Province of Rizal. On September 6, 1932, a complaint
entitle "Higinio Angeles, Jose de Lara, Aguedo Bernabe, as stockholders, for and in behalf of the corporation, Parañaque Rice Mill, Inc., and
other stockholders of said corporation who may desire to join, plaintiff, vs. Teodorico B. Santos, Estanislao Mayuga, Apolonio Pascual, and
Basilisa Rodriguez, defendant was filed with the Court of First Instance of Rizal. After formal allegation relative to age and residence of the
parties and the due incorporation of the Parañaque Rice Mill, Inc., the complaint avers subtantially the following: (a) That the plaintiffs are
stockholders and constitute the minority and the defendants are also stockholers and constitute the majority of the board of directors of the
Parañaque Rice Mill, Inc.; (b) that at an extraordinary meeting held on February 21, 1932, the stockholders appointed an investigation
committee of which the plaintiff Jose de Lara was chairman and the stockholers Dionisio Tomas and Aguedo Bernabe were members, to
investigate and determine the properties, operations, and losses of the corporation as shown in the auditor's report corresponding to the year
1931, but the defendants, particularly Teodorico B. Santos, who was the president of the corporation, denied access to the properties, books
and record of the corporation which were in their possession (c) That the defendant Teodorico B. Santos, in violation of the by-laws of the
corporation, had taken possession of the books, vouchers, and corporate records as well as of the funds and income of the Parañaque Rice
Mill, Inc., all of which, according to the by-laws, should be under the exclusive control and possession of the secretary-treasurer, the plaintiff
Aguedo Bernabe; (d) That the said Teodorico B. Santos, had appropriated to his own benefit properties, funds, and income of the corporation
in the sum of P10,000; (e) that Teodoro B. Santos, for the purpose of illegally controlling the affairs of the corporation, refuse to sign and
issue the corresponding certificate of stock for the 600 fully paid-up share of the plaintiff, Higinio Angeles, of the total value of P15,000; ( f )
that notwithstanding written requests made in conformity with the by-laws of the corporation of three members of the board of directors who
are holders of more than one-third of the subscribed capital stock of the corporation, the defendant Teodorico B. Santos as president of the
corporation refuse to call a meeting of the board of directors and of the stockholers; (g) that in violation of the by-laws of the corporation, the
defendant who constitute the majority of the board of directors refused to hold ordinary monthly meetings of the board since March, 19332;
(h) that Teodorico B. Santos as president of the corporation, in connivance with his
co-defendants, was disposing of the properties and records of the corporation without authority from the board of directors or the
stockholders of the corporation and without making any report of his acts to the said board of directors or to any other officer of the
corporation, and that, to prevent any interferrence with or examination of his arbitrary acts, he arbitrarily suspended plaintiff Jose de Lara
from the office of general manager to which office the latter had been lawfully elected by the stockholders; and (i) that the corporation had
gained about P4,000 during the first half of the year 1932, but that because of the illegal and arbitrary acts of the defendants not only the
funds but also the books and records of the corporation are in danger of disappearing.

The complaint prays: (a) That after the filing of the bond in an amount to be fixed by the court, Melchor de Lara of Parañaque, Rizal, be
appointed receiver of the properties, funds and business of the Parañaque Rice Mill, Inc., as well as the books and record thereof, with
authority to continue the business of the corporation; (b) that the defendant Teodorico B. Santos be ordered to render a detailed accounting
of the properties, funds and income of the corporation from the year 1927 to date; (c) that the said defendant be required to pay to the
corporation the amount of P10,000 and other amounts which may be found due to the said corporation as damages or for my other cause, (d)
that said defendant be ordered to sign the certificate of stock subscribed to and paid by the plaintiff Higinio Angeles; and (e) that the
members of the board of directors of the Parañaque Rice Mill, Inc., be removed and an exrtraodinary meeting of the stockholders called for
the purpose of electing a new board of directors.

On the date of the filling of the complaint, September 6, 1932, the court issue an ex parte order of receivership appointing Melchor de Lara as
receiver of the corporation upon the filling of a bond of P1,000 by the plaintiffs-appellees. The bond of the receiver was fixed at P4,000.

Upon an urgent motion of the defendants-appellants setting forth the reasons why Melchor de Lara should not have been appointed receiver,
and upon agreement of the parties, the trial court, by order of September 13, 1932, appointed Benigno Agco, as receiver, in lieu of Melchor
de Lara. About a month after, or on October 14, 1932, the court, after considering the memoranda filed by both parties revoked its order
appointing Agco as receiver.

On July 12, 1933, the defendants-appellants presented their amended answer to the complaint, containing a general and specific denial, and
alleging as special defense that the defendant Teodorico B. Santos refused to sign the certificate of stock in favor of the plaintiff Higinio
Angeles for 600 shares valued at P15,00, because the board of directors decided to give Higinio Angeles only 320 shares of stock worth
P8,000. The answer contains a counter-claim for P5,000 alleged illegal and malicious procurement by the plaintiffs of an ex parte order of
receivership. Damages in the amount of P2,000 are also alleged to have been suffered by the defendants by reason of the failure of the
plaintiffs to present their grievances to the Board of directors before going to court. The amended answer sets forth, furthermore, a cross-
complaint against the plaintiffs, and in behalf of the Parañaque Rice Mill, Inc., based on the alleged failure of the plaintiff Higinio Angeles to
render a report of his administration of the corporation from February 14 to June 30, 1928, during which time the corporation is alleged to
have accrued earnings of approximately P3,000. In both the counter claim and cross-complaint Parañaque Rice Mill, Inc. is joined as party
defendant.

On July 24, 1934, the plaintiffs-appellees renewed their petition for the appointment of a receiver pendente litealleging, among other things,
that defendant Teodorico B. Santos was using the funds of the corporation for purely personal ends; that said Teodorico B. Santos was
managing to the interest of the Corporation and its stockholders; that said defendant did not render any account of his management or for
the condition of the business of the corporation; that since 1932 said defendant called no meeting of the board of directors or of the
stockholders thus enabling him to continue holding, without any election, the position of present and, finally, that of manager; and that,
without the knowledge and consent of the stockholders and of the board of directors, the said defendant installed a small rice mill for
converting rice husk into "tiqui-tiqui", the income of which was never turned over or reported to the treasurer of the corporation.

The defendant-appellants objected to the petition for the appointment of a receiver on the ground, among others, that the court had no
jurisdiction over the Parañaque Rice Mill, Inc., because it had not been include as party defendant in this case and that, therefore the court
could not properly appoint a receiver of the corporationpendente lite.

After hearing both parties, the trial court by order of October 31, 1934, appointed Emilio Figueroa, as receiver of the corporation, after giving
a bond in the amount of P2,000. An urgent for the reconsideration of this order filed by counsel for the defendant-appellant on November 3,
1934, was denied by the court on November 7, 1934.

On November 8, 1934, the trial court, having heard the case on its merits rendered a decision, the dispositive part of which is as follows:

Por todo lo expuesto el Juzgado fall este asunto:

 1. Ordenando al demandado Teodorico B. Santos a rendircuenta ellada de las propiedads, fondos e ingresos dela corporacion
Parañaque Rice Mill, Inc., de el año 1931 hasta la fecha;

2. Condenando a dicho demandado a pagar a la corporacion Parañaque Rice Mill, Inc., cualesquiera cantida o cantidades que
resultate en deber a dicha corporacion; de acuerdo con dicha rendicion de cuentas;

3. Declarando al demanante Higinio M. Angeles con derecho a tener expedido a su nombre 600 acciones por valor par de P15,000.

4. Destituyendo a los demandados de su cargo como directores e la corporacion hasta la nueva eleccion por los accionistas que se
convocara una vez firme esta sentencia; y

5. Condenando a los demandados a pagar las costas.

On November 21, 1934, the defendants-appellants, moved for reconsideration of the decision and at the same time prayed for the dismissal
of the case, because of defect of parties defendant.

On December 6, 1934, the Parañaque Rice Mill, Inc., thru counsel for the defendants, entered a special appearance for the sole purpose of
objecting to the order of the court of October 31, 1934, appointing a receiver, on the ground that the Parañaque Rice Mill, Inc., was not a
party to the proceedings. And on December 8, 1934, the defendants excepted to the decision of the trial court and moved for a new trial on
the ground that the evidence presented was insufficient to justify the decision and that said decision was contrary to law. The motions for
reconsideration and new trial and the special appearance were, by separate orders bearing date of December 19, 1934, denied by the trial
court. The case was finally elevated to this court by bill of exceptions.

The defendants-appellants submit the following assignment of errors:

1. The lower court erred in holding that it has jurisdiction to appoint a receiver o the corporation, "Parañaque Rice Mill, Inc.," on
October 31, 1934.

2. The lower court erred in overruling the motion of the defendants the include the defendant corporation as party defendant and in
holding that it is not a necessary party.

3. The lower court erred in not granting a motion for a new trial because there is a defect of party defendant.

4. The lower court erred in not dismissing the case because a necessary defendant was not made a party in the case.

5. The lower court erred in ordering the defendant Teodorico B. Santos to render a detailed accounting of the properties, funds and
income of the corporation "Parañaque Rice Mill, Inc.," from the year 1931 to this date.

6. The lower court erred in condemning the defendant Teodorico B. Santos to pay the corporation whatever sum or sums which may
be found owing to said corporation, in accordance with the said accounting to be one by him.

7. The lower court erred in ordering the destitution of the defendants from their office as members of the board of directors of the
corporation, until the new election of the stockholders which shall be held once the decision has become final..

8. The lower court erred in declaring that Higino Angeles is entitled to have in his name 600 shares of stock of the par value of
P15,000.

9. The lower court erred in overruling and denying appellants' motion for the reconsideration and the dismissal of the case dated
November 21, 1934.

10. The lower court erred in denying the motion of these appellants for new trial.

In their discussion of the first, second, third, and fourth assignment of error, the defendants-appellants vigorously assert that the Parañaque
Rice Mill, Inc., is a necessary party in this case, and that not having been made a party, the trial court was without jurisdiction to appoint a
receiver and should have dismissed the case.

There is ample evidence in the present case to show that the defendants have been guilty of breach of trust as directors of the corporation
and the lower court so found. The board of directors of a corporation is a creation of the stockholders and controls and directs the affairs of
the corporation by allegation of the stockholers. But the board of directors, or the majority thereof, in drawing to themselves the power of the
corporation, occupies a position of trusteeship in relation to the minority of the stock in the sense that the board should exercise good faith,
care and diligence in the administration of the affairs of the corporation and should protect not only the interest of the majority but also those
of the minority of the stock. Where a majority of the board of directors wastes or dissipates the funds of the corporation or fraudulently
disposes of its properties, or performs ultra viresacts, the court, in the exercise of its equity jurisdiction, and upon showing that intracorporate
remedy is unavailing, will entertain a suit filed by the minority members of the board of directors, for and in behalf of the corporation, to
prevent waste and dissipation and the commission of illegal acts and otherwise redress the injuries of the minority stockholders against the
wrongdoing of the majority. The action in such a case is said to be brought derivatively in behalf of the corporation to protect the rights of the
minority stockholers thereof (7 R. C. L., pars. 293 and 294, and authority therein cited; 13 Fletcher, Cyc. of Corp., pars. 593, et seq., an
authorities therein cite).

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of
discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and
for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the
stockholers. An illustration of a suit of this kind is found in the case of Pascual vs. Del Sanz Orozco (19 Phil., 82), decided by this court as
early as 1911. In that case, the Banco Español-Filipino suffered heavy losses due to fraudulent connivance between a depositor and an
employee of the bank, which losses, it was contened, could have been avoided if the president and directors has been more vigilant in the
administration of the affairs of the bank. The stockholers constituting the minority brought a suit in behalf of the bank against the directors to
recover damages, and this over the objection of the majority of the stockholers and the directors. This court held that the suit properly be
maintained.

The contention of the defendants in the case at bar that the Parañaque Rice Mill, Inc., should have been brought in as necessary party and
the action maintained in its name and in its behalf directly states the general rule, but not the exception recognize by this court in the case
of Everrett vs. Asia Banking Corporation (49 Phil., 512, 527). In that case, upon invocation of the general rule by the appellees there, this
court said:
 Invoking the well-known rule that shareholers cannot ordinarily sue in equity to redress wrong done to the corporation, but that the
action must be brought by the board of directors, the appellees argue — and the court below held — that the corporation Teal &
Company is a necessary party plaintiff and that the plaintiff stockholder, not having made any demand on the board to bring the
action, are not the proper parties plaintiff. But, like most rules, the rule in question has its exceptions. It is alleged in the complaint
and, consequently, admitted through the demurrer that the corporation Teal & Company is under the complete control of the
principal defendants in the case, and, in these circumstances it is obvious that a demand upon the board of directors to institute
action and prosecute the same effectively would have been useless, and the law does not require litigants to perform useless acts.
(Exchange Bank of Wewoka vs. Bailey, 29 Okla., 246; Fleming and Hewins vs. Black Warrior Copper Co., 15 Ariz., 1; Wickersham
vs. Crittenen, 106 Cal., 329; Glem vs. Kittanning Brewing Co., 259 Pa., 510; Hawes vs. Contra Costa Water Company, 104 U.S.,
450.)

The action having been properly brought and by the lower court entertained it was within its power, upon proper showing, to appoint a
receiver of the corporation pendente lite (secs. 173, 174, et seq. Code of Civil Procedure). The appointment of a receiver upon application of
the minority stockholers is power to be exercised with great caution. But this does not mean that right of the minority stockholers may be
entirely disregarded, and where the necessity has arisen, the appointment of a receiver for a corporation is a matter resting largely in the
sound discretion of the trial court. Counsel for appellants argue that the appointment of a receiver pendente lite in the present case has
deprived the corporation, Parañaque Rice Mill, Inc., of property without due process of law. But it is too plain to require argument that the
receiver was precisely appointed to preserve the properties of the corporation. The receivership in this case shall continue until a new board
of directors shall have been elected and the corporation.

The first, second, third, and fourth assignments of error are, therefore, overruled.

The appellants contend in their fifth and sixth assignments of error that lower court erred in ordering the defendant, Tedorico B. Santos, to
render a detailed accounting of the properties, funds and income of the corporation, Parañaque Rice Mill., Inc., from the year 1931 and in
condemning him to pay "the corporation whatever sum or sums which may be found owing to said corporation, in accordance with said
accounting to be done by him." We note that the lower court in its decision not only orders the defendant Santos to account for the properties
and funds of the corporation, but it also and at the same time adjudges him to pay an undermine amount which is made to depend upon the
result of such accounting. The accounting order was probably intended by the lower court to be file with it in this proceeding. This
requirement will delay the final disposition of the case and we are of the opinion that this accounting should better be filed with the new board
of directors whose election has been ordered by the lower court. The decision of the lower court in this respect is therefore modified so that
the defendant Santos shall render a complete accounting of all the corporate properties and funds that may have come to his possession
during the period mentioned in the jugment of the lower court to the new board of director to be elected by the stockholders.

In the seventh assignment of error, the appellants contend that the lower court erred in ordering the removal of the defendants from their
offices as members of the board of directors of the corporation. The Corporation Law, as amended, in section 29 to 34, provide for the
election and removal of the directors of a corporation. Our Corporation Law (Act No. 1459, as amended), does not confer expressly upon the
court the power to remove a director of a corporation. In some jurisdictions, statutes expressly provide a more or less summary method for
the confirmation of the election and for the a motion of the directors of a corporation. This is true in New York, New Jersey, Virginia and other
states of the American Union. There are abundant authorities, however, which hold that if the court has acquire jurisdiction to appoint a
receiver because of the mismanagement of directors these may thereafter be remove and others appointed in their place by the court in the
exercise of its equity jurisdiction (2 Fletcher, Cyc. of Corp., ftn. sec. 358, pp. 18 an 119). In the present case, however, the properties and
assets of the corporation being amply protected by the appointment of a receiver and view of the statutory provisions above referred to, we
are of the opinion that the removal of the directors is, under the circumstances, unnecessary and unwarranted. The seventh assignment of
error is, therefore, sustained.

Under the eighth assignment of error, the appellants argue that the lower court erred in deciding that the plaintiff Higinio Angeles is entitled
to the issuance in his name of a certificate covering 600 shares of stock of the total par value of P15,000. A review of the evidence, oral and
documentary, relative to the number of shares of stock to which Higinio Angeles is entitled, shows that Higinio Angeles brought in P15,000
party in money and party in property, for 600 shares of stock. The very articles of incorporation signed by all the incorporators, among whom
are the defendants, show that Higinio Angeles paid P5,600 on account of his subscription amounting to P10,000. The amount of P5,600 is the
value of Angeles' cinematograph building in Bacoor, Cavite, which he transferred to the municipality of Parañaque where the same was
reconstructed for the use of the corporation. The receipts signed by the Philippine Engineering Company and the testimony of Higinio Angeles
and Aguedo Bernabe (secretary-treasurer of the corporation) show that Higinio Angeles paid with his own funds the sum of P2,750 to the
Philippine Engineering Co., as part of the purchase price of the ricemill bought for the corporation. Angeles paid a further sum of P2,397.99 to
the Philippine Engineering Company. It also appears that for the installation of the Rice Mill, the construction of camarin, and the cement
paving (cementacion) of the whole area of twocamarines, and for the excavation of a well for the use of the rice mill the plaintiff Higinio
Angeles paid with his own funds the amount of P7,431.47. Adding all these sums together we have a total of P18, 179.46. At a meeting of the
board of directors on December 27, 1931, which meeting was convoked by Angeles, it seemed to have been agreed that Angeles was to be
given shares of stock of the total par value of P15,000. Angeles wanted to have P16,000 worth of stock to his credit for having made the
disbursements mentioned above, but he finally agreed to accept 600 share worth only P15,000. The certificate of stock, however, was not
issued as disagreement arose between him and the defendant Santos. We, therefore, find no error in the decision of the lower court ordering
the issuance of a certificate for 600 shares of stock of the total par value of P15,000 to Higinio Angeles.

It is unnecessary to consider the ninth and tenth assignments of error.

In view of the foregoing, we hold:

(1) That the action in the present case was properly instituted by the plaintiff as stockholders for and in behalf of the corporation
Parañaque Rice Mill, Inc., and other stockholders of the said corporation;

(2) That the lower court committed no reveiwable error in appointing a receiver of the corporation pendente lite;

(3) That the lower court committed no error in ordering an election of the new board of directors, which election shall be held within
thirty days from the date this decision becomes final;

(4) That Teodorico B. Santos shall render an accounting of all the properties, funds and income of the corporation which may have
come into his possession to the new board of directors;

(5) That the receiver, Emilio Figueroa, shall continue in office until the election and qualification of the members of the new board of
directors;

(6) That upon the constitution of the new board of directors, the said receiver shall turn over all the properties of the corporation in
his possession to the corporation, or such person or persons as may be duly authorized by it; and.

(7) That Higinio Angeles, or his successor in interest, is entitled to 600 shares of stock at the par value of P15,000 and the lower
court committed no error in ordering the issuance of the corresponding certificate of stock.
On June 10, 1937, counsel for the plaintiff-appellees filed a motion making it appear of record that Higinio Angeles, one of the plaintiffs and
appellees, died on May 4, 1937 and that one of his daughters, Maura Angeles y Reyes, had been granted letters of administration as
evidenced by the document attached to the motion as Exhibit A, and praying that said Maura Angeles y Reyes be substituted as one of the
plaintiffs and appellees in lieu of Higinio Angeles, deceased. This motion is hereby granted.

Defendant-appellants shall pay the costs in both instances. So ordered.

G.R. No. L-18805 August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-
appellees.

Simeon M. Gopengco and Solicitor General for plaintiff-appellant.

L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendants-
appellees.

SANCHEZ, J.:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by
Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1,
1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any
other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission
merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut
producers by securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly
aliens.4

General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board;
defendant Leonor Moll became director only on December 22, 1947.

NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general
manager Kalaw are the disputed contracts, for the delivery of copra, viz:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947.
This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped:
September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery:
November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York,
to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports,
delivery: November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract
was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and
January, 1948. This contract was assigned to Pacific Vegetable Co.

(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This
contract was assigned to Pacific Vegetable Co.

An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited
the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the
country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled.
Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a
problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December
22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full
disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board
vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO
head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that
NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met
again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts, as follows:

Buyers Tons Delivered Undelivered

Pacific Vegetable Oil 2,386.45 4,613.55

Spencer Kellog None 1,000

Franklin Baker 1,000 500

Louis Dreyfus 800 2,200

Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 245

TOTALS 7,091.45 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO,
P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00.

But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For
the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14 contract (Civil Case
4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829),
P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation
thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up
the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2)
failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec
verba this finding below:

x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for
non-delivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted
a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should
have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as
compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the
readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully
resisting the claims, or at least settlement for nominal sums like what happened in the Syjuco case.5

All the settlements sum up to P1,343,274.52.

In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman
Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old
Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for
having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the
action upon defenses hereinafter in this opinion to be discussed.

The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff
was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from
NACOCO.

Plaintiff appealed direct to this Court.

Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94.

Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal,
defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of affirmance of the
judgment below on a point or points ignored by the trial court or in which said court was in error. 6

1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue
with this suit.

Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of
Court [which superseded Section 66 of the Corporation Law]7 whereby, upon voluntary dissolution of a corporation, the court may direct
"such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2)
under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as
a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by
or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but
not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of
which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for
the benefit of members, stockholders, creditors, and others interested."8

It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in
February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was
abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three year period
has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order
372 provides in Section 1 thereof that —

Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the
National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby
abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as
the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as
a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and
defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and,
convey its property in the manner hereinafter provided.

Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed
claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued"
(Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he
dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of
pending litigation"9 and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if rendered,
is not only erroneous, but void and subject to collateral attack." 10 So it is, that abatement of pending actions follows as a matter of course
upon the expiration of the legal period for liquidation, 11 unless the statute merely requires a commencement of suit within the added
time. 12 For, the court cannot extend the time alloted by statute. 13

We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in
context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three
years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of
Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read
not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the
existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO.

By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and
duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the
boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators
step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the
other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed
in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By
Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any
project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of
special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum
of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the
rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time
limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees
continuing the job of liquidation and prosecution of several court actions.

Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential
support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that
case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of
money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved
to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of
Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court
dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as
directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to
the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This
motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence
of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for
the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years
from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However,
these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the
reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the
settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may
then be pending."15 We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's
amended complaint to include, as party plaintiff, the Board of Liquidators.

Defendants' position is vulnerable to attack from another direction.

By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of
Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest
became vested in the trustee — the Board of Liquidators. The beneficial interest remained with the sole stockholder — the government. At no
time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this
reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. 16 The provisions of
Section 78 of the Corporation Law — the third method of winding up corporate affairs — find application.

We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case.

2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw.

Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special defense, that plaintiff's action
is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death. 18 They say that the controlling
statute is Section 5, Rule 87, of the 1940 Rules of Court.19 which provides that "[a]ll claims for money against the decedent, arising from
contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree.

The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of
the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently
approved the said contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money
nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to recover
damages for an injury to person or property, real or personal", which survive. 20

The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages
from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of
possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar
court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from
their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos
maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and
undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to
include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative,
and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate
proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared:

Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims
that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be
prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious
conduct of a defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions that are abated
by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all
claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffs-
appellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or
implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were
construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194,

"to include all purely personal obligations other than those which have their source in delict or tort."

Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and
they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to
recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held
that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is
injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur
unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31,
1953).

The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should
break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the
Estate of Casimiro Garcia survives.

The preliminaries out of the way, we now go to the core of the controversy.
3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior
approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as
amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the
Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized."

Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate
structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control
of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the
ordinary business of the corporation. 21As such officer, "he may, without any special authority from the Board of Directors perform all acts of
an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the
usual course of business. 22

The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the
cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts.

The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future
delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the
seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in
the undertaking. NACOCO was much more conservative than the exporters with big capital. This short-selling was inevitable at the time in the
light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and
sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value
decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice — at
times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board.

Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contracted — by himself alone as general manager — for forward sales of copra.
For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from
those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946,
in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the
Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties."

These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all
along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the
difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo
M. Kalaw.

Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their
consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon
after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman,
Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its general
manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy
over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and
Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr.
Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting
immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board
approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO".

And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of
4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting,
"under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15,
1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by
the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the
Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by
the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of
2,000 tons of copra.

It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts
themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board.

Knowledge by the board is also discernible from other recorded instances.1äwphï1.ñët

When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was
entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw informed the
board that "he intends to wait until he has signed contracts to sell before starting to buy copra."23

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have
become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April,
1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw
continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred
kilos." 24

We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947:

521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close
contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always
possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual
contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity
of the Corporation to lower the prices to the detriment of the producers.

(2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before
beginning to buy copra.

The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the
Nacoco is much more conservative than the other big exporters in this respect.25
Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy,
the general manager may bind the company without formal authorization of the board of directors. 26 In varying language, existence of such
authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of
directors has, or must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also,

x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was
in fact exercised. 28

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its
affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors
to manage its business.29

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra
trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give
its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-
law requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our
(and the lower court's) belief that ratification here is nothing more than a mere formality.

Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others
relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party
to the transaction are in precisely the same position as if the act or contract had been authorized at the time." 30 The language of one case is
expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The
theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant
of prior authority." 31

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32
By corporate
confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is
not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled
contracts remain valid.

5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of
the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew
that the contracts so confirmed would cause heavy losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw
himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for
NACOCO.

Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of
fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or
"conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud."

Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket
money at the expense of the corporation. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132,
148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close
examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which
has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and
connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ."
Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their
voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with
the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no
justification for turning one's back on contracts entered into. The truth, then, of the matter is that — in the words of the trial court — the
ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose
prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous." 37

The directors are not liable." 38

6. To what then may we trace the damage suffered by NACOCO.

The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices
spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that
private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal
trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of
NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in the trade." 39 NACOCO was not immune from such
usual business risk.

The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force
majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the
coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one
year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra
will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in
the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the
defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40
A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away
therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's
ratification of the contracts. 41

Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem.
NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved
delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the
tonnage required under the contracts.

As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot
be an actionable wrong if either one or the other is wanting. 43

7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts — ratified by the board — to a
matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel 44 concedes that Kalaw all
along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the
contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which
NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local
market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going
to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing,
NACOCO envisioned a profit of around P752,440.00. 46

Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or
the Assistant General Manager. The dailies and quotations from abroad were guideposts to him.

Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And
even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National
Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00,
which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President,
complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually
faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as
the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On
December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General
Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed,
the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation.

Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962:

"They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they
cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a
loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the
directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the
honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the
board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by
the courts." (Fletcher on Corporations, Vol. 2, p. 390.)48

Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49 Viewed in the light of the entire record, the judgment
under review must be, as it is hereby, affirmed. Without costs. So ordered.
G.R. No. 11897 September 24, 1918

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.

Jose Moreno Lacalle for appellant Fernandez.

Sanz, Opisso & Luzuriaga for appellant "The Orientalist Co."
No appearance for appellee.

STREET, J.:

The Orientalist Company is a corporation, duly organized under the laws of the Philippine Islands, and in 1913 and 1914, the time of the
occurrences which gave rise to this lawsuit, was engaged in the business of maintaining and conducting a theatre in the city of Manila for the
exhibition of cinematographic films. Under the articles of incorporation the company is authorized to manufacture, buy, or otherwise obtain all
accessories necessary for conducting such a business. The plaintiff J. F. Ramirez was, at the same time, a resident of the city of Paris, France,
and was engaged in the business of marketing films for a manufacturer or manufacturers, there engaged in the production or distribution of
cinematographic material. In this enterprise the plaintiff was represented in the city of Manila by his son, Jose Ramirez.

In the month of July, 1913, certain of the directors of the Orientalist Company, in Manila, became apprised of the fact that the plaintiff in
Paris had control of the agencies for two different marks of films, namely, the "Eclair Films" and the "Milano Films;" and negotiations were
begun with said officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff, for the purpose of placing the exclusive agency
of these films in the hands of the Orientalist Company. The defendant Ramon J. Fernandez, one of the directors of the Orientalist Company
and also its treasure, was chiefly active in this matter, being moved by the suggestions and representations of Vicente Ocampo, manage of
the Oriental Theater, to the effect that the securing of the said films was necessary to the success of the corporation.

Near the end of July of the year aforesaid, Jose Ramirez, as representative of his father, placed in the hands of Ramon J. Fernandez an offer,
dated July 4, 1913, stating detail the terms upon which the plaintiff would undertake to supply from Paris the aforesaid films. This officer was
declared to be good until the end of July; and as only about for the Orientalist Company to act on the matter speedily, if it desired to take
advantage of said offer. Accordingly, Ramon J. Fernandez, on July 30, had an informal conference with all the members of the company's
board of directors except one, and with approval of those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila,
accepting the offer contained in the memorandum of July 4th for the exclusive agency of the Eclair films. A few days later, on August 5, he
addressed another letter couched in the same terms, likewise accepting the office of the exclusive agency for the Milano Films.

The memorandum offer contained a statement of the price at which the films would be sold, the quantity which the representative of each
was required to take and information concerning the manner and intervals of time for the respective shipments. The expenses of packing,
transportation and other incidentals were to be at the cost of the purchaser. There was added a clause in which J. F. Ramirez described his
function in such transactions as that of a commission agent and stated that he would see to the prompt shipment of the films, would pay the
manufacturer, and take care that the films were insured — his commission for such services being fixed at 5 per cent.

What we consider to be the most portion of the two letters of acceptance written by R. J. Fernandez to Jose Ramirez is in the following terms:

We willingly accepted the officer under the terms communicated by your father in his letter dated at Paris on July 4th of the present
year.

These communications were signed in the following form, in which it will be noted the separate signature of R. J. Fernandez, as an individual,
is placed somewhat below and to the left of the signature of the Orientalist Company as singed by R. J. Fernandez, in the capacity of
treasurer:

THE ORIENTALIST COMPANY,

By R. J. FERNANDEZ,
Treasurer,

R. J. FERNANDEZ.

Both of these letters also contained a request that Jose Ramirez should at once telegraph to his father in Paris that his offer had been
accepted by the Orientalist Company and instruct him to make a contract with the film companies, according to the tenor of the offer, and in
the capacity of attorney-in-fact for the Orientalist Company. The idea behind the latter suggestion apparently was that the contract for the
films would have to be made directly between the film-producing companies and the Orientalist Company; and it seemed convenient, in order
to save time, that the Orientalist Company should clothed J. F. Ramirez with full authority as its attorney-in-fact. This idea was never given
effect; and so far as the record shows, J. F. Ramirez himself procured the films upon his own responsibility, as he indicated in the officer of
July 4 that he would do, with the result that the only contracting parties in this case are J. F. Ramirez of the one part, and the Orientalist
Company, with Ramon J. Fernandez of the other.

In due time the films began to arrive in Manila, a draft for the cost and expenses incident to each shipment being attached to the proper bill
of lading. It appears that the Orientalist Company was without funds to meet these obligations and the first few drafts were dealt with in the
following manner: The drafts, upon presented through the bank, were accepted in the name of the Orientalist Company by its president B.
Hernandez, and were taken up by the latter with his own funds. As the drafts had thus been paid by B. Hernandez, the films which had been
procured by he payment of said drafts were treated by him as his own property; and they in fact never came into the actual possession of the
Orientalist Company as owner at all, though it is true Hernandez rented the films to the Orientalist Company and they were exhibited by it in
the Oriental Theater under an arrangement which was made between him and the theater's manager.

During the period between February 27, 1914, and April 30, 1914, there arrived in the city of Manila several remittances of films from Paris,
and it is these shipments which have given occasion for the present action. All of the drafts accompanying these films were drawn, as on
former occasions, upon the Orientalist Company; and all were accepted in the name of B. Hernandez, except the last, which was accepted by
B. Hernandez individually. None of the drafts thus accepted were taken up by the drawee or by B. Hernandez when they fell due; and it was
finally necessary for the plaintiff himself to take them up as dishonored by non-payment.

Thereupon this action was instituted by the plaintiff on May 19, 1914, against the Orientalist Company, and Ramon J. Fernandez. As the films
which accompanied the dishonored were liable to deteriorate, the court, upon application of the plaintiff, and apparently without opposition on
the part of the defendants, appointed a receiver who took charge of the films and sold them. The amount realized from this sale was applied
to the satisfaction of the plaintiff's claim and was accordingly delivered to him in part payment thereof. At trial judgment was given for the
balance due to the plaintiff, namely P6,018.93, with interest from May 19, 1914, the date of the institution of the action. In the judgment of
the trial court the Orientalist Company was declared to be a principal debtor and Ramon J. Fernandez was declared to be liable subsidiarily as
guarantor. From this judgment both of the parties defendant appealed.
In this Court neither of the parties appellant make any question with respect to the right of the plaintiff to recover from somebody the amount
awarded by the lower court; but each of the defendants insists the other is liable for the whole. It results that the real contention upon this
appeal is between the two defendants.

It is stated in the brief of the appellant Ramon J. Fernandez and the statement is not challenged by the Orientalist Company that the
judgment has already been executed as against the company is exclusively and primarily liable the entire indebtedness, the question as to
the liability of Ramon J. Fernandez would be academic. But if the latter is liable as principal obligor for the whole or any part of the debt, it
will be necessary to modify the judgment in order to adjust the rights of the defendants in accordance with such finding.

It will be noted that the action is primarily founded upon the liability created by the letters dated July 30th and August 5, 1913, in connection
with the plaintiff's offer of July 4, 1913; and both of the letters mentioned are copied into the complaint as the foundation of the action. The
action is not based upon the dishonored drafts which were accepted by B. Hernandez in the name of the Orientalist Company; and although
these drafts, as well as the last draft, which was accepted by B. Hernandez individually, have been introduced in evidence, this was evidently
done for the purpose of proving the amount of damages which the plaintiff was entitled to recover.

In the discussion which is to follow we shall consider, first, the question of the liability of the corporation upon the contracts contained in the
letters of July 30 and August 5, 1913, and, secondly the question of the liability of Ramon J. Fernandez, based upon his personal signature to
the same documents.

As to the liability of the corporation a preliminary point of importance arises upon the pleadings. The action, as already stated, is based upon
documents purporting to be signed by the Orientalist Company, and copies of the documents are set out in the complaint. It was therefore
incumbent upon the corporation, if it desired to question the authority of Fernandez to bind it, to deny the due execution of said contracts
under oath, as prescribed in section 103 of the Code of Civil procedure. Said section, in the part pertinent to the situation now under
consideration, reads as follows:

When an action is brought upon a written instrument and the complaint contains or has annexed or has annexed a copy of such
instrument, the genuineness and due execution of the instrument shall be deemed admitted, unless specifically denied under oath in
the answer.

No sworn answer denying the genuineness and due execution of the contracts in question or questioning the authority of Ramon J. Fernandez
to bind the Orientalist Company was filed in this case; but evidence was admitted without objection from the plaintiff, tending to show that
Ramon J. Fernandez had no such authority. This evidence consisted of extracts from the minutes of the proceedings of the company's board
of directors and also of extracts from the minutes of the proceedings of the company's stockholders, showing that the making of this contract
had been under consideration in both bodies and that the authority to make the same had been withheld by the stockholders. It therefore
becomes necessary for us to consider whether the administration resulting from the failure of the defendant company to deny the execution
of the contracts under oath is binding upon it for all purposes of this lawsuit, or whether such failure should be considered a mere irregularity
of procedure which was waived when the evidence referred to was admitted without objection from the plaintiff. The proper solution of this
problem makes it necessary to consider carefully the principle underlying the provision above quoted.

That the situation was one in which an answer under oath denying the authority of the agent should have been interposed, supposing that the
company desired to contest this point, is not open to question. In the case of Merchant vs. International Banking Corporation, (6 Phil. Rep.,
314), it appeared that one Brown has signed the name of the defendant bank as guarantor of a promissory note. The bank was sued upon
this guaranty and at the hearing attempted to prove that Brown had no authority to bind the bank by such contract. It was held that buy
failing to deny the contract under oath, the bank had admitted the genuineness and due execution thereof, and that this admission extended
not only to the authenticity of the signature of Brown but also to his authority. Said Justice Willard: "The failure of the defendant to deny the
genuineness and due execution of this guaranty under oath was an admission not only of the signature of Brown, but also his authority to
make the contract in behalf of the defendant and of the power the contract in behalf of the defendant and of the power of the defendant to
enter into such a contract.

The rule thus stated is in entire accord with the doctrine prevailing in the United States, as will be seen by reference to the following, among
other authorities:

The case of Barrett Mining Co. vs. Tappan (2 Colo., 124) was an action against a mining corporation upon an appeal bond. The name of the
company had been affixed to the obligation by an agent, and no sufficient affidavit was filed by the corporation questioning its signature or
the authority of the agent to bind the company. It was held that the plaintiff did not have to prove the due execution of the bond and that the
corporation as to be taken as admitting the authority of the agent to make the signature. Among other things the court said: "But it is said
that the authority of Barrett to execute the bond is distinguishable from the signing and, although the signature must be denied under oath,
the authority of the agent need not be. Upon this we observe that the statute manifestly refers to the legal effect of the signature, rather than
the manual act of singing. If the name of the obligor, in a bond, is subscribed by one in his presence, and by his direction, the effect is the
same as if his name should be signed with his own hand, and under such circumstances we do not doubt that the obligor must deny his
signature under oath, in order to put the obligee to proof of the fact. Quit facit per aliam facit per se, and when the name is signed by one
thereunto authorized, it is as much as the signature of the principal as if written with his own hand. Therefore, if the principal would deny the
authority of the agent, as the validity of the signature is thereby directly attacked, the denial must be under oath.

In Union Dry Company vs. Reid (26 Ga., 107), an action was brought upon a promissory note purporting to have been given by on A. B., as
the treasurer of the defendant company. Said the court: "Under the Judiciary Act of 1799, requiring the defendant to deny on oath an
instrument of writing, upon which he is sued, the plea in this case should have been verified.

If the person who signed this note for the company, and upon which they are sued, was not authorized to make it, let them say so upon oath,
and the onus is then on the plaintiff to overcome the plea."

It should be noted that the provision contained in section 103 of our Code of Civil Procedure is embodied in some form or other in the statutes
of probably all of the American States, and it is not by any means peculiar to the laws of California, though it appears to have been taken
immediately from the statutes of that State. (Secs. 447, 448, California Code of Civil Procedure.)

There is really a broader question here involved than that which relates merely to the formality of verifying the answer with an affidavit. This
question arises from the circumstance that the answer of the corporation does not in any was challenge the authority of Ramon J. Fernandez
to bind it by the contracts in question and does not set forth, as a special defense, any such lack of authority in him. Upon well-established
principles of pleading lack of authority in an officer of a corporation to bind it by a contract executed by him in its name is a defense which
should be specially pleaded — and this quite apart from the requirement, contained in section 103, that the answer setting up such defense
should be verified by oath. But is should not here escape observation that section 103 also requires — in denial contemplated in that section
shall be specific. An attack on the instrument in general terms is insufficient, even though the answer is under oath. (Songco vs. Sellner, 37
Phil. Rep., 254.)

In the first edition of a well-known treatise on the laws of corporations we find the following proposition:
 If an action is brought against a corporation upon a contract alleged to be its contract, if it desires to set up the defense that the
contract was executed by one not authorized as its agent, it must plead non est factum. (Thompson on Corporations, 1st ed., vol. 6,
sec. 7631.)

Again, says the same author:

A corporation can not avail itself of the defense that it had no power to enter into the obligation to enforce which the suit is brought,
unless it pleads that defense. This principle applies equally where the defendant intends to challenge the power of its officer or agent
to execute in its behalf the contract upon which the action brought and where it intends to defend on the ground of total want of
power in the corporation to make such a contract. (Opus citat. sec. 7619.)

In Simon vs. Calfee (80 Ark., 65), it was said:

Though the power of the officers of a business corporation to issue negotiable paper in its name is not presumed, such corporation
can not avail itself of a want of power in its officers to bind it unless the defense was made on such ground.

The rule has been applied where the question was whether corporate officer, having admitted power to make a contract, had in the particular
instance exceeded that authority, (Merill vs. Consumers' Coal Co., 114 N.Y., 216); and it has been held that where the answer in a suit
against a corporation on its note relies simply on the want of power of the corporation to issue notes, the defendant can not afterwards object
that the plaintiff has not shown that the officer executing the note were empowered to do so. (Smith vs. Eureka Flour Mills Co., 6 Cal., 1.)

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In dealing with corporations the public at
large is bound to rely to a large extent upon outward appearances. If a man is found acting for a corporation with the external indicia of
authority, any person, not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors
had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had
acquiesced in a contract and retained the benefit supposed to have been conferred by it, the corporation will be bound, notwithstanding the
actual authority may never have been granted. The public is not supposed nor required to know the transactions which happen around the
table where the corporate board of directors or the stockholders are from time to time convoked. Whether a particular officer actually
possesses the authority which he assumes to exercise is frequently known to very few, and the proof of it usually is not readily accessible to
the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a contract in its name, that the corporation should be required, if it denies
his authority, to state such defense in its answer. By this means the plaintiff is apprised of the fact that the agent's authority is contested;
and he is given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved.

We are of the opinion that the failure of the defendant corporation to make any issue in its answer with regard to the authority of Ramon J.
Fernandez to bind it, and particularly its failure to deny specifically under oath the genuineness and due execution of the contracts sued upon,
have the effect of elimination the question of his authority from the case, considered as a matter of mere pleading. The statute (sec. 103)
plainly says that if a written instrument, the foundation of the suit, is not denied upon oath, it shall be deemed to be admitted. It is familiar
doctrine that an admission made in a pleading can not be controverted by the party making such admission; and all proof submitted by him
contrary thereto or inconsistent therewith should simply be ignored by the court, whether objection is interposed by the opposite party or not.
We can see no reason why a constructive admission, created by the express words of the statute, should be considered to have less effect
than any other admission.

The parties to an action are required to submit their respective contentions to the court in their complaint and answer. These documents
supply the materials which the court must use in order to discover the points of contention between the parties; and where the statute says
that the due execution of a document which supplies the foundation of an action is to be taken as admitted unless denied under oath, the
failure of the defendant to make such denial must be taken to operate as a conclusive admission, so long as the pleadings remain that form.

It is true that it is declared in section 109 of the Code of Civil Procedure that immaterial variances between the allegations of a pleading and
the proof shall be disregarded and the facts shall be found according to the evidence. The same section, however, recognizes the necessity for
an amendment of the pleadings. And judgment must be in conformity with the case made in conformity with the case made in the pleadings
and established by the proof, and relief can not be granted that is substantially inconsistent with either. A party can no more succeed upon a
case proved but not alleged than upon a case alleged but nor proved. This rule of course operates with like effect upon both parties, and
applies equality to the defendants special defense as to the plaintiffs cause of action.

Of course this Court, under section 109 of the Code of Civil Procedure, has authority even now to permit the answer of the defendant to be
amended; and if we believed that the interests of justice so required, we would either exercise that authority or remand the cause for a new
trial in court below. As will appear further on in this opinion, however, we think that the interests of justice will best be promoted by deciding
the case, without more ado, upon the issues presented in the record as it now stands.

That we may not appear to have overlooked the matter, we will observe that two cases are cited from California in which the Supreme Court
of the State has held that where a release is pleaded by way of defense and evidence tending to destroy its effect is introduced without
objection, the circumstance that it was not denied under oath is immaterial. In the earlier of these cases, Crowley, vs. Railroad Co. (60 Cal.,
628), an action was brought against a railroad company to recover damages for the death of the plaintiff's minor son, alleged to have been
killed by the negligence of the defendant. The defendant company pleaded by way of defense a release purporting to be signed by the
plaintiff, and in its answer inserted a copy of the release. The execution of the release was not denied under oath; but at the trial evidence
was submitted on behalf of the plaintiff tending to show that at the time he signed the release, he was incompetent by reason of drunkenness
to bind himself thereby. It was held that inasmuch as this evidence had been submitted by the plaintiff without objection, it was proper for
the court to consider it. We do not question the propriety of that decision, especially as the issue had been passed upon by a jury; but we
believe that the decision would have been more soundly planted if it had been said that the incapacity of the plaintiff, due to his drunken
condition, was a matter which did not involve either the genuineness or due execution of the release. Like the defenses of fraud, coercion,
imbecility, and mistake, it was a matter which could be proved under the general issue and did not have to be set up in a sworn reply. (Cf.
Moore vs. Copp, 119 Cal., 429, 432, 433.) A somewhat similar explanation can, we think, be given of the case of Clark vs. Child in which the
rule declared in the earlier case was followed. With respect to both decisions which we merely observe that upon point of procedure which
they are supposed to maintain, the reasoning of the court is in our opinion unconvincing.

We shall now consider the liability of the defendant company on the merits just as if that liability had been properly put in issue by a specific
answer under oath denying the authority of Fernandez go to bind it. Upon this question it must at the outset be premised that Ramon J.
Fernandez, as treasurer, had no independent authority to bind the company by signing its name to the letters in question. It is declared by
signing its name to the letters in question. It is declared in section 28 of the Corporation Law that corporate power shall be exercised, and all
corporate business conducted by the board of directors; and this principle is recognized in the by-laws of the corporation in question which
contain a provision declaring that the power to make contracts shall be vested in the board of directors. It is true that it is also declared in the
same by-laws that the president shall have the power, and it shall be his duty, to sign contract; but this has reference rather to the formality
of reducing to proper form the contract which are authorized by the board and is not intended to confer an independent power to make
contract binding on the corporation.

The fact that the power to make corporate contract is thus vested in the board of directors does not signify that a formal vote of the board
must always be taken before contractual liability can be fixed upon a corporation; for the board can create liability, like an individual, by other
means than by a formal expression of its will. In this connection the case of Robert Gair Co. vs. Columbia Rice Packing Co. (124 La., 194) is
instructive. If there appeared that the secretary of the defendant corporation had signed an obligation on its behalf binding it as guarantor of
the performance of an important contract upon which the name of another corporation appeared as principal. The defendant company set up
by way of defense that is secretary had no authority to bind it by such an engagement. The court found that the guaranty was given with the
knowledge and consent of the president and directors, and that this consent of the president and directors, and that this consent was given
with as much observance of formality as was customary in the transaction of the business of the company. It was held that, so far as the
authority of the secretary was concerned, the contract was binding. In discussing this point, the court quoted with approval the following
language form one of its prior decisions:

The authority of the subordinate agent of a corporation often depends upon the course of dealings which the company or its director
have sanctioned. It may be established sometimes without reference to official record of the proceedings of the board, by proof of
the usage which the company had permitted to grow up in business, and of the acquiescence of the board charged with the duty of
supervising and controlling the company's business.

It appears in evidence, in the case now before us, that on July 30, the date upon which the letter accepting the offer of the Eclair films was
dispatched the board of directors of the Orientalist Company convened in special session in the office of Ramon J. Fernandez at the request of
the latter. There were present the four members, including the president, who had already signified their consent to the making of the
contract. At this meeting, as appears from the minutes, Fernandez informed the board of the offer which had been received from the plaintiff
with reference to the importation of films. The minutes add that terms of this offer were approved; but at the suggestion of Fernandez it was
decided to call a special meeting of the stockholders to consider the matter and definite action was postponed.

The stockholders meeting was convoked upon September 18, 1913, upon which occasion Fernandez informed those present of the offer in
question and of the terms upon which the films could be procured. He estimated that the company would have to make an outlay of about
P5,500 per month, if the offer for the two films should be accepted by it.

The following extracts from the minutes of this meeting are here pertinent:

Mr. Fernandez informed the stockholders that, in view of the urgency of the matter and for the purpose of avoiding that other
importers should get ahead of the corporation in this regard, he and Messrs. B. Hernandez, Leon Monroy, and Dr. Papa met for the
purpose of considering the acceptance of the offer together with the responsibilities attached thereto, made to the corporation by
the film manufacturers ofEclair and Milano of Paris and Italy respectively, inasmuch as the first shipment of films was then expected
to arrive.

At the same time he informed the said stockholders that he had already made arrangements with respect to renting said films after
they have been once exhibited in the Cine Oriental, and that the corporation could very well meet the expenditure involved and net
a certain profit, but that, if we could enter into a contract with about nine cinematographs, big gains would be obtained through
such a step.

The possibility that the corporation might not see fit to authorize the contract, or might for lack of funds be unable to make the necessary
outlay, was foreseen; and in such contingency the stockholders were informed, that the four gentlemen above mentioned (Hernandez,
Fernandez, Monroy, and Papa) "would continue importing said films at their own account and risk, and shall be entitled only to a
compensation of 10 per cent of their outlay in importing the films, said payment to be made in shares of said corporation, inasmuch as the
corporation is lacking available funds for the purpose, and also because there are 88 shares of stock remaining still unsold."

In view of this statement, the stockholders adopted a resolution to the effect that the agencies of the Eclair and Milano films should be
accepted, if the corporation could obtain the money with which to meet the expenditure involved, and to this end appointed a committee to
apply to the bank for a credit. The evidence shows that an attempt was made, on behalf of the corporation, to obtain a credit of P10,000 from
the Bank of the Philippine Islands for the purpose indicated, but the bank declined to grant his credit. Thereafter another special meeting of
the shareholders of the defendant corporation was called at which the failure of their committee to obtain a credit from the bank was made
known. A resolution was thereupon passed to the effect that the company should pay to Hernandez, Fernandez, Monroy, and Papa an amount
equal to 10 per cent of their outlay in importing the films, said payment to be made in shares of the company in accordance with the
suggestion made at the previous meeting. At the time this meeting was held three shipment of the films had already been received in Manila.

We believe it is a fair inference from the recitals of the minutes of the stockholders meeting of September 18, and especially from the first
paragraph above quoted, that this body was then cognizant that the officer had already been accepted in the name of the Orientalist
Company and that the films which were then expected to arrive were being imported by virtue of such acceptance. Certainly four members of
the board of directors there present were aware of this fact, as the letter accepting the offer had been sent with their knowledge and consent.
In view of this circumstance, a certain doubt arises whether they meant to utilize the financial assistance of the four so-called importers in
order that the corporation might bet the benefit of the contract for the films, just as it would have utilized the credit of the bank if such credit
had been extended. If such was the intention of the stockholders their action amounted to a virtual, though indirect, approval of the contract.
It is not however, necessary to found the judgment on this interpretation of the stockholders proceedings, inasmuch as we think for reasons
presently to be stated, that the corporation is bound, and we will here assume that in the end the contract were not approved by the
stockholders.

It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors who was most active in the effort
to secure the films for the corporation. The negotiations were conducted by him with the knowledge and consent of other members of the
board; and the contract was made with their prior approval. As appears from the papers in this record, Fernandez was the person to who
keeping was confided the printed stationery bearing the official style of the corporation, as well as rubber stencil with which the name of the
corporation could be signed to documents bearing its name.

Ignoring now, for a moment, the transactions of the stockholders, and reverting to the proceedings of the board of directors of the Orientalist
Company, we find that upon October 27, 1913, after Fernandez had departed from the Philippine Islands, to be absent for many months, said
board adopted a resolution conferring the following among other powers on Vicente Ocampo, the manager of the Oriental theater, namely:

(1) To rent a box for the films in the "Kneeler Building."

(4) To be in charge of the films and of the renting of the same.

(5) To advertise in the different newspapers that we are importing films to be exhibited in the Cine Oriental.

(6) Not to deliver any film for rent without first receiving the rental therefor or the guaranty for the payment thereof.

(7) To buy a book and cards for indexing the names of the films.

(10) Upon the motion of Mr. Ocampo, it was decided to give ample powers to the Hon. R. Acuña to enter into agreements with
cinematograph proprietors in the provinces for the purpose of renting films from us.
It thus appears that the board of directors, before the financial inability of the corporation to proceed with the project was revealed, had
already recognized the contract as being in existence and had proceeded to take the steps necessary to utilize the films. Particularly
suggestive is the direction given at this meeting for the publication of announcements in the newspapers to the effect that the company was
engaged in importing films. In the light of all the circumstances of the case, we are of the opinion that the contracts in question were thus
inferentially approved by the company's board of directors and that the company is bound unless the subsequent failure of the stockholders to
approve said contracts had the effect of abrogating the liability thus created.

Both upon principle and authority it is clear that the action of the stockholders, whatever its character, must be ignored. The functions of the
stockholders of a corporation are, it must be remembered, of a limited nature. The theory of a corporation is that the stockholders may have
all the profits but shall turn over the complete management of the enterprise to their representatives and agents, called directors.
Accordingly, there is little for the stockholders to do beyond electing directors, making by-laws, and exercising certain other special powers
defined by-law. In conformity with this idea it is settled that contract between a corporation and third person must be made by the director
and not by the stockholders. The corporation, in such matters, is represented by the former and not by the latter. (Cook on Corporations,
sixth ed., secs. 708, 709.) This conclusion is entirely accordant with the provisions of section 28 of our Corporation Law already referred to. It
results that where a meeting of the stockholders is called for the purpose of passing on the propriety of making a corporate contract, its
resolutions are at most advisory and not in any wise binding on the board.

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third
party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must
necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by
holding the corporation strictly to the liability fixed upon it by its agents in accordance with law, and we would be sorry to announce a
doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the
earth without recourse against the corporations whose name and authority had been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly permits one of its officer, or any other agent, to do acts within the scope of an
apparent authority, and thus hold him out to the public as possessing power to do those acts, the corporation will as against any one who has
in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation
permits" this means the same as "if the thing is permitted by the directing power of the corporation."

It being determined that the corporation is bound by the contract in question, it remains to consider the character of the liability assumed by
R. J. Fernandez, in affixing his personal signature to said contract. The question here is whether Fernandez is liable jointly with the
Orientalists Company as a principal obligor, or whether his liability is that of a guarantor merely.

As appears upon the face of the contracts, the signature of Fernandez, in his individual capacity, is not in line with the signature of the
Orientalist Company, but is set off to the left of the company's signature and somewhat who sign contracts in some capacity other than that
of principal obligor to place their signature alone would justify a court in holding that Fernandez here took upon himself the responsibility of a
guarantor rather than that of a principal obligor. We do, however, think, that the form in which the contract is signed raises a doubt as to
what the real intention was; and we feel justified, in looking to the evidence to discover that intention. In this connection it is entirely clear,
from the testimony of both Ramirez and Ramon J. Fernandez, that the responsibility of the latter was intended to be that of guarantor. There
is, to be sure, a certain difference between these witnesses as to the nature of this guaranty, inasmuch as Fernandez would have us believe
that his name was signed as a guaranty that the contract would be approved by the corporation, while Ramirez says that the name was put
on the contract for the purpose of guaranteeing, not the approval of the contract, but its performance. We are convinced that the latter was
the real intention of the contracting parties.

We are not unmindful of the force of that rule of law which declares that oral evidence is admissible to show the character in which the
signature was affixed. This conclusion is perhaps supported by the language of the second paragraph of article 1281 of the Civil Code, which
declares that if the words of a contract should appear contrary to the evident intention of the parties, the intention shall prevail. But the
conclusion reached is, we think, deducible from the general principle that in case of ambiguity parol evidence is admissible to show the
intention of the contracting parties.

It should be stated in conclusion that as the issues in this case have been framed, the only question presented to this court is: To what extent
are the signatory parties to the contract liable to the plaintiff J. F. Ramirez? No contentious issue is raised directly between the defendants,
the Orientalist Company and Ramon H. Fernandez; nor does the present the present action involve any question as to the undertaking of
Fernandez and his three associates to effect the importation of the films upon their own account and risk. Whether they may be bound to hold
the company harmless is a matter upon which we express no opinion.

The judgment appealed from is affirmed, with costs equally against the two appellant. So ordered.
G.R. No. L-20333 June 30, 1967

EMILIANO ACUÑA, plaintiff-appellant,

vs.
BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., JUSTINO GALANO, TEODORO NARCISO, PABLO BACTIN,
(DR.) EMMANUEL BUMANGLAG, VENANCIO DIRIC, MARCOS ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN
ROSSINI, RAYMUNDO BATALLONES, PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees.

Marquez and Marquez for plaintiff-appellant.

Estanislao A. Fernandez for defendants-appellees.

MAKALINTAL, J.:

Appeal taken from the order dated September 10, 1962 of the Court of First Instance of Rizal, Branch V (Quezon City) dismissing plaintiff's
complaint on the ground that it states no cause of action, and discharging the writ of preliminary attachment issued therein.

On August 9, 1962, plaintiff Emiliano Acuña filed a complaint, which was later amended on August 13, against the defendant Batac Producers
Cooperative Marketing Association, Inc., hereinafter called the Batac Procoma, Inc., or alternatively, against all the other defendants named
in the caption. The complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and defendant
Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would seek and obtain the sum of not less, than
P20,000.00 to be advanced to the defendant Batac Procoma, Inc., to be utilized by it as additional funds for its Virginia tobacco buying
operations during the current redrying season; that plaintiff would be constituted as the corporation's representative in Manila to assist in
handling and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding up the prompt payment
and collection of all amounts due to the corporation for such shipments; that for his services plaintiff would be paid a remuneration at the rate
of P0.50 per kilo of tobacco; that said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma
Inc., and on May 6, 1962 all the defendants named above, who constituted the entire Board of Directors of said corporation (except Leon Q.
Verano, who was its Manager), together with defendants Justino Galano and Teodoro Narciso, as President and Vice-President, respectively,
unanimously authorized defendant Leon Q. Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of
the corporation, for the purpose of securing additional funds for the corporation, as well as to secure the services of such person or entity, in
the collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration; giving and
conferring upon the Manager, full and complete authority to bind the corporation with such person or entity in any agreement, and under
such considerations, which the said Manager may deem expedient and necessary for that purpose; that plaintiff was made to understand by
all of said defendants that the original understanding between him and defendant Leon Q. Verano was acceptable to the corporation, except
that the remuneration for the plaintiff's services would be P0.30 per kilo of tobacco; that on May 10, 1962, the formal "Agreement" was
executed between plaintiff and defendant Leon Q. Verano, as Manager of the defendant corporation, duly authorized by its Board of Directors
for such purpose, and signed by defendants Justino Galano and Dr. Emmanuel Bumanglag as instrumental witnesses and acknowledged by
Atty. Fernando Alcantara, the Secretary and Legal Counsel of the defendant corporation; that upon plaintiff's inquiry, he was assured by these
defendants that a formal approval of said "Agreement" by the Board was no longer necessary, as it was a mere "formality" appended to its
authorizing resolution and as all the members of the Board had already agreed to the same; that on the same date, May 10, 1962, plaintiff
gave and turned over to the defendant corporation, thru its treasurer, Dominador T. Cocson the sum of P20,000.00, in the presence of
defendants Leon Q. Verano, Justino Galano, Dr. Emmanuel Bumanglag and Atty. Fernando Alcantara, for which said treasurer issued to
plaintiff its corresponding Official Receipt No. 130852; that from then on, plaintiff diligently and religiously kept his part of the "Agreement;"
that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three thousand (3,000) sacks which it
utilized in the shipment of its tobacco costing P6,000.00 and that plaintiff had personally advanced out of his own personal funds the total
sum of P5,000.00 with the full knowledge, acquiescence and consent of all the individual defendants; that after the defendant corporation was
enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help, assistance and intervention of
plaintiff, for which the said corporation collected from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board
of Directors on June 6, 1962. Upon the foregoing allegations plaintiff prays: (a) that an order of attachment be issued against the properties
of defendant corporation; (b) that after due trial, judgment be rendered condemning defendant corporation, or alternatively, all the other
individual defendants, jointly and severally, to comply with their contractual obligations and to pay plaintiff the sum of P300,000.00 for his
services, plus P31,000.00 for cash advances made by him and P25,000.00 for attorney's fees.

On August 14, 1962, the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on
the following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court.1äwphï1.ñët

On August 22, 1962, the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge
the preliminary attachment on the ground that it was improperly or irregularly issued. In support of the motion defendants alleged that the
contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of
defendant Batac Procoma, Inc., and that on the basis of plaintiff's pleadings the contract is void and unenforceable. Defendants further denied
the fact that plaintiff had performed his part of the contract, alleging that he had not in any manner intervened in the delivery and payment of
tobacco pertaining to the defendant corporation.

On August 25, 1962, plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment.

On September 10, 1962, the trial court sustained defendants' motion and issued the following order:

In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio.

IN VIEW OF THE FOREGOING, the amended complaint filed in this case is hereby ordered DISMISSED, without special
pronouncement as to costs. Consequently, the writ of preliminary attachment issued herein is ordered discharged. However, it is of
record that the defendants has (sic) deposited the Court the amount of P20,400.00 representing the amount of money invested by
the plaintiff plus the corresponding interest thereon. Plaintiff, by virtue of this order, may withdraw the same in due time, if he so
desires, upon proper receipt therefor.

From the foregoing order plaintiff interposed the present appeal.

Appellant has assigned four errors, which we shall consider seriatim:

The first assignment reads: "As the defendants' motion to dismiss the complaint and to discharge the preliminary attachment was based on
the specific ground that the complaint states no cause of action (Sec. 1 [f], Rule 8, Rules of Court), the lower court should not have gone
beyond, and it should have limited itself, to the facts alleged in the complaint in considering and resolving said motion to dismiss.

It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause of action (Rule 8,
Section 1, par. 7 of the old Rules; Rule 16, Section 1., par. [g] of the Revised Rules) the averments in the complaint are deemed
hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. If said motion
assails directly or indirectly the veracity of the allegations, it is improper to grant the motion upon the assumption that the averments therein
are true and those of the complaint are not (Carreon vs. Prov. Board of Pampanga, 52 O.G. 6557.) The sufficiency of the motion should be
tested on the strength of the allegations of facts contained in the complaint, and no other. If these allegations show a cause of action, or
furnish sufficient basis by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses that may
be averred by the defendants. (Josefa de Jesus, et al. vs. Santos Belarmino, 50 O.G. 3004-3068; Verzosa vs. Rigonan, G.R. No. L-6459, April
23, 1954; Dimayuga vs. Dimayuga, 51 O.G. 2397-2400.)

The first ground upon which the order of dismissal issued by the lower court is predicated is that the Board of Directors of defendant
corporation did not approve, the agreement in question — in fact disapproved it by a resolution passed on June 6, 1962 — and that as a
consequence the "suspensive condition" attached to the agreement was never fulfilled. The specific stipulation referred to by the Court as a
suspensive condition states: "provided, however that the contract entered into by said manager to carry out the purposes above-mentioned
shall be subject to the approve by the Board."

A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. On the
first point we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted
the entire Board of Directors) and discussed with them extensively the tentative agreement and he was made to understand that it was
acceptable to them, except as to plaintiff's remuneration; that it was finally agreed between plaintiff and all said Directors that his
remuneration would be P0.30 per kilo (of tobacco); and that after the agreement was formally executed he was assured by said Directors that
there would be no need of formal approval by the Board. It should be noted in this connection that although the contract required such
approval it did not specify just in what manner the same should be given.

On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of P20,000.00 as called for in
the contract; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a cost of P6,000.00 and
advanced to it the further sum of P5,000.00; and that he did all of these things with the full knowledge, acquiescence and consent of each
and all of the individual defendants who constitute the Board of Directors of the defendant corporation. There is abundant authority in support
of the proposition that ratification may be express or implied, and that implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.

Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It refers to
plaintiff's failure to comply with certain promises he had made, as well as to his interpretation of the contract with respect to his remuneration
which, according to the Board, was contrary to the intention of the parties. The resolution then proceeds to "disapprove and/or rescind" the
said contract. The idea of conflicting interpretation, or rescission on the ground that one of the parties has failed to fulfill his obligation under
the contract, is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board
of Directors.

Appellants' second assignment of error reads: "Assuming that in resolving the defendants' motion to dismiss the lower court could consider
the new facts alleged therein and the documents annexed thereto it committed an error in extending such consideration beyond ascertaining
only if an issue of fact has been presented and in actually deciding instead such fact in issue."

The assignment is well taken, and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a
cause of action addresses itself to the averments in the complaint and, admitting their veracity, merely questions their sufficiency to make
out a case on which the court can grant relief. Affidavits, such as those presented by defendants in support of the motion, can only be
considered for the purpose of ascertaining whether an issue of fact is presented, but not as a basis for deciding the factual issue itself. This
should await the trial on the merits.

The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be
maintained thereon because its object was illegal and therefore void. Specific reference was made by said court to an affidavit executed by
appellant on May 10, 1962 which reads:

That I, EMILIANO ACUA, the party of the Second Part in the contract entered into with the Batac Procoma, Inc., the party of the
First Part in same contract declares that the amount of P0.30 per kilo is referred to upgraded tobacco only as delivered. This
supplements paragraph three of the contract referred to. Deliveries downgraded or maintained at the redrying plant are deemed not
included.

The lower court, in its order of dismissal, held that "the upgrading of tobaccos is clearly prohibited under our laws," and hence the contract
cannot be validly ratified. Evidently the court had in mind a fraudulent upgrading of tobacco by appellant as part of the services called for
under the contract. This conclusion, however, is squarely traversed by appellant in another affidavit attached to his reply and opposition to
the motion to dismiss, in which he explained the circumstances which led to the execution of the one relied upon by the court, and the real
meaning of the word "upgraded" therein. It is therein stated:

That after the execution of the agreement (Annex "B" to the amended complaint in said Civil Case No. Q-6547), Messrs. Verano, Galano and
Dr. Bumanglag of the defendant Corporation indicated to me that if the price of P0.30 per kilo stipulated there to be paid to me were to be
indiscriminately applied to all deliveries of tobaccos, the Corporation would be placed in a disadvantageous and losing position, and they
proceeded to explain to me the following, —

(a) that when the farmers sell their tobaccos to the Facoma, they do so in bunches of assorted qualities which may belong either to
Class A, B, C, D and E, and upon such purchase they are initially given an arbitrary classification of any of such classes as the case
may be, the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as
possible, and this is what is termed "downgrading;"

(b) that after the tobaccos have been purchased by the Facoma from the farmers, they are then reassorted and re-classified in
accordance with their actual quality or grade as found by the officials of the Facoma, — thus in a bunch which are purchased as
Class C, D or E, upon reclassification those found to belong to Class A are separated from Class B, those belonging to Class B are
separated from Class C, and so on, and these bunches so reclassified necessarily have a higher grade than the farmers, and this is
what is termed "upgrading" upon delivery original arbitrary classification given when purchased from the which was used in the
addendum;

(c) the Facoma, in turn, delivers these properly re-classified tobaccos to the redrying plant, and there, a group of officials composed
of a representative of the redrying plant, the Bureau of Internal Revenue, the General Auditing Office, the PVTA and the Facoma
representative, then examines and grades the tobaccos, and if the classification given by the Facoma is found correct and not
changed, then and only then would or should be entitled to collect the P0.30 per kilo, and this they said is what is termed "grade
maintained" — on the other hand, if these officials found the classification incorrect and lowers the classification given by the
Facoma, thus class A to B, or from B to C, then the tobaccos are considered or said to be "downgraded" and in that event I should
not receive any centavo for such deliveries, and it is in this sense that I was made to understand the term;

Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal, I agreed readily and Atty.
Fernando Alcantara, Legal Counsel and Secretary of the defendant Corporation forthwith prepared, drafted and typed the "addendum" in
question in their own typewriter of the Corporation; and as I am not a lawyer and was not well versed with the usage, customs and
phraseology usually used in tobacco trading, I relied in absolute good faith that, as explained by the defendants, there was nothing wrong nor
illegal in the use of the words "upgrading" and "downgrading" used in said addendum, which Atty. Alcantara unfortunately used in the same;
Apart from the above, defendants knew the physical impossibility of "upgrading" the tobaccos at the redrying plant, because at the time of
the transaction, only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery
area for tobaccos at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually
make the grading of tobaccos delivered, are the (1) American representative of the redrying plant (PTFC & RC), (2) the PVTA, (3) the BIR,
and (4) the General Auditing Office in the presence of the representative of the FACOMA, and since the redrying plant is compelled to
purchase 41% of all tobaccos delivered and redried under their negotiated management contract, it is highly improbable that the
representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or
tally sheet, would allow the "upgrading" of tobaccos, aside from the fact that stringent measures had been devised under the present
administration to prevent the "upgrading" of tobaccos by any party. Certainly, an impossible condition could not have been contemplated by
me and the defendants; (Record on Appeal, pp. 171-175).

The foregoing explanation, on its face, is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it
by the lower court. To be sure, whether the allegations in this subsequent affidavit are true or not is a question of fact; but it is precisely for
this reason that they can neither be summarily admitted nor rejected for purposes of a motion to dismiss. Due process demands that they be
the subject of proof and considered only after trial on the merits.

The other errors assigned by appellant are merely incidental to those already discussed, and require no separate treatment.

Wherefore, the order appealed from is set aside and the case is remanded to the court a quo for further proceedings, without prejudice to,
the right of plaintiff-appellant to ask for another writ of attachment in said court, as the circumstances may warrant. Costs against
defendants-appellees.
G.R. No. L-15092 May 18, 1962

ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.

Tañada, Teehankee and Carreon for plaintiffs-appellants.

Hilado and Hilado for defendant-appellee.

REYES, J.B.L., J.:

Appeal on points of law from a judgment of the Court of First Instance of Occidental Negros, in its Civil Case No. 2603, dismissing plaintiff's
complaint that sought to compel the defendant Milling Company to increase plaintiff's share in the sugar produced from their cane, from 60%
to 62.33%, starting from the 1951-1952 crop year.

It is undisputed that plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Company,
had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. Originally executed
in 1919, said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that the resulting product
should be divided in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended milling
contracts, increasing the planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending
the operation of the milling contract from the original 30 years to 45 years. To this effect, a printed Amended Milling Contract form was drawn
up. On August 20, 1936, the Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution (Acts No. 11, Acuerdo
No. 1) granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. The bone of
contention is paragraph 9 of this resolution, that reads as follows:

ACTA No. 11
SESSION DE LA JUNTA DIRECTIVA
AGOSTO 20, 1936

xxx xxx xxx

Acuerdo No. 1. — Previa mocion debidamente secundada, la Junta en consideracion a una peticion de los plantadores
hecha por un comite nombrado por los mismos, acuerda enmendar el contrato de molienda enmendado medientelas
siguentes:

xxx xxx xxx

9.a Que si durante la vigencia de este contrato de Molienda Enmendado, lascentrales azucareras, de Negros Occidental,
cuya produccion anual de azucar centrifugado sea mas de una tercera parte de la produccion total de todas lascentrales
azucareras de Negros Occidental, concedieren a sus plantadores mejores condiciones que la estipuladas en el presente
contrato, entonces esas mejores condiciones se concederan y por el presente se entenderan concedidas a los platadores
que hayan otorgado este Contrato de Molienda Enmendado.

Appellants signed and executed the printed Amended Milling Contract on September 10, 1936, but a copy of the resolution of August 10,
1936, signed by the Central's General Manager, was not attached to the printed contract until April 17, 1937; with the notation —

Las enmiendas arriba transcritas forman parte del contrato de molienda enmendado, otorgado por — y la Bacolod-Murcia Milling Co.,
Inc.

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La Carlota, Binalbagan-Isabela and San
Carlos), with a total annual production exceeding one-third of the production of all the sugar central mills in the province, had already granted
increased participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, heretofore quoted, the
appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). The appellee Bacolod-Murcia Milling Co., inc.,
resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the
resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the
corporate directors to adopt.

After trial, the court below rendered judgment upholding the stand of the defendant Milling company, and dismissed the complaint.
Thereupon, plaintiffs duly appealed to this Court.

We agree with appellants that the appealed decisions can not stand. It must be remembered that the controverted resolution was adopted by
appellee corporation as a supplement to, or further amendment of, the proposed milling contract, and that it was approved on August 20,
1936, twenty-one days prior to the signing by appellants on September 10, of the Amended Milling Contract itself; so that when the Milling
Contract was executed, the concessions granted by the disputed resolution had been already incorporated into its terms. No reason appears
of record why, in the face of such concessions, the appellants should reject them or consider them as separate and apart from the main
amended milling contract, specially taking into account that appellant Alfredo Montelibano was, at the time, the President of the Planters
Association (Exhibit 4, p. 11) that had agitated for the concessions embodied in the resolution of August 20, 1936. That the resolution formed
an integral part of the amended milling contract, signed on September 10, and not a separate bargain, is further shown by the fact that a
copy of the resolution was simply attached to the printed contract without special negotiations or agreement between the parties.

It follows from the foregoing that the terms embodied in the resolution of August 20, 1936 were supported by the same causa or
consideration underlying the main amended milling contract; i.e., the promises and obligations undertaken thereunder by the planters, and,
particularly, the extension of its operative period for an additional 15 years over and beyond the 30 years stipulated in the original contract.
Hence, the conclusion of the court below that the resolution constituted gratuitous concessions not supported by any consideration is legally
untenable.

All disquisition concerning donations and the lack of power of the directors of the respondent sugar milling company to make a gift to the
planters would be relevant if the resolution in question had embodied a separate agreement after the appellants had already bound
themselves to the terms of the printed milling contract. But this was not the case. When the resolution was adopted and the additional
concessions were made by the company, the appellants were not yet obligated by the terms of the printed contract, since they admittedly did
not sign it until twenty-one days later, on September 10, 1936. Before that date, the printed form was no more than a proposal that either
party could modify at its pleasure, and the appellee actually modified it by adopting the resolution in question. So that by September 10,
1936 defendant corporation already understood that the printed terms were not controlling, save as modified by its resolution of August 20,
1936; and we are satisfied that such was also the understanding of appellants herein, and that the minds of the parties met upon that basis.
Otherwise there would have been no consent or "meeting of the minds", and no binding contract at all. But the conduct of the parties
indicates that they assumed, and they do not now deny, that the signing of the contract on September 10, 1936, did give rise to a binding
agreement. That agreement had to exist on the basis of the printed terms as modified by the resolution of August 20, 1936, or not at all.
Since there is no rational explanation for the company's assenting to the further concessions asked by the planters before the contracts were
signed, except as further inducement for the planters to agree to the extension of the contract period, to allow the company now to retract
such concessions would be to sanction a fraud upon the planters who relied on such additional stipulations.

The same considerations apply to the "void innovation" theory of appellees. There can be no novation unless two distinct and successive
binding contracts take place, with the later designed to replace the preceding convention. Modifications introduced before a bargain becomes
obligatory can in no sense constitute novation in law.

Stress is placed on the fact that the text of the Resolution of August 20, 1936 was not attached to the printed contract until April 17, 1937.
But, except in the case of statutory forms or solemn agreements (and it is not claimed that this is one), it is the assent and concurrence (the
"meeting of the minds") of the parties, and not the setting down of its terms, that constitutes a binding contract. And the fact that the
addendum is only signed by the General Manager of the milling company emphasizes that the addition was made solely in order that the
memorial of the terms of the agreement should be full and complete.

Much is made of the circumstance that the report submitted by the Board of Directors of the appellee company in November 19, 1936 (Exhibit
4) only made mention of 90%, the planters having agreed to the 60-40 sharing of the sugar set forth in the printed "amended milling
contracts", and did not make any reference at all to the terms of the resolution of August 20, 1936. But a reading of this report shows that it
was not intended to inventory all the details of the amended contract; numerous provisions of the printed terms are alao glossed over. The
Directors of the appellee Milling Company had no reason at the time to call attention to the provisions of the resolution in question, since it
contained mostly modifications in detail of the printed terms, and the only major change was paragraph 9 heretofore quoted; but when the
report was made, that paragraph was not yet in effect, since it was conditioned on other centrals granting better concessions to their
planters, and that did not happen until after 1950. There was no reason in 1936 to emphasize a concession that was not yet, and might never
be, in effective operation.

There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling
Contract for the purpose of making its terms more acceptable to the other contracting parties. The rule is that —

It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act
is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within
charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do
it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses
or decrease the profits of the central, the court has no authority to review them.

They hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot
be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at
a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the
directors of the corporation and not by the court. It is a well-known rule of law that questions of policy or of management are left
solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment
of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not
reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. 390).

And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which produce
over one-third of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their
adhered planter at an average rate of

62.333% for the 1951-52 crop year;

64.2% for 1952-53;

64.3% for 1953-54;

64.5% for 1954-55; and

63.5% for 1955-56,

the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty bound to grant similar increases
to plaintiffs-appellants herein.

WHEREFORE, the decision under appeal is reversed and set aside; and judgment is decreed sentencing the defendant-appellee to pay
plaintiffs-appellants the differential or increase of participation in the milled sugar in accordance with paragraph 9 of the appellee Resolution
of August 20, 1936, over and in addition to the 60% expressed in the printed Amended Milling Contract, or the value thereof when due, as
follows:

0,333% to appellants Montelibano for the 1951-1952 crop year, said appellants having received an additional 2% corresponding to
said year in October, 1953;

2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year; and to all appellants thereafter —
4.2% for the 1952-1953 crop year;
4.3% for the 1953-1954 crop year;
4.5% for the 1954-1955 crop year;
3.5% for the 1955-1956 crop year;
with interest at the legal rate on the value of such differential during the time they were withheld; and the right is reserved to plaintiffs-
appellants to sue for such additional increases as they may be entitled to for the crop years subsequent to those herein adjudged.

Costs against appellee, Bacolod-Murcia Milling Co.

G.R. No. 144476 April 8, 2003

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIE ONG
ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND
RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, and the SECURITIES
AND EXCHANGE COMMISSION, respondents.

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

G.R. No. 144629 April 8, 2003

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, and INTRALAND
RESOURCES DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG
ALONZO, respondents.

RESOLUTION

CORONA, J.:

Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong Yong, Juanita Tan Ong, Wilson Ong, Anna
Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs); (2) motion for partial reconsideration, dated March 15, 2002, of petitioner
movant Willie Ong seeking a reversal of this Court's Decision,1 dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with
modification the decision2 of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise with modification, the decision of the
SEC en banc, dated September 11, 1998; and (3) motion for issuance of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu
Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision.

A brief recapitulation of the facts shows that:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner,
the First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, encountered dire financial difficulties. It
was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots
where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia
Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed
to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the
Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200
shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors
while the Ongs were entitled to nominate the President, the Secretary and six directors (including the chairman) to the board of
directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to
FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares)
and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another P70 million3 to
FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of which (P190 million) was used to settle the
P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on February 23, 1996, rescinded
the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property
contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and
Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon.

According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and perform the duties of Vice-President
and Treasurer, respectively, but the Ongs prevented them from doing so. Furthermore, the Ongs refused to provide them the space for their
executive offices as Vice-President and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares corresponding to
their property contributions of a four-story building, a 1,902.30 square-meter lot and a 151 square-meter lot. Hence, they felt they were
justified in setting aside their Pre-Subscription Agreement with the Ongs who allegedly refused to comply with their undertakings.

In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-President and Treasurer of FLADC
but that it was they who refused to comply with the corporate duties assigned to them. It was the contention of the Ongs that they wanted
the Tius to sign the checks of the corporation and undertake their management duties but that the Tius shied away from helping them
manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact already have existing executive offices in
the mall since they owned it 100% before the Ongs came in. What the Tius really wanted were new offices which were anyway subsequently
provided to them. On the most important issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the Tius'
property contributions, the Ongs asserted that, although the Tius executed a deed of assignment for the 1,902.30 square-meter lot in favor of
FLADC, they (the Tius) refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof, the SEC
would not approve the valuation of the Tius' property contribution (as opposed to cash contribution). This, in turn, would make it impossible
to secure a new Transfer Certificate of Title (TCT) over the property in FLADC's name. In any event, it was easy for the Tius to simply pay the
said transfer taxes and, after the new TCT was issued in FLADC's name, they could then be given the corresponding shares of stocks. On the
151 square-meter property, the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed that they could not as
yet surrender the TCT because it was "still being reconstituted" by the Lichaucos from whom the Tius bought it. The Ongs later on discovered
that FLADC had in reality owned the property all along, even before their Pre-Subscription Agreement was executed in 1994. This meant that
the 151 square-meter property was at that time already the corporate property of FLADC for which the Tius were not entitled to the issuance
of new shares of stock.

The controversy finally came to a head when this case was commenced4 by the Tius on February 27, 1996 at the Securities and Exchange
Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing
Officer Rolando G. Andaya, Jr., issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows:

WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription Agreement, and consequently ordering:

(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC;

(b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the return of their contribution for
1,000,000 shares of FLADC;
 (c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles of incorporation of FLADC to
conform with this decision;

(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly 15587), 135325 and 134204 and any
other title or deed in the name of FLADC, failing in which said titles are declared void;

(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel the annotation of the Pre-
Subscription Agreement dated 15 August 1994 on TCT No. 134066 (formerly 15587);

(f) The individual defendants, individually and collectively, their agents and representatives, to desist from exercising or performing
any and all acts pertaining to stockholder, director or officer of FLADC or in any manner intervene in the management and affairs of
FLADC;

(g) The individual defendants, jointly and severally, to return to FLADC interest payment in the amount of P8,866,669.00 and all
interest payments as well as any payments on principal received from the P70,000,000.00 inexistent loan, plus the legal rate of
interest thereon from the date of their receipt of such payment until fully paid;

(h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing his loan from said defendants plus
legal interest from the date of receipt of such amount.

SO ORDERED.5

On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs' P70 million was declared not as a
premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.6

Both parties appealed7 to the SEC en banc which rendered a decision on September 11, 1998, affirming the May 19, 1997 decision of the
Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid
by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.8

On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus:

WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange Commission En Banc in SEC AC CASE
NOS. 598 and 601 confirming the rescission of the Pre-Subscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject
to the following MODIFICATIONS:

1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation in accordance with the following
cash and property contributions of the parties therein.

(a) Ong Group – P100,000,000.00 cash contribution for one (1) million shares in First Landlink Asia Development
Corporation at a par value of P100.00 per share;

(b) Tiu Group:

1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink Asia Development Corporation
at a par value of P100.00 per share;

2) A four-storey building described in Transfer Certificate of Title No. 15587 in the name of Intraland Resources
and Development Corporation valued at P20,000,000.00 for 200,000 shares in First Landlink Asia Development
Corporation at a par value of P100.00 per share;

3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title No. 15587 in the name of
Masagana Telamart, Inc. valued at P30,000,000.00 for 300,000 shares in First Landlink Asia Development
Corporation at a par value of P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and the management thereof is (sic) hereby
ordered transferred to the Tiu Group.

3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of P70,000,000.00 that was advanced to it by
the Ong Group upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal
interest thereon pursuant to Article 2209 of the New Civil Code.

4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the Ongs upon the finality of this decision.
Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New
Civil Code.

SO ORDERED.9

An interesting sidelight of the CA decision was its description of the rescission made by the Tius as the "height of ingratitude" and as "pulling
a fast one" on the Ongs. The CA moreover found the Tius guilty of withholding FLADC funds from the Ongs and diverting corporate income to
their own MATTERCO account.10 These were findings later on affirmed in our own February 1, 2002 Decision which is the subject of the
instant motion for reconsideration.11

But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the Tius were in pari delicto (which would
not have legally entitled them to rescission) but, "for practical considerations," that is, their inability to work together, it was best to separate
the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically
everything else to the Tius.

Their motions for reconsideration having been denied, both parties filed separate petitions for review before this Court.

In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius may not properly avail of rescission
under Article 1191 of the Civil Code considering that the Pre-Subscription Agreement did not provide for reciprocity of obligations; that the
rights over the subject matter of the rescission (capital assets and properties) had been acquired by a third party (FLADC); that they did not
commit a substantial and fundamental breach of their agreement since they did not prevent the Tius from assuming the positions of Vice-
President and Treasurer of FLADC, and that the failure to credit the 300,000 shares corresponding to the 1,902.30 square-meter property
covered by TCT No. 134066 (formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure the approval of
the SEC for the property contribution and, thereafter, the issuance of title in FLADC's name. They also argued that the liquidation of FLADC
may not legally be ordered by the appellate court even for so called "practical considerations" or even to prevent "further squabbles and
numerous litigations," since the same are not valid grounds under the Corporation Code. Moreover, the Ongs bewailed the failure of the CA to
grant interest on their P70 million and P20 million advances to FLADC and David S. Tiu, respectively, and to award costs and damages.

In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand, contended that the rescission should have
been limited to the restitution of the parties' respective investments and not the liquidation of FLADC based on the erroneous perception by
the court that: the Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius invited the Ongs
to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-Subscription Agreement when it was the Lichaucos and
not the Tius who executed the deed of assignment over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby
failing to pay the price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC funds; that they were
diverting rentals from lease contracts due to FLADC to their own MATTERCO account; that the P70 million paid by the Ongs was an advance
and not a premium on capital; and that, by rescinding the Pre-Subscription Agreement, they wanted to wrestle away the management of the
mall and prevent the Ongs from enjoying the profits of their P190 million investment in FLADC.

On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions), affirming the assailed decision of the Court of
Appeals but with the following modifications:

1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent (12%) per annum to be computed
from the time of judicial demand which is from April 23, 1996;

2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%) per annum to be computed from the
date of the FLADC Board Resolution which is June 19, 1996; and

3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution, specifically, the 151 sq. m. parcel of land.

This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement. The
Ongs prevented the Tius from assuming the positions of Vice-President and Treasurer of the corporation. On the other hand, the Decision
established that the Tius failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their MATTERCO
account. Consequently, it held that rescission was not possible since both parties were in pari delicto. However, this Court agreed with the
Court of Appeals that the remedy of specific performance, as espoused by the Ongs, was not practical and sound either and would only lead
to further "squabbles and numerous litigations" between the parties.

On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on the grounds that: (a) the SEC order had
become executory as early as September 11, 1998 pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would
be injurious to the rights of the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-judicial
jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition, contending that the Decision dated February 1, 2002
was not yet final and executory; that no good reason existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799,
the SEC retained jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution upon the effectivity
of the said law.

Aside from their opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs filed their own "Motion for Reconsideration;
Alternatively, Motion for Modification (of the February 1, 2002 Decision)" on March 15, 2002, raising two main points: (a) that specific
performance and not rescission was the proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject
decision of this Court should be modified to entitle movants to their proportionate share in the mall.

On their first point (specific performance and not rescission was the proper remedy), movants Ong argue that their alleged breach of the Pre-
Subscription Agreement was, at most, casual which did not justify the rescission of the contract. They stress that providing appropriate offices
for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-Subscription
Agreement since the said obligation (to provide executive offices) pertained to FLADC itself. Such obligation arose from the relations between
the said officers and the corporation and not any of the individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit
shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs. Just the same, it
could not be done in view of the Tius' refusal to pay the necessary transfer taxes which in turn resulted in the inability to secure SEC approval
for the property contributions and the issuance of a new TCT in the name of FLADC.

Besides, according to the Ongs, the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to raise
the P190 million desperately needed for the payment of FLADC's loan to PNB. Hence, in this light, the alleged failure to provide office space
for the two corporate officers was no more than an inconsequential infringement. For rescission to be justified, the law requires that the
breach of contract should be so "substantial or fundamental" as to defeat the primary objective of the parties in making the agreement. At
any rate, the Ongs claim that it was the Tius who were guilty of fundamental violations in failing to remit funds due to FLADC and diverting
the same to their MATTERCO account.

The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the Pre-Subscription Agreement,
neither of them could resort to rescission under the principle of pari delicto. In addition, since the cash and other contributions now sought to
be returned already belong to FLADC, an innocent third party, said remedy may no longer be availed of under the law.

On their second point (assuming rescission to be proper, the Ongs should be given their proportionate share of the mall), movants Ong
vehemently take exception to the second item in the dispositive portion of the questioned Decision insofar as it decreed that whatever
remains of the assets of FLADC and the management thereof (after liquidation) shall be transferred to the Tius. They point out that the mall
itself, which would have been foreclosed by PNB if not for their timely investment of P190 million in 1994 and which is now worth about P1
billion mainly because of their efforts, should be included in any partition and distribution. They (the Ongs) should not merely be given
interest on their capital investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of the Tius and
ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding the agreement was "the height of ingratitude" and
an attempt "to pull a fast one" as it would prevent the Ongs from enjoying the fruits of their P190 million investment in FLADC. It also
contravenes this Court's assurance in the questioned Decision that the Ongs and Tius "will have a bountiful return of their respective
investments derived from the profits of the corporation."

Willie Ong filed a separate "Motion for Partial Reconsideration" dated March 8, 2002, pointing out that there was no violation of the Pre-
Subscription Agreement on the part of the Ongs; that, after more than seven years since the mall began its operations, rescission had
become not only impractical but would also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair
to simply return the P100 million investment of the Ongs and give the remaining assets now amounting to about P1 billion to the Tius.

The Tius, in their opposition to the Ongs' motion for reconsideration, counter that the arguments therein are a mere re-hash of the
contentions in the Ongs' petition for review and previous motion for reconsideration of the Court of Appeals' decision. The Tius compare the
arguments in said pleadings to prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,12 the Ongs' present
motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality.
On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective positions of the parties. On February
27, 2003, Dr. Willie Ong and the rest of the movants Ong filed their respective memoranda. On February 28, 2003, the Tius submitted their
memorandum.

We grant the Ongs' motions for reconsideration.

This is not the first time that this Court has reversed itself on a motion for reconsideration. In Philippine Consumers Foundation, Inc. vs.
National Telecommunications Commission,13 this Court, through then Chief Justice Felix V. Makasiar, said that its members may and do
change their minds, after a re-study of the facts and the law, illuminated by a mutual exchange of views.14 After a thorough re-examination of
the case, we find that our Decision of February 1, 2002 overlooked certain aspects which, if not corrected, will cause extreme and irreparable
damage and prejudice to the Ongs, FLADC and its creditors.

The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to meritorious motions for reconsideration. As
long as the same adequately raises a valid ground15 (i.e., the decision or final order is contrary to law), this Court has to evaluate the merits
of the arguments to prevent an unjust decision from attaining finality. In Security Bank and Trust Company vs. Cuenca,16 we ruled that a
motion for reconsideration is not pro-forma for the reason alone that it reiterates the arguments earlier passed upon and rejected by the
appellate court. We explained there that a movant may raise the same arguments, if only to convince this Court that its ruling was erroneous.
Moreover, the rule (that a motion is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said arguments
were not squarely passed upon and answered in the decision sought to be reconsidered. In the case at bar, no ruling was made on some of
the petitioner Ongs' arguments. For instance, no clear ruling was made on why an order distributing corporate assets and property to the
stockholders would not violate the statutory preconditions for corporate dissolution or decrease of authorized capital stock. Thus, it would
serve the ends of justice to entertain the subject motion for reconsideration since some important issues therein, although mere repetitions,
were not considered or clearly resolved by this Court.

Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription Agreement. We rule that they could not.

FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the
paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became
necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock
was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares
and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the
contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties' Pre-
Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code:

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding the fact that theparties refer to it as a purchase or some other
contract (Italics supplied).

A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is
property owned by the corporation – its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs
and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since
they were not selling any of their own shares to them. It was FLADC that did.

Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for
rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to
do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs
inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that "contracts take effect only between the
parties, their assigns and heirs…" Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for
cancellation thereof, unless he shows that he has a real interest affected thereby.17

In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in the Pre-Subscription Agreement: a
shareholder's agreement between the Tius and the Ongs defining and governing their relationship and a subscription contract between the
Tius, the Ongs and FLADC regarding the subscription of the parties to the corporation. They point out that these two component parts form
one whole agreement and that their terms and conditions are intrinsically related and dependent on each other. Thus, the breach of the
shareholders' agreement, which was allegedly the consideration for the subscription contract, was also a breach of the latter.

Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings until after the oral arguments on January
29, 2003, we find this argument too strained for comfort. It is obviously intended to remedy and cover up the Tius' lack of legal personality to
rescind an agreement in which they were personally not parties-in-interest. Assuming arguendo that there were two "sub-agreements"
embodied in the Pre-Subscription Agreement, this Court fails to see how the shareholders agreement between the Ongs and Tius can, within
the bounds of reason, be interpreted as the consideration of the subscription contract between FLADC and the Ongs. There was nothing in the
Pre-Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may, however, the Tius are nevertheless
not the proper parties to raise this point because they were not parties to the subscription contract between FLADC and the Ongs. Thus, they
are not in a position to claim that the shareholders agreement between them and the Ongs was what induced FLADC and the Ongs to enter
into the subscription contract. It is the Ongs alone who can say that. Though FLADC was represented by the Tius in the subscription contract,
FLADC had a separate juridical personality from the Tius. The case before us does not warrant piercing the veil of corporate fiction since there
is no proof that the corporation is being used "as a cloak or cover for fraud or illegality, or to work injustice."18

The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is breach by FLADC. This must also fail
because such an argument disregards the separate juridical personality of FLADC.

The Tius allege that they were prevented from participating in the management of the corporation. There is evidence that the Ongs did
prevent the rightfully elected Treasurer, Cely Tiu, from exercising her function as such. The records show that the President, Wilson Ong,
supervised the collection and receipt of rentals in the Masagana Citimall;19 that he ordered the same to be deposited in the bank;20 and that
he held on to the cash and properties of the corporation.21 Section 25 of the Corporation Code prohibits the President from acting concurrently
as Treasurer of the corporation. The rationale behind the provision is to ensure the effective monitoring of each officer's separate functions.

However, although the Tius were adversely affected by the Ongs' unwillingness to let them assume their positions, rescission due to breach of
contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court
provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is
certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law therefor have
not been met. A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real
or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based
on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and
FLADC; they also have other available and effective remedies under the law.

All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for rescission based on breach of contract,
said action will nevertheless still not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution
of assets and property under the Corporation Code.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera,22provides that subscriptions to the
capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims.23 This doctrine is
the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution
of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,24 (2)
purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, 25 and (3) dissolution and
eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own
shares26 and in Section 122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements
therefor are complied with.27

The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or
directors of the corporation, or even, for that matter, on the earnest desire of the court a quo "to prevent further squabbles and future
litigations" unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the
"corporate peace" laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors' turn to engage in
"squabbles and litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital
assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed.

Contrary to the Tius' allegation, rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit
of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code.28 The Tius maintain that rescinding the
subscription contract is not synonymous to corporate liquidation because all rescission will entail would be the simple restoration of the status
quo ante and a return to the two groups of their cash and property contributions. We wish it were that simple. Very noticeable is the fact that
the Tius do not explain why rescission in the instant case will not effectively result in liquidation. The Tius merely refer in cavalier fashion to
the end-result of rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and disastrous effect
on the corporation, its creditors and the Ongs.

In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will not result in an unauthorized liquidation
of the corporation because their case is actually a petition to decrease capital stock pursuant to Section 38 of the Corporation Code. Section
122 of the law provides that "(e)xcept by decrease of capital stock…, no corporation shall distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts and liabilities." The Tius claim that their case for rescission, being a petition to decrease
capital stock, does not violate the liquidation procedures under our laws. All that needs to be done, according to them, is for this Court to
order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said decrease.
This new argument has no merit.

The Tius' case for rescission cannot validly be deemed a petition to decrease capital stock because such action never complied with the formal
requirements for decrease of capital stock under Section 33 of the Corporation Code. No majority vote of the board of directors was ever
taken. Neither was there any stockholders meeting at which the approval of stockholders owning at least two-thirds of the outstanding capital
stock was secured. There was no revised treasurer's affidavit and no proof that said decrease will not prejudice the creditors' rights. On the
contrary, all their pleadings contained were alleged acts of violations by the Ongs to justify an order of rescission.

Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel FLADC to file at the SEC a petition for the
issuance of a certificate of decrease of stock. Decreasing a corporation's authorized capital stock is an amendment of the Articles of
Incorporation. It is a decision that only the stockholders and the directors can make, considering that they are the contracting parties
thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a corporate decision. They want this
Court to make a corporate decision for FLADC. We decline to intervene and order corporate structural changes not voluntarily agreed upon by
its stockholders and directors.

Truth to tell, a judicial order to decrease capital stock without the assent of FLADC's directors and stockholders is a violation of the "business
judgment rule" which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the
minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction among themselves as
will result in serious injury to the plaintiffs stockholders.29

The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, thus:

Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not in the business
of business, and the laissez faire rule or the free enterprise system prevailing in our social and economic set-up dictates that it is
better for the State and its organs to leave business to the businessmen; especially so, when courts are ill-equipped to make
business decisions. More importantly, the social contract in the corporate family to decide the course of the corporate business has
been vested in the board and not with courts.30

Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs.
Such an act infringes on the law on reduction of capital stock. Ordering the return and distribution of the Ongs' capital contribution without
dissolving the corporation or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate creditors
who enjoy absolute priority of payment over and above any individual stockholder thereof.

Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If rescission is denied, will injustice be
inflicted on any of the parties? The answer is no because the financial interests of both the Tius and the Ongs will remain intact and safe
within FLADC. On the other hand, if rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs will find
themselves out in the streets with nothing but the money they had in 1994 while the Tius will not only enjoy a windfall estimated to be
anywhere from P450 million to P900 million31 but will also take over an extremely profitable business without much effort at all.

Another very important point follows. The Court of Appeals and, later on, our Decision dated February 1, 2002, stated that both groups were
in pari delicto, meaning, that both the Tius and the Ongs committed breaches of the Pre-Subscription Agreement. This may be true to a
certain extent but, judging from the comparative gravity of the acts separately committed by each group, we find that the Ongs' acts were
relatively tame vis-à-vis those committed by the Tius in not surrendering FLADC funds to the corporation and diverting corporate income to
their own MATTERCO account. The Ongs were right in not issuing to the Tius the shares corresponding to the four-story building and the
1,902.30 square-meter lot because no title for it could be issued in FLADC's name, owing to the Tius' refusal to pay the transfer taxes. And as
far as the 151 square-meter lot was concerned, why should FLADC issue additional shares to the Tius for property already owned by the
corporation and which, in the final analysis, was already factored into the shareholdings of the Tius before the Ongs came in?

We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to "pull a fast one" on the Ongs because that was where the
problem precisely started. It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius
started planning to take over the corporation again and exclude the Ongs from it. It appears that the Tius' refusal to pay transfer taxes might
not have really been at all unintentional because, by failing to pay that relatively small amount which they could easily afford, the Tius should
have expected that they were not going to be given the corresponding shares. It was, from every angle, the perfect excuse for blackballing
the Ongs. In other words, the Tius created a problem then used that same problem as their pretext for showing their partners the door. In
the process, they stood to be rewarded with a bonanza of anywhere between P450 million to P900 million in assets (from an investment of
only P45 million which was nearly foreclosed by PNB), to the extreme and irreparable damage of the Ongs, FLADC and its creditors.

After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not
for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it.

Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution
can truly pave the way for both groups to enjoy the fruits of their investments — assuming good faith and honest intentions — we cannot
allow the rescission of the subject subscription agreement. The Ongs' shortcomings were far from serious and certainly less than substantial;
they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the
Ongs of their interests on petty and tenuous grounds.

WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong,
William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are
hereby GRANTED. The Petition for Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269 is
hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15, 1994,
is hereby declared as null and void.

The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu,
D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for being moot.

Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision of the Court of Appeals, dated
October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby REVERSED. Costs against the petitioner Tius. SO ORDERED.
G.R. No. 89070 May 18, 1992

BENGUET ELECTRlC COOPERATIVE, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF DIRECTORS OF BENGUET ELECTRIC
COOPERATIVE, INC., * respondents.

Raymundo W. Celino for respondent Peter Cosalan.

Reenan Orate for respondent Board of Directors of BENECO.

FELICIANO, J.:

Private respondent Peter Cosalan was the General Manager of Petitioner Benguet Electric Cooperative, Inc. ("Beneco"), having been elected
as such by the Board of Directors of Beneco, with the approval of the National Electrification Administrator, Mr. Pedro Dumol, effective 16
October 1982.

On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the Commission on Audit ("COA"). This Memorandum
noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129,618.48 had been virtually written off
in the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure the approval of the National Electrification
Administration ("NEA") before writing off or condoning those cash advances, and recommended the adoption of remedial measures.

On 12 November 1982, COA issued another Memorandum — Audit Memorandum No. 2 –– addressed to respondent Peter Cosalan, inviting
attention to the fact that the audit of per diems and allowances received by officials and members of the Board of Directors of Beneco showed
substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again directed the taking of immediate action in
conformity with existing NEA regulations.

On 19 May 1983, petitioner Beneco received the COA Audit Report on the financial status and operations of Beneco for the eight (8) month
period ended 30 September 1982. This Audit Report noted and enumerated irregularities in the utilization of funds amounting to P37 Million
released by NEA to Beneco, and recommended that appropriate remedial action be taken.

Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement, respondent Cosalan initiated
implementation of the remedial measures recommended by the COA. The respondent members of the Board of Beneco reacted by adopting a
series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions abolished the housing allowance of respondent
Cosalan; reduced his salary and his representation and commutable allowances; directed him to hold in abeyance all pending personnel
disciplinary actions; and struck his name out as a principal signatory to transactions of petitioner Beneco.

During the period from 28 July to 25 September 1984, the respondent Beneco Board members adopted another series of resolutions which
resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from performance of his regular duties as such,
as well as the withholding of his salary and allowances. These resolutions were as follows:

1. Resolution No. 91-4 dated 28 July 1984:

. . . that the services of Peter M. Cosalan as General Manager of BENECO is terminated upon approval of
the National Electrification Administration;

2. Resolution No. 151-84 dated September 15, 1984;

. . . that Peter M. Cosalan is hereby suspended from his position as General Manager of the Benguet
Electric Cooperative, Inc. (BENECO) effective as of the start of the office hours on September 24, 1984,
until a final decision has been reached by the NEA on his dismissal;

. . . that GM Cosalan's suspension from office shall remain in full force and effect until such suspension
is sooner lifted, revoked or rescinded by the Board of Directors; that all monies due him are withheld
until cleared;

3. Resolution No. 176-84 dated September 25, 1984;

. . . that Resolution No. 151-84, dated September 15, 1984 stands as preventive suspension for GM
Peter M. Cosalan. 1

Respondent Cosalan nevertheless continued to work as General Manager of Beneco, in the belief that he could be suspended or removed only
by duly authorized officials of NEA, in accordance with provisions of P.D. No, 269, as amended by P.D. No. 1645 (the statute creating the
NEA, providing for its capitalization, powers and functions and organization), the loan agreement between NEA and petitioner Beneco 2 and
the NEA Memorandum of 2 July 1980. 3 Accordingly, on 5 October and 10 November 1984, respondent Cosalan requested petitioner Beneco
to release the compensation due him. Beneco, acting through respondent Board members, denied the written request of respondent Cosalan.

Respondent Cosalan then filed a complaint with the National Labor Relations Commission ("NLRC") on 5 December 1984 against respondent
members of the Beneco Board, challenging the legality of the Board resolutions which ordered his suspension and termination from the
service and demanding payment of his salaries and allowances. On 18 February 1985, Cosalan amended his complaint to implead petitioner
Beneco and respondent Board members, the latter in their respective dual capacities as Directors and as private individuals.

In the course of the proceedings before the Labor Arbiter, Cosalan filed a motion for reinstatement which, although opposed by petitioner
Beneco, was granted on 23 October 1987 by Labor Arbiter Amado T. Adquilen. Petitioner Beneco complied with the Labor Arbiter's order on
28 October 1987 through Resolution No. 10-90.

On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement; (b) ordering payment to Cosalan of his
backwages and allowances by petitioner Beneco and respondent Board members, jointly and severally, for a period of three (3) years without
deduction or qualification, amounting to P344,000.00; and (3) ordering the individual Board members to pay, jointly and severally, to Cosalan
moral damages of P50,000.00 plus attorney's fees of ten percent (10%) of the wages and allowances awarded him.

Respondent Board members appealed to the NLRC, and there filed a Memorandum on Appeal. Petitioner Beneco did not appeal, but moved to
dismiss the appeal filed by respondent Board members and for execution of judgment. By this time, petitioner Beneco had a new set of
directors.
In a decision dated 21 November 1988, public respondent NLRC modified the award rendered by the Labor Arbiter by declaring that petitioner
Beneco alone, and not respondent Board members, was liable for respondent Cosalan's backwages and allowances, and by ruling that there
was no legal basis for the award of moral damages and attorney's fees made by the Labor Arbiter.

Beneco, through its new set of directors, moved for reconsideration of the NLRC decision, but without success.

In the present Petition for Certiorari, Beneco's principal contentions are two-fold: first, that the NLRC had acted with grave abuse of discretion
in accepting and giving due course to respondent Board members' appeal although such appeal had been filed out of time; and second, that
the NLRC had acted with grave abuse of discretion amounting to lack of jurisdiction in holding petitioner alone liable for payment of the
backwages and allowances due to Cosalan and releasing respondent Board members from liability therefor.

We consider that petitioner's first contention is meritorious. There is no dispute about the fact that the respondent Beneco Board members
received the decision of the labor Arbiter on 21 April 1988. Accordingly, and because 1 May 1988 was a legal holiday, they had only up to 2
May 1988 within which to perfect their appeal by filing their memorandum on appeal. It is also not disputed that the respondent Board
members' memorandum on appeal was posted by registered mail on 3 May 1988 and received by the NLRC the following day. 4 Clearly, the
memorandum on appeal was filed out of time.

Respondent Board members, however, insist that their Memorandum on Appeal was filed on time because it was delivered for mailing on 1
May 1988 to the Garcia Communications Company, a licensed private letter carrier. The Board members in effect contend that the date of
delivery to Garcia Communications was the date of filing of their appeal memorandum.

Respondent Board member's contention runs counter to the established rule that transmission through a private carrier or letter-forwarder ––
instead of the Philippine Post Office –– is not a recognized mode of filing pleadings. 5The established rule is that the date of delivery of
pleadings to a private letter-forwarding agency is not to be considered as the date of filing thereof in court, and that in such cases, the date of
actual receipt by the court, and not the date of delivery to the private carrier, is deemed the date of filing of that pleading. 6

There, was, therefore, no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that might have
justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent Board members.
Accordingly, the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in nature, that
failure to file an appeal within the reglementary period renders the assailed decision final and executory and no longer subject to
review. 7 The respondent Board members had thus lost their right to appeal from the decision of the Labor Arbiter and the NLRC should have
forthwith dismissed their appeal memorandum.

There is another and more compelling reason why the respondent Board members' appeal should have been dismissed forthwith: that appeal
was quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the indefinite suspension and termination of services imposed
by the respondent Board members upon petitioner Cosalan was illegal. That illegality flowed, firstly, from the fact that the suspension of
Cosalan was continued long after expiration of the period of thirty (30) days, which is the maximum period of preventive suspension that
could be lawfully imposed under Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan had been
deprived of procedural due process by the respondent Board members. He was never informed of the charges raised against him and was
given no opportunity to meet those charges and present his side of whatever dispute existed; he was kept totally in the dark as to the reason
or reasons why he had been suspended and effectively dismissed from the service of Beneco Thirdly, respondent Board members failed to
adduce any cause which could reasonably be regarded as lawful cause for the suspension and dismissal of respondent Cosalan from his
position as General Manager of Beneco. Cosalan was, in other words, denied due process both procedural and substantive. Fourthly,
respondent Board members failed to obtain the prior approval of the NEA of their suspension now dismissal of Cosalan, which prior approval
was required, inter alia, under the subsisting loan agreement between the NEA and Beneco. The requisite NEA approval was subsequently
sought by the respondent Board members; no NEA approval was granted.

In reversing the decision of the Labor Arbiter declaring petitioner Beneco and respondent Board members solidarily liable for the salary,
allowances, damages and attorney's fees awarded to respondent Cosalan, the NLRC said:

. . . A perusal of the records show that the members of the Board never acted in their individual capacities. They were
acting as a Board passing resolutions affecting their general manager. If these resolutions and resultant acts transgressed
the law, to then BENECO for which the Board was acting in behalf should bear responsibility. The records do not disclose
that the individual Board members were motivated by malice or bad faith, rather, it reveals an intramural power play gone
awry and misapprehension of its own rules and regulations. For this reason, the decision holding the individual board
members jointly and severally liable with BENECO for Cosalan's backwages is untenable. The same goes for the award of
damages which does not have the proverbial leg to stand on.

The Labor Arbiter below should have heeded his own observation in his decision —

Respondent BENECO as an artificial person could not have, by itself, done anything to prevent it. But
because the former have acted while in office and in the course of their official functions as directors of
BENECO, . . .

Thus, the decision of the Labor Arbiter should be modified conformably with all the foregoing holding BENECO solely liable
for backwages and releasing the appellant board members from any individual liabilities. 8 (Emphasis supplied)

The applicable general rule is clear enough. The Board members and officers of a corporation who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable, whether civilly or
otherwise, for the consequences of their acts, Those acts, when they are such a nature and are done under such circumstances, are properly
attributed to the corporation alone and no personal liability is incurred by such officers and Board members. 9

The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or disregarded the circumstances under
which respondent Board members had in fact acted in the instant case. As noted earlier, the respondent Board members responded to the
efforts of Cosalan to take seriously and implement the Audit Memoranda issued by the COA explicitly addressed to the petitioner Beneco, first
by stripping Cosalan of the privileges and perquisites attached to his position as General Manager, then by suspending indefinitely and finally
dismissing Cosalan from such position. As also noted earlier, respondent Board members offered no suggestion at all of any just or lawful
cause that could sustain the suspension and dismissal of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the words of
the NLRC itself, "with indecent haste" in removing him from his position and denying him substantive and procedural due process. Thus, the
record showed strong indications that respondent Board members had illegally suspended and dismissed Cosalan precisely because he was
trying to remedy the financial irregularities and violations of NEA regulations which the COA had brought to the attention of Beneco. The
conclusion reached by the NLRC that "the records do not disclose that the individual Board members were motivated by malice or bad faith"
flew in the face of the evidence of record. At the very least, a strong presumption had arisen, which it was incumbent upon respondent Board
members to disprove, that they had acted in reprisal against respondent Cosalan and in an effort to suppress knowledge about and remedial
measures against the financial irregularities the COA Audits had unearthed. That burden respondent Board members did not discharge.

The Solicitor General has urged that respondent Board members may be held liable for damages under the foregoing circumstance under
Section 31 of the Corporation Code which reads as follows:
 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
jointly liable and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons . . . (Emphasis supplied)

We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in respect of Beneco and other electric
cooperatives similarly situated. Section 4 of the Corporation Code renders the provisions of that Code applicable in a supplementary manner
to all corporations, including those with special or individual charters so long as those provisions are not inconsistent with such charters. We
find no provision in P.D. No. 269, as amended, that would exclude expressly or by necessary implication the applicability of Section 31 of the
Corporation Code in respect of members of the boards of directors of electric cooperatives. Indeed, P.D. No. 269 expressly describes these
cooperatives as "corporations:"

Sec. 15. Organization and Purpose. — Cooperative non-stock, non-profit membership corporationsmay be organized,
and electric cooperative corporations heretofore formed or registered under the Philippine non-Agricultural Co-operative
Act may as hereinafter provided be converted, under this Decree for the purpose of supplying, and of promoting and
encouraging-the fullest use of, service on an area coverage basis at the lowest cost consistent with sound economy and
the prudent management of the business of such corporations. 10 (Emphasis supplied)

We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross negligence or bad faith in directing the
affairs of the corporation" in enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from
the position of General Manager of Beneco. Respondent Board members, in doing so, acted belong the scope of their authority as such Board
members. The dismissal of an officer or employee in bad faith, without lawful cause and without procedural due process, is an act that
iscontra legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or the
clear legal rights of their officers and employees by simply purporting to act for the corporation they control.

We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the awards made
by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through respondent Board members,
has a right to be reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such right of reimbursement is
essential if the innocent members of Beneco are not to be penalized for the acts of respondent Board members which were both done in bad
faith and ultra vires. The liability-generating acts here are the personal and individual acts of respondent Board members, and are not
properly attributed to Beneco itself.

WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment filed by respondent Board members is TREATED as their answer,
and the decision of the National Labor Relations Commission dated 21 November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE
and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby REINSTATED in toto. In addition, respondent Board members
are hereby ORDERED to reimburse petitioner Beneco any amounts that it may be compelled to pay to respondent Cosalan by virtue of the
decision of Labor Arbiter Amado T. Adquilen. No pronouncement as to costs. SO ORDERED.
G.R. No. L-23428 November 29, 1968

DETECTIVE & PROTECTIVE BUREAU, INC., petitioner,

vs.
THE HONORABLE GAUDENCIO CLORIBEL, in his capacity as Presiding Judge of Branch VI, Court of First Instance of Manila, and
FAUSTINO S. ALBERTO, respondents.

Crispin D. Biazas and Associates and Jose S. Sarte for petitioner.

Gaudencio T. Bocobo for respondents.

ZALDIVAR, J.:

The complaint, in Civil Case No. 56949 of the Court of First Instance of Manila, dated May 4, 1964, filed by Detective and Protective Bureau,
Inc., therein plaintiff (petitioner herein) against Fausto S. Alberto, therein defendant (respondent herein), for accounting with preliminary
injunction and receivership, alleged that plaintiff was a corporation duly organized and existing under the laws of the Philippines; that
defendant was managing director of plaintiff corporation from 1952 until January 14, 1964; that in June, 1963, defendant illegally seized and
took control of all the assets as well as the books, records, vouchers and receipts of the corporation from the accountant-cashier, concealed
them illegally and refused to allow any member of the corporation to see and examine the same; that on January 14, 1964, the stockholders,
in a meeting, removed defendant as managing director and elected Jose de la Rosa in his stead; that defendant not only had refused to
vacate his office and to deliver the assets and books to Jose de la Rosa, but also continued to perform unauthorized acts for and in behalf of
plaintiff corporation; that defendant had been required to submit a financial statement and to render an accounting of his administration from
1952 but defendant has failed to do so; that defendant, contrary to a resolution adopted by the Board of Directors on November 24, 1963,
had been illegally disposing of corporate funds; that defendant, unless immediately restrained ex-parte, would continue discharging the
functions of managing director; and that it was necessary to appoint a receiver to take charge of the assets and receive the income of the
corporation. Plaintiff prayed that a preliminary injunction ex-parte be issued restraining defendant from exercising the functions of managing
director and from disbursing and disposing of its funds; that Jose M. Barredo be appointed receiver; that, after judgment, the injunction be
made permanent and defendant be ordered to render an accounting.

Herein respondent Judge, the Honorable Gaudencio Cloribel, set for hearing plaintiff's prayer for ancillary relief and required the parties to
submit their respective memoranda. On June 18, 1964, respondent Judge granted the writ of preliminary injunction prayed for, conditioned
upon plaintiff's filing a bond of P5,000.00. Plaintiff filed the bond, but while the same was pending approval defendant Fausto S. Alberto filed,
on July 1, 1964, a motion to admit a counter-bond for the purpose of lifting the order granting the writ of preliminary injunction. Inspite of
the opposition filed by plaintiff, respondent Judge issued, on August 5, 1964, an order admitting the counterbond and setting aside the writ of
preliminary injunction.

On the belief that the order approving the counter-bond and lifting the writ of preliminary injunction was contrary to law and the act of
respondent Judge constituted a grave abuse of discretion, and that there was no plain, speedy and adequate remedy available to it, plaintiff
filed with this Court the instant petition for certiorari, praying that a writ of preliminary injunction enjoining defendant Fausto S. Albert from
exercising the functions of managing director be issued, and that the order dated August 5, 1964 of respondent Judge approving the counter-
bond and lifting the writ of preliminary injunction he had previously issued be set aside and declared null and void. The Court gave due course
to the petition but did not issue a preliminary injunction.

In his answer, now respondent Fausto S. Alberto traversed the material allegations of the petition, justified the order complained of, and
prayed for the dismissal of the petition.

From the pleadings, it appears that the only issue to be resolved is whether the order of respondent Judge dated August 5, 1964, admitting
and approving the counter-bond of P5,000 and setting aside the writ of preliminary injunction granted in his order dated June 18, 164, was
issued contrary to law and with grave abuse of discretion.

Now petitioner contends that the setting aside of the order granting the writ was contrary to law and was done with a grave abuse of
discretion, because: (1) the motion to admit defendant's counter-bond was not supported by affidavits showing why the counter-bond should
be admitted, as required by Section 6 of Rule 58; (2) the preliminary injunction was not issued ex-parte but after hearing, and the admission
of the counter-bond rendered said writ ineffective; (3) the writ was granted in accordance with Rule 58 of the Rules of Court and established
precedents' (4) public interest required that the writ be not set aside because respondent had arrogated unto himself all the powers of
petitioning corporation, to the irreparable damage of the corporation; and that (5) the counter-bond could not compensate petitioner's
damage.

1. The first reason given by petitioner in support of its contention that the dissolution of the writ of preliminary injunction was contrary to law
is that the motion to admit respondent's counter-bond for the dissolution of the writ was not supported by affidavits as required by section 6
of Rule 58 of the Rules of Court. The controverted motion, however, does not appear in the record. However, the record shows that
respondent Alberto had filed a verified answer to the complaint and a verified opposition to the issuance of the writ of preliminary injunction.

Regarding the necessity of verification of the motion for dissolution of a writ of preliminary injunction, this Court has ruled that the
requirement of verification is not absolute but is dependent on the circumstances obtaining in a particular case. In the case of Sy Sam Bio, et
al. vs. Barrios and Buyson Lampa,1 the only question raised was whether the respondent Judge exceeded his jurisdiction and abused his
discretion in setting aside an order directing the issuance of a writ of preliminary injunction. In maintaining the affirmative, petitioners in that
case alleged that the questioned order was issued in violation of the provisions of Section 169 of Act 190(which is one of the sources of Sec. 6
of Rule 58 of the revised Rules of Court)inasmuch as the Judge set aside said order and directed the dissolution of the preliminary injunction
without any formal petition of the parties and without having followed the procedure prescribed by the statute. There was, however, a verbal
application for the dissolution of the writ, based upon the ground of the in suficiency of the complaint which was the basis of the application
for the issuance of said writ of preliminary injunction. This Court said:

Section 169 of Act 1909 does not prescribe the manner of filing the application to annul or modify a writ of preliminary injunction. It
simply states that if a temporary injunction be granted without notice, the defendant, at any time before trial, may apply, upon
reasonable notice to the adverse party, to the judge who granted the injunction, or to the judge of the court of which the action was
brought, to dissolve or modify the same.

On the strength of the decision in the above-cited case, this Court in Caluya, et al. vs. Ramos, et al.,2 said;

Petitioners' criticism that the motion to dissolve filed by the defendants in Civil Case No. 4634 was not verified, is also groundless
inasmuch as even an indirect verbal application for the dissolution of an ex parteorder of preliminary injunction has been held to be
a sufficient compliance with the provisions of Section 6 of Rule 60 (Moran, Comments on the Rules of Court, Second Edition, Vol. II,
p. 65, citing the case of Sy Yam Bio v. Barrios, etc., 63 Phil. 206), the obvious reason being that said rule does not prescribe the
form by which an application for the dissolution or modification of an order of preliminary injunction should be presented.

If according to the above rulings, Section 6 of Rule 60 (now sec. 6, Rule 58) of the Rules of Court did not require any form for the application
for the dissolution of the writ of preliminary injunction, then respondent Fausto Alberto's motion to lift the preliminary injunction in the court
below need not be verified, and much less must the motion be supported by affidavits, as urged by petitioner.
However, in Canlas, et al. vs. Aquino, et al.,3 this Court ruled that a motion for the dissolution of a writ of preliminary injunction should be
verified. In that case, respondent Tayag filed an unverified motion for the dissolution of a writ of preliminary injunction, alleging that the
same "would work great damage to the defendant who had already spend a considerable sum of money" and that petitioners "can be fully
compensated for any damages that they may suffer." The court granted the motion and dissolved the preliminary injunction. In an original
action for a writ of certiorari filed with this Court to annual said order, this Court remarked in part:

Petitioners herein are entitled to the writ prayed for. The motion of respondent Tayag for the dissolution of the writ of preliminary
injunction issued on October 22, 1959, was unverified....

From the precedents quoted above, as well as from the terminology of Section 6 of Rule 58 of the new Rules of Court, it is evident that
whether the application for the dissolution of the writ of preliminary injunction must be verified or not depends upon the ground upon which
such application is based. If the application is based on the insufficiency of the complaint, the motion need not be verified. If the motion is
based on the ground that the injunction would cause great damage to defendant while the plaintiff can be fully compensated for such
damages as he may suffer, the motion should be verified.

In the instant case, it is alleged by petitioner that the motion for the dissolution of the writ of preliminary injunction was not verified. This
allegation was not denied in the answer. But because said motion does not appear in the record of the case now before this Court, We cannot
determine what are the grounds for the dissolution that are alleged therein, and so We cannot rule on whether the motion should have been
verified or not. This Court, therefore, has to rely on the order of respondent Judge, dated August 5, 1964, which states that "the filing of the
counter-bond is in accordance with law." Consequently, the first ground alleged by petitioner must be brushed aside.

2. The second and third reasons alleged by petitioner in its petition for certiorari assume that a preliminary injunction issued after hearing and
in accordance with Rule 58 cannot be set aside. This contention is untenable. The provision of Section 6 of Rule 58 that "the injunction may
be refused, or, if granted ex parte, may be dissolved" can not be construed as putting beyond the reach of the court the dissolution of an
injunction which was granted after hearing. The reason is because a writ of preliminary injunction is an interlocutory order, and as such it is
always under the control of the court before final judgment. Thus, in Caluya, et al. vs. Ramos, et al.,4 this Court said:

The first contention of the petitioners is that, as said injunction was issued after a hearing, the same cannot be dissolved, specially
on the strength of an unverified motion for dissolution and in the absence to support it. Reliance is placed on Section 6 of Rule 60 of
the Rules of Court which provides that "the injunction may be reduced, or, if granted ex parte, maybe dissolved," thereby arguing
that if an injunction is not issued ex parte the same cannot be dissolved. The contention is clearly erroneous. Although said section
prescribes the grounds for objecting to, or for moving the dissolution of, a preliminary injunction prior to its issuance or after its
granting ex parte, it does not thereby outlaw a dissolution if the injunction has been issued after a hearing. This is to be so, because
a writ of preliminary injunction is an interlocutory order which is always under the control of the court before final judgment. (Manila
Electric Company vs. Artiaga and Green, 50 Phil. 144, 147).

This Court has also ruled that the dissolution of a writ of preliminary injunction issued after hearing, even if the dissolution is ordered without
giving the other party an opportunity to be heard, does not constitute an abuse of discretion and may be cured not by certiorari but by
appeal. In Clarke vs. Philippine Ready Mix Concrete Co., Inc., et al.,5 one of the issues presented was whether a writ of preliminary injunction
granted the plaintiff by a trial court after hearing, might be dissolved upon an ex parte application by the defendant, and this Court ruled
that:

The action of a trial court in dissolving a writ of preliminary injunction already issued after hearing, without giving petitioner an
opportunity to be heard, does not constitute lack or excess of jurisdiction or an abuse of discretion, and any irregularity committed
by the trial court on this score may be cured not by certiorari but by appeal.

3. The fourth reason alleged by petitioner in support of its stand is that public interest demanded that the writ enjoining respondent Fausto
Alberto from exercising the functions of managing director be maintained. Petitioner contended that respondent Alberto had arrogated to
himself the power of the Board of Directors of the corporation because he refused to vacate the office and surrender the same to Jose de la
Rosa who had been elected managing director by the Board to succeed him. This assertion, however, was disputed by respondent Alberto
who stated that Jose de la Rosa could not be elected managing director because he did not own any stock in the corporation.

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not own any share of stock,
certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law, which in part provides:

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not own any share of stock,
certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law, which in part provides:

Sec. 30. Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a
director, which stock shall stand in his name on the books of the corporations....

If he could not be a director, he could also not be a managing director of the corporation, pursuant to Article V, Section 3 of the By-Laws of
the Corporation which provides that:

The manager shall be elected by the Board of Directors from among its members.... (Record, p. 48)

If the managing director-elect was not qualified to become managing director, respondent Fausto Alberto could not be compelled to vacate his
office and cede the same to the managing director-elect because the by-laws of the corporation provides in Article IV, Section 1 that
"Directors shall serve until the election and qualification of their duly qualified successor."

4. The fifth reason alleged by herein petitioner in support of its contention that respondent Judge gravely abused his discretion when he lifted
the preliminary injunction upon the filing of the counter-bond was that said counter-bond could not compensate for the irreparable damage
that the corporation would suffer by reason of the continuance of respondent Fausto Alberto as managing director of the corporation.
Respondent Alberto, on the contrary, contended that he really was the owner of the controlling interest in the business carried on the name of
the petitioner, having invested therein a total of P57,727.29 as against the sum of P4,000 only invested by one other director, Jose M.
Barredo. We find that there was a question as to who own the controlling interest in the corporation. Where ownership is in dispute, the party
in control or possession of the disputed interest is presumed to have the better right until the contrary is adjudged, and hence that party
should not be deprived of the control or possession until the court is prepared to adjudicate the controverted right in favor of the other party.6

Should it be the truth that respondent Alberto is the controlling stockholder, then the damages said respondent would suffer would be the
same, if not more, as the damages that the corporation would suffer if the injunction were maintained. If the bond of P5,000 filed by
petitioner for the injunction would be sufficient to answer for the damages that would be suffered by respondent Alberto by reason of the
injunction, there seems to be no reason why the same amount would not be sufficient to answer for the damages that might be suffered by
the petitioning corporation by reason of the lifting of the injunction. The following ruling of this Court has a persuasive application in this case:
 The rule that a court should not, by means of a preliminary injunction, transfer property in litigation from the possession of one
party to another is more particularly applicable where the legal title is in dispute and the party having possession asserts ownership
in himself.7

Let it be stated, in relation to all the reason given by petitioner, that it is a settled rule that the issuance of the writ of preliminary injunction
as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking
cognizance of the case — the only limitation being that this discretion should be exercised based upon the grounds and in the manner
provided by law,8 and it is equally well settled that a wide latitude is given under Section 7 of Rule 58 of the Rules of Court to the trial court to
modify or dissolve the injunction as justice may require. The court which is to exercise that discretion is the trial court, not the appellate
court.9 The exercise of sound judicial discretion by the lower court in injunctive matters should not be interfered with except in cases of
manifest abuse.10 In the instant case, We find that petitioner failed to show manifest abuse of discretion by respondent Judge in setting aside
the writ of preliminary injunction.

There is, however, one vital reason why the instant petition for certiorari should be denied. And it is, that from the order dissolving the writ of
preliminary injunction, the petitioner has gone directly to this Court without giving the respondent Judge (or trial court) a chance or
opportunity to correct his error, if any, in an appropriate motion for reconsideration. An omission to comply with this procedural requirement
justifies a denial of the writ applied for.11

The instant case is not one of the exceptions in the application of this rule, which are: where the questions of jurisdiction has been squarely
raised, argued before, submitted to, and met and decided by the respondent court; where the questioned order is a patent nullity; and where
there is a deprivation of the petitioner's fundamental right to due process.12

It being our considered view that respondent Judge had not committed grave abuse of discretion in issuing the order dated August 5, 1964
lifting the writ of preliminary injunction which had previously been granted in the order dated June 18, 1964, and the herein petition for
certiorari having been filed without previously complying with a well settled procedural requirement, there is no alternative for this Court but
to order its dismissal.

WHEREFORE, the instant petition for certiorari with preliminary injunction is dismissed, with costs againsts the petitioner. It is so ordered.
G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,

vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents.

Cayanga, Zuniga & Angel Law Offices for petitioners.

Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:

What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under
the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation
cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving
the principal issue in this petition for certiorari — whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA,
for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust
agreement between ALFA and the Development Bank of the Philippines (DBP, for short).

From the records of the instant case, the following antecedent facts appear:

On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents
who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch
58 denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a
consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP.

In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had
not taken over the company which has a separate and distinct corporate personality and existence.

On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to
ALFA.

On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the
trial court granted on August 17, 1988.

On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is
not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service
under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon ALFA.

In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust
agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that
service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's
motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust
agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on
behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement
between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management
and control of ALFA became vested upon the DBP.

On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the
petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated
August 14, 1989 denying the private respondent's motion for reconsideration.

On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent which,
nonetheless, resolved to give due course thereto on September 21, 1989.

On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order
declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute.
Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action.

On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered
its decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are
hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p.
8; Rollo, p. 24)

On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on
May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the
part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding
that there was proper service of summons on ALFA through the petitioners.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the
period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its
Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it
relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant
to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp.
249-250)

In their memorandum, the petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been
transferred to the trustee deprives the stockholders of his position as director of the corporation; to rule otherwise, as the
respondent Court of Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and

(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the
Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the
service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court
of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general
principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority
(Rollo, pp. 273-275)

In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement
and the consequent effects upon its creation in the light of the provisions of the Corporation Code.

A voting trust is defined in Ballentine's Law Dictionary as follows:

(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of
identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of
years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned
by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a
reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR
2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).

Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be
gathered. The said provision partly reads:

Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining
to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust
specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall
automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with
the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of
the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the
right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation
and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust
agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the
stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite
period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5
Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538)

Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights
but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation
Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other
rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's
shares is effected subject to the specific provision of the voting trust agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate
shares of a stockholders, on the one hand, and the legal title thereto on the other hand.

The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent
to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not
exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five
year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made
contingent upon full payment of the loan.

In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain
that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the
other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust
agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of
the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share
shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share
of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the
petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure
of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring
stockholders, to wit:
 The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by
the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust
agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as
directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting
trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It
seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature,
such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3
pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)

We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the
status of a stockholder who is a party to its execution — from legal titleholder or owner of the shares subject of the voting trust agreement,
he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law
on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes &
Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed.,
p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director
under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that:

Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a
director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at
least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . .
(Emphasis supplied)

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director
being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the
voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old
Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the
shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296)
Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the
stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92
[1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051).

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through
assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their
names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the
management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created
vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of
the subject voting trust agreement as evident from the following stipulations:

1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them
respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of
ALFA.

2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall
be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this
agreement;

3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter
or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of
the equitable as well as the legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as
director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such
person;

9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of
revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo,
pp. 137-138; Emphasis supplied)

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to
the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the
DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no
longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust
agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts
Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982."
(CA Rollo, pp. 140-142)

Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the
petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that:

. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president,
respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to
that time, still directors . . .
The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement.
Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to
the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the
legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the
6th paragraph of section 59 of the new Corporation Code which reads:

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed
period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall
thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the
agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the
agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing
plant of said company;

WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these
obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has
accepted participation in the management and control of the company and to assure the aforesaid participation by the
TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the
TRUSTEE;

AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.

NOW, THEREFORE, it is hereby agreed as follows:

6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with
DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138)

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests
in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification
dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP,
from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the
DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the
petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA,
then, still belonged to the DBP.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily
answered in the negative.

Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the
laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary,
cashier, agent or any of its directors.

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose
it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos.
83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a
corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the
existence of a corporate entity separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a
priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v.
Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]).

The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners,
therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals'
resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of
Makati, Branch 58 are REINSTATED. SO ORDERED.
G.R. No. 96551 November 4, 1996

PREMIUM MARBLE RESOURCES, INC., petitioner,

vs.
THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents.

PRINTLINE CORPORATION, petitioner,

vs.
THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents.

TORRES, JR., J.:

Assailed in the instant petition for review is the decision 1 of the Court of Appeals in CA-G.R. CV No. 16810 dated September 28, 1990 which
affirmed the trial court's dismissal of petitioners' complaint for damages.

The antecedents:

On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty. Arnulfo Dumadag as counsel, filed an action for
damages against International Corporate Bank which was docketed as Civil Case No. 14413. The complaint states, inter alia:

3. Sometime in August to October 1982, Ayala Investment and Development Corporation issued three (3) checks [Nos.
097088, 097414 & 27884] in the aggregate amount of P31,663.88 payable to the plaintiff and drawn against Citibank;

xxx xxx xxx

5. On or about August to October 1982, former officers of the plaintiff corporation headed by Saturnino G. Belen, Jr.,
without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his
conduit corporation, Intervest Merchant Finance (Intervest, for brevity) which the latter maintained with the defendant
bank under account No. 0200-02027-8;

6. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payee's account
only, defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the
same for collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the
funds to the prejudice of the plaintiff;

xxx xxx xxx

14. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but
defendant refused and continue to refuse to honor plaintiff's demands up to the present;

15. As a result of the illegal and irregular acts perpetrated by the defendant bank, the plaintiff was damaged to the extent
of the amount of P31,663.88;

Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31,663.88 representing the value of the
checks plus interest, P100,000.00 as exemplary damages; and P30,000.00 as attorney's fees.

In its Answer International Corporate Bank alleged, inter alia, that Premium has no capacity/personality/authority to sue in this instance and
the complaint should, therefore, be dismissed for failure to state a cause of action.

A few days after Premium filed the said case, Printline Corporation, a sister company of Premium also filed an action for damages against
International Corporate Bank docketed as Civil Case No. 14444. Thereafter, both civil cases were consolidated.

Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel,
filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown
by the excerpt of the minutes of the Premium's board of directors' meeting. 2

In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board resolution namely
Belen, Jr., Nograles & Reyes, are not directors of the corporation and were allegedly former officers and stockholders of Premium who were
dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium
and that the Articles of Incorporation of Premium shows that Belen, Nograles and Reyes are not majority stockholders.

On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general information sheet filed with
the Securities and Exchange Commission, among others, that is the best evidence that would show who are the stockholders of a corporation
and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders
subscribe to corporate shares of stocks.

In the interim, defendant bank filed a manifestation that it is adopting in toto Premium's motion to dismiss and, therefore, joins it in the
praying for the dismissal of the present case on the ground that Premium lacks authority from its duly constituted board of directors to
institute the action.

In its Order, the lower court concluded that:

Considering that the officers (directors) of plaintiff corporation enumerated in the Articles of Incorporation, filed on
November 9, 1979, were "to serve until their successors are elected and qualified" and considering further that as of March
4, 1981, the officers of the plaintiff corporation were Alberto Nograles, Fernando Hilario, Augusto Galace, Jose L.R. Reyes,
Pido Aguilar and Saturnino Belen, Jr., who presumably are the officers represented by the Siguion Reyna Law Firm, and
that together with the defendants, they are moving for the dismissal of the above-entitled case, the Court finds that the
officers represented by Atty. Dumadag do not as yet have the legal capacity to sue for and in behalf of the plaintiff
corporation and/or the filing of the present action (Civil Case 14413) by them before Case No. 2688 of the SEC could be
decided is a premature exercise of authority or assumption of legal capacity for and in behalf of plaintiff corporation.

The issues raised in Civil Case No. 14444 are similar to those raised in Civil Case No. 14413. This Court is of the opinion
that before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag nor that set
 represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute cases in the name of the plaintiff
corporation.

It is clear from the pleadings filed by the parties in these two cases that the existence of a cause of action against the
defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending before the
SEC. 3

On appeal, the Court of Appeals affirmed the trial court's Order 4 which dismissed the consolidated cases. Hence, this petition.

Petitioner submits the following assignment of errors:

The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office when the
said motion is clearly filed not in behalf of the petitioner but in behalf of the group of Belen who are the clients of the said
law office.

II

The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office in behalf of
petitioner when the said law office had already appeared in other cases wherein the petitioner is the adverse party.

III

The Court of Appeals erred when it ruled that undersigned counsel was not authorized by the Board of Directors to file Civil
Case Nos. 14413 and 14444.

IV

The Court of Appeals erred in concluding that under SEC Case No. 2688 the incumbent directors could not act for and in
behalf of the corporation.

The Court of Appeals is without jurisdiction to prohibit the incumbent Board of Directors from acting and filing this case
when the SEC where SEC Case No. 2688 is pending has not even made the prohibition.

We find the petition without merit.

The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly
constituted Board of Directors of the petitioner corporation.

Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare,
presented the Minutes 5 of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the case against private
respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and
Jose L.R. Reyes, presented a Resolution 6 dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit
against the private respondent International Corporate Bank.

Later on, petitioner submitted its Articles of Incorporation 7 dated November 6, 1979 with the following as Directors: Mario C. Zavalla, Pedro
C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva.

However, it appears from the general information sheet and the Certification issued by the SEC on August 19, 1986 8 that as of March 4,
1981, the officers and members of the board of directors of the Premium Marble Resources, Inc. were:

Alberto C. Nograles — President/Director

Fernando D. Hilario — Vice President/Director
Augusto I. Galace — Treasurer
Jose L.R. Reyes — Secretary/Director
Pido E. Aquilar — Director
Saturnino G. Belen, Jr. — Chairman of the Board.

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar Gan, Mario
Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in
their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981.

We agree with the finding of public respondent Court of Appeals, that "in the absence of /any board resolution from its board of directors the
[sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of
plaintiff-appellant 's subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound judgment of
the Securities & Exchange Commission." 9

By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within
the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors,
trustees and officers elected.

Sec. 26 of the Corporation Code provides, thus:

Sec. 26. Report of election of directors, trustees and officers. — Within thirty (30) days after the election of the directors,
trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of the directors, trustees and officers elected. . . .
Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of
the nature of business, financial condition and operational status of the company together with information on its key officers or managers so
that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the
corporation's financial resources and business responsibility. 10

The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been
fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly
bind the corporation. 11

We find no reversible error in the decision sought to be reviewed. ACCORDINGLY, for lack of merit, the petition is hereby DENIED. SO
ORDERED.
G.R. No. L-5883 November 28, 1953

DOMINGO PONCE AND BUHAY L. PONCE, petitioners,

vs.
DEMETRIO B. ENCARNACION, Judge of the Court of First Instance of Manila, Branch I, and POTENCIANO GAPOL, respondents.

Marcelino Lontok for petitioners.

Zavalla, Bautista and Nuevas for respondents.

PADILLA, J.:

This is a petition for a writ of certiorari to annul an order of the respondent court granting Potenciano Gapol authority, pursuant to section 26,
Act No. 1459, otherwise known as the Corporation Law, to call a meeting of the stockholders of the Dagunoy Enterprises, Inc. and to preside
at such meeting by giving proper notice to the stockholders, as required by law or by laws of the corporation, until after the majority of the
stockholders present and qualified to vote shall have chosen one of them to act as presiding officer of the meeting; another order denying a
motion of the petitioners to have the previous order set aside; and a third order denying a motion to the same effect as the one previously
filed.

The petitioners aver that the Daguhoy Enterprises, Inc., was duly registered as such on 24 June 1948; that on 16 April 1951 at a meeting
duly called, the voluntary dissolution of the corporation and the appointment of Potenciano Gapol as receiver were agreed upon and to that
end a petitioner Domingo Ponce; that instead of filing the petition for voluntary dissolution of the of the corporation as agreed upon, the
respondent Potenciano Gapol, who is the largest stockholder, charged his mind and filed a complaint in the Court of First Instance of Manila
(civil No. 13753) to compel the petitioners to render an accounting of the funds and assets of the corporation, to reimburse it, jointly and
severally, in the sum of P4,500, the purchase price of a parcel of land acquired by the corporation; P6,190 loaned to the wife of petitioner
Domingo Ponce; and P8,000 spent by the latter in his trip to the United States, or a total sum of P18,690, plus interest, or such sum as may
be found after the accounting shall have been rendered to have been misspent, misapplied, missappropriated and converted by the petitioner
Domingo Ponce to his own use and benefit; that on 18 May 1951 the plaintiff in that case, the respondent Potenciano Gapol in this case, filed
a motion praying that the petitioners be removed as members of the board of directors which was denied by the court; that on 3 January
1952 respondent Potenciano Gapol filed a petition (civil No. 15445, Exhibit L), praying for an order directing him to a call a meeting of the
stockholders of the corporation and to preside at such meeting in accordance with section 26 of the Corporation law; that two days later,
without notice to the petitioners and to the other members of the board of directors and in violation of the Rules of Court which require that
the adverse parties be notified of the hearing of the motion three days in advance, the respondent court issued the order as prayed for
(Exhibit M); that the petitioners learned only of this order of the court on 27 February, when the Bank of America refused to recognize the
new board of directors elected at such meeting and returned the checks drawn upon it by the said board of directors; that the election of
Juanito R. Tianzon as member of the board of directors of the corporation he must be a member of the Legionarios del Trabajo, as required
and provided for in article 7 of the by-laws of the corporation; that on 5 March the petitioners filed a petition in the respondent court to have
the order of 5 January set aside but on April, the date set for the hearing of the petition, as the respondent judge was on leave vacation judge
directed its transfer to the branch of the respondent judge; that without having set the motion for hearing, the respondent court denied the
motion of 5 March in its order of 7 May; that on 14 May the petitioners filed another motion inviting the attention of the respondent court to
the irregularity and illegality of its procedure and setting the motion for hearing on 21 May, but the court denied the motion by its order of 13
June.

The only question to determine in this case is whether under and pursuant to section 26 of Act No. 1459, known as the Corporation law, the
respondent court may issue the order complained of. Said section provides: —

Whenever, from any cause, there is no person authorized to call a meeting, or when the officer authorized to do so refuses, fails or
neglects to call a meeting, any judge of a Court of First Instance on the showing of good cause therefor, may issue an order to any
stockholder or member of a corporation, directing him to call a meeting of the corporation by giving the proper notice required by
this Act or by-laws; and if there be no person legally authorized to preside at such meeting, the judge of the Court of First Instance
may direct the person calling the meeting to preside at the same until a majority of the members or stockholders representing a
majority of the stock members or stockholders presenting a majority of the stock present and permitted by law to be voted have
chosen one of their number to act as presiding officer for the purposes of the meeting.

On the showing of good cause therefor, the court may authorize a stockholder to call a meeting and to preside threat until the majority
stockholders representing a majority strockholders representing a majority of the stock present and permitted to be voted shall have chosen
one among them to preside it. And this showing of good cause therefor exists when the court is apprised of the fact that the by-laws of the
corporation require the calling of a general meeting of the stockholders to elect the board of directors but call for such meeting has not been
done.

Article 9 of the by-laws of the Daguhoy Enterprises, Inc., provides:

The Board of Directors shall compose of five (5) members who shall be elected by the stockholders in a general meeting called for
that purpose which shall be held every even year during the month of January.

Article 20 of the by-laws in part provides:

. . . Regular general meetings are those which shall be called for every even year, . . . .

The requirement that "on the showing of good cause therefor," the court may grant to a stockholder the authority to call such meeting and to
preside thereat does not mean that the petition must be set for hearing with notice served upon the board of directors. The respondent court
was satisfied that there was a showing of good cause for authorizing the respondent Potenciano Gapol to call a meeting of the stockholders
for the purpose of electing the board of directors as required and provided for in the by-laws, because the chairman of the board of directors
called upon to do so had failed, neglected, or refused to perform his duty. It may be likened to a writ of preliminary injunction or of
attachment which may be issued ex-parte upon compliance with the requirements of the rules and upon the court being satisfied that the
same should be issue. Such provisional reliefs have not been deemed and held as violative of the due process of law clause of the
Constitution.

In several state of the Union1 the remedy which may be availed of our resorted to in a situation such as the one brought about in this case is
mandamus to compel the officer or incumbent board of directors to perform a duties specifically enjoined by law or by-laws, to wit: to call a
meeting of the stockholders. Dela ware is the estate that has a law similar to ours and there the chancellor of a chancery court may
summarily issue or enter an order authorizing a stockholder to call a meeting of the stockholders of the corporation and preside thereat.2 It
means that the chancellor may issue such order without notice and hearing.

That the relief granted by the respondent court lies within its jurisdiction is not disputed. Having the authority to grant the relief, the
respondent court did not exceed its jurisdiction; nor did it abuse its discretion in granting it.
With persistency petitioners claim that they have been deprived of their right without due process of law. They had no right to continue as
directors of the corporation unless reflected by the stockholders in a meeting called for that purpose every even year. They had no right to a
hold-over brought about by the failure to perform the duty incumbent upon one of them. If they felt that they were sure to be reelected, why
did they fail, neglect, or refuse to call the meeting to elect the members of the board? Or, why did they not seek their reelection at the
meeting called to elect the directors pursuant to the order of the respondent court.

The alleged illegality of the election of one member of the board of directors at the meeting called by the respondent Potenciano Gapol as
authorized by the court being subsequent to the order complained of cannot affect the validity and legality of the order. If it be true that one
of the directors elected at the meting called by the respondent Potenciano Gapol, as authorized by the order of the court complained of, was
not qualified in accordance with the provisions of the by-laws, the remedy of an aggrieved party would be quo a warranto. Also, the alleged
previous agreement to dissolve the corporation does not affect or render illegal the order issued by the respondent court.

The petition is denied, with costs against the petitioners.

G.R. No. L-26555 November 16, 1926

BALDOMERO ROXAS, ENRIQUE ECHAUS and ROMAN J. LACSON, petitioners,

vs.
Honorable MARIANO DE LA ROSA, Auxiliary Judge of First Instance of Occidental Negros, AGUSTIN CORUNA, MAURO LEDESMA
and BINALBAGAN ESTATE, INC., respondents.

Roman J. Lacson, for petitioners.

The respondent judge in his own behalf.
The respondent corporation in its own behalf.
R. Nolan and Feria and La O for the respondents Coruna and Ledesma.

STREET, J.:

This is an original petition for the writ of certiorari whereby the petitioners, Baldomeo Roxas, Enrique Echaus, and Roman J. Lacson, seek to
procure the abrogation of an order of the respondent judge granting a preliminary injunction in an action in the Court of First Instance of
Occidental Negros, instituted by Agustin Coruna and Mauro Ledesma against the petitioners and the Binalbagan Estate, Inc. The cause is now
before us upon the issues made by the answers filed by the respondents.

It appears that the Binalbagan Estate, Inc., is a corporation having its principal plant in Occidental Negros where it is engaged in the
manufacture of raw sugar from canes grown upon farms accessible to its central. In July, 1924, the possessors of a majority of the shares of
the Binalbagan Estate, Inc., formed a voting trust composed of three members, namely, Salvador Laguna, Segunda Monteblanco, and Arthur
F. Fisher, as trustee. By the document constituting this voting trust the trustees were authorized to represent and vote the shares pertaining
to their constituents, and to this end the shareholders undertook to assign their shares to the trustees on the books of the company. The total
number of outstanding shares of the corporation is somewhat over 5,500, while the number of shares controlled by the voting trust is less
than 3,000.

On February 1, 1926, the general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at which Mr. J. P. Heilbronn
appeared as representative of the voting trust, his authority being recognized by the holders of all the other shares present at this meeting.
Upon said occasion Heilbronn, by virtue of controlling the majority of the shares, was able to nominate and elect a board of directors to his
own liking, without opposition from the minority. After the board of directors had been thus elected and had qualified, they chose a set of
officers constituting of Jose M. Yusay, president, Timoteo Unson, vice-president, Jose G. Montalvo, secretary-treasurer, and H. W. Corp and
Agustin Coruna, as members. Said officials immediately entered upon the discharged of their duties and have continued in possession of their
respective offices until the present time.

Since the creation of the voting trust there have been a number of vacancies caused by resignation or the absence of members from the
Philippine Islands, with the result that various substitutions have been made in the personnel of the voting trust. At the present time the
petitioners Roxas, Echaus, and Lacson presumably constitute its membership. We say presumably, because in the present proceedings an
issue of fact is made by the respondents upon the point whether the three individuals named have been regularly substituted for their several
predecessors. In the view we take of the case it is not necessary to determine this issue; and we shall assume provisionally that the three
petitioners are the lawful components of the voting trust.

Although the present officers of the Binalbagan Estate, Inc., were elected by the representative of the voting trust, the present trustee are
apparently desirous of ousting said officers, without awaiting the termination of their official terms at the expiration of one year from the date
of their election. In other to effect this purpose the petitioners in their character as members of the voting trust, on August 2, 1926, caused
the secretary of the Binalbagan Estate, Inc., to issue to the shareholders a notice calling for a special general meeting of shareholders to be
held at 10 a. m., on August 16, 1926, "for the election of the board of directors, for the amendment of the By-Laws, and for any other
business that can be dealt with in said meeting."

Within a few days after said notice was issued Agustin Coruña, as member of the existing board, and Mauro Ledesma, as a simple shareholder
of the corporation, instituted a civil action (No. 3840) in the Court of First Instance of Occidental Negros against the trustees and the
Binalbagan Estate, Inc., for the purpose of enjoining the meeting completed in the notice above-mentioned.

In response to a proper for a preliminary injunction, in connection with said action, the respondent judge issued the restraining order, or
preliminary injunction, which gave rise to the present petition for the writ of certiorari. In the dispositive part of said order the Binalbagan
Estate, Inc., its lawyers, agents, representatives, and all others who may be assisting or corroborating with them, are restrained from holding
the general shareholders' meeting called for the date mentioned and from electing new directors for the company in substitution of the
present incumbents, said injunction to be effective until further order of the court. it is now asserted here by the petitioners that the making
of this order was beyond the legitimate powers of the respondent judge, and it is accordingly prayed that said order be set aside.

We are of the opinion that this contention is untenable and that the respondent judge acted within his legitimate powers in making the order
against which relief is sought. In order to expose the true inwardness of the situation before us it is necessary to take not of the fact that
under the law the directors of a corporation can only be removed from office by a vote of the stockholders representing at least two-thirds of
the subscribed capital stock entitled to vote (Act No. 1459, sec. 34); while vacancies in the board, when they exist, can be filled by mere
majority vote, (Act No. 1459, sec. 25). Moreover, the law requires that when action is to be taken at a special meeting to remove the
directors, such purpose shall be indicated in the call (Act No. 1459, sec. 34).

Now, upon examining into the number of shares controlled by the voting trust, it will be seen that, while the trust controls a majority of the
stock, it does not have a clear two-thirds majority. It was therefore impolitic for the petitioners, in forcing the call for the meeting of August
16, to come out frankly and say in the notice that one of the purpose of the meeting was to removed the directors of the corporation from
office. Instead, the call was limited to the election of the board of directors, it being the evident intention of the voting trust to elect a new
board as if the directorate had been then vacant.

But the complaint in civil No. 3840 directly asserts that the members of the present directorate were regularly elected at the general annual
meeting held in February, 1926; and if that assertion be true, the proposal to elect, another directorate, as per the call of August 2, if carried
into effect, would result in the election of a rival set of directors, who would probably need the assistance of judgment of court in an
independent action of quo warrantoto get them installed into office, even supposing that their title to the office could be maintained. That the
trial judge had jurisdiction to forestall that step and enjoin the contemplated election is a matter about which there cannot be the slightest
doubt. The law contemplates and intends that there will be one of directors at a time and that new directors shall be elected only as vacancies
occur in the directorate by death, resignation, removal, or otherwise. lawphil.net

It is instituted that there was some irregularity or another in the election of the present directorate. We see nothing upon which this
suggestion can be safely planted; And at any rate the present board of directors are de factoincumbents of the office whose acts will be valid
until they shall be lawfully removed from the office or cease from the discharge of their functions. In this case it is not necessary for us to
agitate ourselves over the question whether the respondent judge properly exercised his judicial discretion in granting the order complained
of. If suffices to know that in making the order he was acting within the limits of his judicial powers.
It will be noted that the order in question enjoins the defendants from holding the meeting called for August 16; and said order must not be
understood as constituting any obstacle for the holding of the regular meeting at the time appointed in the by-laws of the corporation.

For the reasons stated the petition will be denied, and it is so ordered, with costs.
G.R. No. L-32991 June 29, 1972

SALVADOR P. LOPEZ, President of the University of the Philippines; BOARD OF REGENTS, University of the Philippines; and
OSEAS DEL ROSARIO, Officer-in-Charge, College of Education, University of the Philippines, petitioners,
vs.
HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal, Branch XVIII (Quezon City), and DR. CONSUELO S.
BLANCO, respondents.

Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General Jaime M. Lantin and Special Counsel Jose Espinosa for petitioners.

Sison, Dominguez & Magno for respondents.

MAKALINTAL, J.:p

This case presents the question of whether or not respondent Dr. Consuelo S. Blanco was duly elected Dean of the College of Education,
University of the Philippines, in the meeting of the Board of Regents on July 9, 1970, at which her ad interim appointment by University
President Salvador P. Lopez, one of the petitioners here, was submitted for consideration.

The question was originally ventilated in a petition for certiorari filed by Dr. Blanco in the Court of First Instance of Quezon City, presided by
respondent Judge Vicente Ericta, who decided the question affirmatively on December 3, 1970. The dispositive portion of the decision was
amended three days later, or on December 6, to read as follows:

WHEREFORE, the Court renders judgment:

(1) Declaring petitioner, CONSUELO S. BLANCO, the duly elected Dean of the College of Education, University of the
Philippines, and as such entitled to occupy the position with a three-year term of office from May 1, 1970 to April 30,
1973;

(2) Declaring null and void the appointment of respondent Oseas A. del Rosario as Officer-in-Charge of the College of
Education, University of the Philippines; and

(3) Issuing a permanent injunction (a) commanding respondent Oseas A. del Rosario to desist from further exercising the
functions and duties pertaining to the Office of the Dean of the College of Education, University of the Philippines, and (b)
commanding respondent Board of Regents from further proceeding in the matter of the appointment or election of another
person as Dean of said college.

xxx xxx xxx

The case is before this Court on appeal by certiorari taken by the President and the Board of Regents of the University and by Oseas A. del
Rosario, respondents below, the last as officer-in-charge appointed to discharge the duties and functions of the office of Dean of the College
of Education. 1 The petition for review was filed on January 5, 1971. On January 11, 1971 this Court, pursuant to its resolution of January 7,
issued a writ of preliminary injunction to stop the immediate execution of the judgment appealed from, as ordered by respondent Judge.

The facts and circumstances surrounding the ad interim appointment of Dr. Consuelo S. Blanco and the action taken thereon by the Board of
Regents have a material bearing on the question at issue. The first such appointment was extended on April 27, 1970, "effective May 1, 1970
until April 30, 1971, unless sooner terminated and subject to the appproval of the Board of Regents and to pertinent University regulations."
Pursuant thereto Dr. Blanco assumed office as ad interim Dean on May 1, 1970.

The only provisions of the U.P. Charter (Act No. 1870) which may have a bearing on the question at issue read as follows:

SEC. 7. A quorum of the Board of Regents shall consist a majority of all the members holding office at the time the
meeting of the Board is called. All processes against the Board of Regents shall be served on the president or secretary
thereof.

SEC. 10. The body of instructors of each college shall constitute its faculty, and as presiding officer of each faculty, there
shall be a dean elected from the members of such faculty by the Board of Regents on nomination by the President of the
University.

Article 78 of the Revised Code of the University provides:

Art. 78. For each college or school, there shall be a Dean or Director who shall be elected by the Board of Regents from the
members of the faculty of the University unit concerned, on nomination by the President of the University.

The Board of Regents met on May 26, 1970, and President Lopez submitted to it the ad interim appointment of Dr. Blanco for reconsideration.
The minutes of that meeting disclose that "the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw
(Senator Eva Estrada Kalaw) based on the petition against the appointment, addressed to the Board, from a majority of the faculty and from
a number of alumni ..." The "deferment for further study" having been approved, the matter was referred to the Committee on Personnel,
which was thereupon reconstituted with the following composition: Regent Ambrosio F. Tangco, chairman; Regent Pio Pedrosa and Regent
Liceria B. Soriano, members. The opinion was then expressed by the Chairman of the Board that in view of its decision to defer action, Dr.
Blanco's appointment had lapsed, but (on the President's query) that there should be no objection to another ad interim appointment in favor
of Dr. Blanco pending final action by the Board.

Accordingly, on the same day, May 26, 1970, President Lopez extended another ad interim appointment to her, effective from May 26, 1970
to April 30, 1971, with the same conditions as the first, namely, "unless sooner terminated, and subject to the approval of the Board of
Regents and to pertinent University regulations."

The next meeting of the Board of Regents was held on July 9, 1970. The minutes show:

xxx xxx xxx

2. Deanship of the College, the President having issued an ad interim appointment for Dr. Consuelo Blanco as Dean
effective May 26, 1970:
 Note: The Personnel Committee, to which this case was referred, recommended that the Board request
the President of the University to review his nomination for the Deanship of the College of Education in
the light of the testimonies received and discussions held during the Commitee's meeting on June 4 and
June 11, 1970 on this matter.

Chairman Tangco asked that the documents received by the Committee on the matter be entered in the
official record, the same attached hereto as Appendix "A" pages 57 to 179.

Board action: Following some discussion on what Regent Tangco explained to be the rationale or
intention (i.e., that the President would discuss with Dr. Consuelo S. Blanco a proposal to withdraw her
appointment as Dean) behind the wording of the Personnel Committee's recommendation and in view of
some uncertainty over whether the Board would be acting upon the recommendation as "diplomatically"
stated in the agenda or as really intended according to Regent Tangco's explanation, the Personnel
Committee withdrew its recommendation as stated in the Agenda. The Chairman took a roll-call vote on
the appointment of Dr. Blanco as Dean. The Chairman having ruled that Dr. Blanco had not obtained
the necessary number of votes, the Board agreed to expunge the result of the voting, and, on motion of
Regent Agbayani duly seconded, suspended action on the ad interim appointment of Dr. Blanco. The
Chair stated that this decision of the Board would in effect render the case subject to further thinking
and give the Board more time on the question of the deanship the of the College of Education, and,
since the Board had not taken action on the appointment of Dr. Blanco either adversely or favorably,
her ad interim appointment as Dean effective May 26, 1970 terminated as of July 9, 1970.

The roll-call voting on which the Chairman of the Board of Regents based his ruling aforesaid gave the following results: five (5) votes in favor
of Dr. Blanco's ad interim appointment, three (3) votes against, and four (4) abstentions — all the twelve constituting the total membership
of the Board of the time. 2 The next day, July 10, 1970, Dr. Blanco addressed a letter to the Board requesting "a reconsideration of the
interpretation made by the Board as to the legal effect of the vote of five in favor, three against and four abstentions on my ad
interim appointment." On August 18, 1970 Dr. Blanco wrote the President of the University, protesting the appointment of Oseas A. del
Rosario as Officer-in-Charge of the College of Education. Neither communication having elicited any official reply, Dr. Blanco went to the Court
of First Instance of Quezon City on a petition for certiorari and prohibition with preliminary injunction, the decision wherein is the subject of
the present appeal.

Considerable arguments have been adduced by the parties on the legal effect and implications of the 5-3-4 vote of the Board of Regents.
Authorities, mostly judicial precedents in the American jurisdictions, are cited in support of either side of the belabored question as to whether
an abstention should be counted as an affirmative or as a negative vote or a particular proposition that is being voted on. Thus it is
submitted, on the part of the petitioners, that if the abstentions were considered as affirmative votes a situation might arise wherein a
nominee (for the office of Dean as in this case) is elected by only one affirmative vote with eleven members of the Board abstaining; and, on
the part of the respondent, that according to the prevailing view "an abstention vote should be recorded in the affirmative on the theory that
refusal to vote indicates acquiescence in the action of those who vote;" ... that "the silence of the members present, but abstaining, is
construed to be acquiescence so far as any construction is necessary." A logician could make a creditable case for either proposition. It does
seem absurd that a minority — even only one — of the twelve members of the Board of Regents who are present could elect a Dean just
because the others abstain. On the other hand, there is no lack of logic either in saying that a majority vote of those voting will be sufficient
to decide an issue on the ground that if construction is at all necessary the silence of the members who abstain should be construed as an
indication of acquiescence in the action of those who vote affirmatively. This apparent dichotomy, indeed, accounts for the conflict in the
American court decisions, from which both parties here have drawn extensively in support of their respective positions.

In the present case, however, this Court does not find itself confronted with an ineluctable choice between the two legal theories. It should be
noted that an abstention, according to the respondents' citations, is counted as an affirmative vote insofar as it may be construed as an
acquiescence in the action of those who vote affirmatively. This manner of counting is obviously based on what is deemed to be a
presumption as to the intent of the one abstaining, namely, to acquiesce in the action of those who vote affirmatively, but which presumption,
being merelyprima facie, would not hold in the face of clear evidence to the contrary. It is pertinent, therefore, to inquire into the facts and
circumstances which attended the voting by the members of the Board of Regents on the ad interimappointment of Dr. Blanco in order to
determine whether or not such a construction would govern. The transcript of the proceedings in the meeting of July 9, 1970 show the
following statements by the Regents who participated in the discussion:

Regent Tangco: Mr. Chairman, I would like to put on record that this statement here is a compromise
statement. The Committee, after hearing the testimonies and going over the materials presented to the
Committee, was in favor of recommending to the Board that the nomination of Professor Blanco cannot
be accepted by the Board, but it was felt that it should be presented in a more diplomatic way to avoid
any embarrassment on the part of both the appointee and the President. And so means were studied as
to how it could be done and it was felt that it could be done in such a way that the appointee could
request relief from the appointment, that it would be the best to save embarrassment all around. And
so the final decision was to ask the President to review the matter, but with the understanding that he
will talk this over with Dean Blanco and for the appointment to be withdrawn. So actually although this
statement here is not in that light, again that is the decision of the Committee. Inasmuch as apparently
either the meaning of thedecision was not made clear or maybe was not understood very well, I would
like to put that on the record.

Regent Kalaw: I would like to take note of the comments of Dr. Tangco here on aprevious agreement. I
understand that while the Committee recommended the disapproval of the appointment of Dr. Blanco,
the Committee felt that it was more tactfuland diplomatic to present the motion to this level
but premised by the findings of the Committee that the President would make an agreement with Dean
Blanco to make a withdrawal ... .

Regent Tangco: Mr. Chairman, I wish to just make a correction that the decision was to ask the
President for her to request relief and not to consult. I want to put that on record now. It was only that
we wanted to avoid anything on this on the record of the Board to save embarrassment. But inasmuch
as that statement has been made, I want to make it of record that the agreement was for the President
to ask her to submit or better ask herto the withdrawal.

Regent Pedrosa: Mr. Chairman, in order to cut this matter once and for all, may I suggest that the
members of the Committee inhibit themselves from voting in this matter. I don't think it would affect
the majority vote or whatever the rest of the members of the Board decide.

Regent Tangco: Mr. Chairman, I was going to inhibit myself from the start.

Regent Pedrosa: And I am inhibiting myself . We are only two members now; Dr. Soriano is not here,
so that we leave the votation on this matter to the other members of the Board.

Regent Kalaw: Mr. Chairman, what is the votation for?

 Chairman: The question before this Board is the Comittee recommendation. Incidentally, if the Board
accepts the Committee recommendation it is also a lack of confirmation of the ad interim appointment
of Dean Blanco ... .

xxx xxx xxx

Chairman: There is only one more question before this Board to discuss fully, I believe. The question is,
the Chairman asks the Board to vote on the Committee action in the form of a recommendation as
presented in the Agenda. Regent Tangco, the Chairman of that Committee, says that this is merely a
polite cover, a diplomatic cover, according to Regent Kalaw, for the reaction of the Committee, and
Regent Tangco requests that we act not on the Committee recommendation in this form as presented in
the Agenda but in terms of the gentleman's agreement.

Chairman: In brief, Regent Tangco informs the Board of the action that the Committee was to request
the President to call Dr. Blanco and prevail upon her to withdraw.

Regent Escobar: On what basis?

Regent Tangco: On the testimonies presented to us and also to avoid further embarrassment on the
part of the appointee. The decision of the Committee was to ask Dean Blanco because there will be too
much embarrassment which I think is not going to gain any matter one way or the other.

Chairman: We have to make a ruling. I think that we cannot act on the gentlemen's agreement because
we do not have that gentlemen's agreement before us.

Regent Pedrosa: Mr. Chairman, may I interrupt you. In view of the fact that I have announced that I
would desist from participating in the Board and Regent Tangco has done likewise then I presume the
President will not also participate. Why doesn't the Board proceed to the decision of whether ...

Chairman: Yes, I am saying, Mr. Regent, there is a ruling that this Board will have to act on
the Committee recommendation presented here, unless the Committee withdraws this recommendation.

Regent Tangco: The Committee is so doing, Mr. Chairman.

Chairman: The Committee will widthdraw this recommendation, in which case the issue is simply we
only have to act on the issue of to confirm or not to confirm the ad interim appointment issued to Dr.
Blanco.

xxx xxx xxx

Chairman: The Committee is withdrawing this recommendation.

Regent Silva: Per se, as it is written. But I think the Committee, if I get it right, is actually putting a
recommendation for non-confirmation.

Regent Kalaw: Since the Committee is withdrawing the recomendation and the Board would act on it
per se, I think Regent Silva is right. (Emphasis supplied)

The voting which followed shows the following result:

Affirmative votes:

Regent Fonacier
" Escobar
" Barican
" Lopez
" Agbayani

Negative votes:

Regent Kalaw
" Silva
" Corpuz

Abstentions:

Regent Tangco
" Leocadio (Substituting for Regent Soriano)
" Pedrosa
" Virata

Regent Leonides Virata, who was not a member of the Personnel Committee, made the following explanation before casting his vote:

A. I abstain, but I want to say this. There must be some other way of solving this problem. I am at sea
in this, because although I have been reading all these documents here, but a decision is being asked
now that I am not ready myself.

After the result of the voting was known the Board Chairman Secretary Corpuz, announced that "the vote is not a majority ... (and that) there
is no ruling in the Code of the University on the counting of votes and the treatment of abstention."

What transpired immediately afterwards appears in the transcript of the proceedings, as follows:
 Regent Agbayani: Mr. Chairman, could I ask for another one minute recess?

(ONE-MINUTE RECESS AT THIS POINT)

Chairman: The meeting is resumed. Mr. Regent? (Addressing Regent Agbayani)

Regent Agbayani: Mr. Chairman, I move that we do not proceed with the action now on this matter.

Chairman: To suspend in effect the action of the Board?

Regent Agbayani: The result brings us back to the previous status, that no action has been taken.

Chairman: There is a motion to suspend action; that is to say, to suspend the voting of the Board on
this matter with the effect, first, to return the case to its original status — to render the case subject to
further thinking — and second, that the Board has not confirmed the appointment. The appointment, in
other words, will be good from May 26 up to today.

Regent Agbayani: Mr. Chairman, the Board did not confirm exactly. It cannot be said that the Board
confirmed or did not confirm, but the appointment terminates. The ad interimappointment terminates
when the Board meets, just like in Congress, where the ad interim appointment is good only up to the
first day of the session.

Chairman: So in effect, suspending action on this matter now, the Board in effect gives itself time to
study the question not of Dean Blanco but the question of the deanship of the College, and the Board
has not taken action on the confirmation either adversely or favorably, but that the ad interim
appointment has terminated today.

Regent Escobar: Mr. Chairman, does it mean that all the deliberations regarding to this matter should
be erased from the record? Because the record of the voting is there.

Chairman: Well, it follows.

Regent Escobar: It follows suit, because we are now asking for a reconsideration of any deliberations to
the effect that if there was a voting it should be banned from appearing in the record.

Regent Silva: We have made statements here today.

Chairman: The record of the voting, which is incomplete by the way because there was no circulation to
consider, will not appear in the record.

Regent Silva: The result of the votes; the deliberations regarding this matter.

Regent Agbayani: I have no objection.

Chairman: The record of the voting will not appear. Any objection to the motion for reconsideration? No
objection, approved.

From the foregoing record of the meeting of the Board of Regents it is very clear: (1) that the Personnel Committee, to which the matter of
Dr. Blanco's appointment had been referred for study, was for recommending that it be rejected; (2) that, however, the rejection should be
done in a diplomatic way "to avoid any embarrassment on the part of both the appointee and the President;" and (3) that the "final decision"
of the committee was to ask the President of the University to talk to Dr. Blanco "for the appointment to be withdrawn." That decision, as
announced by Regent Tangco, Chairman of the Personnel Committee, was restated and clarified by Regent Kalaw, and then reiterated first by
Regent Tangco and then by the Chairman. On that note Regent Pedrosa suggested that the members of the Personnel Committee, as well as
the President, should inhibit themselves from voting. When the matter was actually submitted to a vote, however, the definition of the issue
became somewhat equivocal. Regent Tangco announced that the committee was withdrawing its recommendation, whereupon the Chairman
stated that the issue was "to confirm or not to confirm the ad interim appointment issued to Dr. Blanco." This was then followed by a remark
from Regent Silva that the withdrawal by the committee referred to the recommendation " per se, as it is written," but that the committee, he
thought, was "actually putting a recommendation for non-confirmation." Regent Kalaw thereupon expressed her concurrence with Regent
Silva's opinion.

The votes of abstention, viewed in their setting, can in no way be construed as votes for confirmation of the appointment. There can be no
doubt whatsoever as to the decision and recommendation of the three members of the Personnel Committee: it was for rejection of the
appointment. If the committee opted to withdraw the recommendation it was on the understanding (also referred to in the record as
gentlemen's agreement) that the President would talk to Dr. Blanco for the purpose of having her appointment withdrawn in order to save
them from embarrassment. No inference can be drawn from this that the members of the Personnel Committee, by their abstention, intended
to acquiesce in the action taken by those who voted affirmatively. Neither, for that matter, can such inference be drawn from the abstention
that he was abstaining because he was not then ready to make a decision.

All arguments on the legal question of how an abstention should be treated, all authorities cited in support of one or the other position,
become academic and purposeless in the face of the fact that respondent Dr. Blanco was clearly not the choice of a majority of the members
of the Board of Regents, as unequivocally demonstrated by the transcript of the proceedings. This fact cannot be ignored simply because the
Chairman, in submitting the question to the actual vote, did not frame it as accurately as the preceding discussion called for, such that two of
the Regents present (Silva and Kalaw) had to make some kind of clarification.

In any event, in the same meeting of July 9, 1970, before it adjourned, the Board of Regents resolved, without a vote of dissent, to cancel
the action which had been taken, including the result of the voting, and "to return the case to its original status — to render the case subject
to further thinking." In effect, as announced by the Chairman, "the Board has not acted on the confirmation either adversely or favorably, but
that the ad interimappointment has terminated." Indeed the formal decision of the Board was that all deliberations on the matter should not
appear in the record. And it cannot be seriously argued that the Board had no authority to do what it did: the meeting had not yet been
adjourned, the subject of the deliberations had not yet been closed, and as in the case of any deliberative body the Board had the right to
reconsider its action. No title to the office of Dean of the College of Education had yet vested in respondent Blanco at the time of such
reconsideration.

One of the prayers of Dr. Blanco in her petition below is that she be declared duly elected as Dean of the College of Education and, as such,
legally entitled to the said position with a 3-year tenure of office as provided in the Revised Code of the University of the Philippines (Art. 79,
Ch. 6, Title Two). Obviously this prayer is not in order inasmuch as she has not been elected to said position. On the other hand, Dr. Blanco
does not ask that she be recognized as Dean by virtue of her ad interim appointment dated May 26, 1970, effective up to April 30, 1971.
Aside from the fact that the point has become moot, since the tenure has expired, it is seriously to be doubted whether such an appointment
is authorized under the law and regulations. It should be noted that both under the Charter (See. 10) and under the Revised Code of the
University (Art. 78) the Dean of a college is elected by the Board of Regents on nomination by the President of the University. In other words
the President's function is only to nominate, not to extend an appointment, even if only ad interim; and the power of the Board of Regents is
not merely to confirm, but to elect or appoint. At any rate the ad interim appointment extended to Dr. Blanco on May 26, 1970, although
made effective until April 30, 1971, was subject to the following condition: "unless sooner terminated and subject to the approval of the
Board of Regents." The Board, as has been shown, not only did not elect Dr. Blanco in its meeting of July 9, 1970, but declared the
appointment terminated as of that day.

WHEREFORE, the decision appealed from is reversed and set aside; the petition of respondent Consuelo S. Blanco for certiorari and
prohibition before respondent Court is ordered dismissed; and the writ of preliminary injunctton issued by this Court is made permanent,
without pronouncement as to costs.
G.R. No. 113032 August 21, 1997

WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE
PORFIRIO PARIAN, respondents.

HERMOSISIMA, JR., J.:

Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order dated November 23, 1993 of Branch 33 of the
Regional Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The
judgment acquitted the private respondents of both charges, but petitioners seek to hold them civilly liable.

Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the
same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a
stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of
WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were
other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice
thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to be held on June 1,
1986 included Item No. 6 which states:

Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all
officers of the corporation. 1

In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as
corporate officers retroactive June 1, 1985, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman —
P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate
Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be
distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any
previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc.
held on March 30, 1986 is true and correct to the best of my knowledge and belief.

(Sgd) ANTONIO S. SALAS

Corporate Secretary 2

A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal
informations, one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315,
par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was
anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution
No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually
passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986).
The Information for falsification of a public document states:

The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S.
SALAS and RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of FALSIFICATION OF A PUBLIC
DOCUMENT, Art. 171 of the Revised Penal Code, committed as follows:

That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and
Trustee (who later became Secretary), respectively, of the board of trustees of the Western Institute of
Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines,
conspiring and confederating together and mutually helping one another, to better realized (sic) their purpose,
did then and there wilfully, unlawfully and criminally prepare and execute and subsequently cause to be
submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year
1985-1986, the same being required to be submitted every end of the corporation fiscal year by the aforesaid
Commission, and therefore, a public document, including therein the disbursement of the retroactive
compensation of accused corporate officers in the amount of P186,470.70, by then and there making it appear
that the basis thereof Resolution No. 4, Series of 1986 was passed by the board of trustees on March 30, 1986, a
date covered by the corporation's fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986), when in truth
and in fact, as said accused well knew, no such Resolution No. 48, Series of 1986 was passed on March 30, 1986.

CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 3 [Emphasis ours].

The Information, on the other hand, for estafa reads:

The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS,
RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the
Revised Penal Code, committed as follows:
 That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and
Trustee (who later became Secretary), respectively; of the Board of Trustees of Western Institute of Technology,
Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and
confederating together and mutually helping one another to better realize their purpose, did then and there
wilfully, unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner, to
wit: herein accused, knowing fully well that they have no sufficient, lawful authority to disburse — let alone
violation of applicable laws and jurisprudence, disbursed the funds of the corporation by effecting payment of
their retroactive salaries in the amount of P186,470.00 and subsequently paying themselves every 15th and 30th
of the month starting June 15, 1986 until the present, in the amount of P19,500.00 per month, as if the same
were their own, and when herein accused were informed of the illegality of these disbursements by the minority
stockholders by way of objections made in an annual stockholders' meeting held on June 14, 1986 and every
year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation
(and its stockholders) in the total sum of P1,453,970.79 as of November 15, 1991.

CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 4 [Emphasis ours]

Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was consolidated. After a full-blown hearing,
Judge Porfirio Parian handed down a verdict of acquittal on both counts 5 dated September 6, 1993 without imposing any civil liability against
the accused therein.

Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was, however, denied in an Order dated November
23, 1993. 7

Hence, the instant petition.

Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by Western Institute of
Technology, Inc., supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R.
Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing the petition. Intervenor likewise
prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January 16, 1995. 8

Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 37097 and 37098. They base
their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate
funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in favor of private respondents, board
members of WIT, plus P1,453,970.79 for the subsequent collective salaries of private respondents every 15th and 30th of the month until the
filing of the criminal complaints against them on March 1991. Petitioners maintain that this grant of compensation to private respondents is
proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with
interest.

We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:

Sec. 30. Compensation of directors — In the absence of any provision in the by-laws fixing their compensation, the directors shall
not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation
(other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.
[Emphasis ours]

There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform
nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. 9 Under the foregoing
section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1)
when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding
capital stock at a regular or special stockholders' meeting agree to give it to them.

This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which states: ". . . [T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as
such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed
purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in
addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees.10 In the case at
bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but
rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman —
P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate
Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be
distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any
previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc.
held on March 30, 1986 is true and correct to the best of my knowledge and belief.

(Sgd) ANTONIO S. SALAS

Corporate Secretary 11 [Emphasis ours]
Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as suchunder Section 30 is not
violated in this particular case. Consequently, the last sentence of Section 30 which provides:

. . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income
before income tax of the corporation during the preceding year. (Emphasis ours]

does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT
and not as board members.

Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and on behalf of the
corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.

We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue. 12 It is a remedy designed by equity and has been the principal defense of the
minority shareholders against abuses by the majority. 13 Here, however, the case is not a derivative suit but is merely an appeal on the civil
aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in
his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders
similarly situated who wish to join. 14 This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the
complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. 15 This was
not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states
that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097
and 37098" 16 since the trial court's judgment of acquittal failed to impose any civil liability against the private respondents. By no amount of
equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.

Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible
for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The ease should have been filed with
the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-
corporate disputes, per Section 5 (b) of P.D. No. 902-A:

In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their
individual franchise or right to exist as such entity;

xxx xxx xxx

[Emphasis ours]

Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of
law, or mixed questions of fact and law. 17 It is only after the case has ran this course, and not earlier, can it be brought to us via a petition
for review on certiorari under Rule 45 raising only pure questions of law. 18Petitioners, in pleading that we treat the instant petition as a
derivative suit, are trying to short-circuit the entire process which we cannot here sanction.

As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition
truly is, we have to deny the petition just the same. It will be well to quote the respondent court's ratiocinations acquitting the private
respondents on both counts:

The prosecution wants this Court to believe and agree that there is falsification of public document because, as claimed by the
prosecution, Resolution No. 48, Series of 1986 (Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the Board
of Trustees of the Western Institute of Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same
board of trustees.

This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the complete minutes of the regular
meeting of the Board of Trustees on March 30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of the
said minutes. Had the complete minutes (Exh. "1") consisting of five (5) pages, been submitted, it can be readily seen and
understood that Resolution No. 48, Series of 1986 (Exh. "1-E-1") giving compensation to corporate officers, was indeed included in
Other Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The mere fact of existence of Exh. "C" also
proves that it was passed on March 30, 1986 for Exh. "C" is part and parcel of the whole minutes of the Board of Trustees Regular
Meeting on March 30, 1986. No better and more credible proof can be considered other than the Minutes (Exh. "1") itself of the
Regular Meeting of the Board of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor
passed on March 30, 1986 because the matter regarding compensation was not specifically stated or written in the Agenda and that
the words "possible implementation of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of the
Board on June 1, 1986, is simply an implication. This evidence by implication to the mind of the court cannot prevail over the
Minutes (Exh. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions.

This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of Incorporation (Exh. "3-B") of the Panay Educational
Institution, Inc., now the Western Institute of Technology, Inc., the officers of the corporation shall receive such compensation as
the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the
corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws
of the Corporation (Exh. "4-A") which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-Laws, all officers
shall receive such compensation as may be fixed by the Board of Directors.

It is the perception of this Court that the grant of compensation or salary to the accused in their capacity as officers of the
corporation, through Resolution No. 48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both the Articles of
Incorporation and the By-Laws of the corporation. To state otherwise is to depart from the clear terms of the said articles and by-
laws. In their defense the accused have properly and rightly asserted that the grant of salary is not for directors, but for their being
officers of the corporation who oversee the day to day activities and operations of the school.

. . .[O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal
Code, it is perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority
 granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. The money they received belongs
to them and cannot be said to have been converted and/or misappropriated by them.

xxx xxx xxx 19

[Emphasis ours]

From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there is simply no basis to hold
the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides:

Sec. 2. Institution of separate civil action.

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a
final judgment that the fact from which the civil might arise did not exist. [Emphasis ours]

Likewise, the last paragraph of Section 2, Rule 120 reads:

Sec. 2. Form and contents of judgment.

xxx xxx xxx

In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment
shall make a finding on the civil liability of the accused in favor of the offended party. [Emphasis ours]

The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-
private respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil
action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds
that the accused did not commit the criminal acts imputed to them. 20

WHEREFORE, the instant petition is hereby DENIED with costs against petitioners. SO ORDERED.
G.R. No. L-30460 March 12, 1929

C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated, plaintiff-appellant,

vs.
GREGORIO VELASCO, ET AL., defendants-appellees.

Frank H. Young for appellant.

Pablo Lorenzo and Delfin Joven for appellees.

STATEMENT

Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation. The defendants are residents of the Philippine Islands.

It is alleged that the defendants, Gregorio Velasco, as president, Felix del Castillo, as vice-president, Andres L. Navallo, as secretary-
treasurer, and Rufino Manuel, as director of Trading Company, at a meeting of the board of directors held on July 24, 1922, approved and
authorized various lawful purchases already made of a large portion of the capital stock of the company from its various stockholders, thereby
diverting its funds to the injury, damage and in fraud of the creditors of the corporation. That pursuant to such resolution and on March 31,
1922, the corporation purchased from the defendant S. R. Ganzon 100 shares of its capital stock of the par value of P10, and on June 29,
1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par value of P10, and on July 16, 1922, it purchased from the
defendant Felix D. Mendaros 100 shares of the par value of P10, each, and on April 5, 1922, it purchased from the defendant Dionisio
Saavedra 10 shares of the same par value, and on June 29, 1922, it purchased from the defendant Valentin Matias 20 shares of like value.
That the total amount of the capital stock unlawfully purchased was P3,300. That at the time of such purchase, the corporation had accounts
payable amounting to P13,807.50, most of which were unpaid at the time petition for the dissolution of the corporation was financial
condition, in contemplation of an insolvency and dissolution.

As a second cause of action, plaintiff alleges that on July 24, 1922, the officers and directors of the corporation approved a resolution for the
payment of P3,000 as dividends to its stockholders, which was wrongfully done and in bad faith, and to the injury and fraud of its creditors.
That at the time the petition for the dissolution of the corporation was presented it had accounts payable in the sum of P9,241.19, "and
practically worthless accounts receivable."

Plaintiff prays judgment for the sum of P3,300 from the defendants Gregorio Velasco, Felix del Castillo, Andres L. Navallo and Rufino Manuel,
personally as members of the Board of Directors, or for the recovery from the defendants S. R. Ganzon, of the sum of P1,000, from the
defendant Felix D. Mendaros, P2,000, and from the defendant Dionisio Saavedra, P100, and under his second cause of action, he prays
judgment for the sum of P3,000, with legal interest against the board of directors, and costs.

For answer the defendants Felix del Castillo, Rufino Manuel, S. R. Ganzon, Dionisio Saavedra and Valentin Matias made a general and specific
denial.

In his amended answer, the defendant Gregorio Velasco admits paragraphs, 1, 2 and 3 of each cause of action of the complaint, and that the
shares mentioned in paragraph 4 of the first cause of action were purchased, but alleges that they were purchased by virtue of a resolution of
the board of directors of the corporation "when the business of the company was going on very well." That the defendant is one of the
principal shareholders, and that about the same time, he purchase other shares for his own account, because he thought they would bring
profits. As to the second cause of action, he admits that the dividends described in paragraph 4 of the complaint were distributed, but alleges
that such distribution was authorized by the board of directors, "and that the amount represented by said dividends really constitutes a
surplus profit of the corporation," and as counterclaim, he asks for judgment against the receiver for P12,512.47 for and on account of his
negligence in failing to collect the accounts.

Although duly served, the defendant Mendaros did not appear or answer. The defendant Navallo was not served, and the case against him
was dismissed.

April 30, 1928, the case was tried and submitted on a stipulation of facts, based upon which the lower court dismissed plaintiff's complaint,
and rendered judgment for the defendants, with costs against the plaintiff, and absolved him from the cross-complaint of the defendant
Velasco, and on appeal, the plaintiff assigns the following errors:

1. In holding that the Sibuguey Trading Company, Incorporated, could legally purchase its own stock.

2. In holding that the Board of Directors of the said Corporation could legally declared a dividend of P3,000, July 24, 1922.

JOHNS, J.:

It is stipulated that on July 24, 1922, the directors of the corporation approved the purchase of stocks as follows:

One hundred shares from S. R. Ganzon for P1,000;

One hundred shares from Felix D. Mendaros at the same price; which purchase was made on June 29, 1922; another

One hundred shares from Felix D. Mendaros at the same price on July 16, 1922;

Ten shares from Dionisio Saavedra at the same price on June 29, 1922.

That during such times, the defendant Gregorio Velasco purchased 13 shares for the corporation for P130; Felix del Castillo — 42 shares for
P420; Andres Navallo — 15 shares for P150; and the defendant Mendaros — 10 shares for P100. That during the time these various
purchases were made, the total amount of subscribed and paid up capital stock of the corporation was P10,030, out of the authorized capital
stock 2,000 shares of the par value of P10 each.

Paragraph 4 of the stipulation also recites:

Be it also admitted as a fact that the time of the said purchases there was a surplus profit of the corporation above-named of
P3,314.72.
Paragraph 5 is as follows:

That at the time of the repeatedly mentioned various purchases of the said capital stock were made, the said corporation had
Accounts Payable in the total amount of P13,807.50 as shown by the statement of the corporation, dated June 30, 1922, and the
Accounts Receivable in the sum of P19,126.02 according to the books, and that the intention of the Board of Directors was to resell
the stocks purchased by the corporations at a sum above par for each stock, this expectation being justified by the then satisfactory
and sound financial condition of the business of the corporation.

It is also stipulated that on September 11, 1923, when the petition for the dissolution of the corporation was presented to the court,
according to a statement made June 30, 1923, it has accounts payable aggregating P9,41.19, and accounts receivable for P12,512.47.

Paragraph 7 of the stipulation recites:

That the same defendants, mentioned in paragraph 2 of this stipulation of facts and in the same capacity, on the same date of July
24, 1922, and at the said meeting of the said Board of Directors, approved and authorized by resolution the payment of dividends to
its stockholders, in the sum of three thousand pesos (P3,000), Philippine currency, which payments were made at different dates,
between September 30, 1922, and May 12, 1923, both dates inclusive, at a time when the corporation had accounts less in amount
than the accounts receivable, which resolution was based upon the balance sheet made as June 30, 1922, said balance sheet
showing that the corporation had a surplus of P1,069.41, and a profit on the same date of P2,656.08, or a total surplus amount of
P3,725.49, and a reserve fund of P2,889.23 for bad and doubtful accounts and depreciation of equipment, thereby leaving a balance
of P3,314.72 of net surplus profit after paying this dividend.

It is also stipulated at a meeting of the board of directors held on July 24, 1922, as follows:

6. The president and manager submitted to the Board of Directors his statement and balance sheet for the first semester ending
June 30, 1922 and recommended that P3,000 — out of the surplus account be set aside for dividends payable, and that payments
be made in installments so as not to effect the financial condition of the corporation. That stockholders having outstanding account
with the corporation should settle first their accounts before payments of their dividends could be made. Mr. Castillo moved that the
statement and balance sheet be approved as submitted, and also the recommendations of the president. Seconded by Mr. Manuel.
Approved.

Paragraph 8 of the stipulation is as follows:

That according to the balance sheet of the corporation, dated June 30, 1923, it had accounts receivable in the sum of P12,512.47,
due from various contractor and laborers of the National Coal Company, and also employees of the herein corporation, which the
herein receiver, after his appointment on February 28, 1924, although he made due efforts by personally visiting the location of the
corporation, and of National Coal Company, at its offices, at Malangas, Mindanao, and by writing numerous letters of demand to the
debtors of the corporation, in order to collect these accounts receivable, he was unable to do so as most of them were without goods
or property, and he could not file any suit against them that might have any property, for the reason that he had no funds on hand
with which to pay the filing and sheriff fees to Malangas, and other places of their residences.

From all of which, it appears that on June 30, 1922, the board of directors of the corporation authorized the purchase of, purchased and paid
for, 330 shares of the capital stock of the corporation at the agreed price of P3,300, and that at the time the purchase was made, the
corporation was indebted in the sum of P13,807.50, and that according to its books, it had accounts receivable in the sum of P19,126.02.
That on September 11, 1923, when the petition was filed for its dissolution upon the ground that it was insolvent, its accounts payable
amounted to P9,241.19, and its accounts receivable P12,512.47, or an apparent asset of P3,271.28 over and above its liabilities. But it will be
noted that there is no stipulation or finding of facts as to what was the actual cash value of its accounts receivable. Neither is there any
stipulation that those accounts or any part of them ever have been or will be collected, and it does appear that after his appointment on
February 28, 1924, the receiver made a diligent effort to collect them, and that he was unable to do so, and it also appears from the minutes
of the board of directors that the president and manager "recommended that P3,000 — out of the surplus account to be set aside for
dividends payable, and that payments be made in installments so as not to effect the financial condition of the corporation."

If in truth and in fact the corporation had an actual bona fide surplus of P3,000 over and above all of its debt and liabilities, the payment of
the P3,000 in dividends would not in the least impair the financial condition of the corporation or prejudice the interests of its creditors.

It is very apparent that on June 24, 1922, the board of directors acted on assumption that, because it appeared from the books of the
corporation that it had accounts receivable of the face value of P19,126.02, therefore it had a surplus over and above its debts and liabilities.
But as stated there is no stipulation as to the actual cash value of those accounts, and it does appear from the stipulation that on February
28, 1924, P12,512.47 of those accounts had but little, if any, value, and it must be conceded that, in the purchase of its own stock to the
amount of P3,300 and in declaring the dividends to the amount of P3,000, the real assets of the corporation were diminished P6,300. It also
appears from paragraph 4 of the stipulation that the corporation had a "surplus profit" of P3,314.72 only. It is further stipulated that the
dividends should "be made in installments so as not to effect financial condition of the corporation." In other words, that the corporation did
not then have an actual bona fidesurplus from which the dividends could be paid, and that the payment of them in full at the time would
"affect the financial condition of the corporation."

It is, indeed, peculiar that the action of the board in purchasing the stock from the corporation and in declaring the dividends on the stock
was all done at the same meeting of the board of directors, and it appears in those minutes that the both Ganzon and Mendaros were
formerly directors and resigned before the board approved the purchase and declared the dividends, and that out of the whole 330 shares
purchased, Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of the 330, which were purchased by the corporation, and for
which it paid P3,300. In other words, that the directors were permitted to resign so that they could sell their stock to the corporation. As
stated, the authorized capital stock was P20,000 divided into 2,000 shares of the par value of P10 each, which only P10,030 was subscribed
and paid. Deducting the P3,300 paid for the purchase of the stock, there would be left P7,000 of paid up stock, from which deduct P3,000
paid in dividends, there would be left P4,000 only. In this situation and upon this state of facts, it is very apparent that the directors did not
act in good faith or that they were grossly ignorant of their duties.

Upon each of those points, the rule is well stated in Ruling Case Law, vol. 7, p. 473, section 454 where it is said:

General Duty to Exercise Reasonable Care. — The directors of a corporation are bound to care for its property and manage its affairs
in good faith, and for a violation of these duties resulting in waste of its assets or injury to the property they are liable to account
the same as other trustees. Are there can be no doubt that if they do acts clearly beyond their power, whereby loss ensues to the
corporation, or dispose of its property or pay away its money without authority, they will be required to make good the loss out of
their private estates. This is the rule where the disposition made of money or property of the corporation is one either not within the
lawful power of the corporation, or, if within the authority of the particular officer or officers.
And section 458 which says:

Want of Knowledge, Skill, or Competency. — It has been said that directors are not liable for losses resulting to the corporation from
want of knowledge on their part; or for mistake of judgment, provided they were honest, and provided they are fairly within the
scope of the powers and discretion confided to the managing body. But the acceptance of the office of a director of a corporation
implies a competent knowledge of the duties assumed, and directors cannot excuse imprudence on the ground of their ignorance or
inexperience; and if they commit an error of judgment through mere recklessness or want of ordinary prudence or skill, they may be
held liable for the consequences. Like a mandatory, to whom he has been likened, a director is bound not only to exercise proper
care and diligence, but ordinary skill and judgment. As he is bound to exercise ordinary skill and judgment, he cannot set up that he
did not possess them.

Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of directors will not
use the assets of the corporation to purchase its own stock, and that it will not declare dividends to stockholders when the corporation is
insolvent.

The amount involved in this case is not large, but the legal principles are important, and we have given them the consideration which they
deserve.

The judgment of the lower court is reversed, and (a), as to the first cause of action, one will be entered for the plaintiff and against the
defendant S. R. Ganzon for the sum of P1,000, with legal interest from the 10th of February, 1926, and against the defendant Felix D.
Medaros for P2,000, with like interests, and against the defendant Dionisio Saavedra for P100, with like interest, and against each of them for
costs, each on their primary liability as purchasers of stock, and (b) against the defendants Gregorio Velasco, Felix del Castillo and Rufino
Manuel, personally, as members of the board of directors of the Sibuguey Trading Company, Incorporated, as secondarily liable for the whole
amount of such stock sold and purchased as above stated, and on the second cause of action, judgment will be entered (c) for the plaintiff
and jointly and severally against the defendants Gregorio Velasco, Felix del Castillo and Rufino Manuel, personally, as members of the board
of directors of the Sibuguey Trading Company, Incorporated, for P3,000, with interest thereon from February 10, 1926, at the rate of 6 per
cent per annum, and costs. So ordered.
G.R. No. 6217 December 26, 1911

CHARLES W. MEAD, plaintiff-appellant,

vs.
E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING AND CONSTRUCTION COMPANY,defendant-appellants.

Haussermann, Cohn & Fisher and A. D. Gibbs for plaintiff.

James J. Peterson and O'Brien & DeWitt for defendant McCullough.

TRENT, J.:

This action was originally brought by Charles W. Mead against Edwin C. McCullough, Thomas L. Hartigan, Frank E. Green, and Frederick H.
Hilbert. Mead has died since the commencement of the action and the case is now going forward in the name of his administrator as plaintiff.

The complaint contains three causes of action, which are substantially as follows: The first, for salary; the second, for profits; and the third,
for the value of the personal effects alleged to have been left Mead and sold by the defendants.

A joint and several judgment was rendered by default against each and all of the defendants for the sum of $3,450.61 gold. The defendant
McCullough alone having made application to have this judgment set aside, the court granted this motion, vacating the judgment as to him
only, the judgment as to the other three defendants remaining undisturbed.1awphi1.net

At the new trial, which took place some two or three years later and after the death of Mead, the judgment was rendered upon merits,
dismissing the case as to the first and second causes of action and for the sum of $1,200 gold in the plaintiff's favor on the third cause of
action. From this judgment both parties appealed and have presented separate bills of exceptions. No appeal was taken by the defendant
McCullough from the ruling of the court denying a recovery on his cross complaint.

On March 15, 1902, the plaintiff (Mead will be referred to as the plaintiff in this opinion unless it is otherwise stated) and the defendant
organized the "Philippine Engineering and Construction Company," the incorporators being the only stockholders and also the directors of said
company, with general ordinary powers. Each of the stockholders paid into the company $2,000 mexican currency in cash, with the exception
of Mead, who turned over to the company personal property in lieu of cash.

Shortly after the organization, the directors held a meeting and elected the plaintiff as general manager. The plaintiff held this position with
the company for nine months, when he resigned to accept the position of engineer of the Canton and Shanghai Railway Company. Under the
organization the company began business about April 1, 102.itc-alf

The contract and work undertaken by the company during the management of Mead were the wrecking contract with the Navy Department at
Cavite for the raising of the Spanish ships sunk by Admiral Dewey; the contract for the construction of certain warehouses for the
quartermaster department; the construction of a wharf at Fort McKinley for the Government; The supervision of the construction of the Pacific
Oriental Trading Company's warehouse; and some other odd jobs not specifically set out in the record.

Shortly after the plaintiff left the Philippine Islands for China, the other directors, the defendants in this case, held a meeting on December
24, 1903, for the purpose of discussing the condition of the company at that time and determining what course to pursue. They did on that
date enter into the following contract with the defendant McCullough, to wit:1awphil.net

For value received, this contract and all the rights and interests of the Philippine Engineering and construction Company in the same
are hereby assigned to E. C. McCullough of Manila, P. I.

(Sgd.) E. C. McCULLOUGH,
President, Philippine Engineering and
Construction Company.

(Sgd.) F. E. GREEN, Treasurer.

(Sgd.) THOMAS L. HARTIGAN, Secretary.

The contract reffered to in the foregoing document was known as the wrecking contract with the naval authorities.

On the 28th of the same month, McCullough executed and signed the following instrumental:

For value received, and having the above assignment from my associates in the Philippine Engineering and Construction Company, I
hereby transfer my right, title, and interest in the within contract, with the exception of one sixth, which I hereby retain, to R. W.
Brown, H. D. C. Jones, John T. Macleod, and T. H. Twentyman.

The assignees of the wrecking contract, including McCullough, formed was not known as the "Manila Salvage Association." This association
paid to McCullough $15,000 Mexican Currency cash for the assignment of said contract. In addition to this payment, McCullough retained a
one-sixth interest in the new company or association.

The plaintiff insists that he was received as general manager of the first company a salary which was not to be less than $3,500 gold (which
amount he was receiving as city engineer at the time of the corporation of the company), plus 20 per cent of the net profits which might be
derived from the business; while McCullough contends that the plaintiff was to receive only his necessary expenses unless the company made
a profit, when he could receive $3,500 per year and 20 per cent of the profits. The contract entered into between the board of directors and
the plaintiffs as to the latter's salary was a verbal one. The plaintiff testified that this contract was unconditional and that his salary, which
was fixed at $3,500 gold, was not dependent upon the success of the company, but that his share of the profits was to necessarily depend
upon the net income. On the other hand, McCullough, Green and Hilbert testify that the salary of the plaintiff was to be determined according
to whether or not the company was successful in its operations; that if the company made gains, he was to receive $3,5000 gold, and a
percentage, but that if the company did not make any profits, he was to receive only his necessary living expenses.

It is strongly urged that the plaintiff would not have accepted the management of the company upon such conditions, as he was receiving
from the city of Manila a salary of $3,500 gold. This argument is not only answered by the positive and direct testimony of three of the
defendants, but also by the circumstances under which this company was organized and principal object, which was the raising of the Spanish
ships. The plaintiff put no money into the organization, the defendants put but little: just sufficient to get the work of raising the wrecks under
way. This venture was a risky one. All the members of the company realized that they were undertaking a most difficult and expensive
project. If they were successful, handsome profits would be realized; while if they were unsuccessful, all the expenses for the hiring of
machinery, launches, and labor would be a total loss. The plaintiff was in complete charge and control of this work and was to receive,
according to the great preponderance of the evidence, in case the company made no profits, sufficient amount to cover his expenses, which
included his room, board, transportation, etc. The defendants were to furnish money out of their own private funds to meet these expenses,
as the original $8,000 Mexican currency was soon exhausted in the work thus undertaken. So the contract entered into between the directors
and the plaintiff as to the latter's salary was a contingent one.

It is admitted that the plaintiff received $1.500 gold for his services, and whether he is entitled to receive an additional amount depends upon
the result of the second cause of action.

The second cause of action is more difficult to determine. On this point counsel for the plaintiff has filed a very able and exhaustive brief,
dealing principally with the facts.

It is urged that the net profits accruing to the company after the completion of all the contracts (except the salvage contract) made before
the plaintiff resigned as manager and up to the time the salvage contract was transferred to McCullough and from him to the new company,
amounted to $5,628.37 gold. This conclusion is reached, according to the memorandum of counsel for the plaintiff which appears on pages 38
and 39 of the record, in the following manner:

Profits from the construction of warehouses for $6,962.54

the Government

Profits from the construction of the wall at Fort 500.00

McKinley

Profits from the inspection of the construction of 1,000.00

the P. O. T. warehouse

Profits obtained from the projects (according to 1,000.00

Mead's calculations)

Total 9,462.54

In this same memorandum, the expense for the operation of the company during Mead's management, consisting of rents, the hire of
one muchacho, the publication of various notices, the salary of an engineer for four months, and plaintiff's salary for nine months, amounts to
$3,834.17 gold. This amount, deducted from the sum total of profits, leaves $5,628.37 gold.

Counsel for the plaintiff, in order to show conclusively as they assert that the company, after paying all expenses and indebtedness, had a
considerable balance to its credit, calls attention to Exhibit K. This balance reads as follows:

Abstract copy of ledger No. 3, folios 276-277. Philippine Engineering and Construction Company.

Then follow the debits and credits, with a balance in favor of the company of $10,728.44 Mexican currency. This account purports to cover
the period from July 1, 1902, to April 1, 1903. Ledger No. 3, above mentioned, is that the defendant McCullough and not one of the books of
the company.

It was this exhibit that the lower court based its conclusion when it found that on January 25, 1903, after making the transfer of the salvage
contract to McCullough, the company was in debt $2,278.30 gold. The balance of $10,728.44 Mexican currency deducted from the
$16,439.40 Mexican currency (McCullough's losses in the Manila Salvage Association) leaves $2,278.30 United States currency at the then
existing rate of exchange. In Exhibit K, McCullough charged himself with the $15,000 Mexican currency which he received from his associates
in the new company, but did not credit himself with the $16,439.40 Mexican currency, losses in said company, for the reason that on April 1,
1903, said losses had not occurred. It must be borne in mind that Exhibit K is an abstract from a ledger.

The defendant McCullough, in order to show in detail his transactions with the old company, presented Exhibits 1 and 2. These accounts read
as follows:

Detailed account of the receipts and disbursements of E. C. McCullough and the Philippine Engineering and Construction Company.

Then follow the debits ad credits. These two accounts cover the period from March 5 1902, to June 9, 1905. According to Exhibit No. 1, the
old company was indebted to McCullough in the sum of $14,918.75 Mexican currency, and according to Exhibit No. 2 he indebtedness
amounted to $6,358.15 Mexican currency. The debits and credits in these two exhibits are exactly the me with the following exceptions; I
Exhibit No. 1, McCullough credits himself with the $10,000 Mexican currency (the amount borrowed from the bank and deposited with the
admiral as a guarantee for the faithful performance of the salvage contract); while in Exhibit No. 2 he credits himself with this $10,000 and at
he same time charges himself with this amount. In the same exhibit (No. 2) he credits himself with $16,439.40 Mexican currency, his losses
in the new company, received from said company. Eliminating entirely from these two exhibits the $10,000 Mexican currency, the $15,000
Mexican currency, and the $16,39.40 Mexican currency, the balance shown in McCullough's favor is exactly the same in both exhibits. This
balance amounts to $4,918.75 Mexian currency.

According to McCullough's accounts in Exhibits 1 and 2 the profits derived from the construction of the Government warehouse amounted to
$4,005.02 gold, while the plaintiff contends that these profits amounted to $6,962.54 gold. The plaintiff, during his management of the old
company, made a contract with the Government for the construction of these are house and commenced work. After he resigned and left for
China, McCullough took charge of and completed the said warehouse. McCullough gives a complete, detailed statements of express for the
completion of this work, showing the dates, to whom paid, and for what purpose. He also gives the various amounts he received from the
Government with the amounts of the receipt of the same. On the first examination, McCullough testified that the total amount received from
the Government for the construction of these warehouse was $1,123 gold. The case was suspended for the purpose of examination the
records of the Auditor and the quater master, to determine the exact amount paid for this work. As a result of this examination, the vouchers
show an additional amount of about $5,000 gold, paid in checks. These checks show that the same were endorsed by the plaintiff and
collected by him from the Hongkong and Shanghai Banking Corporation. This money was not handled by McCullough and as it was collected
by the plaintiff, it must be presumed, in the absence of proof, that it was disbursed by him. McCullough did not charge himself with the
$2,5000 gold, alleged to have been profits from the construction of the wall at Fort McKinley, the inspection of the construction of the P. O. T.
warehouse, and other projects. This work was done under the management of the plaintiff and it is not shown that the profits from these
contracts ever reached the ands of McCullough. McCullough was not the treasurer of the company at that time. The other items which the
plaintiff insist that McCullough had no right to credit himself with are the following:

Date To whom paid. Amount (Mex. currency).

Jan. 30, 1903 Green $2,000.00

Feb. 2, 1903 McCullough 1,300.00

Feb. 2, 1903 Green 1,027.92

 Feb. 19, 1905 P. O. T. Co. note 2,236.80

May 23, 1905 Hilbert 1,856.02

June 9, 1905 Hartigan 1,225.00

McCullough says that these amounts represents cash borrowed from the evidence parties to carry on the operations of the old company while
it was trying to raise the sunken vessels. There is no proof to the contrary, and McCullough's testimony on this point is strongly corroborated
by the fact that the work done by the company in attempting to raise theses vessels was it first undertaking. The company had made no
profits while tat work was going on under the management of the plaintiff, but its expenses greatly exceeded that of the original $8,000
Mexican currency. It was necessary to borrow money to continue that work. These amounts, having been borrowed, were outstanding debts
when McCullough took charge for the purpose of completing the warehouses and winding up the business of the old company. These amounts
do not represent payments or refunds of the original capital. McCullough did not credit himself with any amount for his services for
supervising the completion of the warehouses, nor for liquidating or winding up the company's affairs. We think that the amount of $4,918.75
Mexican currency, balance in McCullough's favor up to this point, represents a fair, equitable, and just settlement.

So far we have referred to the Philippine Engineering and Construction Company as the "company," without any attempt to define its legal
status.

The plaintiff and defendants organized this company with a capital stock of $100,000 Mexican currency, each paying in on the organization
$2,000 Mexican currency. The remainder, $9,000, according to the articles of agreement, were to be offered to the public in shares of $100
Mexican currency, each. The names of all the organizers appear in the articles of agreement, which articles were duly inscribed in the
commercial register. The purpose for which this organization was affected were to engage in general engineering and construction work, and
operating under the name of the "Philippine Engineering and Construction Company." during its active existence, it engaged in the business of
attempting to rise the sunken Spanish fleet, constructing under contract warehouses and a wharf for the United States Government,
supervising the construction of a warehouse for a private firm, and some assay work. It was, therefore, an industrial civil partnership, as
distinguished from a commercial one; a civil partnership in the mercantile form, an anonymous partnership legally constituted in the city of
Manila.

The articles of agreement appeared in a public document and were duly inscribed in the commercial register. To the extent of this inscription
the corporation partook of the form of a mercantile one and as such must e governed by articles 151 to 174 of the Code of Commerce, in so
far as these provisions are not in conflict with the Civil Code (art. 1670, Civil Code); but the direct and principal law applicable is the Civil
Code. Those provisions of the Code of Commerce are applicable subsidiary.

This partnership or stock company (sociedad anonima) upon the execution of the public instrument in which is articles of agreement appear,
and the contribution of funds and personal property, became a juridicial person — an artificial being, invisible, intangible and existing only in
contemplation of law — with the power to hold, buy, and ell property, and to use and be sued — a corporation — not a general copartnership
nor a limited copartnership. (Arts. 37, 38,1656 of the Civil Code; Compania Agricola de Ultimar vs. Reyes et al., 4 Phil. Rep., 2; and Chief
Justice Marshall's definition of a corporation, 17 U. S., 518.)

The inscribing of its articles of agreement in the commercial register was not necessary to make it a juridicial person — a corporation. Such
inscription only operated to show that it partook of the form of a commercial corporation. (Compania Agricola de Ultimar vs. Reyes et
al., supra.)

Did a majority of the stockholders, who were at the same time a majority of the directors of this corporation, have the power under the law
and its articles of agreement, to sell or transfer to one of its members the assets of said corporation?

In the first article of the statutes of incorporation it is stated tat by virtue of a public document the organizers, whose names are given in full,
agreed to form a sociedad anonima. Article II provides that the organizers should be the directors an administrators until the second general
meeting, and until their successors were duly elected and installed. The third provides that the sociedad should run for ninety-nine years from
the date of the execution of its articles of agreement. Article IV sets forth the object or purpose of the organization. Article V makes the
capital $100,000 Mexican currency, divided into one thousand shares at $100 Mexican currency each. Article VI provides that each
shareholder should be considered as a coowner in the assets of the company and entitled to participate in the profits in proportion to the
amount of his stock. Article VII fixed the time of holding general meetings and the manner of calling special meetings of the stockholders.
Article VIII provides that the board of directors shall be elected annually. Article IX provides for the filing of vacancies in the board of
directors. Article X provides that "the board of directors shall elect the officers of the sociedad and have under is charge the administration of
the said sociedad." Article XI: "In all the questions with reference to the administration of the affairs of the sociedad, it shall be necessary to
secure the unanimous vote of the board of directors, and at least three of said board must be provides that all of the stock, except that which
was divided among the organizers should remain in the treasury subject to the disposition of the board of directors. Article XIII reads: "In all
the meetings of the stockholders, a majority vote of the stockholders present shall be necessary to determine any question discussed." The
fourteenth articles authorizes the board of directors to adopt such rules and regulations for the government of the sociedad as it should deem
proper, which were not in conflict with its statutes.

When the sale or transfer heretofore mentioned took place, there were present four directors, all of whom gave their consent to that sale or
transfer. The plaintiff was then about and his express consent to make this transfer or sale was not obtained. He was, before leaving, one of
the directors in this corporation, and although he had resigned as manager, he had not resigned as a director. He accepted the position of
engineer of the Canton and Shanghai Railway Company, knowing that his duties as such engineer would require his whole time and attention
and prevent his returning to the Philippine Islands for at least a year or more. The new position which he accepted in China was incompatible
with his position as director in the Philippine Engineering and Construction Company, a corporation whose sphere of operations was limited to
the Philippine Islands. These facts are sufficient to constitute an abandoning or vacating of hid position as director in said corporation. (10
Cyc., 741.) Consequently, the transfer or sale of the corporation's assets to one of its members was made by the unanimous consent of all
the directors in the corporation at that time.

There were only five stockholders in this corporation at any time, four of whom were the directors who made the sale, and the other the
plaintiff, who was absent in China when the said sale took place. The sale was, therefore, made by the unanimous consent of four-fifths of all
the stockholders. Under the articles of incorporation, the stockholders and directors had general ordinary powers. There is nothing in said
articles which expressly prohibits the sale or transfer of the corporate property to one of the stockholders of said corporation.

Is there anything in the law which prohibits such a sale or transfer? To determine this question, it is necessary to examine, first, the
provisions of the Civil Code, and second, those provisions (art. 151 to 174) of the Code o ] Commerce.

Articles 1700 to 1708 of the Civil Code deal with the manner of dissolving a corporation. There is nothing in these articles which expressly or
impliedly prohibits the sale of corporate property to one of its members, nor a dissolution of a corporation in this manner. Neither is there
anything in articles 151 to 174 of the Code of Commerce which prohibits the dissolution of a corporation by such sale or transfer.

The articles of incorporation must include:

xxx xxx xxx

 The submission to the vote of the majority of the meeting of members, duly called and held, of such matters as may properly be
brought before the same. (No. 10, art. 151, Code of Commerce.)

Article XIII of the corporation's statutes expressly provides that "in all the meetings of the stockholders, a majority vote of the stockholders
present shall be necessary to determine any question discussed."

The sale or transfer to one of its members was a matter which a majority of the stockholders could very properly consider. But it i said that if
the acts and resolutions of a majority of the stockholders in a corporation are binding in every case upon the minority, the minority would be
completely wiped out and their rights would be wholly at the mercy of the abuses of the majority.

Generally speaking, the voice of a majority of the stockholders is the law of the corporation, but there are exceptions to this rule. There must
necessarily be a limit upon the power of the majority. Without such a limit the will of the majority would be absolute and irresistible and
might easily degenerate into an arbitrary tyranny. The reason for these limitations is that in every contract of partnership (and a corporation
can be something fundamental and unalterable which is beyond the power of the majority of the stockholders, and which constitutes the rule
controlling their actions. this rule which must be observed is to be found in the essential compacts of such partnership, which gave served as
a basis upon which the members have united, and without which it is not probable that they would have entered not the corporation.
Notwithstanding these limitations upon the power of the majority of the stockholders, their (the majority's) resolutions, when passed in good
faith and for a just cause, deserve careful consideration and are generally binding upon the minority.

Eixala, in his work entitled "Instituciones del Derecho Mercantil de España," speaking of sociedades anonimas, says:

The resolutions of the boards passed by a majority vote are valid . . . and authority for passing such resolutions is unlimited,
provided that the original contract is not broken by them, the partnership funds not devoted to foreign purposes, or the partnerships
transformed, or changes made which are against public policy or which infringe upon the rights of third persons.

The supreme court of Spain, in its decision dated June 30, 1888, said:

In order to be valid and binding upon dissenting members, it s an indispensable requisite that resolutions passed by a general
meeting of stockholders conform absolutely to the contracts and conditions of the articles of the association, which are to be strictly
construed.

That resolutions passed within certain limitations by a majority of the stockholders of a corporation are binding upon the minority, is therefore
recognized by the Spanish authorities.

Power of private corporation to alienate property. — This power of absolute alienability of corporate property applies especially to
private corporations that are established solely for the purpose of trade or manufacturing and in which he public has no direct
interest. While this power is spoken of as belonging to the corporation it must be observed that the authorities point out that the
trustees or directors of a corporation do not possess the power to dispose of the corporate property so as to virtually end the
existence of the corporation and prevent it from carrying on the business for which it was incorporated. (Thompson on Corporation,
second edition, sec. 2416, and cases cited thereunder.)

Power to dispose of all property. — Where there are no creditors, and no stockholder objects, a corporation, as against all other
persons but the state, may sell and dispose of all its property. The state in its sovereign capacity may question the power of the
corporation to do so, but with these exceptions such as a sale is void. A rule of general application is that a corporation of a purely
private business character, one which owes no special duty to the public, and is not given the right of eminent domain, where
exigencies of its business require it or when the circumstances are such that it can no longer continue the business with profit, may
sell and dispose of all its property, pay its debts, divide the remaining assets and wind up the affairs of the corporation. (Id., sec.
2417.)

When directors or officers may dispose of all the property. — It is within the dominion of the managing officers and agents of the
corporation to dispose of all the corporate property under certain circumstances; and this may be done without reference to the
assent or authority of the stockholders. This disposition of the property may be temporarily by lease, or permanently by absolute
conveyance. But it can only be done in the course of the corporate business and for the furtherance of the purposes of the
incorporation. The board of directors possess this power when the corporation becomes involved and by reason of its embarrassed
or insolvent condition is unable either to pay its debts or to secure capital and funds for the further prosecution of its enterprise, and
especially where creditors are pressing their claims and demands and are threatening to or have instituted actions to enforce their
claims. This power of the directors to alienate the property is conceded where it is regarded as of imperative necessity. (If., sec.
2418, and case cited.)

When majority stockholder may dispose of all corporate property. — Another rule that permits a majority of the stockholders to
dispose of all the corporate property and wind up the business, is where the corporation has became insolvent, and the disposition
of the property is necessary to pay the debt; or where from any cause the business is a failure, and the best interest of the
corporation and all the stockholders require it, then the majority have clearly the power to dispose of all the property even as
against the protests of a minority. It would be a harsh rule that could permit one stockholder, or any minority of the stockholders, to
hold the majority to their investment where the continuation of the business would be at a loss and where there was no prospect or
hope that the enterprise could be made profitable. The rule as stated by some courts is that the majority stockholders may dispose
of the property when just cause exists; and this just cause is usually defined to be the unprofitableness of the business and where
its continuation would be ruinous to the corporation and against the interest of stockholders. (Id., sec. 2424, and cases cited.)

Nothing is better settled in the law of corporations than the doctrine that a corporation has the same capacity and power as a
natural person to dispose of the convey its property, real or personal, provided it does not do so for a purpose which is foreign to
the objects for which it was created, and provided, further, it violates no charter or statutory restriction, on rule of law based upon
public policy. . . .This power need not be expressly conferred upon a corporation by its charter. It is implied as an incident to its
ownership of property, unless there is some clear restriction in this charter or in some statute. (Clark and Marshall's Private
Corporations, sec. 152, and cases cited.)

A purely private business corporation, like a manufacturing or trading company, which is not given the right of eminent domain, and
which owes no special duties to the public, may certainly sell and convey absolutely the whole of its property, when the exigencies
of its business require it to do so, or when the circumstances are such that it can no longer profitably continue its business, provided
the transaction is not in fraud of the rights of creditors, or in violation of charter or statutory restrictions. And, by the weight of
authority, this may be done a majority of the stockholders against the dissent of the minority. (Id., sec. 160, and cases cited.)

The above citations are taken from the works of the most eminent writers on corporation law. The citation of cases in support of the rules
herein announced are too numerous to insert.

From these authorities it appears to be well settled, first, that a private corporation, which owes no special duty to the public and which has
not been given the right of eminent domain, has the absolute right and power as against the whole world except the state, to sell and dispose
of all of its property; second, that the board of directors, has the power, without referrence to the assent or authority of the stockholders,
when the corporation is in failing circumstances or insolvent or when it can no longer continue the business with profit, and when it is
regarded as an imperative necessity; third, that a majority of the stockholders or directors, even against the protest of the minority, have this
power where, from any cause, the business is a failure and the best interest of the corporation and all the stockholders require it.

May officer or directors of the corporation purchase the corporate property? The authorities are not uniform on this question, but on the
general proposition whether a director or an officer may deal with the corporation, we think the weight of authority is that he may. (Merrick
vs. Peru Coal Co., 61 Ill., 472; Harts et al. vs. Brown et al., 77 Ill., 226; Twin-Lick Oil Company vs. Marbury, 91 U.S., 587; Whitwell vs,
Warner, 20 Vt., 425; Smith vs. Lansing, 22 N.Y., 520; City of St. Loius vs. Alexander, 23 Mo., 483; Beach et al vs. Miller, 130 Ill., 162.)

While a corporation remains solvent, we can see no reason why a director or officer, by the authority of a majority of the stockholders or
board of managers, may not deal with the corporation, loan it money or buy property from it, in like manner as a stranger. So long as a
purely private corporation remains solvent, its directors are agents or trustees for the stockholders. They owe no duties or obligations to
others. But the moment such a corporation becomes insolvent, its directors are trustees of all the creditors, whether they are members of the
corporation or not, and must manage its property and assets with strict regard to their interest; and if they are themselves creditors while the
insolvent corporation is under their management, they will not be permitted to secure to themselves by purchasing the corporate property or
otherwise any personal advantage over the other creditors. Nevertheless, a director or officer may in good faith and for an adequate
consideration purchase from a majority of the directors or stockholders the property even of an insolvent corporation, and a sale thus made
to him is valid and binding upon the minority. (Beach et al. vs. Miller, supra; Twin-Lick Oil Company vs. Marbury, supra; Drury vs. Cross, 7
Wall., 299; Curran vs. State of Arkansas, 15 How., 304; Richards vs. New Hamphshire Insurance Company, 43 N. H., 263; Morawetz on
Corporations (first edition), sec. 579; Haywood vs. Lincoln Lumber Company et al., 64 Wis., 639; Port vs. Russels, 36 Ind., 60; Lippincott vs.
Shaw Carriage Company, 21 Fed. Rep., 577.)

In the case of the Twin-Lick Oil Company vs. Marbury, supra, the complaint was a corporation organized under the laws of West Virginia,
engaged in the business of raising and selling petroleum. It became very much embarrased and a note was given secured by a deed of trust,
conveying all the property rights, and franchise of the corporation to William Thomas to secure the payment of said note, with the usual
power of sale in default of payment. The property was sold under the deed of trust; was bought in by defendant's agent for his benefit, and
conveyed to him the same year. The defendant was at the time of these transactions a stockholder and director in the company. At the time
the defendant's money became due there was no apparent possibility of the corporation's paying it at any time. The corporation was then
insolvent. The property was sold by the trustee and bough in by the defendant at a fair and open sale and at a reasonable price. The sale and
purchase was the only mode left to the defendant to make his money. The court said:

That a director of a joint-stock corporation occupies one of those fiduciary relations where his dealings with the subject-matter of his
trust or agency, and with the beneficiary or party whose interest is confided to his care, is viewed with jealousy by the courts, and
may be set aside on slight grounds, is a doctrine founded on the soundest morality, and which has received the clearest recognition
in this court and others. (Koehler vs. Iron., 2 Black, 715; Drury vs. Cross, 7 Wall., 299; R.R. Co. vs. Magnay, 25 Beav., 586;
Cumberland Co vs. Sherman, 30 Barb., 553; Hoffman S. Coal Co. vs. Cumberland Co., 16 Md., 456.) The general doctrine, however,
in regard to contracts of this class, is, not that they are absolutely void, but that they are voidable at the election of the party whose
interest has been so represented by the party claiming under it. We say, this is the general rule; for there may be cases where such
contracts would be void ab initio; as when an agent to sell buys of himself, and by his power of attorney conveys to himself that
which he was authorized to sell. but even here, acts which amount t a ratification by the principal may validate the sale.

The present case is not one of that class. While it is true that the defendant, a s a director of the corporation, was bound by all those
rules of conscientious fairness which courts of equity have imposed as the guides for dealing in such cases, it can not be maintained
that any rule forbids one director among several from loaning money to the corporation when the money is needed, and the
transaction is open, and otherwise free from blame. No adjudged case has gone so far as this. Such a doctrine, while it would afford
little protection to the corporation against actual fraud or oppression, would deprive it of the air of those most interested in giving
aid judiciously, and best qualified to judge of the necessity of that aid, and of the extent to which it may safely be given.

There are in such a transaction three distinct parties whose interest is affected by it; namely, the lender, the corporation, and the
stockholders of the corporation.

The directors are the officers or agents of the corporation, and represent the interests of the abstract legal entity, and of those who
own the shares of its stock. One of the objects of creating a corporation by law is to enable it to make contracts; and these
contracts may be made with its stockholders as well as with others. In some classes of corporations, as in mutual insurance
companies, the main object of the act of the incorporation is to enable the company to make contracts which its stockholders, or
with persons who become stockholders by the very act of making the contract of insurance. It is very true, that as a stockholder, in
making a contract of any kind with the corporation of which he is a member, is in some sense dealing with a creature of which he is
a part, and holds a common interest with the other stockholders, who, with him, constitute the whole of that artificial entity, he is
properly held to a larger measure of candor and good faith than if he were not a stockholder. So, when the lender is a director,
charged, with others, with the control and management of the affairs of the corporation, representing in this regard the aggregated
interest of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is
increased in the precise degree that his representative character has given him power and control derived from the confidence
reposed in him by the stockholders who appointed him their agent. If he should be a sole director, or one of a smaller number
vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity
determined by more rigid principles of morality, and freedom from motives of selfishness. All this falls far short, however, of holding
that no such contract can be made which will be valid; . . . .

In the case of Hancock vs. Holbrook et al. (40 La. Ann., 53), the court said:

As a strictly legal question, the right of a board of directors of a corporation to apply it property to the payment of its debts, and the
right of the majority of stockholders present at a meeting called for the purpose to ratify such action and to dissolve the corporation,
can not be questioned.

But were such action is taken at the instance, and through the influence of the president of the corporation, and were the debt to
which the property is applied is one for which he is himself primarily liable, and specially where he subsequently acquires, in his
personal right, the proerty thus disposed of, such circumstances undoubtedly subject his acts to severe scrutiny, and oblige him to
establish that he acted with the utmost candor and fair-dealing for the interest of the corporation, and without taint of selfish
motive.

The sale or transfer of the corporate property in the case at bar was made by three directors who were at the same time a majority of
stockholders. If a majority of the stockholders have a clear and a better right to sell the corporate property than a majority of the directors,
then it can be said that a majority of the stockholders made this sale or transfer to the defendant McCullough.

What were the circumstances under which said sale was made? The corporation had been going from bad to worse. The work of trying to
raise the sunken Spanish fleet had been for several months abandoned. The corporation under the management of the plaintiff had entirely
failed in this undertaking. It had broken its contract with the naval authorities and the $10,000 Mexican currency deposited had been
confiscated. It had no money. It was considerably in debt. It was a losing concern and a financial failure. To continue its operation meant
more losses. Success was impossible. The corporation was civilly dead and had passed into the limbo of utter insolvency. The majority of the
stockholders or directors sold the assets of this corporation, thereby relieving themselves and the plaintiff of all responsibility. This was only
the wise and sensible thing for them to do. They acted in perfectly good faith and for the best interests of all the stockholders. "It would be a
harsh rule that would permit one stockholder, or any minority of stockholders to hold a majority to their investment where a continuation of
the business would be at a loss and where there was no prospect or hope that the enterprise would be profitable."

The above sets forth the condition of this insolvent corporation when the defendant McCullough proposed to the majority of stockholders to
take over the assets and assume all responsibility for the payment of the debts and the completion of the warehouses which had been
undertaken. The assets consisted of office furniture of a value of less than P400, the uncompleted contract for the construction of the
Government warehouses, and the wrecking contract. The liabilities amounted to at least $19,645.74 Mexican currency. $9,645.74 Mexican
currency of this amount represented borrowed money, and $10,000 Mexican currency was the deposit with the naval authorities which had
been confiscated and which was due the bank. McCullough's profits on the warehouse contract amounted to almost enough to the pay the
amounts which the corporation had borrowed from its members. The wrecking contract which had been broken was of no value to the
corporation for the reason that the naval authorities absolutely refused to have anything further to do with the Philippine Engineering and
Construction Company. They the naval authorities) had declined to consider the petition of the corporation for an extension in which to raise
the Spanish fleet, and had also refused to reconsider their action in confiscating the deposit. They did agree, however, that if the defendant
McCullough would organize a new association, that they would give the new concern an extension of time and would reconsider the question
of forfeiture of the amount deposited. Under these circumstances and conditions, McCullough organized the Manila Salvage Company, sold
five-sixth of this wrecking contract to the new company for $15,000 Mexican currency and retained one-sixth as his share of the stock in the
new concern. The Manila Salvage company paid to the bank the $10,000 Mexican currency which had been borrowed to deposit with the
naval authorities, and began operations. All of the $10,000 Mexican currency so deposited was refund to the new company except P2,000.
The new association failed and McCullough, by reason of this failure, lost over $16,000 Mexican currency. These facts show that McCullough
acted in good faith in purchasing the old corporation's assets, and that he certainly paid for the same a valuable consideration.

But cancel for the plaintiff say: "The board of directors possessed only ordinary powers of administration (Article X of the Articles of
incorporation), which in no manner empowered it either to transfer or to authorize the transfer of the assets of the company to McCullough
(art. 1773, Civil Code; decisions of the supreme court of Spain of April 2, 1862, and July 8, 1903)."

Article X of the articles of incorporation above referred to provides that the board of directors shall elect the officers of the corporation and
"have under its charge the administration of the said corporation." Articles XI reads: "In all the questions with reference to the administration
of the affairs of the corporation, it shall be necessary to secure the unanimous vote of the board of directors, and at least three of said board
must be present in order to constitute a legal meeting." It will be noted that article X statute a legal meeting." It will be noted that Article X
placed the administration of the affairs of the corporation in the hands of the board of directors. If Article XI had been omitted, it is clear that
under the rules which govern business of that character, and in view of the fact that before the plaintiff left this country and abandoned his
office as director, there were only five directors in the corporation, then three would have been sufficient to constitute a quorum and could
perform all the duties and exercise all the powers conferred upon the board under this article. It would not have been necessary to obtain the
consent of all three of such members which constituted the quorum in order that a solution affecting the administration of the corporation
should be binding, as two votes — a majority of the quorum — would have been sufficient for this purpose. (Buell vs. Buckingham & Co., 16
Iowa, 284; 2 Kent. Com., 293; Cahill vs. Kalamazoo Mutual Insurance Company, 2 Doug. (Mich.), 124; Sargent vs. Webster, 13 Met., 497; In
re Insurance Company, 22 Wend., 591; Ex parte Wilcox, 7 Cow., 402; id., 527, note a.)

It might appear on first examination that the organizers of this corporation when they asserted the first part of Article XI intended that no
resolution affecting the administration of the affairs should be binding upon the corporation unless the unanimous consent of the entire board
was first obtained; but the reading of the last part of this same article shows clearly that the said organizers had no such intention, for they
said: "At least three of said board must be present in order to constitute a legal meeting." Now, if three constitute a legal meeting, three were
sufficient to transact business, three constituted the quorum, and, under the above-cited authorities, two of the three would be sufficient to
pass binding resolutions relating to the administration of the corporation.

If the clause "have under in charge and administer the affairs of the corporation" refers to the ordinary business transactions of the
corporation and does not include the power to sell the corporate property and to dissolve the corporation when it becomes insolvent — a
change we admit organic and fundamental — then the majority of the stockholders in whom the ultimate and controlling power lies must
surely have the power to do so.

Article 1713 of the Civil Code reads:

An agency stated in general terms only includes acts of administration.

In order to compromise, alienate, mortgage, or execute any other act of strict ownership an express commission is required.

This article appears in title 9, chapter 1 of the Civil Code, which deals with the character, form, and kind of agency. Now, were the positions
of Hilbert, Green, Hartigan, and McCullough that the agents within the meaning of the article above quoted when the assets of the corporation
were transferred or sold to McCullough? If so, it would appear from said article that in order to make the sale valid, an express commission
would be required. This provision of law is based upon the broad principles of sound reason and public policy. There is a manifest impropriety
in allowing the same person to act as the agent of the seller and to become himself the buyer. In such cases, there arises so often a conflict
between duty and interest. "The wise policy of the law put the sting of a disability into the temptation, as a defensive weapon against the
strength of the danger which lies in the situation."

Hilbert, Green, and Hartigan were not only all creditors at the time the sale or transfer of the assets of the insolvent corporation was made,
but they were also directors and stockholders. In addition to being a creditor, McCullough sustained the corporation the double relation of a
stockholder and president. The plaintiff was only a stockholder. He would have been a creditor to the extent of his unpaid salary if the
corporation had been a profitable instead of a losing concern.

But as we have said when the sale or transfer under consideration took place, there were three directors present, and all voted in favor of
making this sale. It was not necessary for the president, McCullough, to vote. There was a quorum without him: a quorum of the directors,
and at the same time a majority of the stockholders.

A corporation is essential a partnership, except in form. "The directors are the trustees or managing partners, and the stockholders are
the cestui que trust and have a joint interest in all the property and effects of the corporation." (Per Walworth, Ch., in Robinson vs. Smith, 3
Paige, 222, 232; 5 idem, 607; Slee vs. Bloom, 19 Johns., 479; Hoyt vs. Thompson, 1 Seld., 320.)

The Philippine Engineering and Construction Company was an artificial person, owning its property and necessarily acting by its agents; and
these agents were the directors. McCullough was then an agent or a trustee, and the stockholders the principal. Or say (as corporation was
insolvent) that he was an agent or trustee and the creditors were the beneficiaries. This being the true relation, then the rules of the law (art.
1713 of the Civil Code) applicable to sales and purchases by agents and trustees would not apply to the purchase in question for the reason
that there was a quorum without McCullough, and for the further reason that an officer or director of a corporation, being an agent of an
artificial person and having a joint interest in the corporate property, is not such an agent as that treated of in article 1713 of the Civil Code.
Again, McCullough did not represent the corporation in this transaction. It was represented by a quorum of the board of directors, who were
at the same time a majority of the stockholders. Ordinarily, McCullough's duties as president were to preside at the meetings, rule on
questions of order, vote in case of a tie, etc. He could not have voted in this transaction because there was no tie.

The acts of Hilbert, Green, Hartigan, and McCullough in this transaction, in view of the relations which they bore to the corporation, are
subject to the most severe scrutiny. They are obliged to establish that they acted with the utmost candor and fair dealing for the interest of
the corporation, and without taint motives. We have subjected their conduct to this test, and, under the evidence, we believe it has safely
emerged from the ordeal.

Transaction which only accomplish justice, which are done in good faith and operate legal injury to no one, lack the characteristics of
fraud and are not to be upset because the relations of the parties give rise to suspicions which are fully cleared away. (Hancock vs.
Holbrook, supra.)

We therefore conclude that the sale or transfer made by the quorum of the board of directors — a majority of the stockholders — is valid and
binding upon the majority-the plaintiff. This conclusion is not in violation of the articles of incorporation of the Philippine Engineering and
Construction Company. Nor do we here announce a doctrine contrary to that announced by the supreme court of Spain in its decisions dated
April 2, 1862, and July 8, 1903.

As to the third cause of action, it is insisted: First, that the court erred in holding the defendant McCullough responsible for the personal
effects of the plaintiff; and second, that the court erred in finding that the effects left by the plaintiff were worth P2,400.

As we have said, the plaintiff was the manager of the Philippine Engineering Company from April 1, 1902, up to January 1, 1903. Sometimes
during the previous month of December he resigned to accept a position in China, but did not leave Manila until about January 20. He
remained in Manila about twenty days after he severed his connection with the company. He lived in rooms in the same building which was
rented by the company and were the company had its offices. When he started for China he left his personal effects in those rooms, having
turned the same over to one Paulsen. Testifying on this point the plaintiff said:

Q. To whom did you turn over these personal effects on leaving here? — A. To Mr. Paulsen.

Q. Have you demanded payment of this sum [referring to the value of his personal effects]? — A. On leaving for China I gave Mr.
Haussermann power of attorney to represent me in this case and demand payment.

Q. Please state whether or not you have an inventory of these effects. — A. I had an inventory which was in my possession but it
was lost when the company took all of the books and carried them away from the office.

Q. Can you give a list or a partial list of your effect? — A. I remember some of the items. There was a complete bedroom set, two
marble tables, one glass bookcase, chairs, all of the household effects I used when I was living in the Botanical Garden as city
engineer, one theodolite, which I bought after commencing work with the company.

Q. How much do you estimate to be the total reasonable value of these effects? — A. The total would not be less than $1,200 gold.

Counsel for the plaintiff, on page 56 of their brief, say:

Mr. McCullough, in his testimony (pp. 39 and 40) admits full knowledge of and participation in the removal and sale of the effects
and states that he took the proceeds and considered them part of the assets of the company. He further admits that Mr.
Haussermann made a demand for the proceeds of Mr. Mead's personal effects (p. 44).

McCullough's testimony, referred by the counsel, is as follows:

Q. At the time Mr. Mead left for China, in the building where the office was and in the office, there were left some of the personal
effects of Mr. Mead. What do you know about these effects, a list of which is Exhibit B? — A. Nothing appearing in this Exhibit B was
never delivered to the Philippine Engineering and Construction Company, according to my list.

Q. Do you know what became of these effects? — A. No, sir. I have no idea. I never saw them. I never heard these effects talked
about. I only heard something said about certain effects which Mr. Mead had in his living room.

Q. Do you know what became of the bed of Mr. Mead? — A. I know there were effects, such as a bed, washstand, chairs, table, and
other things, which are used in a living room, and that they were in Mr. Mead's room. These effects were sent to the warehouse of
the Pacific Oriental Trading Company, together with the office furniture. We had to vacate the building where the offices were and
we had to take out everything therein. These things were deposited in the warehouse of the Pacific Oriental Trading Company and
were finally sold by that company and the money turned over to me.

Q. How much? — A. P49.97.

Q. What did you do with this money? — A. I took it and considered it part of the assets of the company. All of the other effects of
the office were sold at the same time and brought P347.16.

Q. Did Mr. Mead leave anyone in charge of his effects when he left Manila? — A. I think he left Paulsen in charge, but Paulsen did
not take these effects, so when we vacated the office we had to move them.

Q. Did Paulsen continue occupying the living room where these effects were and did he use these effects? — A. I do not know
because I was in the office for three months before we vacated.

Q. Don't you know that it is a fact that Mr. Haussermann, as representative of Mr. Mead, demanded of you and the company the
payment of the salary which was due Mr. Mead and the value of his personal effects? — A. Yes, sir.

As to the value of these personal effects, Hartigan, testifying as witness for the defendant, said:

I think the personal effects were sold for P50. His personal effects consisted of ordinary articles, such as a person would use who
had to be going from one place to another all the time, as Mr. Mead. I know that all those effects were sold for less than P100, if I
am not mistaken.
The foregoing is the material testimony with reference to the defendant McCullough's responsibility and the value of the personal effects of
the plaintiff.

McCullough was a member of the company and was responsible as such for the rents where the offices were located. The company had no
further use for the building after the plaintiff resigned. The vacating of the building was the proper thing to do. The office furniture was
removed and stored in a place where it cost nothing for rents. When Hilbert, member of the company, went to the office to remove the
company's office furniture, he found no one in charge of the plaintiff's personal effects. He took them and stored them in the same place and
later sold them, together with the office furniture, and turned the entire amount over to defendant McCullough.

Paulsen, in whose charge Mead left his effects, apparently took no interest in caring for them. Was the company to leave Mead's personal
effects in that building and take the chances of having to continue to pay rents, solely on account of the plaintiff's property remaining there?
The company had reason to believe that it would have to continue paying these rents, as they had rented the building and authorized the
plaintiff to occupy rooms therein.

The plaintiff knew when he left for China that he would be away a long time. He had accepted a position of importance, and which he knew
would require his personal attention. He did not gather up his personal effects, but left them in the room in charge of Paulsen. Paulsen took
no interest in caring for them, but apparently left these effects to take care of them selves. The plaintiff did not even carry with him an
inventory of these effects, but attempted on the trial to give a list of them and did give a partial list of the things he left in his room; but it is
not shown that all this things were there when Herbert removed the office furniture and some of the plaintiff's effects. The fact that the
plaintiff remained in Manila some twenty days after resigning and never cared for his own effects but left them in the possession of an
irresponsible person, shows extreme negligence on his part. He exhibited a reckless indifference to the consequences of leaving his effects in
the lease premises. The law imposes on every person the duty of using ordinary care against injury or damages. What constitutes ordinary
care depends upon the circumstances of each particular case and the danger reasonably to be apprehended.

McCullough did not have anything personally to do with these effects at any time. He only accepted the money which Herbert turned over to
him. He, personally, did not contribute in any way whatsoever to the loss of the property, neither did he as a member of the corporation do
so.

The plaintiff gave an estimate of the value of the effects which he left in his rooms and placed this value at P2,400. He did not give a
complete list of the effects so left, neither did he give the value of a single item separately. The plaintiff's testimony is so indefinite and
uncertain that i t is impossible to determine with any degree of certainty just what these personal effects consisted of and their values,
especially when we take into consideration the significant fact that these effects were abondoned by Paulsen. On the other hand, w have
before us the positive testimony of Hilbert as to the amount received for the plaintiff's personal effects, the testimony of Hartigan that the
same were sold for less than P100, and the testimony of McCullough as to the amount turned over to him by Herbert.

So we conclude that the great preponderance of evidence as to the value of these effects is in the favor of the contention of the defendant.
Their value therefore be fixed at P49.97.

For these reasons the judgment appealed from as to the first and second causes of action is hereby affirmed. Judgment appealed from as to
the third cause of action is reduced to P49.97, without costs.
Strong v. Repide, 213 U.S. 419 (1909)

Argued March 10, 11, 1909

Decided May 3, 1909

213 U.S. 419

Syllabus

Although there is no technical finding of facts by the Court of First Instance of the Philippine Islands, if the opinion shows the facts on which
the judgment is based and the courts below differ in regard thereto, they may be reviewed by this Court under § 10 of the Act of July 1,
1902, c. 1369, 32 Stat. 691. De la Rama v. De la Rama, 201 U. S. 303.

Page 213 U. S. 420

Where a sale made through an agent of the vendor has been effected by the fraud and deceit of the vendee, the sale cannot stand whether or
not the vendor's agent had power to sell.

A director upon whose action the value of the shares depends cannot avail of his knowledge of what his own action will be to acquire shares
from those whom he intentionally keeps in ignorance of his expected action and the resulting value of the shares.

This is a rule of common law, and also of the Spanish law before the adoption of the Philippine Civil Code; and, under §§ 1261-1269 of that
code, a contract obtained under such circumstances can be avoided by the party whose consent would not have been given had he known the
facts within the knowledge of the other party.

Even though a director may not be under the obligation of a fiduciary nature to disclose to a shareholder his knowledge affecting the value of
the shares, that duty may exist in special cases, and did exist upon the facts in this case.

In this case, the facts clearly indicate that a director of a corporation owning friar lands in the Philippine Islands, and who controlled the
action of the corporation, had so concealed his exclusive knowledge of the impending sale to the government from a shareholder from whom
he purchased, through an agent, shares in the corporation, that the concealment was in violation of his duty as a director to disclose such
knowledge, and amounted to deceit sufficient to avoid the sale; and, under such circumstances, it was immaterial whether the shareholder's
agent did or did not have power to sell the stock.

While the method of payment cannot have induced the vendor's consent to a sale, where that method tended to conceal the identity of the
purchaser and was part of a scheme to conceal facts, the knowledge of which would have resulted in vendor's refusal to sell, evidence as to
the payment is admissible to show the fraudulent intent and scheme of the purchaser.

The expressed prohibitions in § 1459 of the Spanish Civil Code against directors of corporations acquiring shares of stock entrusted to them
do not apply to purchases from others.

An expressed prohibition against directors acquiring shares held by themselves in a fiduciary capacity does not refer to purchases by directors
of shares from others, or so limit the prohibitions against purchases of stock by directors that a sale to one cannot be avoided by his deceit in
not disclosing material facts within his exclusive knowledge.

Although there may be objections to the form of judgment in the Court

Page 213 U. S. 421

of First Instance, as they are not of a material nature, this Court will follow the same course.

6 Phil. 680 reversed.

This action was commenced on the twelfth day of January, 1904, in the Court of First Instance of the City of Manila, Philippine Islands, by the
plaintiffs in error, Eleanor Erica Strong and Richard P. Strong, her husband, against the defendant in error. It was brought by the plaintiff Mrs.
Strong, as the owner of 800 shares of the capital stock of the Philippine Sugar Estates Development Company, Limited (the other plaintiff
being added as her husband), to recover such shares from defendant (who was already the owner of 30,400 of the 42,030 shares issued by
the company) on the ground that the shares had been sold and delivered by plaintiff's agent to the agent of defendant without authority from
plaintiff, and also on the ground that defendant fraudulently concealed from plaintiff's agent, one F. Stuart Jones, facts affecting the value of
the stock so sold and delivered. The stock was of the par value of $100 per share, Mexican currency.
The plaintiff never had any negotiations for the sale of the stock herself, and was ignorant that it was sold until some time after the sale, the
negotiations for which took place between an agent of the plaintiff and an agent of defendant, the name of the defendant being undisclosed.

In addition to his ownership of almost three-fourths of the shares of the stock of the company, the defendant was one of the five directors of
the company, and was elected by the board the agent and administrator general of such company, "with exclusive intervention in the
management" of its general business.

The defendant put in issue the lack of authority of the agent of the plaintiff, denied all fraud, and alleged that the purchase of the stock from
plaintiff's agent (which stock was payable to bearer and transferable by delivery) was made by one Albert Kauffman, who afterwards sold and
conveyed the same to the

Page 213 U. S. 422

defendant, and that the defendant, prior to the commencement of the suit and prior to any demand made upon him by the plaintiff in error
herein, had sold, transferred, and delivered the stock to Luis Gutierrez, a citizen and resident of Spain. (He was a brother of the defendant.)

In April, 1904, the case came on for trial in the Court of First Instance, which, on the twenty-ninth of that month, duly decided it and stated
certain facts in the cause upon which it based its opinion and judgment, among which were the facts that the agent of the plaintiff had no
authority to sell or transfer the shares of stock in question, and also that the transaction resulting in the delivery of the stock to the agent of
the defendant was fraudulent, because the defendant concealed from the plaintiff's agent facts affecting the value of the stock which the
defendant was in good faith bound to reveal, by reason of which the sale of the stock to defendant was made for the total sum of $16,000,
Mexican currency, while within two months and a half the shares were worth $76,256, United States currency. Upon the findings, the court
directed that the plaintiff recover from the defendant the sum found to be due by the court, which (after deducting the $16,000, Mexican
currency) amounted to $138,352.71, Philippine currency, and the costs of suit, and it was ordered that the judgment might be satisfied by
the delivery to the plaintiff, Mrs. Strong, of her 800 shares of stock within the time mentioned in the decree, in which event the plaintiff was
to pay the defendant $16,000, Mexican currency, or its equivalent in Philippine currency. Other particulars were stated in the decree.

On May 3, 1904, a motion was made by defendant for a new trial, which, on May 9, 1904 was overruled.

A bill of exceptions was then made, and appeal filed. Subsequently and on January 18, 1906, the same was duly argued in the Supreme Court
of the Philippine Islands and, on April 28, 1906, a decision was rendered by the court, holding that the agent of the plaintiff had no power to
sell or deliver her stock, and it affirmed the decree of the Court of First Instance

Page 213 U. S. 423

on that ground, but not on the second ground taken by that court, that the sale of the stock through the plaintiff's agent had been procured
by fraud on the part of the defendant.

Subsequently to the affirmance of the judgment, the defendant, through his counsel, made a motion for a new trial on the ground of newly
discovered evidence, which consisted of a power of attorney (that had been mislaid and after the trial had been found) from Mrs. Strong to
Mr. F. Stuart Jones and Mr. Robert H. Wood, which authorized both or either of them to sell or otherwise dispose of the property of the
plaintiff as they or he might choose. After opposition, this motion was granted, and leave given to the parties to submit new evidence as to
the nature of the authority delegated by the plaintiff in error to her agent Jones, and under that permission the newly discovered power of
attorney was put in evidence. Upon that piece of evidence, the court held that the authority of the agent Jones was sufficient, and that the
paper became absolutely decisive of the issues in the case, and the order affirming the judgment of the court below was therefore set aside,
the judgment of the Court of First Instance reversed, and the action dismissed upon its merits. From that decree of reversal and dismissal the
plaintiffs seek to bring the case here for review, and have sued out a writ of error and taken an appeal.

The facts out of which the controversy arises are in substance these:

In 1902, it was thought important for the government of the United States to secure title, if reasonably possible, to what were called the friar
lands in the Philippine Islands. To that end, various inquiries were made on the part of the government, from time to time, as to the
possibility of obtaining title to all those lands, and what would be the probable expense. The lands were not owned by the same people, but
were divided among different and separate owners. The Philippine Sugar Estates Development Company, Limited, owned of these lands what
are more particularly described as the Dominican lands,

Page 213 U. S. 424

and they were regarded as nearly one-half the value of all the friar lands.
On July 5, 1903, the Governor of the Philippine Islands, on behalf of the Philippine government, made an offer of purchase for the total sum
of $6,043,219.47 in gold for all the friar lands, though owned by different owners. This offer, so far as concerned that portion of the lands
owned by defendant's company, was rejected by defendant in his capacity as majority shareholder, without any consultation with the other
shareholders. The representatives of all the different owners of all the lands, including defendant's company, in answer to the above offer,
then fixed their selling price at $13,700,000 for all such lands. During the negotiations consequent upon these different offers, which lasted
for some time after the first offer was made, an offer was finally, and towards the end of October, 1903, made by the Governor of
$7,535,000. All the owners of all these friar lands, with the exception of the defendant, who represented his company, were willing and
anxious to accept this offer and to convey the lands to the government at that price. He alone held out for a better offer while all the other
owners were endeavoring to persuade him to accept the offer of the government. The defendant continued his refusal to accept until the
other owners consented to pay to his company $335,000 of the purchase price for their land, and until the government consented that a
thousand hectares should be excluded from the sale to it of the land of defendant's company. This being agreed to, the contract for the sale
was finally signed by the defendant as attorney in fact for his company, December 21, 1903. The defendant, of course, as the negotiations
progressed, knew that the decision of the question lay with him, and that, if he should decide to accept the last offer of the government, his
decision would be the decision of his company, as he owned three-fourths of its shares, and the negotiations would then go through as all the
owners of the balance of the land desired it. If the sale should not be consummated, and things should remain as they were, the defendant
also knew that the

Page 213 U. S. 425

value of the lands and of the shares in the company would be almost nothing. He himself says, in speaking of these lands owned by his
company, that had the government

"given the haciendas the protection which they ought to have received, they would have been worth $6,000,000 gold; but, considering the
abnormal condition in which they were on account of the failure of the government to protect these haciendas, it is impossible to fix any
value; they were worth nothing; they were a charge."

Also the company had paid no dividends, and only lived on its credit, and could not even pay taxes. The company had no other property of
any substantial value than these lands. They were its one valuable asset.

While this state of things existed, and before the final offer had been made by the Governor, the defendant, although still holding out for a
higher price for the lands, took steps, about the middle or latter part of September, 1903, to purchase the 800 shares of stock in his company
owned by Mrs. Strong, which he knew were in the possession of F. Stuart Jones, as her agent. The defendant, having decided to obtain these
shares, instead of seeing Jones, who had an office next door, employed one Kauffman, a connection of his by marriage, and Kauffman
employed a Mr. Sloan, a broker, who had an office some distance away, to purchase the stock for him, and told Sloan that the stock was for a
member of his wife's family. Sloan communicated with the husband of Mrs. Strong, and asked if she desired to sell her stock. The husband
referred him to Mr. Jones for consultation, who had the stock in his possession. Sloan did not know who wanted to buy the shares, nor did
Jones when he was spoken to. Jones would not have sold at the price he did had he known it was the defendant who was purchasing,
because, as he said, it would show increased value, as the defendant would not be likely to purchase more stock unless the price was going
up. As the articles of incorporation, by subdivision twenty, required a resolution of the general meeting of stockholders for the purpose of
selling more than one hacienda, and as no such general meeting had been called at

Page 213 U. S. 426

the time of the sale of the stock, Mr. Jones might well have supposed there was no immediate prospect of a sale of the lands being made,
while at the same time defendant had knowledge of the probabilities thereof which he had acquired by his conduct of the negotiations for
their sale, as agent of all the shareholders, and while acting specially for them and himself.

The result of the negotiations was that Jones, on or about October 10, 1903, assuming that he had the power, and without consulting Mrs.
Strong, sold the 800 shares of stock for $16,000, Mexican currency, delivering the stock to Kauffman in Sloan's office, who paid for it with the
check of Rueda Hermanos for $18,000, the surplus $2,000 being arranged for, and Kauffman being paid $1,800 by defendant for his services.
The defendant thus obtained the 800 shares for about one tenth of the amount they became worth by the sale of the lands between two and
three months thereafter. In all the negotiations in regard to the purchase of the stock from Mrs. Strong, through her agent Jones, not one
word of the facts affecting the value of this stock was made known to plaintiff's agent by defendant, but, on the contrary, perfect silence was
kept. The real state of the negotiations with the government was not mentioned, nor was the fact stated that it rested chiefly with the
defendant to complete the sale. The probable value of the shares in the very near future was thus unknown to anyone but defendant, while
the agent of the plaintiff had no knowledge or suspicion that defendant was the one seeking to purchase the shares. The agent sold because,
as he testified, he wanted to invest the money in some kind of property that would pay dividends, and he was expecting nothing from this
company, as negotiations for the sale of the lands had gone on so long, and there appeared no prospect of any sale being made -- at any
rate, not for a very long time.
It is undeniable that, during all this time, the subject of the sale of the friar lands was frequently mooted and its probabilities publicly
discussed in a general way. Such discussion was founded upon rumors and gossip as to the condition of the

Page 213 U. S. 427

negotiations. The public press referred to it not infrequently, but the actual state of the negotiations, the actual probabilities of the sale being
consummated, and the particular position of power and influence which the defendant occupied in such negotiations prior to the time of the
purchase of plaintiff's stock were not accurately known by plaintiff's agent or by anyone else outside those interested in the matter as
negotiators.
G.R. No. 126200 August 16, 2001

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.

KAPUNAN, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of
Appeals dated October 6, 1995 and the Resolution of the same court dated August 29, 1996.

The facts are as follows:

Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel
and cobalt in mixed sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various
loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel
Mortgage in favor of PNB. The mortgage covered all of Marinduque Mining's real properties, located at Surigao del Norte, Sipalay, Negros
Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4
Billion, exclusive of interest and charges.1

On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust
Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay,
Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Mining's chattels,
as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or
replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently,
Marinduque Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges. 2

On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which
Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by
Marinduque Mining.3

For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial
foreclosure proceedings over the mortgaged properties.

The events following the foreclosure are narrated by DBP in its petition, as follows:

In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over
the foreclosed real properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as
machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of
P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP
as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties
together with all the buildings, major machineries & equipment and other improvements of MMIC located at Antipolo, Rizal, likewise
held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/
DBP).

At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of
MMIC located at Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and
P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to "90-GGGGGG"-PNB/DBP).

Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were
sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).

PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the
Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and
Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc Island,
Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB).

Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining
Corp. all its rights, interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial
consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).

On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the
National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier
assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. "15" &
"15-A" PNB/DBP).4

In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials
and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of
August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid
construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorney's fees and the costs of suit.

On September 7, 1984, Remington's original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by
the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, equipment and other
assets of Marinduque Mining.5

On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial
Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all other
assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.6

On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island
Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum
Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since:

1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants
PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island
 Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed
extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets, machineries and equipment which were
originally owned by co-defendant MMIC beyond the reach of creditors of the latter.

2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement
creations of co-defendants PNB and DBP were the personnel of co-defendant MMIC such that . . . practically there has only been a
change of name for all legal purpose and intents

3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island
Cement likewise used to be the places of business, mining claims and project premises of co-defendant MMIC as to make the
aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and
subject to their control and management.

On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the
government in the pursuit of business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the
financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial
foreclosure of defendant MMIC's assets, machineries and equipment to the extent that major policies of co-defendant MMIC were
being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part
of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by co-defendants PNB
and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all
the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper
mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant
MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the
legitimate pursuit of its business activities, invested considerable time, sweat and private money to supply, among others, co-
defendant MMIC with some of its vital needs for its operation, which co-defendant MMIC during the time of the transactions material
to this case became x x x co-defendants PNB and DBP's instrumentality, business conduit, alter ego, agency (sic), subsidiary or
auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-defendants PNB,
DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be
treated as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned, so as not to defeat
public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a
fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case.7

On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-
defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989.

On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial
Corporation, Philippine National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum
Mining Corporation, Island Cement Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95,
representing the principal obligation, including the stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per
annum by way of penalty, until the amount is fully paid; the sum equivalent to 10% of the amount due as and for attorney's fees;
and to pay the costs.8

Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6,
1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29,
1996.

Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining,
Island Cement, Maricalum Mining, and the APT.

On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of
fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be
considered as one and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Mining's purchases.

In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court of Appeals in its decision,10 this Court declared:

It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or
in case of two corporations, merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of
Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.). x x x.

In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity was
used to escape liability to third parties.11 In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees
to warrant the piercing of the corporate veil.

It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more
than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides:

It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to
foreclose the collateral and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the
arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total
outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the
financial institution concerned. This shall be without prejudice to the exercise by the government financial institution of such rights
and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans,
credits, accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent.

Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice
but to obey the statutory command.

The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, "Every person must, in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."
The appellate court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed,
it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and
Marinduque Mining was irrelevant because:
 As aptly stated by the appellee in its brief, "x x x where the corporations have directors and officers in common, there may be
circumstances under which their interest as officers in one company may disqualify them in equity from representing both
corporations in transactions between the two. Thus, where one corporation was 'insolvent and indebted to another, it has been held
that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the debtor
corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x" (page 105 of the
Appellee's Brief). In the same manner that "x x x when the corporation is insolvent, its directors who are its creditors can not secure
to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and
deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of
creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of
the directors, for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the
directors." x x x (page 106 of the Appellee's Brief)

We also concede that "x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves any
preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body
of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a
breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the
payment of his debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were
indorsers, was questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the
legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors. x x
x" (page 106-107 of the Appellee's Brief.)12

The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with
interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the
corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and
DBP).

The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein. Here, the
creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining.

Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself
concedes, DBP is not authorized by its charter to engage in the mining business.13The creation of the three corporations was necessary to
manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any
entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they were intended.

Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of
Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith.

Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and
practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No
doubt, many of these assets are heavy equipment and it may have been impossible to move them. The same reasons of convenience and
practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's personnel to
manage and operate the properties and to maintain the continuity of the mining operations.

To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.14 To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established. It cannot be presumed.15 In this case, the Court finds that Remington failed to discharge its burden of proving
bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing
of the corporate veil.

The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining, and as
transferee of these purchases, DBP should be held liable for the value thereof.

In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code
provides:

ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:

xxx xxx xxx

(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the
value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the
price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity,
neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be
determined proportionally;

(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel
mortgage, upon the things pledged or mortgaged, up to the value thereof;

xxx xxx xxx

In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The
facts that gave rise to the case were summarized by this Court in its resolution as follows:

x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L.
Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00.
However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid
balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the
property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been
duly recorded.

Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained
judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for
recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the
new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the
proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be
paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:

Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific
immovable property, and among them are:

"(2) For the unpaid price of real property sold, upon the immovable sold"; and

"(5) Mortgage credits recorded in the Registry of Property."

Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights."

Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid
vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.

xxx xxx xxx

As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent
debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended
only for insolvency cases, then other creditor-debtor relationships where there are concurrence of credits would be left without any
rules to govern them, and it would render purposeless the special laws on insolvency.17

Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons
for the reversal:

A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the
system of priorities among creditors ordained by the Civil Code of 1889.

Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to
be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors
of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.

Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining
thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in
proportion to the amount of the respective credits. Thus, Article 2249 provides:

"If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after
the payment of the taxes and assessments upon the immovable property or real rights."

But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of
them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that
the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedent's estate under Rule 87 of the Rules
of Court, or other liquidation proceedings of similar import.

This explains the rule of Article 2243 of the new Civil Code that —

"The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions governing insolvency x x x (Italics supplied).

And the rule is further clarified in the Report of the Code Commission, as follows

"The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The
preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law."
(Italics supplied)

Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now
before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant
were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will
not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other creditors likewise
enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect,
and must be reversed. [Emphasis supplied]

The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al.,18 and in two cases both entitled Development Bank
of the Philippines vs. NLRC.19

Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property
is involved. As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code,
Remington cannot claim its pro rata share from DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August
29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby
DISMISSED. SO ORDERED.
G.R. No. L-10556 April 30, 1958

RICARDO GURREA, plaintiff-appellant,

vs.
JOSE MANUEL LEZAMA, ET AL., defendants-appellees.

Fulgencio Vega and Felix D. Bacabac for appellant.

Jose Manuel Lezama for appellees.
Jose Manuel Lezama and Genivera F. de Lezama. Domingo B. Lauren for the other appellees.

BAUTISTA ANGELO, J.:

Plaintiff instituted this action in the Court of First Instance of Iloilo to have Resolution No. 65 of the Board of Directors of the La Paz Ice Plant
and Cold Storage Co., Inc., removing him from his position of manager of said corporation declared null and void and to recover damages
incident thereto. The action is predicated on the ground that said resolution was adopted in contravention of the provisions of the by-laws of
the corporation, of the Corporation Law and of the understanding, intention and agreement reached among its stockholders.

Defendant answered the complaint setting up as defense that plaintiff had been removed by virtue of a valid resolution.

In connection with this complaint, plaintiff moved for the issuance of a writ of preliminary injunction to restrain defendant Jose Manuel
Lezama from managing the corporation pending the determination of this case, but after hearing where parties presented testimonial and
documentary evidence, the court denied the motion. Thereafter, by agreement of the parties and without any trial on the merits, the case
was submitted for judgment on the sole legal question of whether plaintiff could be legally removed as manager of the corporation merely by
resolution of the board of directors or whether the affirmative vote of 2/3 of the paid shares of stocks was necessary for that purpose. And
passing upon this legal point, the trial court held that the removal of plaintiff was legal and dismissed the complaint without pronouncement
as to costs. Plaintiff appealed to the Court of Appeals but finding that the question at issue is one of law, the latter certified the case to us for
decision.

Section 33 of the Corporation Law provides: "Immediately after the election, the directors of a corporation must organize by the election of a
president, who must be one of their number, a secretary or clerk who shall be a resident of the Philippines . . . and such other officers as may
be provided for in the by-laws." The by-laws of the instant corporation in turn provide that in the board of directors there shall be a president,
a vice-president, a secretary and a treasurer. These are the only ones mentioned therein as officers of the corporation. The manager is not
included although the latter is mentioned as the person in whom the administration of the corporation is vested, and with the exception of the
president, the by-laws provide that the officers of the corporation may be removed or suspended by the affirmative vote of 2/3 of the
corporation (Exhibit A).

From the above the following conclusion is clear: that we can only regard as officers of a corporation those who are given that character
either by the Corporation Law or by its by-laws. The rest can be considered merely as employees or subordinate officials. And considering that
plaintiff has been appointed manager by the board of directors and as such does not have the character of an officer, the conclusion is
inescapable that he can be suspended or removed by said board of directors under such terms as it may see fit and not as provided for in the
by-laws. Evidently, the power to appoint carries with it the power to remove, and it would be incongruous to hold that having been appointed
by the board of directors he could only be removed by the stockholders.

The above interpretation finds also support in the American authorities. Fletcher, in his treatise, states the rule in the following wise: "It is
sometimes important to determine whether a person representing a corporation is to be classed as an officer of the company or merely as an
agent or employee, especially in construing statutes renting only to 'officers' of corporations. Generally the officers of a corporation are
enumerated in its charter or by-laws, and include a president, vice-president, secretary, treasurer and sometimes others. The statutes in
most of the states expressly provide for the election of a president, secretary and treasurer, and then provide, that there shall be such other
officers, agents and factors as the corporation shall authorize for that purpose. If the charter expressly enumerates who shall be officers of
the company, a person whose position is not enumerated is not an officer as to members of the corporation, since the charter is conclusive
upon them" (Fletcher, Cyclopedia of the Law of Private Corporations, Vol. II, p. 19). It has been likewise held "that the offices pertaining to a
private corporation are defined in its charter and by-laws, and that no other positions in the service of the corporation are offices" (Ann. 53
A.L.R., 599).

Indeed, there are authorities galore that hold that a general manager is not an officer of a corporation, even if his powers and influence may
be as great as those of any officer in said organization.

Officers Distinguished from Mere Employees. — As already stated, both officers and employees are agents of the corporation and the
difference between them is largely one of degree; the officers are the most important employees exercising greater authority or
power in the management of the business. Ordinarily, too, the principal offices are designated by statute, charter or by-law
provisions, and specific duties are imposed upon certain officers. Thus the state statute or a by-law may provide that stock
certificates shall be signed by the president and countersigned by the secretary or treasurer. The general manager of a corporation
is not ordinarily classed as an officer, but his powers and influence may be quite as great as those of any person in the organization.
(Grange, Corporation Law for Officers and Directors, p. 432; Emphasis supplied.)

One distinction between officers and agents of a corporation lies in the manner of their creation. An officer is created by the charter
of the corporation, and the officer is elected by the directors or the stockholders. An agency is usually created by the officers, or one
or more of them, and the agent is appointed by the same authority. It is clear that the two terms officers and agents are by no
means interchangeable. One, deriving its existence from the other, and being dependent upon that other for its continuation, is
necessarily restricted in its powers and duties, and such powers and duties, are not necessarily the same as those pertaining to the
authority creating it. The officers, as such, are the corporation. An agent is an employee. "A mere employment, however liberally
compensated, does not rise to the dignity of an office." 21 Am and Eng. Enc. Law (2d Ed.) 836. In Wheeler and Wilson Mfg.
Co. vs. Lawson, 57 Wis. 400, 15 N. W. 398, it was held that under a statute requiring an affidavit to be made by an officer of a
corporation, the general agent or managing agent, within the state, of a foreign corporation is not an officer. In Farmers' Loan and
Trust Co. vs. Warring, 20 Wis. 305, service was made upon the "principal agent" of a corporation holding in trust a railroad, when
the statute required service upon a "principal officer." In answering the question whether or not the agent was a principal officer the
court said: "It is evident he was not, and must be regarded only as an agent not an officer of any kind, much less a principal
officer." A ruling that a "general manager" of a corporation was not authorized to verify pleadings, under a statute requiring
verification by "an officer" was made in Meton vs. Isham Wagon Co. (Sup.) 4 N. Y. Supp. 215. In Raleigh, etc. R. Co. vs. Pullman
Co., 122 Ga. 704, 5O S.E. 1008 (4), it was held that the term "general manager." as applied to one representing a corporation, and
especially a railroad corporation, imported an agent of a very extensive authority; but it was not ruled that even the term "general
manager" would import that the person holding that position was necessarily an officer of the company. One distinction between an
officer and an agent suggested in Commonwealth vs. Christian, 9 Phila. (Pa.) 558, is that on officer of a corporation, if illegally
excluded from his office, may by mandamus compel the corporation, to reinstate him; while an agent may be dismissed without
cause, and his only remedy would be compensation in damages. It would not be contended that the "general agent of the defendant
at Columbus," in the event of his discharge, could be reinstated by mandamus. We do not think the general agent at Columbus was
an officer of the defendant company. Therefore his alleged waiver of a condition in the policy was not binding upon the company.
(Vardeman vs. Penn. Mut. Life Ins. Co. 125 Ga. 117, 54 S.E. P. 66; Emphasis supplied.)
 The plaintiff-predicates this action on said contract, and claims that the same being signed by the defendant through its "general
manager" if admitted evidence, would show sufficient authority prima facie to do any act which the directors could authorize or
ratify. The instrument in question being signed by James W. Codle, "General Manager" and no evidence in the trial being produced
showing the duties of said manager or what kind of an office he was general manager of, the "general manager" without proof as to
the nature of services performed by the persons called "general manager", have no meaning in law, excepting that the persons
bearing the title is an employee who has been designated with a title. It does not make him an officer of the company employing
him. (Studerbaker Bros. Co. vs. R. M. Rose Co., 119 N.Y.S pp. 970, 97; Emphasis supplied.)

We therefore hold that plaintiff has been properly removed when the board of directors of the instant corporation approved its Resolution No.
65 on June 3, 1948.

We will now clarify some of the points raised by the distinguished dissenter in his dissenting opinion.

The fact that the "manager" of the corporation in the several statutes enacted by Congress is held criminally liable for violation of any of the
penal provisions therein prescribed does not make him an "officer" of the corporation. This liability flows from the nature of his duties which
are delegated to him by the board of directors. He is paid for them. Hence, he has to answer for them should he use it in violation of law. In
the case of Robinson vs. Moark-Nemo Consol Mining Co., et al., 163 S. W. 889, in connection with the liability of the manager, the court said:

Common justice and common sense demand that, where those in charge and control of the management of a corporation direct it
along paths of wrongdoing, they should be held accountable by law. . . . This doctrine will prevent many wrongs, and have a
salutary influence in bringing about the lawful and orderly management of corporations.

It is claimed that the cases of Meton vs. Isham Wagon, 4 N.Y.S., 215 and State vs. Bergs, 217 N. W., 736, supporting the theory that a
manager is not necessarily an officer, are in illo tempore.1 It is submitted that we do not adopt a rule just because it is new nor reject another
just because it is old. We adopt a rule because it is a good and sound rule. The fact however is that they are not the only authorities
supporting that theory. Additional cases are cited by Fletcher in support thereof, such as the cases of Vardeman vs. Penn. Mut. Life Ins.
Co., supraStudebaker Bros. Co. vs. R. M. Rose Co., supra.

The dissenting opinion quotes from Thompson and Fletcher to support the theory that the general manager of a corporation may be
considered as its principal officer even though not so mentioned in its charter or bylaws. We have examined the cast cited in support of that
theory but we have found that they are not in point. Thus, we have found (1) that the parties involved are mostly outsiders who press their
transactions against the corporation; (2) that the point raised is whether the acts of the manager bind the corporation; (3) that the tendency
of the courts is to hold the corporation liable for the acts of the manager so long as they are within the powers granted, hence, the courts
emphasized the importance of the position of manager; and (4) the position of manager was discussed from the point of view of an outsider
and not from the internal organization of the corporation, or in accordance with its charter or by-laws. In the present case, however, the
parties are the manager and the corporation. And the solution of the problem hinges on the internal government of the corporation where the
charter and the by-laws are necessarily involved in the determination of the rights of the parties. Indeed, it has been held: "But it is urged
that a corporation may have officers not recognized by the charter and by-laws. It is possible this may be as to matters arising between
strangers and the corporation." [Com. vs. Christian, 9 Phila. (Pa.) 556; emphasis supplied].

The cases on all fours with the present are those of State ex rel Blackwood vs. Brast, et al., 127 S. E. 507 and Denton Milling Co. vs. Blewitt,
254 S. W. 236, 238, where the parties involved are the manager and the corporation. The issue raised is the relation of the manager towards
the corporation. The position of the manager is discussed from the point of view of its internal government. And the holding of the court is
that the manager is the creation of the board of directors and the agent through whom the corporate duties of the board are performed.
Hence, the manager holds his position at the pleasure of the board. This stipulation is well expressed in the following words of Thompson:

The word "manager" implies agency, control, and presumptively sufficient authority to bind a corporation in a case in which the
corporation was an actual party. It has been said that such agent must have the same general supervision of the corporation as is
associated with the office of cashier or secretary. By whatever name he may be called, such, managing agent is a mere employee of
the board of directors and holds his position subject to the particular contract of employment; and unless the contract of
employment fixes his term of office, it may be terminated at the pleasure of the board. . . . The manager, like any other appointed
agent, is subject to removal when his term expires and on the request of the proper officer he should turn over his business to the
corporation and, where he refuses to comply, he may be restrained from the further performance of work for the corporation.
(Thompson on Corporations, Vol. III, 3rd., pp. 209-210; Emphasis supplied.)

It is not correct to hold that the theory that a manager is not classed as an officer of a corporation is only the minority view. If we consider
the states that hold that managers are merely agents or employees as among those that hold the theory that managers are not necessarily
officers, then our theory is supported by the majority view. Indeed, this view is upheld by nine states,2 whereas only six states adopt the view
that managers are considered principal officers of the corporation.3

The dissenting opinion quotes the provision of the bylaws relative to the administration of the affairs of the instant corporation. It is there
provided that the affairs of the corporation shall be successively administered by (1) the stockholders; (2) the board of directors; and(3) the
manager. From this it concludes that the manager should be considered an officer.

The above enumeration only emphasizes the different organs through which the affairs of the corporation should be administered and the
order in which the powers should be exercised. The stockholders are the entity, composing the whole corporation. The board of directors is
the entity elected by the stockholders to manage the affairs of the corporation. And the manager is the individual appointed by the board of
directors to carry out the powers delegated to him. In other words, the manager is the creation of the board of directors. He is an alter egoof
the board. As our law provides that only those enumerated in the charter or in the by-laws are considered officers, the manager who has not
been so enumerated therein, but only incidentally mentioned in the order of management, cannot be considered an officer of the corporation
within their purview.

The mere fact that the directors are not mentioned in the by-laws as officers does not deprive them of their category as such for their
character as officer is secured in the charter. The same is not true with the manager. Customs and corporate usages cannot prevail over the
express provisions of the charter and the by-laws.

There is no comparison between an appointee of the President, especially one in the judiciary, and the appointee of the board of directors of a
corporation. In the first case, removal is especially provided for by law and in the second, the appointee holds office at the pleasure of the
board. And with regard to the powers of the board of director, to remove a manager of the corporation, Thompson has the following to say:

. . . Below the grade of director and such other officers as are elected by the corporation at large, the general rule is that the officers
of private corporations hold their offices during the will of the directors, and are hence removable by the directors without assigning
any cause for the removal, except so far as their power may be restrained by contract with the particular officer, — just as any
other employer may discharge his employee. Speaking generally, it may be said that the power to appoint carries with it the power
to remove. . . . the directors who appoint a ministerial officer may undoubtedly remove him at pleasure, and he has no remedy
other than an action for damages against the corporation for a breach of contract. . . . The ordinary ministerial and other lesser
officers, however, hold their offices during the pleasure of the directors and may be removed at will, without assigned cause. Of this
class of officers and agents are the secretary and treasurer of the corporation, the general manager, the assistant manager, the field
 manager, the attorney of the company, an assistant horticulturist, and the bookkeepers. (Thompson on Corporations, Vol. III, 521-
523.)

Wherefore, the decision appealed from is affirmed, with costs against appellant.
GR. No. L-48928 February 25, 1982

MITA PARDO DE TAVERA, plaintiff-appellant,

vs.
PHILIPPINE TUBERCULOSIS SOCIETY, INC., FRANCISCO ORTIGAS, JR., MIGUEL CAÑIZARES, BERNARDO P. PARDO, RALPH
NUBLA, MIDPANTAO ADIL, ENRIQUE GARCIA, ALBERTO G. ROMULO and THE PRESENT BOARD OF DIRECTORS, PHILIPPINE
TUBERCULOSIS SOCIETY, INC., defendants- appellees.

GUERRERO, J.:

On March 23, 1976, plaintiff-appellant Mita Pardo de Tavera filed with the Court of First Instance of Rizal a complaint against the Philippine
Tuberculosis Society, Inc. (hereinafter referred to as the Society), Miguel Canizares, Ralph Nubla, Bernardo Pardo, Enrique Garcia, Midpantao
Adil, Alberto Romulo, and the present Board of Directors of the Philippine Tuberculosis Society, Inc.

On April 12, 1976, plaintiff-appellant filed an amended complaint impleading Francisco Ortigas, Jr. as party defendant.

In substance, the complaint alleged that plaintiff is a doctor of Medicine by profession and a recognized specialist in the treatment of
tuberculosis, having been in the continuous practice of her profession since 1945; that she is a member of the Board of Directors of the
defendant Society, in representation of the Philippine Charity Sweepstakes Office; that she was duly appointed on April 27, 1973 as Executive
Secretary of the Society; that on May 29, 1974, the past Board of Directors removed her summarily from her position, the lawful cause of
which she was not informed, through the simple expedient of declaring her position vacant; that immediately thereafter, defendant Alberto
Romulo was appointed to the position by an affirmative vote of seven directors, with two abstentions and one objection; and that defendants
Pardo, Nubla, Garcia and Adil, not being members of defendant Society when they were elevated to the position of members of the Board of
Directors, are not qualified to be elected as such and hence, all their acts in said meeting of May 29, 1974 are null and void.

The defendants filed their answer on May 12, 1976, specifically denying that plaintiff was illegally removed from her position as Executive
Secretary and averring that under the Code of By-Laws of the Society, said position is held at the pleasure of the Board of Directors and when
the pleasure is exercised, it only means that the incumbent has to vacate the same because her term has expired; that defendants Pardo,
Nubla, Adil and Garcia were, at the time of their election, members of the defendant Society and qualified to be elected as members of the
Board, that assuming that said defendants were not members of defendant Society at the time of their election, the question of qualification
of the members of the Board of Directors should have been raised at the time of their election: that assuming that the qualification of
members of the Board of Directors can be questioned after their assumption of their offices as directors, such contest cannot be done in a
collateral action; that an action to question the qualifications of the Directors must be brought within one year from their election; and that a
Director elected without necessary qualification becomes at least a de facto director, whose acts are as valid and binding as a de jure director.
Further, defendant disputed the timeliness of the filing of the action stating that an action to question one's ouster from a corporate office
must be filed within one year from said ouster.

On the same date, defendant Adil filed a Motion to Dismiss on the ground that the complaint states no cause of action, or if it does, the same
has prescribed. Inasmuch as plaintiff seeks reinstatement, he argued that the complaint is an action for quo warranto and hence, the same
should be commenced within one year from May 29, 1974 when the plaintiff was ousted from her position.

Plaintiff filed an Opposition to Motion to Dismiss on May 28, 1976, stating that the complaint is a suit for damages filed under the authority of
Section 6, Article 11 of the present Constitution in relation to Articles 12 and 32(6) of the New Civil Code, and her constitutional right to equal
protection of the law, as guaranteed by Section 1, Article IV of the present Constitution.

On June 2, 1976, defendant Adil filed a Reply to Plaintiff's Opposition to Motion to Dismiss arguing that since there is an averment of plaintiff's
right to office, and that defendant Romulo is unlawfully in possession thereof, their it is indeed, a case for quo warranto; and that assuming
that it is merely a suit for damages, then, the same is premature, pursuant to Section 16, Rule 66 of the Rules of Court.

On September 3, 1976, the coturt a quo rendered a decision holding that the present suit being one for quo warranto it should be filed within
one year from plaintiff's outer from office; that nevertheless, plaintiff was not illegally rendered or used from her position as Executive
Secretary in The Society since plaintiff as holding an appointment all the pleasure of the appointing power and hence her appointment in
essence was temporary in nature, terminable at a moment's notice without need to show that the termination was for cause; and Chat
plaintiff's ouster from office may not be challenged on the ground that the acts of defendants Pardo, Adil, Nubla and Garcia are null and void,
they being not qualified to be elected members of the Board of Directors because the qualifications of the members of the Board of Directors
which removed plaintiff from office may not be the subject of a collateral attack in the present suit for quo warranto affecting title to the office
of Executive Secretary.

On October 13, 1976, plaintiff filed a Motion for Reconsideration to which defendants filed an Opposition. On November 25, 1976, the court a
quo denied the motion for Reconsideration.

Dissatisfied with the decision and the order denying the motion for reconsideration. plaintiff filed a Notice of Appeal and an Urgent Motion for
Extension of Time to File Record on Appeal, which was granted in an order dated December 15, 1976. However, on December 20, 1976, the
court a quo issued an amended order where it qualified the action as principally one for quo warranto and hence, dispensed with the filing of a
record on appeal as the original records of the case are required to be elevated to the Court of Appeals.

On August 8, 1978, the Court of Appeals issued a resolution certifying this case to this Court considering that the appeal raises no factual
issues and involves only issues of law, as may be

gleaned from the following assignments of errors:

I. The lower court erred in holding that the present case is one for quo warranto and not an action for damages.

II. In deciding the case, the lower court erred in not upholding the Society's By-Laws, the applicable laws, and the pertinent provisions of the
Constitution.

III. The lower court erred in holding that the plaintiff-appellant is not in the civil service, and therefore, not entitled to the guaranty against
removal from office except for cause and after due process of law.

The nature of an action filed in court is determined by the facts alleged in the complaint as constituting the cause of action, and not those
averred as a defense in the defendant's answer. The theory adopted by the plaintiff in his complaint is one thing; that by the defendant in his
answer another. The purpose of an action or suit and the law to govern it, including the period of prescription, is to be determined not by the
claim of the party filing the action, made in his argument or brief, but rather by the complaint itself, its allegations and prayer for relief. Rone
et al. vs. Claro, et al., L-4472, May 8, 1952, 91 Phil. 250). In Baguioro vs. Barrios, et al., 77 Phil. 120, the Supreme Court held that if the
relief demanded is not the proper one which may be granted under the law, it does not characterize or determine the nature of plaintiff's
action, and the relief to which plaintiff is entitled based on the facts alleged by him in his complaint, although it is not the relief demanded, is
what determines the nature of the action.

While it is true that the complaint questions petitioner's removal from the position of Executive Secretary and seeks her reinstatement
thereto, the nature of the suit is not necessarily one of quo warranto. The nature of the instant suit is one involving a violation of the rights of
the plaintiff under the By-Laws of the Society, the Civil Code and the Constitution, which allegedly renders the individuals responsible
therefore, accountable for damages, as may be gleaned from the following allegations in the complaint as constituting the plaintiff's causes of
action, to wit:

20. That, as a consequence of the unfair and malicious removal of plaintiff from her office, which the plaintiff maintains to
be contrary to morals, good customs, public policy, the pertinent provisions of said By-Laws of the Society, the laws, and
the guarranties of the Constitution, by defendants Canizares, Ortigas Jr., Pardo, Adil, Nubla and Garcia, the plaintiff
suffered not only material damages, but serious damage to her priceless properties, consisting of her honor and
reputation, which were maliciously and unlawfully besmirched, thereby entitling her to compensation for material and
moral damages, from said defendants, jointly and severally, under Article 21, in relation to Article 32(6) of the New Civil
Code;

xxx xxx xxx

24. That as a consequence of the inordinate use and abuse of power by defendants, Caares Ortigas Jr., Pardo, Adil, Nubla
and Garcia, in arbitrarily, illegally, and unjustly removing the plaintiff from office, without due process of law, and in
denying to her the enjoyment of the guaranty of the Constitution to equal protection of the law, the plaintiff suffered
material and moral damages as a result of the debasement of her dignity, both as an individual and as a professional
(physician) of good standing, therefore, defendant Caares Ortigas Jr., Pardo, Adil, Nubla and Garcia should be ordered to
pay her moral damages, jointly and severally;

xxx xxx xxx

26. That the acts of the defendants Canizares, Ortigas Jr., Pardo, Adil, Nubla and Garcia, in illegally removing the plaintiff
from her position as Executive Secretary of defendant Society, which plaintiff was then holding under a valid appointment
and thereafter, immediately appointing defendant Alberto Romulo to the position, is most unfair, unjust and malicious,
because it is contrary to good morals, good customs, public policy, the pertinent provisions of the Code of By-Laws of the
defendant Society, the laws and the aforementioned guarranties of the Constitution; that the plaintiff complaint that the
said defendants are legally obligated to compensate her, in concept of exemplary damages, in order to restrain persons in
authority from committing similar file I and un constitutional acts which debase human dignity and inflict injuries to their
fellowmen;

xxx xxx xxx

31. That, as a consequence of the said unjustified refusal of the defendant, present Board of Directors of the defendant
Society, to resolve the complaint of the plaintiff and extend to her the reliefs to which she is entitled under the law and the
Constitution, it is respectfully submitted that said defendant Board is under legal obligation to correct the illegal and
unconstitutional act of defendants Caares Ortigas Jr., Pardo, Nubla, Adil and Garcia, by restoring the plaintiff to her
position as Executive Secretary of the defendant Society, payment of salaries and other benefits, corresponding to the
period of her illegal and unconstitutional removal from office.

Further, it must be noted that the action is not only against Alberto Romulo, the person appointed in her stead, but also against the Society
and the past and present members of the Board. In fact, Romulo is sued as present occupant of the office and not to hold him accountable for
damages because he did not participate in the alleged illegal and unconstitutional removal of plaintiff- appellant. The action is primarily
against the Society and the past members of the Board who are responsible for her removal. The present Board of Directors has been implead
as party defendant for the purpose merely of enabling it to act, "to reinstate the plaintiff to her position as Executive Secretary of the
defendant Society" being one of the reliefs prayed for in the prayer of the complaint.

Hence, We hold that where the respondents, except for one, namely, Alberto Romulo, are not actually holding the office in question, the suit
could not be one for quo warranto.

Corollarily, the one-year period fixed in Section 16, Rule 66 of the Revised Rules of Court within which a petition for quo warranto should be
filed, counted from the date of ouster, does not apply to the case at bar. The action must be brought within four (4) years, in accordance
with Valencia vs. Cebu Portland Cement Co., et al., L-13715, December 23, 1959, 106 Phil. 732, case involving a plaintiff separated from his
employment for alleged unjustifiable causes, where this Court held that the action n is one for "injury to the rights of the plaintiff, and must
be brought within 4 years murder Article 1146 of the New Civil Code .

Nonetheless, although the action is not barred by the statute of limitations, We rule that it will not prosper. Contrary to her claim, petitioner
was not illegally removed or from her position as Executive Secretary in violation of Code of By-laws of the Society. the New Civil Code and
the pertinent provisions of the Constitution.

Petitioner claims and the respondents do not dispute that the Executive Secretary is an officer of the Society pursuant to provision in the
Code of By-laws Laws:

Section 7.01. Officers of the Society. — The executed officers f the Society shag be the President a Vice-President, a
Treasurer who shall be elected by the Board of Directors, Executive Secretary, and an Auditor, who shall be appointed by
the Board of Directors, all of whom shall exercise the functions. powers and prerogatives generally vested upon skich
officers, the functions hereinafter set out for their respective offices and such other duties is from time to time, may be
prescribed by the Board of Directors. On e person may hold more than one office except when the functions thereof are
incompatible with each other.

It is petitioner's contention that she is subject, to removal pursuant to Section 7.04 of the Code of By-laws which respondents correctly
dispute citing Section 7.02 of the same Cede. The aforementioned provisions state as follows:

Section 7.02. Tenure of Office. — All executive officers of the Society except the Executive Secretary and the Auditor shall
be elected the Board of Directors, for a term of one rear ind shall hold office until their successors are elected and have
qualified. The Executive secretary, the Auditor and all other office ers and employees of the Society shall hold office at the
pleasure of the Board of Directors, unless their term of employment shall have been fixed in their contract of employment.

xxx xxx xxx

 Section 7.04. Removal of Officers and Employees. — All officers and employees shall be subject to suspension or removal
for a sufficient cause at any time by affirmative vote of a majority of an the members of the Board of Directors, except
that employees appointed by the President alone or by the other officers alone at the pleasure of the officer appointing
him.

It appears from the records, specifically the minutes of the special meeting of the Society on August 3, 1972, that petitioner was designated
as Acting Executive Secretary with an honorarium of P200.00 monthly in view of the application of Dr. Jose Y. Buktaw for leave effective
September 1, 1972 for 300 working days. This designation was formalized in Special Order No. 110, s. 1972 wherein it was indicated that:
"This designation shall take effect on September 1, 1972 and shall remain until further advice."

In the organizational meeting of the Society on April 25, 1973, the minutes of the meeting reveal that the Chairman mentioned the need of
appointing a permanent Executive Secretary and stated that the former Executive Secretary, Dr. Jose Y. Buktaw, tendered his application for
optional retirement, and while on terminal leave, Dr. Mita Pardo de Tavera was appointed Acting Executive Secretary. In view thereof, Don
Francisco Ortigas, Jr. moved, duly seconded, that Dr. Mita Pardo de Tavera be appointed Executive Secretary of the Philippine Tuberculosis
Society, Inc. The motion was unanimously approved.

On April 27, 1973, petitioner was informed in writing of the said appointment, to wit:

Dr. Mita Pardo de Tavera

Philippine Tuberculosis Society, Inc.

Manila

Madam:

I am pleased to inform you that at the meeting of the Board of Directors held on April 25, 1973, you were appointed
Executive Secretary, Philippine Tuberculosis Society, Inc. with such compensation ,petition and allowances as are provided
for in the Budget of the Society, effective immediately, vice Dr. Jose Y. Buktaw, retired.

Congratulations.

Very truly yours,

For the Board of Directors:

(Sgd) Miguel Canizares,

M.D. MIGUEL CARIZARES,

M.D.

President

Although the minutes of the organizational meeting show that the Chairman mentioned the need of appointing a "permanent" Executive
Secretary, such statement alone cannot characterize the appointment of petitioner without a contract of employment definitely fixing her term
because of the specific provision of Section 7.02 of the Code of By-Laws that: "The Executive Secretary, the Auditor, and all other officers and
employees of the Society shall hold office at the pleasure of the Board of Directors, unless their term of employment shall have been fixed in
their contract of employment." Besides the word permanent" could have been used to distinguish the appointment from acting capacity".

The absence of a fixed term in the letter addressed to petitioner informing her of her appointment as Executive Secretary is very significant.
This could have no other implication than that petitioner held an appointment at the pleasure of the appointing power.

An appointment held at the pleasure of the appointing power is in essence temporary in nature. It is co-extensive with the desire of the Board
of Directors. Hence, when the Board opts to replace the incumbent, technically there is no removal but only an expiration of term and in an
expiration of term, there is no need of prior notice, due hearing or sufficient grounds before the incumbent can be separated from office. The
protection afforded by Section 7.04 of the Code of By-Laws on Removal of Officers and Employees, therefore, cannot be claimed by petitioner.

Thus, in the case of Moji vs. Mariño 13 SCRA 293, where the appointment contains the following proviso: that it may be terminated at
anytime without any proceedings, at the pleasure of the President of the Philippines, this Court held: "It may, therefore, be said that, though
not technically a temporary appointment, as this term is used in Section 24(b) of the Civil Service Act of 1959, petitioner's appointment in
essence is temporary because of its character that it is terminable at the pleasure of the appointing power. Being temporary in nature, the
appointment can be terminated at a moment's notice without need to show cause as required in appointments that belong to the classified
service."

In Paragas vs. Bernal 17 SCRA 150, this Court distinguished between removal and expiration of term .

In the case at bar there has been, however, no removal from office. Pursuant to the charter of Dagupan City, the Chief of
Police thereof holds office at the pleasure of the President. Consequently, the term of office of the Chief of Police expires at
any time that the President may so declare. This is not removal, inasmuch as the latter entails the ouster of an
incumbent before the expiration of his term. In the present case, petitioner's term merely expired upon receipt by him of
the communication of respondent Assistant Executive Secretary of the President, dated September 14, 1962.

Petitioner cannot likewise seek relief from the general provisions of the New Civil Code on Human Relations nor from the fundamental
principles of the New Constitution on preservation of human dignity. While these provisions present some basic principles that are to be
observed for the rightful relationship between human beings and the stability of social order, these are merely guides for human conduct in
the absence of specific legal provisions and definite contractual stipulations. In the case at bar, the Code of By-Laws of the Society contains a
specific provision governing the term of office of petitioner. The same necessarily limits her rights under the New Civil Code and the New
Constitution upon acceptance of the appointment.

Moreover, the act of the Board in declaring her position as vacant is not only in accordance with the Code of By-Laws of the Society but also
meets the exacting standards of honesty and good faith. The meeting of May 29, 1974, at which petitioner ,petitioner's position was declared
vacant, was caged specifically to take up the unfinished business of the Reorganizational Meeting of the Board of April 30, 1974. Hence, and
act cannot be said to impart a dishonest purpose or some moral obliquity and conscious doing to wrong but rather emanates from the desire
of the Board to reorganize itself.
Finally, We find it unnecessary to resolve the third assignment of error. The proscription against removal without just cause and due process
of law under the Civil Service Law does not have a bearing on the case at bar for the reason, as We have explained, that there was no
removal in her case but merely an expiration of term pursuant to Section 7.02 of the Code of By-Laws. Hence, whether or not the petitioner
falls within the protective mantle of the Civil Service Law is immaterial and definitely unnecessary to resolve this case.

WHEREFORE, premises considered, the decision of the lower court holding that petitioner was not illegally removed or ousted from her
position as Executive Secretary of the Philippine Tuberculosis Society, Inc., is hereby AFFIRMED. SO ORDERED.
 [G.R. No. L-58468. February 24, 1984.]

PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, MANILA, ANTONIO M. MAGTALAS, JOSE ARANAS, JUAN D. LIM, JOSE F.
PERALTA and BENJAMIN P. PAULINO, Petitioners, v. LABOR ARBITER LACANDOLA S. LEANO of the National Labor Relations
Commission and RUFINO R. TAN, Respondents.

De Santos, Balgos and Perez Law Office, for Petitioners.

The Solicitor General for respondent Arbiter.

Caparas, Ilagan, Alcantara & Gatmaytan Law Office for Private Respondent.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION THEREOF VIS-A-VIS THE NATIONAL
LABOR RELATIONS COMMISSION; CASE AT BAR. — The jurisdiction of the Securities and Exchange Commission (SEC) vis-a-vis the National
Labor Relations Commission (NLRC) is in issue. An intracorporate controversy would call for SEC jurisdiction. A labor dispute, that of the
NLRC.

2. ID.; ID.; INTRA-CORPORATE CONTROVERSIES; LEGALITY OF ELECTION OF CORPORATE DIRECTORS, IN THE NATURE OF; CASE AT BAR.
— Basically, therefore, the question is whether the election of directors on August 1, 1981 and the election of officers on September 5, 1981,
which resulted in TAN’s failure to be re-elected, were validly held. This is the crux of the question that TAN has raised before the SEC. Even in
his position paper before the NLRC, TAN alleged that the election on August 1, 1981 of the three directors was in contravention of the PSBA
By-Laws providing that any vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting specially called for the
purpose. Thus, he concludes, the Board meeting on September 5, 1981 was tainted with irregularity on account of the presence of illegally
elected directors without whom the results could have been different. TAN invoked the same allegations in his complaint filed with the SEC.
So much so, that on December 17, 1981, the SEC (Case No. 2145) rendered a Partial Decision annulling the election of the three directors
and ordered the convening of a stockholders’ meeting for the purpose of electing new members of the Board. 9 The correctness of said
conclusion is not for us to pass upon in this case. TAN was present at said meeting and again sought the issuance of injunctive relief from the
SEC. The foregoing indubitably show that, fundamentally, the controversy is intra-corporate in nature.

3. ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION; ORIGINAL AND EXCLUSIVE OVER INTRA-CORPORATE
CONTROVERSIES UNDER PRESIDENTIAL DECREE NO. 902-A; CASE AT BAR. — Presidential Decree No. 902-A vests in the Securities and
Exchange Commission original and exclusive jurisdiction to hear and decide controversies involving the election of directors, officers, or
managers of corporations registered with the Commission, the relation between and among its stockholders, and between them and the
corporation. The instant case is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and of TAN’s
not having been elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the exercise of
deliberate choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to a corporation, whether as
officer or as agent or employee, is not determined by the nature of the services performed, but by the incidents of the relationship as they
actually exist. (Bruce v. Travelers Ins. Co., 266 F2d 781, cited in 19 Am. Jur. 2d 526).

DECISION

MELENCIO-HERRERA, J.:

This Petition for Certiorari questions the jurisdiction of respondent Labor Arbiter over the present controversy (No. NCR-9-20-81) involving
private respondent-complainant, Rufino R. Tan (TAN), and petitioners, the Philippine School of Business Administration (PSBA), a domestic
corporation, and majority of its Directors.

TAN is one of the principal stockholders of PSBA. Before September 5, 1981, he was a Director and the Executive Vice President enjoying
salaries and allowances.

On August 1, 1981, at the PSBA Board of Directors’ regular meeting, three members were elected to fill vacancies in the seven-man body.

On September 5, 1981, also during a regular meeting, the Board declared all corporate positions vacant except those of the Chairman and
President, and at the same time elected a new set of officers. TAN was not re-elected as Executive Vice-President. 1

On September 16, 1981, TAN filed with the National Labor Relations Commission (NLRC) (National Capital Region) a complaint for Illegal
Dismissal against petitioners alleging that he was "summarily, illegally, irregularly and improperly removed from his position as Executive
Vice-President . . . without cause, investigation or notice" (NLRC Case No. NCR-9-20-81) (the Labor Case, in brief).

On September 21, 1981, TAN also filed a one-million-peso damage suit against petitioners before the then Court of First Instance of Rizal,
Quezon City, for illegal and oppressive removal (Civil Case No. Q-33444).

And, on September 28, 1981, TAN lodged before the Securities and Exchange Commission (SEC) another complaint against petitioners
essentially questioning the validity of the PSBA elections of August 1, 1981 and September 5, 1981, and of his "ouster" as Executive Vice-
President (SEC Case No. 2145).

On October 13, 1981, SEC issued a subpoena duces tecum commanding the production of corporate documents, books and records. 2

On October 15, 1981, respondent Labor Arbiter also issued a subpoena duces tecum to submit the same books and documents.

Before the NLRC, petitioners moved for the dismissal of TAN’s complaint, invoking the principle against split jurisdiction.

On October 22, 1981, petitioners availed of this Petition contending mainly that:

"1. The respondent labor arbiter illegally assumed jurisdiction over the complaint for ‘Illegal Dismissal’ because the failure of the private
respondent to be re-elected to the corporate position of Executive Vice-President was an intra-corporate question over which the Securities
and Exchange Commission had already assumed jurisdiction.

"2. The issuance by the respondent labor arbiter of a subpoena duces tecum was likewise without jurisdiction especially if considered in the
light of procedural and substantial requirements therefor such that it is imperative that the supervising authority of this Honorable Court
should be exercised to prevent a substantial wrong and to do substantial justice."

TAN counter-argues that his sole and exclusive cause of action is illegal dismissal, falling within the jurisdiction of the NLRC, for he was
dismissed suddenly and summarily without cause in violation of his constitutional rights to due process and security of tenure. He prays that
his dismissal be declared illegal and that his reinstatement be ordered with full backwages and without loss of other benefits.

We issued a Temporary Restraining Order, enjoining respondent Labor Arbiter from proceeding in any manner with the Labor Case, and
subsequently gave due course to the Petition.

The jurisdiction of the SEC vis-a-vis the NLRC is in issue. An intracorporate controversy would call for SEC jurisdiction. A labor dispute, that of
the NLRC.

Relevant and pertinent it is to note that the PSBA is a domestic corporation duly organized and existing under our laws. General management
is vested in a Board of seven directors elected annually by the stockholders entitled to vote, who serve until the election and qualification of
their successors. Any vacancy in the Board of Directors is filled by a majority vote of the subscribed capital stock entitled to vote at a meeting
specially called for the purpose, and the director or directors so chosen hold office for the unexpired term. 5 Corporate officers are provided
for, among them, the Executive Vice-President, who is elected by the Board of Directors from their own number. 6 The officers receive such
salaries or compensation as the Board of Directors may fix. 7 The By-Laws likewise provide that should the position of any officer of the
corporation become vacant by reason of death, resignation, disqualification, or otherwise, the Board of Directors, by a majority vote, may
choose a successor or successors who shall hold office for the expired term of his predecessor.

It was at a board regular monthly meeting held on August 1, 1981, that three directors were elected to fill vacancies. And, it was at the
regular Board Meeting of September 5, 1981 that all corporate positions were declared vacant in order to effect a reorganization, and at the
ensuing election of officers, TAN was not re-elected as Executive Vice-President.

Basically, therefore, the question is whether the election of directors on August 1, 1981 and the election of officers on September 5, 1981,
which resulted in TAN’s failure to be re-elected, were validly held. This is the crux of the question that TAN has raised before the SEC. Even in
his position paper before the NLRC, TAN alleged that the election on August 1, 1981 of the three directors was in contravention of the PSBA
By-Laws providing that any vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting specially called for the
purpose. Thus, he concludes, the Board meeting on September 5, 1981 was tainted with irregularity on account of the presence of illegally
elected directors without whom the results could have been different.

TAN invoked the same allegations in his complaint filed with the SEC. So much so, that on December 17, 1981, the SEC (Case No. 2145)
rendered a Partial Decision annulling the election of the three directors and ordered the convening of a stockholders’ meeting for the purpose
of electing new members of the Board. 9 The correctness of said conclusion is not for us to pass upon in this case. TAN was present at said
meeting and again sought the issuance of injunctive relief from the SEC.

The foregoing indubitably show that, fundamentally, the controversy is intra-corporate in nature. It revolves around the election of directors,
officers or managers of the PSBA, the relation between and among its stockholders, and between them and the corporation. Private
respondent also contends that his "ouster" was a scheme to intimidate him into selling his shares and to deprive him of his just and fair
return on his investment as a stockholder received through his salary and allowances as Executive Vice-President. Vis-a-vis the NLRC, these
matters fall within the jurisdiction of the SEC. Presidential Decree No. 902-A vests in the Securities and Exchange
Commission:jgc:chanrobles.com.ph

". . . original and exclusive jurisdiction to hear and decide cases involving:

"a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud
and misrepresentation which may be detrimental to the interest of the public and/or stockholders, partners, members of associations or
organizations registered with the Commission.

"b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between
any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such
entity;

"c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or
associations.

This is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and of TAN’s not having been elected
thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the exercise of deliberate choice and the
faculty of discriminative selection. Generally speaking, the relationship of a person to a corporation, whether as officer or as agent or
employee, is not determined by the nature of the services performed, but by the incidents of the relationship as they actually exist.

With the foregoing conclusion, it follows that the issuance of a subpoena duces tecum by the Labor Arbiter will have to be set aside.

WHEREFORE, judgment is hereby rendered (1) ordering respondent Labor Arbiter to dismiss the complaint in NLRC Case No. NCR-9-20-81 for
lack of jurisdiction; (2) nullifying the subpoena duces tecum issued by him in said case; and (3) declaring the Temporary Restraining Order
heretofore issued permanent. No costs. SO ORDERED.
G.R. No. L-68544 October 27, 1986

LORENZO C. DY, ZOSIMO DY, SR., WILLIAM IBERO, RICARDO GARCIA AND RURAL BANK OF AYUNGON, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND EXECUTIVE LABOR ARBITER ALBERTO L. DALMACION, AND CARLITO H.
VAILOCES, respondents.

Marcelino C. Maximo and Ramon Barrameda for petitioners.

Carlito H. Vailoces for private respondent.

NARVASA, J.:

Petitioners assail in this Court the resolution of the National Labor Relations Commission (NLRC) dismissing their appeal from the decision of
the Executive Labor Arbiter 1 in Cebu City which found private respondent to have been illegally dismissed by them.

Said private respondent, Carlito H. Vailoces, was the manager of the Rural Bank of Ayungon (Negros Oriental), a banking institution duly
organized under Philippine laws. He was also a director and stockholder of the bank.

On June 4, 1983, a special stockholders' meeting was called for the purpose of electing the members of the bank's Board of Directors.
Immediately after the election the new Board proceeded to elect the bank's executive officers.

Pursuant to Article IV of the bank's by-laws, 2 providing for the election by the entire membership of the Board of the executive officers of the
bank, i.e., the president, vice-president, secretary, cashier and bank manager, in that board meeting of June 4, 1983, petitioners Lorenzo Dy,
William Ibero and Ricardo Garcia were elected president, vice-president and corporate secretary, respectively. Vailoces was not re-elected as
bank manager, 3Because of this development, the Board, on July 2, 1983, passed Resolution No. 5, series of 1983, relieving him as bank
manager.

On August 3, 1983, Vailoces filed a complaint for illegal dismissal and damages with the Ministry of Labor and Employment against Lorenzo
Dy and Zosimo Dy, Sr. The complaint was amended on September 22, 1983 to include additional respondents-William Ibero, Ricardo Garcia
and the Rural Bank of Ayungon, and additional causes of action for underpayment of salary and non-payment of living allowance.

In his complaint and position paper, Vailoces asserted that Lorenzo Dy, after obtaining control of the majority stock of the bank by buying the
shares of Marcelino Maximo, called an illegal stockholders' meeting and elected a Board of Directors controlled by him; that after its illegal
constitution, said Board convened on July 2, 1983 and passed a resolution dismissing him as manager, without giving him the opportunity to
be heard first; that his dismissal was motivated by Lorenzo Dy's desire to take over the management and control of the bank, not to mention
the fact that he (Dy) harbored ill feelings against Vailoces on account of the latter's filing of a complaint for violation of the corporation code
against him and another complaint for compulsory recognition of natural child with damages against Zosimo Dy, Sr. 4

In their answer, Lorenzo Dy, et al. denied the charge of illegal dismissal. They pointed out that Vailoces' position was an elective one, and he
was not re-elected as bank manager because of the Board's loss of confidence in him brought about by his absenteeism and negligence in the
performance of his duties; and that the Board's action was taken to protect the interest of the bank and was "designed as an internal control
measure to secure the check and balance of authority within the organization." 5

The Executive Labor Arbiter found that Vailoces was:

(a) Illegally dismissed, first not because of absenteeism and negligence, but of the resentment of petitioners against
Vailoces which arose from the latter's filing of the cases for recognition as natural child against Zosimo Dy, Sr. and for
violation of the corporation code against Lorenzo Dy; and second, because he was not afforded the due process of law
when he was dismissed during the Board meeting of July 2, 1983 the validity of which is seriously doubted;

(b) Not paid his cost of living allowance; and

(c) Underpaid with only P500 monthly salary,

and consequently ordered the individual petitioners — Lorenzo Dy and Zosimo Dy-but not the Bank itself, to:

(a) Pay Vailoces jointly and severally, the sum of P111,480.60 representing his salary differentials, cost of living
allowances, back wages from date of dismissal up to the date of the decision (November 29, 1983), moral and exemplary
damages, and attorney's fees; and

(b) Reinstate Vailoces to his position as bank manager, with additional backwages from December 1, 1983 on the adjusted
salary rate of P620.00 r month until he is actually reinstated, plus cost-of-living allowance. 6

Lorenzo Dy, et al. appealed to the NLRC, assigning error to the decision of the Labor Arbiter on various grounds, among them: that Vailoces
was not entitled to notice of the Board meeting of July 2, 1983 which decreed his relief because he was no longer a member of the Board on
said date; that he nonetheless had the opportunity to refute the charges against him and seek a formal investigation because he received a
copy of the minutes of said meeting while he was still the bank manager (his removal was to take effect only on August 15, 1983), instead of
which he simply abandoned the work he was supposed to perform up to the effective date of his relief; and that the matter of his relief was
within the adjudicatory powers of the Securities and Exchange Commission. 7

The NLRC, however bypassed the issues raised and simply dismissed the appeal for having been filed late. It ruled that:

The record shows that a copy of the decision sent by registered mail to respondents' counsel, Atty. Edmund Tubio, was
received on January 11, 1984 by a certain Atty. Ramon Elesteria, a law office partner of Atty. Tubio. ... This fact is
corroborated by the certification issued by the Postmaster of Dumaguete City... Moreover, the same is admitted by no less
than Atty. Ramon Elesteria himself in his affidavit. It further appears in the record that on January 30, 1984 a certain Atty.
Francisco Zerna, a new lawyer engaged by the respondents for the appeal, received a copy of the decision in this case as
certified by Julia Pepito in an affidavit subscribed before the Senior Labor Arbitration Specialist. The appeal was filed only
on February 17, 1984.

Considering that it was a law partner of the respondents' counsel who received on January 11, 1984 the registered letter,
his actual receipt thereof completes the service. ... And even assuming that such was not a valid service, since the
respondents received another copy of the decision on January 30, 1984, through their newly engaged counsel, it is
 therefore our opinion that the appeal herein was filed out of time, whether the time is reckoned from the receipt by Atty.
Elesteria or Atty. Zerna, and, for this reason, we can not give due course to his appeal. 8

In this Court, petitioners assail said ruling as an arbitrary deprivation of their right to appeal through unreasonable adherence to procedural
technicality. They argue that they should not be bound by the service of the Labor Arbiter's decision by Atty. Elesteria on January 11, 1984 or
by Atty. Zerna on January 30, 1984, because neither lawyer was authorized to accept service for their counsel Atty. Tubio, and that their 10
day period of appeal should be counted from February 10, 1984 when they actually received the copy of the decision from Atty. Zerna. On the
merits, they assert that the Arbiter's finding of illegal dismissal was without evidentiary basis, that it was error to impose the obligation to pay
damages upon the individual petitioners, instead of the Rural Bank of Ayungon, which was Vailoces' real employer, and that the damages
awarded are exorbitant and oppressive.

While the comment of Vailoces traverses the averments of the petition, that of the Solicitor General on behalf of public respondents perceives
the matter as an intracorporate controversy of the class described in Section 5, par. (c), of Presidential Decree No. 902-A, namely:

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations.

explicitly declared to be within the original and exclusive jurisdiction of the Securities and Exchange Commission, and recommends that the
questioned resolution of the NLRC as well as the decision of the Labor Arbiter be set aside as null and void. 9

In truth, the issue of jurisdiction is decisive and renders unnecessary consideration of the other questions raised.

There is no dispute that the position from which private respondent Vailoces claims to have been illegally dismissed is an elective corporate
office. He himself acquired that position through election by the bank's Board of Directors at the organizational meeting of November 17,
1979. 10 He lost that position because the Board that was elected in the special stockholders' meeting of June 4, 1983 did not re-elect him.
And when Vailoces, in his position paper submitted to the Labor Arbiter, impugned said stockholders' meeting as illegally convoked and the
Board of Directors thereby elected as illegally constituted, 11 he made it clear that at the heart of the matter was the validity of the directors'
meeting of June 4, 1983 which, by not re-electing him to the position of manager, in effect caused termination of his services.

The case thus falls squarely within the purview of Section 5, par. (c), No. 902-A just cited. In PSBA vs. Leaño, 12
this Court, confronted with a
similar controversy, ruled that the Securities and Exchange Commission, not the NLRC, has jurisdiction:

It was at a Board regular monthly meeting held on August 1, 1981, that three directors were elected to fill vacancies. And,
it was at the regular Board meeting of September 5, 1981 that all corporate positions were declared vacant in order to
effect a reorganization, and at the ensuing election of officers, Tan was not re-elected as Executive Vice-President.

Basically, therefore, the question is whether the election of directors on August 1, 1981 and the election of officers on
September 5, 1981, which resulted in Tan's failure to be re-elected, were validly held. This is the crux of the question that
Tan has raised before the SEC. Even in his position paper before the NLRC, Tan alleged that the election on August 1, 1981
of the three directors was in contravention of the PSBA By-Laws providing that any vacancy in the Board shall be filled by a
majority vote of the stockholders at a meeting specially called for the purpose. Thus, he concludes, the Board meeting on
September 5, 1981 was tainted with irregularity on account of the presence of illegally elected directors without whom the
results could have been different.

Tan invoked the same allegations in his complaint filed with the SEC. So much so, that on December 17, 1981, the SEC
(Case No. 2145) rendered a Partial Decision annulling the election of the three directors and ordered the convening of a
stockholders' meeting for the purpose of electing new members of the Board. The correctness of d conclusion is not for us
to pass upon in this case. Tan was present at said meeting and again sought the issuance of injunctive relief from the SEC.

The foregoing indubitably show that, fundamentally, the controversy is intra-corporate in nature. It revolves around the
election of directors, officers or managers of the PSBA, the relation between and among its stockholders, and between
them and the corporation. Private respondent also contends that his "ouster" was a scheme to intimidate him into selling
his shares and to deprive him of his just and fair return on his investment as a stockholder received through his salary and
allowances as Executive Vice-President. Vis-a-vis the NLRC, these matters fall within the jurisdiction of the SEC.
Presidential Decree No. 902-A vests in the Securities and Exchange Commission:

... Original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation) which may be detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or organizations registered with the Commission.

b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or
associates; between any of all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations,
partnership or associations.

This is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and of Tan's not
having been elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the
exercise of deliberate choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to
corporation, whether as officer or as agent or employee, is not determined by the nature of the services performed, but by
the incidents of the relationship as they actually exist.

Respondent Vailoces' invocation of estoppel as against petitioners with respect to the issue of jurisdiction is unavailing. In the first place, it is
not quite correct to state that petitioners did not raise the point in the lower tribunal. Although rather off handedly, in their appeal to the
NLRC they called attention to the Labor Arbiter's lack of jurisdiction to rule on the validity of the meeting of July 2, 1983, but the dismissal of
the appeal for alleged tardiness effectively precluded consideration of that or any other question raised in the appeal. More importantly,
estoppel cannot be invoked to prevent this Court from taking up the question of jurisdiction, which has been apparent on the face of the
pleadings since the start of litigation before the Labor Arbiter. It is well settled that the decision of a tribunal not vested with appropriate
jurisdiction is null and void. Thus, in Calimlim vs. Ramirez, 13 this Court held:

A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the
jurisdiction of a court over the subject matter of the action is a matter of law and may not be conferred by consent or
 agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on appeal.
This doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the cited case
of Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations which were
obviously not contemplated therein. The exceptional circumstances involved in Sibonghanoy which justified the departure
from the accepted concept of non-waivability of objection to jurisdiction has been ignored and, instead a blanket doctrine
had been repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as the exception, but rather the general
rule, virtually overthrowing altogether the time-honored principle that the issue of jurisdiction is not lost by waiver or by
estoppel.

xxx xxx xxx

It is neither fair nor legal to bind a party by the result of a suit or proceeding which was taken cognizance of in a court
which lacks jurisdiction over the same irrespective of the attendant circumstances. The equitable defense of estoppel
requires knowledge or consciousness of the facts upon which it is based . The same thing is true with estoppel by conduct
which may be asserted only when it is shown, among others, that the representation must have been made with
knowledge of the facts and that the party to whom it was made is ignorant of the truth of the matter (De Castro vs.
Gineta, 27 SCRA 623). The filing of an action or suit in a court that does not possess jurisdiction to entertain the same may
not be presumed to be deliberate and intended to secure a ruling which could later be annulled if not favorable to the party
who filed such suit or proceeding in a court that lacks jurisdiction to take cognizance of the same, such act may not at
once be deemed sufficient basis of estoppel. It could have been the result of an honest mistake or of divergent
interpretation of doubtful legal provisions. If any fault is to be imputed to a party taking such course of action, part of the
blame should be placed on the court which shall entertain the suit, thereby lulling the parties into believing that they
pursued their remedies in the correct forum. Under the rules, it is the duty of the court to dismiss an action 'whenever it
appears that court has no jurisdiction over the subject matter.' (Section 2, Rule 9, Rules of Court) Should the Court render
a judgment without jurisdiction, such judgment may be impeached or annulled for lack of jurisdiction (Sec. 30, Rule
132, Ibid), within ten (10) years from the finality of the same (Art. 1144, par. 3, Civil Code).

To be sure, petitioners failed to raise the issue of jurisdiction in their petition before this Court. But this, too, is no hindrance to the Court's
considering said issue.

The failure of the appellees to invoke anew the aforementioned solid ground of want of jurisdiction of the lower court in this appeal should not
prevent this Tribunal to take up that issue as the lack of jurisdiction of the lower court is apparent upon the face of the record and it is
fundamental that a court of justice could only validly act upon a cause of action or subject matter of a case over which it has jurisdiction and
said jurisdiction is one conferred only by law; and cannot be acquired through, or waived by, any act or omission of the parties (Lagman vs.
CA, 44 SCRA 234 [1972]); hence may be considered by this court motu proprio (Gov't. vs. American Surety Co., 11 Phil. 203 [1908])... 14

These considerations make inevitable the conclusion that the judgment of the Labor Arbiter and the resolution of the NLRC are void for lack of
cause of jurisdiction, and this Court must set matters aright in the exercise of its judicial power. It is of no moment that Vailoces, in his
amended complaint, seeks other relief which would seemingly fan under the jurisdiction of the Labor Arbiter, because a closer look at these-
underpayment of salary and non-payment of living allowance-shows that they are actually part of the perquisites of his elective position,
hence, intimately linked with his relations with the corporation. The question of remuneration, involving as it does, a person who is not a
mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter
that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation
Code.

WHEREFORE, the questioned decision of the Labor Arbiter and the Resolution of the NLRC dismissing petitioners' appeal from said decision are
hereby set aside because rendered without jurisdiction. The amended complaint for illegal dismissal, etc., basis of said decision and
Resolution, is ordered dismissed, without prejudice to private respondent's seeking recourse in the appropriate forum. SO ORDERED.
G.R. No. 69999 April 30, 1991

LUZVIMINDA VISAYAN, BENJAMIN BORJA, PABLO AJERO, LORETO DEDOYCO, NESTOR GORGOLLO, DOMINGO METRAN, LITO
MONTERON, ROMEO OMAGBON, BOMBOM PAUSAMOS, CIRILO RAMOS, MARCOS SISON, ERIC BONDOLO, REY ZAMORA, TERESA
ANAVISO, EVELYN BACULINAO, MARIBEL BASAG, VIOLETA DAGUISA, ADELAIDA CANALDA, LAILA DIMLA, MACHAELA LUCERO,
DIVINA MARIANO, EPIFANIA OBLIGADO, RAQUEL PONCIANO, ELLEN SACRAMENTO, GRACE SULLETA FELY TAPAY, SUSAN
VILLAMOR, ANAINO AMPLAYO, MARIO CHIONG NESTOR ESTARES, ALELI ALEJO, ELVIE BAUTISTA, JANINA ESTARES NORMA
MENDOZA, LIGAYA SYDUA and JANETTE VILLAREAL, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and FUJIYAMA RESTAURANT AND HOTEL, INC. and its
MANAGER/OPERATOR, respondents.

Danilo S. Lorredo for petitioners.

King, Capuchino, Banico & Associates for private respondent.

PARAS, J.:

Assailed in the instant petition is the Resolution of public respondent National Labor Relations Commission (NLRC, for brevity) promulgated
January 15, 1985 for being contrary to law and jurisprudence and arrived at in grave abuse of discretion amounting to lack or in excess of
jurisdiction.

The facts are briefly stated as follows:

Private respondent Fujiyama Hotel & Restaurant, Inc. was formally organized in April, 1978 with Aquilino Rivera holding a majority interest in
the corporation. The rest of the four (4) incorporators composed the minority stockholders of respondent corporation.

Upon organization in 1978, respondent corporation immediately opened a Japanese establishment, known as Fujiyama Hotel & Restaurant,
located at 1413 M. Adriatico St., Ermita, Manila. In order to fully offer an authentic Japanese cuisine and traditional Japanese style of service,
private respondent hired the services of Isamu Akasako as its chef and restaurant supervisor. (Private respondent's memorandum, p. 4).

In June, 1980, Lourdes Jureidini and Milagros Tsuchiya, allegedly pretending to be stockholders of the corporation, filed a case with the then
Court of First Instance of Manila, Branch XXXVI against Rivera and Akasako to wrest control over the establishment. In June, 1981, the said
court issued a writ of preliminary mandatory injunction transferring possession of all the assets of the company and the management thereof
to Jureidini and Tsuchiya. The stockholders and directors of the corporation were thereby excluded from the management and operation of
the restaurant.

Upon assuming management, Jureidini and Tsuchiya replaced almost all of the existing employees with new ones, majority of whom are the
present petitioners in the instant case. Apparently, the new employees were extended probationary appointments for six (6) months from
December 15, 1981 to June 1 5, 1982.

In the meantime, Rivera and the rest of the stockholders elevated the civil case to the Supreme Court through a petition
for certiorari assailing the ground for the issuance of the writ of preliminary mandatory injunction by the said Court of First Instance, which
case was entitled Aquilino Rivera, et al. vs. Hon. Alfredo C. Florendo, et al., docketed as G.R. No. 57586. On motion of Rivera, et al. in the
said case, this Court on August 21, 1981 issued a writ of preliminary injunction to enjoin enforcement of the June 23, 1981 writ of preliminary
mandatory injunction issued by the said Court of First Instance. Since Jureidini and Tsuchiya disregarded the writ We had previously issued,
We issued another resolution on May 26, 1982 directing both Jureidini and Tsuchiya to strictly and immediately comply with the Court's
injunction. Thus, this Court ordered Jureidini and Tsuchiya, "their agents, representatives, and/or any person or persons acting upon their
orders or in their place or stead to refrain from further managing and/or interfering with the management of the business and assets of
petitioner corporation and . . . . to turn over all assets and the management of petitioner corporation, Fujiyama Hotel & Restaurant, Inc., to
Aquilino Rivera and Isamu Akasako." (NLRC, Resolution, p. 4; Rollo, p. 116).

Pursuant to the above-quoted resolution, Rivera and Akasako regained control and management of Fujiyama Hotel & Restaurant, Inc.
Immediately upon assumption of the management of the corporation, Rivera et al., refused to recognize as employees of the corporation all
persons that were hired by Jureidini and Tsuchiya during the one-year period that the latter had operated the company and reinstated the
employees previously hired by them. This gave rise to the filing of the present case by the dismissed employees hired by Jureidini and
Tsuchiya (some of whom had allegedly been hired by Rivera and Akasako even before Jureidini and Tsuchiya assumed management of the
corporation) against Fujiyama Hotel & Restaurant, Inc. for illegal dismissal, which case was docketed as NLRC-NCR Case No. 6-4110-82. On
motion of private respondent corporation, the Labor Arbiter included Jureidini and Tsuchiya as third-party respondents therein. Thereafter,
the parties, except Jureidini and Tsuchiya, submitted their respective position papers and affidavits in support of their contentions. On the
basis of said position papers and affidavits, the Labor Arbiter rendered a decision on September 21, 1982 ordering respondent company
and/or Akasako, Jureidini and Tsuchiya to reinstate all the complainants to their former positions plus backwages and to pay jointly and
severally the complainants their unpaid wages plus their share in the service charges. (NLRC Decision, pp. 4-5; Rollo, pp. 25-26).

On October 12, 1982, the aforesaid decision of the Labor Arbiter was received by private respondent's counsel. Ten (10) days thereafter, or
on October 22, 1982, said counsel filed a notice of appeal with an accompanying supersedeas bond in the sum of P80,000.00 as fixed by the
Labor Arbiter. Notably, the memorandum of appeal was not filed until November 24, 1982 when the attention of private respondent's counsel
was called by the filing on November 19, 1982 of a motion for execution of the September 21, 1982 decision by the complainants. Thus, upon
motion of private respondent, the NLRC temporarily stayed execution and directed the Labor Arbiter to transmit the entire record of the case
to the NLRC for appropriate action.

On December 28, 1983, the NLRC resolved to deny the appeal of private respondent for having been filed out of time.1âwphi1 Subsequently,
a motion for reconsideration was seasonably filed by private respondent which became the basis of another resolution dated January 15, 1985
issued by the NLRC setting aside its previous resolution of December 28, 1983 as well as the Labor Arbiter's decision dated September 21,
1982. The decretal portion of the January 15, 1982 NLRC Resolution is quoted, thus:

WHEREFORE, the Resolution sought to be reconsidered and the Decision appealed from are hereby SET ASIDE and a new Decision is
entered, declaring respondents Lourdes Jureidini and Mila Tsuchiya as the previous employer of the complainants hired by them
while operating the Fujiyama Restaurant & Hotel, Inc. Consequently, the establishment and its present operator, Isamu Akasako, is
absolved of any liability to them but the entire record is remanded for further appropriate proceedings to determine who are the
complainants hired by said Jureidini and Tsuchiya.

SO ORDERED.

(NLRC Resolution, pp. 19-20; Rollo, p. 7-8)

The legal issues in the instant case are: (1) whether or not there is privity of contract between petitioners and private respondent as to
establish an employer-employee relationship between the parties, and (2) whether or not the respondent NLRC erred in giving due course to
private respondent's appeal and in reversing the September 21, 1982 decision of the Labor Arbiter.

Section 23 of B.P. 68, otherwise known as the "Corporation Code of the Philippines," expressly provides as follows:

Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one
(1) year and until their successors are elected and qualified. . . .

It is clear from the above-quoted provision that a corporation can act only through its board of directors. "The law is settled that contracts
between a corporation and third persons must be made by or under the authority of its board of directors and not by its stockholders. Hence,
the action of the stockholders in such matters is only advisory and not in any wise binding on the corporation." (De Leon, The Corporation
Code of the Philippines, 1989 edition, p. 168, citing the case of Barreto vs. La Previsora Filipina, 57 Phil. 649).

A corporation, like a natural person who may authorize another to do certain acts for and in his behalf, through its board of directors, may
legally delegate some of its functions and powers to its officers, committees or agents appointed by it. (Campos & Campos, The Corporation
Code-Comments, Notes, and Selected cases, 1981 ed., p. 253). In the absence of an authority from the board of directors, no person, not
even the officers of the corporation, can validly bind the corporation. Thus, the Supreme Court, has made the following pronouncement in the
case of Vicente vs. Geraldez, L-32473, 53 SCRA 210:

. . . Whatever authority the officers or agents of a corporation may have is derived from the board of directors or other governing
body, unless conferred by the charter of the corporation. A corporate officer's power as an agent of the corporation must therefore
be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the acts of the board of
directors, formally expressed or implied from a habit or custom of doing business. In the case at bar no provision of the charter and
by-laws of the corporation or any resolution or any other act of the board of directors has been cited from which we could
reasonably infer that the administration trative manager had been granted expressly or impliedly the power to bind the corporation
or the authority to compromise the case. The signature of Atty. Cardenas on the Agreement would therefore be legally ineffectual".
(Vicente vs. Geraldez, L-32473, 52 SCRA 210, p. 227). (Respondent's Memorandum, p. 11)

Applying the aforesaid doctrines in the case at bar, We hold that all acts done solely by Jureidini and Tsuchiya allegedly, for and in behalf of
private respondent during the period from June, 1981 up to May 31, 1982 were not binding upon respondent corporation.

It is not denied by both parties that the operation and management of the Fujiyama Hotel & Restaurant Corporation, including the control and
possession of all its assets, were forcibly taken by Jureidini and Tsuchiya from the owners thereof by virtue of a writ of preliminary mandatory
injunction issued by then Court of First Instance of Manila, Branch XXXVI These owners, the Rivera-Akasako group, composed the board of
directors of respondent corporation during the one (1) year period that Jureidini and Tsuchiya controlled the respondent corporation, the
former managed and operated the latter apparently without any authority from the latter's board of directors. As alleged by Rivera, et al.,
Jureidini and Tsuchiya were not even officers of respondent corporation as to be considered its agents, which act prompted this tribunal to
order said persons, under pain of contempt, to turn over the management and assets of respondent corporation to Rivera et al., as shown by
this Court's resolution of May 26, 1982. Thus, all acts done by Jureidini and Tsuchiya for and in behalf of respondent corporation, having been
made without the requisite authority from the board of directors, were not binding upon the said corporation. One of these unauthorized acts
was the unwarranted termination of the original employees of respondent corporation who were validly hired by its board of directors, vis-a-
vis, the hiring of new employees, the petitioners in the case at bar, to replace the said original employees. Since said acts were not binding
upon the corporation, no employer-employee existed between the Fujiyama Hotel & Restaurant, Inc. and the herein petitioners.

We agree with private respondent that the act of the Rivera-Akasako group in admitting the original employees of respondent corporation
after regaining control and management of the latter on May 31, 1982, having been made by the corporation's board of directors, was valid.
Even if Jureidini and Tsuchiya took over the management and control of respondent corporation, the employer-employee relationship between
the corporation and its original employees has not been severed for lack of authority on the part of Jureidini and Tsuchiya to dismiss said
employees.

Consequently, petitioners' claim of illegal dismissal is entirely mistaken as they were not hired by respondent corporation or its duly
authorized officers or agents, hence, no employer-employee relationship ever existed between them. Jureidini and Tsuchiya, the persons who
hired petitioners' services, are to be considered their employer, and not the private respondents.

Neither may petitioners claim good faith or ignorance of the lack of authority on the part of Jureidini and Tsuchiya to legally hire them and
bind the corporation because they were all informed by Isamu Tatewaki respondent corporation's Assistant Manager, of such fact at the time
they were hired. (Reply Brief of Isamu Tatewaki Annex "10"). Besides, it was clearly shown that the appointments of the petitioners were on a
probationary basis.

Further, it will be recalled that on August 21, 1981, this Court issued a writ of preliminary injunction in the case of Rivera, et al. vs. Judge
Alfredo C. Florendo, et al., G.R. No. 57586, promulgated October 8, 1986, enjoining the enforcement of the writ of preliminary mandatory
injunction issued by respondent judge therein. Despite the issuance of said writ, Jureidini and Tsuchiya refused to return the management of
the corporation but continued managing and operating respondent corporation and in fact terminated the original employees of respondent
corporation and hired new ones in place of those dismissed. The appointment papers of these new employees would show that they were
hired only in one day, i.e., December 15, 1981, and that they were hired on a probationary basis. It follows that only Jureidini and Tsuchiya,
being the ones who hired the petitioners, should be the ones responsible for the petitioners' claims.

Since it would be most unfair and unjust to hold the respondent corporation liable for the claims of petitioners, even if respondent
corporation's memorandum was filed beyond the 10 day reglementary period (note that the notice of appeal had been filed on time), We rule
that the NLRC did not commit grave abuse of discretion in giving due course to respondent corporation's appeal and in reversing the Labor
Arbiter's decision dated September 21, 1982.

The NLRC is vested with broad powers by the Labor Code, particularly Art. 218 thereof, to correct, amend or waive any error, injustice, defect
or irregularity whether in substance or in form; and in adjudicating all cases brought before it, the NLRC is likewise empowered to use every
and all reasonable means to ascertain the facts in each case expeditiously and objectively without regard to procedural technicalities. Thus,
Art. 221 of the Labor Code provides as follows:

In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in Courts of Law or equity
shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters
shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process. In any proceeding before the Commission or any Labor Arbiter
to exercise complete control of the proceedings at all stages.
The factual circumstances and substantial merits of the instant case justify the NLRC's exercise of its reserve powers granted by the
aforequoted provision. Private respondent's appeal should be granted and entertained in order to prevent a manifest injustice upon said
respondent.

While it is true that an appeal within the meaning of the Labor Code must include the assignments of error, memorandum of arguments in
support thereof and the reliefs prayed for such that a mere notice of appeal will not toll the running of the period for perfecting an appeal, and
the general rule is that after a judgment has become final the appellate court loses jurisdiction to entertain the appeal, the aforementioned
rules admit of exceptions too, because it is also well-settled that such rules of procedure are used only to help secure and not override
substantial justice.

Litigations should, as much as possible, be decided on their merits and not on technicality, and under the circumstances obtaining in
this case, We are reminded of what We said in the case of Gregorio vs. CA, 72 SCRA 120, –– "Dismissal of appeals purely on
technical grounds is frowned upon where the policy of the courts is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override
substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. (American Home
Insurance Co. vs. Court of Appeals, 109 SCRA 180)

In the case at bar, the finding of the Labor Arbiter that there is an employer-employee relationship existing between petitioners and private
respondent counter-acts the provisions of the Corporation Code such that to strictly apply the procedural rules on appeal under the Labor
Code would obviously result in patent and gross injustice upon private respondent's substantive rights. In relation to the peculiar factual
background of the instant case, private respondent's defense of lack of privity of contract with petitioners merits greater consideration in the
interest of substantial justice.

It will be recalled that the Labor Arbiter's finding of illegal dismissal and order of reinstatement were anchored on an erroneous premise that
Jureidini and Tsuchiya were duly authorized and legitimate officers of the corporation. The enforcement of said erroneous ruling will cause
serious injustice, not only upon respondent corporation but also upon the corporation's original employees who were taken back by the
Aquilino Rivera group when they regained possession and management of the corporation. If petitioners are reinstated, that would result in
an absurd situation wherein the corporation will have employees very much more in excess of what the business would require.

Besides, it is quite evident that private respondent seriously intended to appeal the Labor Arbiter's decision and We hereby quote a portion of
the herein assailed NLRC Resolution:

. . . In fact, it even filed an urgent petition for reduction of supersedeas bond, praying that it be allowed to file a P50,000.00 bond
but it was fixed at P80,000.00 by the Labor Arbiter which it filed with its notice of appeal. In the conference on 15 October 1982
called by the Labor Arbiter issuing his decision for the purpose of settling the case amicably, the respondent again manifested after
no settlement was arrived at that it will file its appeal. With these in mind, We are convinced that respondent's failure to file its
memorandum on appeal with its notice of appeal was through excusable mistake only on the part of the messenger-clerk.
Otherwise, it would not have gone through the burden of going through the rigors of having the supersedeas bond reduced and
abiding with the amount fixed which entailed expenses. Consequently, in the interest of substantial justice and in line with the
repeated rulings of the Supreme Court lately which abhors dismissal of cases based solely on technicalities, We set aside the
Resolution sought to be reconsidered and give due course to the appeal. (pp. 15-16, Rollo)

Finally' it is clear that petitioners were not abandoned by the NLRC as the latter ordered that the case be remanded to the Arbitration Branch
for further proceedings to determine who among the petitioners were really hired by respondent corporation or by Jureidini, et al., in order to
ultimately determine who is responsible for the settlement of petitioners' claims. Thus, petitioners are not without recourse relative to their
claims.

ACCORDINGLY, the instant petition is hereby DISMISSED for lack of merit and the assailed decision of the National Labor Relations
Commission dated January 15, 1985 is AFFIRMED in toto. SO ORDERED.
 [G.R. No. 108710. September 14, 1999]

ARMANDO T. DE ROSSI, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), MATLING INDUSTRIAL AND
COMMERCIAL CORPORATION AND RICHARD K. SPENCER, respondents.

RESOLUTION

QUISUMBING, J.:

This petition for certiorari, under Rule 65 of the Rules of Court, assails the Decision[1] of the National Labor Relations Commission
(NLRC) which ruled that jurisdiction over a complaint by a corporate executive and management officer for illegal dismissal rests with the
Securities and Exchange Commission, and not the Labor Arbiter and the NLRC. Said Decision reversed and set aside the holding of the Labor
Arbiter[2]who sustained petitioners claim for reinstatement and damages.

The antecedent facts are as follows:

An Italian citizen, petitioner was the Executive Vice-President and General Manager of private respondent, Matling Industrial and
Commercial Corporation (MICC). He started work on July 1, 1985. On August 10, 1988, MICC terminated his employment.

Aggrieved, petitioner filed with the NLRC, National Capital Region on September 21, 1989, a complaint [3] for illegal dismissal with
corresponding damages.

MICC based petitioners dismissal on the ground that the petitioner failed to secure his employment permit, grossly mismanaged the
business affairs of the company, and misused corporate funds. However, petitioner argued that it was the duty of the company to secure his
work permit during the term of his office, and that his termination was illegal for lack of just cause.

On November 27 1991, Labor Arbiter Asuncion rendered a decision in favor of petitioner, disposing as follows:

WHEREFORE, respondents, Matling Industrial and Commercial Corporation and Richard K. Spencer, are jointly and severally ordered:

1. To reinstate the complainant Armando T. de Rossi to his former positions as Executive Vice-President and General Manager, without
loss of seniority rights, and other privileges and with full backwages, from the date his salary was withheld until he is actually
reinstated. His reinstatement is immediately executory;

2. To pay the complainant the sum of P800,000 as moral damages, and another P700,000.00 as exemplary damages.

3. To pay Attorneys fee equivalent to 10% of the total amount awarded.

SO ORDERED.[4]

MICC appealed the decision of the labor arbiter to the NLRC (First Division) on the ground that Asuncion committed grave abuse of
discretion amounting to lack of jurisdiction in reinstating the petitioner and awarding him backwages and damages, because the termination
of petitioner was for a valid cause.

On January 6, 1992, petitioner filed a motion for issuance of writ of execution, [5] stating that the reinstatement order is immediately
executory, even pending appeal pursuant to Article 223 of the Labor Code.

On January 16, 1992, respondents opposed the said motion. On February 6, 1992, petitioner filed a manifestation reiterating his request
for reinstatement.

On February 26, 1992, and March 12, 1992, respectively, private respondents filed a counter manifestation and motion; they reiterated
their vehement objection thereto as already signified in their opposition. Further, they contended that the position of executive vice-president
is an elective post, specifically provided by the corporates by-laws. Thus, the dismissal of the petitioner was an intra-corporate matter within
the jurisdiction of the Securities and Exchange Commission (SEC) and not with the Labor Arbiter nor the NLRC. Therein, private respondents
cited several cases decided by the Court in support of their contention, among them: Dy vs. National Labor Relations Commission, 145 SCRA
211, Fortune Cement Corp. vs. National Labor Relations Commission, 193 SCRA 258, PSBA vs. Leano, 127 SCRA 778.

On July 7, 1992, OIC and Executive Labor Arbiter Lita Aglibut issued a writ of execution. Aglibut directed Sheriff Max Lago to collect the
backwages of petitioner de Rossi, in the amount of six hundred seventy five thousand (P675,000.00) pesos from MICC. Further, she gave
MICC the option to reinstate de Rossi physically or constructively through payroll reinstatement until the final resolution of the case by the
NLRC.

On August 5, 1992, private respondents filed a motion for reconsideration of the writ of execution, reiterating their argument that the
SEC and not the NLRC has original and exclusive jurisdiction over the subject matter which involves the removal of a corporate officer.

On October 30, 1992, the NLRC rendered its decision dismissing the case by virtue of Section 5, paragraph (c), of P.D. No. 902-
A. However, the Commission stated that, although in its view it has jurisdiction over the case, it must yield to the Supreme Courts decisions
recognizing SECs jurisdiction over such a case, to wit:

It is our view that notwithstanding the provisions of Presidential Decree No. 902-A, we in this Commission, have jurisdiction over this
case. The reason being, Article 217 of the Labor Code was amended on March 21, 1989 by Section 9, Republic Act 6715, viz.:

xxx

On the other hand, we are mindful of a rule in this jurisdiction (geared towards stability of jurisprudence) that:

If a judge of a lower court feels, in the fulfillment of his mission of deciding cases, that the application of a doctrine promulgated by his
superiority is against his way of reasoning, or against his conscience, he may state his opinion on the matter, but rather than disposing of the
case in accordance with his personal views, he must first think that it is his duty to apply the law as interpreted by the highest court of the
land, and that any deviation from a principle laid down by the latter would unavoidably cause, as a sequel, unnecessary inconveniences, delay
and expenses to the litigants.(emphasis by NLRC, People vs. Santos, 56 O.G. 3546)

Guided by the above mandate, we thus have stated our opinion on the matter, but rather than disposing of the case in accordance with our
views, we cannot but apply the law as interpreted by the highest court of the land, and rule that jurisdiction here is not with us but with the
Securities and Exchange Commission.

WHEREFORE, the appealed decision is hereby set aside, and this case is dismissed for want of jurisdiction.
SO ORDERED.[6]

In his petition for certiorari dated February 11, 1993, petitioner contends that:

I. THE NATIONAL LABOR RELATIONS COMMISSION COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION OR ACTED IN EXCESS OF ITS JURISDICTION IN HOLDING THAT THE SECURITIES AND EXCHANGE COMMISSION
HAS JURISDICTION OVER THE COMPLAINT FOR ILLEGAL DISMISSAL FILED BY PETITIONER.

II. THE ISSUES RAISED IN THE COMPLAINT FOR ILLEGAL DISMISSAL ARE RIPE FOR ADJUDICATION BY THIS HONORABLE COURT. [7]

Petitioner asserts that even managerial employees are entitled to the protection of labor laws. He states that his case is peculiar, and
not similar to those cited by private respondents. Petitioner claims that he was neither elected to the post nor stockholder of
MICC. Furthermore, petitioner avers that during the proceedings before the Labor Arbiter, private respondents never questioned the issue of
jurisdiction; it would be too late to raise it now.

Respondent NLRC argues that under the Corporation Code, there is no requirement that an executive vice-president of a corporation
should be a stockholder or a member of the Board of Directors. Further, as observed by the Solicitor General, Section 5 of P. D. 902-A did not
limit the jurisdiction of the SEC to controversies in the election or appointment of directors and trustees, but also included officers or
managers of such corporations, partnerships or associations.

On this score, we are in agreement with the public respondents submission through the Solicitor General. In a string of cases[8] this
Court has consistently held that the SEC, and not the NLRC, has original and exclusive jurisdiction over cases involving the removal of
corporate officers. Section 5, paragraph (c) of P.D. 902-A unequivocally provides that SEC has jurisdiction over intra-corporate affairs
regarding the election or appointment of officers of a corporation, to wit:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:

xxx

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporation, partnership or association.

We have earlier pronounced that an office is created by the charter of the corporation under which a corporation is organized, and the
officer is elected by the directors or stockholders.[9] In the present case, private respondents aver that the officers and their terms of office
are prescribed by the corporations by-laws, which provide as follows:

BY-LAW NO. III Directors and Officers

xxx

The officers of the corporation shall be the President, Executive Vice President, Secretary and Treasurer, each of whom may hold his office
until his successor is elected and qualified, unless sooner removed by the Board of Directors; Provided, That for the convenience of the
corporation the office of the Secretary and Treasurer may be held by one and the same person. Officers shall be designated by the
stockholders meeting at the time they elect the members of the Board of Directors. Any vacancy occurring among the officers of the
Corporation on account of removal or resignation shall be filled by a stockholders meeting. Stockholders holding one half, or more of the
subscribed capital stock of the corporation may demand and compel the resignation of any officer at any time. [10]

The by-laws being in force, clearly petitioner is considered an officer of MICC, elected and/or designated by its board of directors. Following
Section 5(c) of P.D. No. 902-A, the SEC exercises exclusive jurisdiction over controversies regarding the election and/or designation of
directors, trustees, officers or managers of a corporation, partnership or association. This provision is indubitably applicable to the petitioners
case. Jurisdiction here is not with the Labor Arbiter nor the NLRC, but with the SEC.

Note that a corporate officers removal from his office is a corporate act. If such removal occasions an intra-corporate controversy, its
nature is not altered by the reason or wisdom, or lack thereof, with which the Board of Directors might have in taking such action.[11] When
petitioner, as Executive Vice-President allegedly diverted company funds for his personal use resulting in heavy financial losses to the
company, this matter would amount to fraud. Such fraud would be detrimental to the interest not only of the corporation but also of its
members.[12] This type of fraud encompasses controversies in a relationship within the corporation covered by SEC jurisdiction. [13] Perforce,
the matter would come within the area of corporate affairs and management, and such a corporate controversy would call for the adjudicative
expertise of the SEC, not the Labor Arbiter or the NLRC.

Petitioner maintains that MICC can not question now the issue of jurisdiction of the NLRC, considering that MICC did not raise this
matter until after the case had been brought on appeal to the NLRC. However, it has long been established as a rule, that jurisdiction of a
tribunal, agency, or office, is conferred by law, and its lack of jurisdiction may be questioned at any time even on appeal.[14] In La Naval Drug
Corporation vs. Court of Appeals, 236 SCRA 78, 90,[15] this Court said:

Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that the court has no jurisdiction over the
subject matter, the action shall be dismissed. This defense may be interposed at any time, during appeal or even after final judgment. Such is
understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to themselves determine or
conveniently set aside.

Hence, lack of jurisdiction on the part of the Labor Arbiter first, and of the NLRC on appeal, is fatal to petitioners cause.

WHEREFORE, the instant petition is hereby DENIED, and the respondent NLRCs dismissal of the complaint for lack of jurisdiction, is
hereby AFFIRMED, with costs against petitioner. SO ORDERED.
 [G.R. No. 119877. March 31, 1997]

BIENVENIDO ONGKINGCO, as President and GALERIA DE MAGALLANES CONDOMINIUM ASSOCIATION, INC., petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION and FEDERICO B. GUILAS, respondents.

DECISION

KAPUNAN, J.:

At fore, once again, is the jurisdictional tug of war between the National Labor Relations Commission (NLRC) and the Securities &
Exchange Commission (SEC) in this special civil actionfor certiorari under Rule 65 of the Revised Rules of Court. It seeks to set aside the
Resolutions of the NLRC in NLRC NCR Case No. 00-05-02780-92 (NLRC CA No. 004329-93) dated 9 March 1995 and 4 April 1995 which
reversed the decision of Labor Arbiter Oswald Lorenzo and denied petitioners' motion for reconsideration, respectively.

Petitioner Galeria de Magallanes Condominium Association, Inc. (Galeria for brevity) is a non-stock, non-profit corporation formed in
accordance with R.A. No. 4726, otherwise known as the Condominium Act. "Its primary purpose is to hold title to the common areas of the
Galeria de Magallanes Condominium Project and to manage and administer the same for the use and convenience of the residents and/or
owners."[1] Petitioner Bienvenido Ongkingco was the president of Galeria at the time private respondent filed his complaint.

On 1 September 1990, Galeria's Board of Directors appointed private respondent Federico B. Guilas as Administrator/Superintendent.
He was given a "monthly salary of P10,000 subject to review after five (5) months and subsequently thereafter as Galeria's finances
improved."[2]

As Administrator, private respondent was tasked with the maintenance of the "performance and elegance of the common areas of the
condominium and external appearance of the compound thereof for the convenience and comfort of the residents as well as to keep up the
quality image, and hence the value of the investment for the owners thereof."[3]

However, on 17 March 1992, through a resolution passed by the Board of Directors of Galeria, private respondent was not re-appointed
as Administrator.

As a result, on 15 May 1992, private respondent instituted a complaint against petitioners for illegal dismissal and non-payment of
salaries with the NLRC.

In response, on 22 July 1992, petitioners filed a motion to dismiss alleging that it is the SEC, and not the labor arbiter, which has
jurisdiction over the subject matter of the complaint.

Labor Arbiter Lorenzo granted the aforestated motion to dismiss in his order dated 29 December 1992. He ruled, thus:

A judicious calibration of the position taken by the contending parties preponderate clearly in favor of respondents, that this case is within the
jurisdiction of the Securities and Exchange Commission and not this Office (Labor Arbiter).

Our reasons are as follows:

ONE. The Position of Administrator or Superintendent is a corporate position, whose appointment depended on the Board of Directors. As
such, the position of the administrator is a corporate creation.

TWO. Clearly from the respondent corporation's Articles of Incorporation, Art. V, Sec. 6 thereof, the appointment and removal of the
administrator is a prerogative that belongs to the Board, and thereby involves the exercise of deliberate choice and faculty of discriminative
selection.

THIRD. Thus, we find lacking of merit the argument of complainant that since he is not a member of the condominium association where he
was formerly administrator, or is not a unit holder thereof, since a person's relationship to a corporation is not determinative of the services
performed but by the incidents of the relationship as they exist. (PSBA vs. LEANO, 127 SCRA 778.)

The resolution, therefore, of the other pending incident, which is the MOTION FOR SUBSTITUTION OF PARTIES is hereby deferred for action
by the SEC.

WHEREFORE, in view of all the foregoing considerations, this Office hereby orders the dismissal of the instant action for reason of lack of
jurisdiction. The complainant, if he is mindful should file this case with the Securities and Exchange Commission.

SO ORDERED.[4]

The NLRC, however, reversed the Labor Arbiter's order in its resolution dated 9 March 1995. It ruled in this wise:

We find merit in the appeal. It cannot be gainsaid that the complainant's cause of action in his complaint is illegal dismissal which issue falls
four square within the jurisdiction of the NLRC. This is so, because while it may be true that the termination of the complainant was effected
allegedly by a resolution of the Board of Directors of the respondent association, this did not make the dispute intracorporate in nature.
Moreover, We have taken note of the fact that the complainant is neither a member of the association nor an officer thereof. Hence, We are
more convinced that he is an employee of the respondent association occupying the position of administrator who is in (sic) charged with the
function of managing and administering the building or condominium owned by the members. Indeed, there is a whale of difference between
a member of the association who is a part owner of the building and a mere employee performing managerial and administrative functions
which are necessary in the usual undertaking of the respondent Association. The complainant falls under the second category.

And, to the point of being repetitious, it needs to be stressed that the fact that the complainant was removed by the Board of Directors did
not change the issue from an illegal dismissal case to an intracorporate one. For, what remains to be resolved here is whether or not the
complainant's removal from his position as Administrator was for a just and valid cause and in compliance with due process. And, as the facts
now stand, the issue is within the scope of authority of the National Labor Relations Commission to resolve.

We simply could not agree with the conclusions of law made by the Arbiter a quo on the applicability of the provisions of P.D. 902. Our view
finds basis in the case of Gregorio Araneta University Foundation vs. Antonio J. Teodoro and NLRC (167 SCRA 79) wherein the Supreme Court
had the occasion to clarify the jurisdiction of the Securities and Exchange Commission and that of the NLRC. It (Supreme Court) held, thus

"x x x Relying on Philippine School of Business Administration, et al., (127 SCRA 778) and Dy, et al., vs. National Labor Relations
Commission, et al., (145 SCRA 211), Petitioner theorizes that since private respondent was a corporate officer, the present controversy is
within the jurisdiction of the Securities and Exchange Commission, pursuant to P.D. 902-A, and not in the public respondent.
Without need of applying the rule on estoppel by laches against petitioner, its contention must fail on the ground of misplaced reliance. As
explained in Dy, the same is true with Philippine Business Administration, the controversies therein were intra corporate in nature and
squarely within the purview of Section 5(c), PD. 902-A since the real question was the invalidity of the board of director's meeting wherein
corporate officers involved were not re-elected, resulting in the termination of their services." (Underscoring ours.)

As obtaining in this case, no intracorporate controversy exists, hence, the jurisdiction of the NLRC should be sustained.

WHEREFORE, finding merit on the appeal, the same is hereby, given due course. Accordingly, the Order appealed from is declared Null and
Void and is hereby, VACATED and SET ASIDE. Accordingly, let the records of the case be remanded to the Arbitration Branch of origin for
further proceedings. With the directive that the instant case be given priority in the calendar of the Labor Arbiter for the speedy disposition
hereon. Concomitant hereto, the respondents are hereby directed to submit their position paper within ten (10) days from receipt hereof.

SO ORDERED.[5]

Petitioners filed a motion for reconsideration but the same was denied in the NLRC's resolution dated 4 April 1995. [6] Hence, the present
recourse.

The petitioners raised a single issue:

THE PRIVATE RESPONDENT ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION IN
TAKING COGNIZANCE OF A SUBJECT MATTER THAT FELL WITHIN THE ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SEC.

The petition is granted.

Specifically delineated in P.D. 902-A are the cases over which the SEC exercises exclusive jurisdiction:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between
any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such
entity;

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under
the Management Committee created pursuant to this Decree. (Underscoring ours.)

The Solicitor General contends that the case at bar falls outside the purview of the aforequoted provision. He insists that private
respondent was a mere employee of petitioner corporation being tasked mainly, as administrator/superintendent, with the upkeep of the
condominium's common areas. He, thus, maintains that private respondent cannot be deemed a corporate officer because "it is the nature of
one's functions and not the nomenclature or title given to one's job which determines one's status in a corporation." [7]

The contentions of public respondent lack merit. That private respondent is an officer of petitioner corporation and not its mere
employee cannot be questioned. The by-laws of the Galeria de Magallanes Condominium Association specifically includes the
Superintendent/Administrator in its roster of corporate officers:

ARTICLE IV

OFFICERS

Section 1. Executive Officers The Executive officers of the corporation shall be a President, a Vice President, a Treasurer, all of whom shall be
elected by the Board of Directors. They may be removed with or without cause at any meeting by the concurrence of four directors. The
Board of Directors may appoint a Superintendent or Administrator and such other officers and employees and delineate their powers and
duties as the Board shall find necessary to manage the affairs of the corporation.[8] (Underscoring ours.)

xxx.

Section 6. The Superintendent or Administrator The Board of Directors may appoint a Superintendent or Administrator for the condominium
project if the activities and financial condition of the Association so warrant. If one is so appointed, he shall be the principal administrative
officer of the Association. He shall attend to routinary and day-to-day business and activities of the Association and shall keep regular officer
hours for the purpose. He shall have such other duties and powers as may be conferred upon him by the Board of Directors or delegated by
the President of the Association.

At the discretion of the Board of Directors, the work and duties of Superintendent or Administrator may be entrusted to a juridical entity
which is qualified and competent to perform such work.[9]

Closely approximating the dispute at bar is the recent case of Tabang v. NLRC.[10] This Court, through Justice Florenz D. Regalado, ruled
that:

Contrary to the contention of petitioner, a medical director and a hospital administrator are considered as corporate officers under the by-laws
of respondent corporation. Section 2(i), Article I thereof states that one of the powers of the Board of Trustees is "(t)o appoint a Medical
Director, Comptroller/Administrator, Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and
duties."

The president, vice-president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation, and
modern corporation statutes usually designate them as the officers of the corporation. However, other offices are sometimes created by the
charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional
offices as may be necessary.

It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the
other hand, an "employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such employee.

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by respondent corporation's Board of
Trustees in its memorandum of October 30, 1990, she is deemed an officer of the corporation. Perforce, Section 5(c) of Presidential Decree
No. 902-A, which provides that the SEC exercises exclusive jurisdiction over controversies in the election or appointment of directors,
trustees, officers or managers of corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.

Supplementing the afore-quoted ruling, in Lozon v. NLRC[11] and Espino v. NLRC,[12] citing Fortune Cement Corp. v. NLRC,[13] we
declared that:

A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that nature is not altered by the reason or
wisdom which the Board of Directors may have in taking such action.

Based on the foregoing, we must rule that private respondent was indeed a corporate officer. He was appointed directly by the Board of
Directors not by any managing officer of the corporation and his salary was, likewise, set by the same Board. Having thus determined, his
dismissal or non-appointment is clearly an intra-corporate matter and jurisdiction, therefore, properly belongs to the SEC and not the NLRC.

The respondents also attack the SEC's jurisdiction over the instant case on grounds that Guilas was not elected by the Board of
Directors but was merely appointed.

This particular argument baffles us. P.D. 902-A cannot be any clearer. Sec. 5(c) of said law expressly covers both election and
appointment of corporate directors, trustees, officers and managers.[14]

It is of no consequence, likewise, that the complaint of private respondent for illegal dismissal includes money claims, jurisdiction
remains with the SEC as ruled in the case of Cagayan de Oro Coliseum, Inc. v. Office of the MOLE:[15]

Although the reliefs sought by Chaves appear to fall under the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other
remunerations for services rendered, a close scrutiny thereof shows that said claims are actually part of the perquisites of his position in, and
therefore interlinked with his relations with the corporation. In Dy vs. NLRC, the Court said: "(t)he question of remuneration involving as it
does, a person who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple
labor problem but a matter that comes within the area of corporate affairs and, management, and is in fact a corporate controversy in
contemplation of the Corporation Code."

WHEREFORE, the petition for certiorari is given DUE COURSE, the assailed resolutions of the NLRC are hereby REVERSED and the
Order of the Labor Arbiter dated 29 December 1992REINSTATED. SO ORDERED.
 [G.R. No. 121143. January 21, 1997]

PURIFICACION G. TABANG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and PAMANA GOLDEN CARE MEDICAL
CENTER FOUNDATION, INC., respondents.

DECISION

REGALADO, J.:

This is a petition for certiorari which seeks to annul the resolution of the National Labor Relations Commission (NLRC), dated June 26,
1995, affirming in toto the order of the labor arbiter, dated April 26, 1994, which dismissed petitioners complaint for illegal dismissal with
money claims for lack of jurisdiction.

The records show that petitioner Purificacion Tabang was a founding member, a member of the Board of Trustees, and the corporate
secretary of private respondent Pamana Golden Care Medical Center Foundation, Inc., a non-stock corporation engaged in extending medical
and surgical services.

On October 30, 1990, the Board of Trustees issued a memorandum appointing petitioner as Medical Director and Hospital Administrator
of private respondents Pamana Golden Care Medical Center in Calamba, Laguna.

Although the memorandum was silent as to the amount of remuneration for the position, petitioner claims that she received a monthly
retainer fee of five thousand pesos (P5,000.00) from private respondent, but the payment thereof was allegedly stopped in November, 1991.

As medical director and hospital administrator, petitioner was tasked to run the affairs of the aforesaid medical center and perform all
acts of administration relative to its daily operations.

On May 1, 1993, petitioner was allegedly informed personally by Dr. Ernesto Naval that in a special meeting held on April 30, 1993, the
Board of Trustees passed a resolution relieving her of her position as Medical Director and Hospital Administrator, and appointing the latter
and Dr. Benjamin Donasco as acting Medical Director and acting Hospital Administrator, respectively.Petitioner averred that she thereafter
received a copy of said board resolution.

On June 6, 1993, petitioner filed a complaint for illegal dismissal and non-payment of wages, allowances and 13th month pay before the
labor arbiter.

Respondent corporation moved for the dismissal of the complaint on the ground of lack of jurisdiction over the subject matter. It argued
that petitioners position as Medical Director and Hospital Administrator was interlinked with her position as member of the Board of Trustees,
hence, her dismissal is an intra-corporate controversy which falls within the exclusive jurisdiction of the Securities and Exchange Commission
(SEC).

Petitioner opposed the motion to dismiss, contending that her position as Medical Director and Hospital Administrator was separate and
distinct from her position as member of the Board of Trustees. She claimed that there is no intra-corporate controversy involved since she
filed the complaint in her capacity as Medical Director and Hospital Administrator, or as an employee of private respondent.

On April 26, 1994, the labor arbiter issued an order dismissing the complaint for lack of jurisdiction. He ruled that the case falls within
the jurisdiction of the SEC, pursuant to Section 5 of Presidential Decree No. 902-A. [1]

Petitioners motion for reconsideration was treated as an appeal by the labor arbiter who consequently ordered the elevation of the
entire records of the case to public respondent NLRC for appellate review. [2]

On appeal, respondent NLRC affirmed the dismissal of the case on the additional ground that the position of a Medical Director and
Hospital Administrator is akin to that of an executive position in a corporate ladder structure, hence, petitioners removal from the said
position was an intra-corporate controversy within the original and exclusive jurisdiction of the SEC. [3]

Aggrieved by the decision, petitioner filed the instant petition which we find, however, to be without merit.

We agree with the findings of the NLRC that it is the SEC which has jurisdiction over the case at bar. The charges against herein private
respondent partake of the nature of an intra-corporate controversy. Similarly, the determination of the rights of petitioner and the
concomitant liability of private respondent arising from her ouster as a medical director and/or hospital administrator, which are corporate
offices, is an intra-corporate controversy subject to the jurisdiction of the SEC.

Contrary to the contention of petitioner, a medical director and a hospital administrator are considered as corporate officers under the
by-laws of respondent corporation. Section 2(i), Article I thereof states that one of the powers of the Board of Trustees is (t)o appoint a
Medical Director, Comptroller/Administrator, Chiefs of Services and such other officers as it may deem necessary and prescribe their powers
and duties. [4]

The president, vice-president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation,
and modern corporation statutes usually designate them as the officers of the corporation.[5] However, other offices are sometimes created by
the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional
offices as may be necessary.[6]

It has been held that an office is created by the charter of the corporation and the officer is elected by the directors or
stockholders.[7] On the other hand, an employee usually occupies no office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. [8]

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by respondent corporations Board of
Trustees in its memorandum of October 30, 1990,[9]she is deemed an officer of the corporation. Perforce, Section 5(c) of Presidential Decree
No. 902-A, which provides that the SEC exercises exclusive jurisdiction over controversies in the election or appointment of directors,
trustees, officers or managers of corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.

Moreover, the allegation of petitioner that her being a member of the Board of Trustees was not one of the considerations for her
appointment is belied by the tenor of the memorandum itself.It states: We hope that you will uphold and promote the mission of our
foundation,[10] and this cannot be construed other than in reference to her position or capacity as a corporate trustee.

A corporate officers dismissal is always a corporate act, or an intra-corporate controversy, and the nature is not altered by the reason or
wisdom with which the Board of Directors may have in taking such action.[11] Also, an intra-corporate controversy is one which arises between
a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever.The provision is broad and covers all
kinds of controversies between stockholders and corporations. [12]

With regard to the amount of P5,000.00 formerly received by herein petitioner every month, the same cannot be considered as
compensation for her services rendered as Medical Director and Hospital Administrator. The vouchers[13] submitted by petitioner show that the
said amount was paid to her by PAMANA, Inc., a stock corporation which is separate and distinct from herein private respondent. Although
the payments were considered advances to Pamana Golden Care, Calamba branch, there is no evidence to show that the Pamana Golden
Care stated in the vouchers refers to herein respondent Pamana Golden Care Medical Center Foundation, Inc.
 Pamana Golden Care is a division of Pamana, Inc., while respondent Pamana Golden Care Medical Center Foundation, Inc. is a non-
stock, non-profit corporation. It is stated in the memorandum of petitioner that Pamana, Inc. is a stock and profit corporation selling pre-need
plan for education, pension and health care. The health care plan is called Pamana Golden Care Plan and the holders are called Pamana
Golden Care Card Holders or, simply, Pamana Members. [14]

It is an admitted fact that herein petitioner is a retained physician of Pamana, Inc., whose patients are holders of the Pamana Golden
Care Card. In fact, in her complaint[15] filed before the Regional Trial Court of Calamba, herein petitioner is asking, among others, for
professional fees and/or retainer fees earned for her treatment of Pamana Golden Care card holders. [16] Thus, at most, said vouchers can only
be considered as proof of payment of retainer fees made by Pamana, Inc. to herein petitioner as a retained physician of Pamana Golden Care.

Moreover, even assuming that the monthly payment of P5,000.00 was a valid claim against respondent corporation, this would not
operate to effectively remove this case from the jurisdiction of the SEC. In the case of Cagayan de Oro Coliseum, Inc. vs. Office of the
Minister of Labor and Employment, etc., et al.,[17] we ruled that (a)lthough the reliefs sought by Chavez appear to fall under the jurisdiction of
the labor arbiter as they are claims for unpaid salaries and other remunerations for services rendered, a close scrutiny thereof shows that said
claims are actually part of the perquisites of his position in, and therefore interlinked with, his relations with the corporation. In Dy, et
al., vs. NLRC, et al., the Court said: (t)he question of remuneration involving as it does, a person who is not a mere employee but a
stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter that comes within the
area of corporate affairs and management and is in fact a corporate controversy in contemplation of the Corporation Code.

WHEREFORE, the questioned resolution of the NLRC is hereby AFFIRMED, without prejudice to petitioners taking recourse to and
seeking relief through the appropriate remedy in the proper forum. SO ORDERED.
 [G.R. No. 144767. March 21, 2002]

DILY DANY NACPIL, petitioner, vs. INTERNATIONAL BROADCASTING CORPORATION, respondent.

DECISION

KAPUNAN, J.:

This is a petition for review on certiorari under Rule 45, assailing the Decision of the Court of Appeals dated November 23, 1999 in CA-
G.R. SP No. 52755[1] and the Resolution dated August 31, 2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. The Court of
Appeals reversed the decisions promulgated by the Labor Arbiter and the National Labor Relations Commission (NLRC), which consistently
ruled in favor of petitioner.

Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller of private respondent
Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. According to petitioner, when Emiliano Templo was appointed to
replace IBC President Tomas Gomez III sometime in March 1997, the former told the Board of Directors that as soon as he assumes the IBC
presidency, he would terminate the services of petitioner. Apparently, Templo blamed petitioner, along with a certain Mr. Basilio and Mr.
Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted, humiliated and
pressured petitioner into resigning until the latter was forced to retire. However, Templo refused to pay him his retirement benefits, allegedly
because he had not yet secured the clearances from the Presidential Commission on Good Government and the Commission on Audit.
Furthermore, Templo allegedly refused to recognize petitioners employment, claiming that petitioner was not the Assistant General
Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, in 1997, petitioner filed with the Labor Arbiter a
complaint for illegal dismissal and non-payment of benefits.

Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case. IBC
contended that petitioner was a corporate officer who was duly elected by the Board of Directors of IBC; hence, the case qualifies as an intra-
corporate dispute falling within the jurisdiction of the Securities and Exchange Commission (SEC).However, the motion was denied by the
Labor Arbiter in an Order dated April 22, 1998.[2]

On August 21, 1998, the Labor Arbiter rendered a Decision stating that petitioner had been illegally dismissed. The dispositive portion
thereof reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the complainant and against all the respondents, jointly
and severally, ordering the latter:

1. To reinstate complainant to his former position without diminution of salary or loss of seniority rights, and with full backwages
computed from the time of his illegal dismissal on May 16, 1997 up to the time of his actual reinstatement which is tentatively
computed as of the date of this decision on August 21, 1998 in the amount of P1,231,750.00 (i.e., P75,000.00 a month x
15.16 months = P1,137,000.00 plus 13th month pay equivalent to 1/12 of P 1,137,000.00 = P94,750.00 or the total amount of
P 1,231,750.00). Should complainant be not reinstated within ten (10) days from receipt of this decision, he shall be entitled
to additional backwages until actually reinstated.

2. Likewise, to pay complainant the following:

a) P 2 Million as and for moral damages;

b) P500,000.00 as and for exemplary damages; plus and (sic)

c) Ten (10%) percent thereof as and for attorneys fees.

SO ORDERED.[3]

IBC appealed to the NLRC, but the same was dismissed in a Resolution dated March 2, 1999, for its failure to file the required appeal
bond in accordance with Article 223 of the Labor Code.[4] IBC then filed a motion for reconsideration that was likewise denied in a Resolution
dated April 26, 1999.[5]

IBC then filed with the Court of Appeals a petition for certiorari under Rule 65, which petition was granted by the appellate court in its
Decision dated November 23, 1999. The dispositive portion of said decision states:

WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The assailed decisions of the Labor Arbiter and the NLRC are
REVERSED and SET ASIDE and the complaint is DISMISSED without prejudice.

SO ORDERED.[6]

Petitioner then filed a motion for reconsideration, which was denied by the appellate court in a Resolution dated August 31, 2000.

Hence, this petition.

Petitioner Nacpil submits that:

I.

THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS APPOINTED BY RESPONDENTS BOARD OF DIRECTORS AS
COMPTROLLER. THIS FINDING IS CONTRARY TO THE COMMON, CONSISTENT POSITION AND ADMISSION OF BOTH PARTIES.
FURTHER, RESPONDENTS BY-LAWS DOES NOT INCLUDE COMPTROLLER AS ONE OF ITS CORPORATE OFFICERS.

II.

THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT SUBSTITUTED THE NATIONAL LABOR RELATIONS
COMMISSIONS DECISION TO APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT CASE. THE ONLY ISSUE FOR
ITS DETERMINATION IS WHETHER NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN DOING THE SAME.[7]

The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal dismissal and non-payment of benefits
filed by petitioner. The Court finds that the Labor Arbiter had no jurisdiction over the same.
 Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the complaint for illegal dismissal was instituted
by petitioner in 1997, the following cases fall under the exclusive of the SEC:

a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or
organizations registered with the Commission;

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between
any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such
entity;

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships
or associations;

d) Petitions of corporations, partnerships, or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under
the Management Committee created pursuant to this decree. (Emphasis supplied.)

The Court has consistently held that there are two elements to be considered in determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.[8]

Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had not been elected nor appointed as
Comptroller and Assistant Manager by the IBCs Board of Directors. He points out that he had actually been appointed as such on January 11,
1995 by the IBCs General Manager, Ceferino Basilio. In support of his argument, petitioner underscores the fact that the IBCs By-Laws does
not even include the position of comptroller in its roster of corporate officers. [9] He therefore contends that his dismissal is a controversy
falling within the jurisdiction of the labor courts.[10]

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

XII. OFFICERS

The officers of the corporation shall consist of a President, a Vice-President, a Secretary-Treasurer, a General Manager, and such other
officers as the Board of Directors may from time to time does fit to provide for. Said officers shall be elected by majority vote of
the Board of Directors and shall have such powers and duties as shall hereinafter provide (Emphasis supplied).[13]

The Court has held that in most cases the by-laws may and usually do provide for such other officers,[14] and that where a corporate
office is not specifically indicated in the roster of corporate offices in the by-laws of a corporation, the board of directors may also be
empowered under the by-laws to create additional officers as may be necessary.[15]

An office has been defined as a creation of the charter of a corporation, while an officer as a person elected by the directors or
stockholders. On the other hand, an employee occupies no office and is generally employed not by action of the directors and stockholders
but by the managing officer of the corporation who also determines the compensation to be paid to such employee.[16]

As petitioners appointment as comptroller required the approval and formal action of the IBCs Board of Directors to become valid,[17] it
is clear therefore holds that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under
Section 5(c) of P.D. 902-A which includes controversies involving both election and appointment of corporate directors, trustees, officers,
and managers.[18] Had petitioner been an ordinary employee, such board action would not have been required.

Thus, the Court of Appeals correctly held that:

Since complainants appointment was approved unanimously by the Board of Directors of the corporation, he is therefore considered a
corporate officer and his claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by Section 5 of
P.D. 902-A. The rule is that dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction over the
case properly belongs to the SEC, not to the NLRC.[19]

As to petitioners argument that the nature of his functions is recommendatory thereby making him a mere managerial officer, the Court
has previously held that the relationship of a person to a corporation, whether as officer or agent or employee is not determined by the
nature of the services performed, but instead by the incidents of the relationship as they actually exist.[20]

It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money claims, for such claims are actually part
of the perquisites of his position in, and therefore linked with his relations with, the corporation. The inclusion of such money claims does not
convert the issue into a simple labor problem. Clearly, the issues raised by petitioner against the IBC are matters that come within the area of
corporate affairs and management, and constitute a corporate controversy in contemplation of the Corporation Code.[21]

Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiters Decision for its non-payment of the appeal
bond as required under Article 223 of the Labor Code, since compliance with the requirement of posting of a cash or surety bond in an
amount equivalent to the monetary award in the judgment appealed from has been held to be both mandatory and
jurisdictional.[22] Hence, the Decision of the Labor Arbiter had long become final and executory and thus, the Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of jurisdiction in giving due course to the IBCs petition for certiorari, and in deciding the
case on the merits.

The IBCs failure to post an appeal bond within the period mandated under Article 223 of the Labor Code has been rendered immaterial
by the fact that the Labor Arbiter did not have jurisdiction over the case since as stated earlier, the same is in the nature of an intra-corporate
controversy. The Court has consistently held that where there is a finding that any decision was rendered without jurisdiction, the action shall
be dismissed. Such defense can be interposed at any time, during appeal or even after final judgment. [23] It is a well-settled rule that
jurisdiction is conferred only by the Constitution or by law. It cannot be fixed by the will of the parties; it cannot be acquired through,
enlarged or diminished by, any act or omission of the parties.[24]

Considering the foregoing, the Court holds that no error was committed by the Court of Appeals in dismissing the case filed before the
Labor Arbiter, without prejudice to the filing of an appropriate action in the proper court.
 It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No. 8799) which was signed into law by then
President Joseph Ejercito Estrada on July 19, 2000, the SECs jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has been
transferred to the Regional Trial Courts.[25] WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of Appeals in CA-
G.R. SP No. 52755 is AFFIRMED. SO ORDERED.
 [G.R. No. 117847. October 7, 1998]

PEOPLES AIRCARGO AND WAREHOUSING CO. INC., petitioner, vs. COURT OF APPEALS and STEFANI SAO, respondents.

DECISION

PANGANIBAN, J.:

Contracts entered into by a corporate president without express prior board approval bind the corporation, when such officers apparent
authority is established and when these contracts are ratified by the corporation.

The Case

This principle is stressed by the Court in rejecting the Petition for Review of the February 28, 1994 Decision and the October 28, 1994
Resolution of the Court of Appeals in CA-GR CV No. 30670.

In a collection case[1] filed by Stefani Sao against Peoples Aircargo and Warehousing Co., Inc., the Regional Trial Court (RTC) of Pasay
City, Branch 110, rendered a Decision[2] dated October 26, 1990, the dispositive portion of which reads:[3]

WHEREFORE, in light of all the foregoing, judgment is hereby rendered, ordering [petitioner] to pay [private respondent] the amount of sixty
thousand (P60,000.00) pesos representing payment of [private respondents] services in preparing the manual of operations and in the
conduct of a seminar for [petitioner]. The Counterclaim is hereby dismissed.

Aggrieved by what he considered a minuscule award of P60,000, private respondent appealed to the Court of Appeals[4] (CA) which, in
its Decision promulgated February 28, 1994, granted his prayer for P400,000, as follows:[5]

WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby MODIFIED in that [petitioner] is ordered to pay [private respondent]
the amount of four hundred thousand pesos (P400,000.00) representing payment of [private respondents] services in preparing the manual
of operations and in the conduct of a seminar for [petitioner].

As no new ground was raised by petitioner, reconsideration of the above-mentioned Decision was denied in the Resolution promulgated
on October 28, 1994.

The Facts

Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a customs bonded warehouse at the old
Manila International Airport in Pasay City.[6]

To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation president, solicited a proposal
from private respondent for the preparation of a feasibility study.[7] Private respondent submitted a letter-proposal dated October 17, 1986
(First Contract hereafter) to Punsalan, which is reproduced hereunder:[8]

Dear Mr. Punsalan:

With reference to your request for professional engineering consultancy services for your proposed MIA Warehousing Project may we
offer the following outputs and the corresponding rate and terms of agreement:

====================================

Project Feasibility Study consisting of

Market Study

Technical Study

Financial Feasibility Study

Preparation of pertinent documentation requirements for the application

=====================================================

The above services will be provided for a fee of [p]esos 350,000.00 payable according to the following schedule:

=====================================================

Fifty percent (50%) .upon confirmation of the agreement

Twenty-five percent (25%)..15 days after the confirmation of the agreement

Twenty-five percent (25%)..upon submission of the specified outputs

The outputs will be completed and submitted within 30 days upon confirmation of the agreement and receipt by us of the first fifty
percent payment.

---------------------------------------------------------------------------------------------
Thank you.

Yours truly, CONFORME:

(S)STEFANI C. SAO (S)ANTONIO C. PUNSALAN, JR.

(T)STEFANI C. SAO (T)ANTONIO C. PUNSALAN, JR.

Consultant for President, PAIRCARGO

Industrial Engineering

Initially, Cheng Yong, the majority stockholder of petitioner, objected to private respondents offer, as another company priced a similar
proposal at only P15,000.[9] However, Punsalan preferred private respondents services because of the latters membership in the task force,
which was supervising the transition of the Bureau of Customs from the Marcos government to the Aquino administration.[10]

On October 17, 1986, petitioner, through Punsalan, sent private respondent a letter, confirming their agreement as follows:

Dear Mr. Sao:

With regard to the services offered by your company in your letter dated 13 October 1986, for the preparation of the necessary study and
documentations to support our Application for Authority to Operate a public Customs Bonded Warehouse located at the old MIA Compound in
Pasay City, please be informed that our company is willing to hire your services and will pay the amount of THREE HUNDRED FIFTY
THOUSAND PESOS (P350,000.00) as follows:

P100,000.00 - upon signing of the agreement;

150,000.00 - on or before October 31, 1986, with the favorable Recommendation of the CBW on our application.

100,000.00 - upon receipt of the study in final form.

Very truly yours,

(S)ANTONIO C. PUNSALAN

(T)ANTONIO C. PUNSALAN

President

CONFORME & RECEIVED from PAIRCARGO, the

amount of ONE HUNDRED THOUSAND PESOS

(P100,000.00), this 17th day of October,

1986 as 1st installment payment of the

service agreement dated October 13, 1986.

(S)STEFANI C. SAO

(T)STEFANI C. SAO

Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid him the balance of the contract price,
although not according to the schedule agreed upon.[11]

On December 4, 1986, upon Punsalans request, private respondent sent petitioner another letter-proposal (Second Contract hereafter),
which reads:

Peoples Air Cargo & Warehousing Co., Inc.

Old MIA Compound, Metro Manila

Attention: Mr. ANTONIO PUN[S]ALAN, JR.

President

Dear Mr. Pun[s]alan:

This is to formalize our proposal for consultancy services to your company the scope of which is defined in the attached service
description.

The total service you have decided to avail xxx would be available upon signing of the conforme below and would come [in] the amount
of FOUR HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule defined as follows (with the balance covered by post-
dated cheques):

Downpayment upon signing conforme . . . P80,000.00

15 January 1987 . . . . . . . . . . . . . 53,333.00

30 January 1987 . . . . . . . . . . . . . 53,333.00

15 February 1987 . . . . . . . . . . . . . 53,333.00

28 February 1987 . . . . . . . . . . . . . 53,333.00

15 March1987 . . . . . . . . . . . . . 53,333.00

30 March 1987 . . . . . . . . . . . . . 53,333.00

With this package, you are assured of the highest service quality as our performance record shows we always deliver no less.

Thank you very much.

Yours truly,

(S)STEFANI C. SAO

(T)STEFANI C. SAO

Industrial Engineering Consultant

CONFORME:

(S)ANTONIO C. PUNSALAN JR.

(T)PAIRCARGO CO. INC.

During the trial, the lower court observed that the Second Contract bore, at the lower right portion of the letter, the following notations
in pencil:

1. Operations Manual

2. Seminar/workshop for your employees

P400,000 - package deal

50% upon completion of seminar/workshop

50% upon approval by the Commissioner

The Manual has already been approved by the Commissioner but payment has not yet been made."

The lower left corner of the letter also contained the following notations:

1st letter - 4 Dec. 1986

2nd letter - 15 June 1987 with

Hinanakit.

On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations manual prepared by private
respondent.[12] Petitioner submitted said operations manual to the Bureau of Customs in connection with the formers application to operate a
bonded warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to become one of the three public
customs bonded warehouses at the international airport.[13] Private respondent also conducted, in the third week of January 1987 in the
warehouse of petitioner, a three-day training seminar for the latters employees.[14]

On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to then Commissioner Alex Padilla, a position
he held until he became technical assistant to then Commissioner Miriam Defensor-Santiago on March 7, 1988.[15] Meanwhile, Punsalan sold
his shares in petitioner-corporation and resigned as its president in 1987.[16]

On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had prepared an operations manual
for petitioner, conducted a seminar-workshop for its employees and delivered to it a computer program; but that, despite demand, petitioner
refused to pay him for his services.

Petitioner, in its answer, denied that private respondent had prepared an operations manual and a computer program or conducted a
seminar-workshop for its employees. It further alleged that the letter-agreement was signed by Punsalan without authority, in collusion with
[private respondent] in order to unlawfully get some money from [petitioner], and despite his knowledge that a group of employees of the
company had been commissioned by the board of directors to prepare an operations manual.[17]

The trial court declared the Second Contract unenforceable or simulated. However, since private respondent had actually prepared the
operations manual and conducted a training seminar for petitioner and its employees, the trial court awarded P60,000 to the former, on the
ground that no one should be unjustly enriched at the expense of another (Article 2142, Civil Code). The trial court determined the amount in
light of the evidence presented by defendant on the usual charges made by a leading consultancy firm on similar services. [18]

The Ruling of the Court of Appeals

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

Disagreeing with the CA, petitioner lodged this petition before us.[19]

The Issues

Instead of alleging reversible errors, petitioner imputes grave abuse of discretion to the Court of Appeals, viz.: [20]

I. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation simply because it was entered into by its
president[;]

II. xxx [I]n ruling that the subject letter-agreement for services was binding on the corporation notwithstanding the lack of any board
authority since it was the purported practice to allow the president to enter into contracts of said nature (citing one previous instance of a
similar contract)[;] and

III. xxx [I]n ruling that the subject letter-agreement for services was a valid contract and not merely simulated."

The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its ground for seeking a reversal of the assailed
Decision. Although the Rules of Court specify reversible errors as grounds for a petition for review under Rule 45, the Court will lay aside for
the nonce this procedural lapse and consider the allegations of grave abuse as statements of reversible errors of law.

Petitioner does not contest its liability; it merely disputes the amount of such accountability. Hence, the resolution of this petition rests
on the sole issue of the enforceability and validity of the Second Contract, more specifically: (1) whether the president of the petitioner-
corporation had apparent authority to bind petitioner to the Second Contract; and (2) whether the said contract was valid and not merely
simulated.

The Courts Ruling

The petition is not meritorious.

First Issue: Apparent Authority of a Corporate President

Petitioner argues that the disputed contract is unenforceable, because Punsalan, its president, was not authorized by its board of
directors to enter into said contract.

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a
corporation.[21] A corporation is a juridical person, separate and distinct from its stockholders and members, having xxx powers, attributes
and properties expressly authorized by law or incident to its existence.[22]

Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of management, [23] as provided in Section 23 of the Corporation Code of the
Philippines:

SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or
trustees x x x.

Under this provision, the power and the responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. [24] However, just as a natural
person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and
powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business,
viz.: [25]

A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do
so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual
course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with
the officer or agent to believe that it has conferred.

Accordingly, the appellate court ruled in this case that the authority to act for and to bind a corporation may be presumed from acts of
recognition in other instances, wherein the power was in fact exercised without any objection from its board or shareholders. Petitioner had
previously allowed its president to enter into the First Contract with private respondent without a board resolution expressly authorizing him;
thus, it had clothed its president with apparent authority to execute the subject contract.

Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract does not constitute corporate practice, which
Webster defines as frequent or customary action. It citesBoard of Liquidators v. Kalaw,[26] in which the practice of NACOCO allowing its
general manager to negotiate and execute contract in its copra trading activities for and on its behalf, without prior board approval,
was inferred from sixty contracts not one, as in the present case -- previously entered into by the corporation without such board resolution.

Petitioners argument is not persuasive. Apparent authority is derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.[27] It requires presentation of evidence of similar
act(s) executed either in its favor or in favor of other parties.[28] It is not the quantity of similar acts which establishes apparent authority, but
the vesting of a corporate officer with the power to bind the corporation.
 In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing
board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract, thus clothing its president with
the power to bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong -- senior vice president,
treasurer and major stockholder of petitioner. Testifying on the First Contract, he said:[29]

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

Q: And so did the company eventually pay this P350,000.00 to Mr. Sao?

A: Yes, sir.

The First Contract was consummated, implemented and paid without a hitch.

Hence, private respondent should not be faulted for believing that Punsalans conformity to the contract in dispute was also binding on
petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the agents authority. [30]

Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance
with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its
employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioners ratification of said
contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified by the
acceptance of benefits under them under Article 1405.

Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said
officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in
the transaction of the usual and ordinary business of the corporation.[31] In the absence of a charter or bylaw provision to the contrary, the
president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or
her usual duties.[32]

Hence, it has been held in other jurisdictions that the president of a corporation possesses the power to enter into a contract for the
corporation, when the conduct on the part of both the president and the corporation [shows] that he had been in the habit of acting in similar
matters on behalf of the company and that the company had authorized him so to act and had recognized, approved and ratified his former
and similar actions.[33] Furthermore, a party dealing with the president of a corporation is entitled to assume that he has the authority to
enter, on behalf of the corporation, into contracts that are within the scope of the powers of said corporation and that do not violate any
statute or rule on public policy.[34]

Second Issue: Alleged Simulation of the First Contract

As an alternative position, petitioner seeks to pare down its liabilities by limiting its exposure from P400,000 to only P60,000, the
amount awarded by the RTC. Petitioner capitalizes on the badges of fraud cited by the trial court in declaring said contract either simulated or
unenforceable, viz.:

xxx The October 1986 transaction with [private respondent] involved P350,000. The same was embodied in a letter which bore therein
not only the conformity of [petitioners] then President Punsalan but also drew a letter-confirmation from the latter for, indeed, he was
clothed with authority to enter into the contract after the same was brought to the attention and consideration of [petitioner]. Not only
that, a [down payment] was made. In the alleged agreement of December 4, 1986 subject of the present case, the amount is even
bigger-P400,000.00. Yet, the alleged letter-agreement drew no letter of confirmation. And no [down payment] and postdated checks
were given. Until the filing of the present case in February 1988, no written demand for payment was sent to [petitioner]. [Private
respondents] claim that he sent one in writing, and one was sent by his counsel who manifested that [h]e was looking for a copy in
[his] files fails in light of his failure to present any such copy. These and the following considerations, to wit:

1) Despite the fact that no [down payment] and/or postdated checks [partial payments] (as purportedly stipulated in the alleged contract)
[was given, private respondent] went ahead with the services[;]

2) [There was a delay in the filing of the present suit, more than a year after [private respondent] allegedly completed his services or eight
months after the alleged last verbal demand for payment made on Punsalan in June 1987;

3) Does not Punsalans writing allegedly in June 1987 on the alleged letter-agreement of your employees[,] when it should have been our
employees, as he was then still connected with [petitioner], indicate that the letter-agreement was signed by Punsalan when he was no
longer connected with [petitioner] or, as claimed by [petitioner], that Punsalan signed it without [petitioners] authority and must have been
done in collusion with plaintiff in order to unlawfully get some money from [petitioner]?

4) If, as [private respondent] claims, the letter was returned by Punsalan after affixing thereon his conformity, how come xxx when Punsalan
allegedly visited [private respondent] in his office at the Bureau of Customs, in June 1987, Punsalan brought (again?) the letter (with the
pencil [notation] at the left bottom portion allegedly already written)?

5) How come xxx [private respondent] did not even keep a copy of the alleged service contract allegedly attached to the letter-agreement?

6) Was not the letter-agreement a mere draft, it bearing the corrections made by Punsalan of his name (the letter n is inserted before the last
letter o in Antonio) and of the spelling of his family name (Punsalan, not Punzalan)?

7) Why was not Punsalan impleaded in the case?

The issue of whether the contract is simulated or real is factual in nature, and the Court eschews factual examination in a petition for
review under Rule 45 of the Rules of Court.[35] This rule, however, admits of exceptions, one of which is a conflict between the factual findings
of the lower and of the appellate courts[36] as in the case at bar.

After judicious deliberation, the Court agrees with the appellate court that the alleged badges of fraud mentioned earlier have not
affected in any manner the perfection of the Second Contract or proved the alleged simulation thereof. First, the lack of payment (whether
down, partial or full payment), even after completion of private respondents obligations, imports only a defect in the performance of the
contract on the part of petitioner. Second, the delay in the filing of action was not fatal to private respondents cause. Despite the lapse of one
year after private respondent completed his services or eight months after the alleged last demand
for payment in June 1987, the action was still filed within the allowable period, considering that an action based on a written contract
prescribes only after ten years from the time the right of action accrues.[37] Third, a misspelling in the contract does not establish vitiation of
consent, cause or object of the contract.Fourth, a confirmation letter is not an essential element of a contract; neither is it necessary to
perfect one. Fifth, private respondents failure to implead the corporate president does not establish collusion between them. Petitioner could
have easily filed a third-party claim against Punsalan if it believed that it had recourse against the latter. Lastly, the mere fact that the
contract price was six times the alleged going rate does not invalidate it. [38] In short, these badges do not establish simulation of said
contract.

A fictitious and simulated agreement lacks consent which is essential to a valid and enforceable contract. [39] A contract is simulated if
the parties do not intend to be bound at all (absolutely simulated), [40] or if the parties conceal their true agreement (relatively
simulated).[41] In the case at bar, petitioner received from private respondent a letter-offer containing the terms of the former, including a
stipulation of the consideration for the latters services. Punsalans conformity, as well as the receipt and use of the operations manual, shows
petitioners consent to or, at the very least, ratification of the contract. To repeat, petitioner even submitted the manual to the Bureau of
Customs and allowed private respondent to conduct the seminar for its employees. Private respondent heard no objection from the petitioner,
until he claimed payment for the services he had rendered.

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

WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.
G.R. No. L-20451 December 28, 1964

R. F. SUGAY and CO., INC., petitioner,

vs.
PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and WORKMEN'S COMPENSATION COMMISSION, respondents.

G. S. Mangay for petitioner.

Ross, Selph & Carrascoso and Reyes & Flores for respondent Pacific Products, Inc.
R. P. Decena for respondent Cesar Curata
Villavieja & Martinez for respondent Workmen's Compensation Commission.

PAREDES, J.:

This is a Workmen's Compensation Case, the compensability of the injuries suffered by the claimants, Pablo C. Reyes, and Cesar Curata,
being admitted by all the parties. The only issue requiring determination is, who among the three (3) persons (Romulo Sugay, R. F. Sugay &
Co., Inc., and Pacific Products, Inc.) is the statutory employer of said claimants and who should be liable for their disability compensation.

In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered burns of various degrees, while painting the building
of the Pacific Products, Inc., caused by a fire of accidental origin, resulting in their temporary disability from work. For said injuries they filed
claims for disability and medical expenses against the R. F. Sugay & Co., Inc., Romulo F. Sugay and the Pacific Products, Inc. The R. F. Sugay
& Co., Inc., answered the claim, alleging that the corporation was not the employer of the claimants but it was the Pacific Products, Inc.,
which had an administration and supervision job contract with Romulo F. Sugay, who, aside from being the President of the corporation,
bearing his name, had also a business of his own, distinct and separate from said corporation; and that the Regional Office of the Department
of Labor had no jurisdiction over the subject matter. Romulo F. Sugay did not file an Answer, but voluntarily appeared during the hearing and
disclaimed liability. The Answer of Pacific Products, Inc., contained the customary admissions and denials, and averred that its business was
mainly in the manufacture and sale of lacquer and other painting materials. As defenses, it stated that the claimants were the employees of
respondents R. F. Sugay Construction Co., Inc., and/or Romulo F. Sugay that as a result of the, fire, it incurred a loss of P2,000,000.00,
occasioned by the employment of incompetent men in the painting of its factory by the Sugays.

The Hearing Officer dismissed the case with respect, to R. F. Sugay & Co., Inc., and Romulo F. Sugay "for want of employer-employee
relationship with the claimants, either directly or through an independent contractor" declaring:

WHEREFORE, the Pacific Products, Inc., is hereby adjudged to pay through this office, the following benefits to the claimants as
follows:

1. To PABLO C. REYES, the sum of P490.05 as temporary total disability benefits plus P44.53 for permanent partial disability of
index finger plus P40.20 for the middle finger plus P49.48 for the ring finger; plus hospital and medical expenses of P659.70 or a
total of ONE THOUSAND TWO HUNDRED EIGHTY-THREE and 96/100 PESOS (P1,283.96) as total benefits under the Act.

2. To CESAR CURATA, the sum of P415.80 as temporary total disability compensation plus P477.75 and P273.00 for impairment of
his right and left feet plus P4,459.96 as medical and hospital expenses or a total of FIVE THOUSAND SIX HUNDRED TWENTY-FIVE
and 80/100 PESOS (P5,625.80) as total benefits under the Act.

3. To pay to this office the sum of EIGHTEEN PESOS (P18.00) as fees for the two claims pursuant to Section 55 of the Act.

The respondents, ROMULO F. SUGAY and R. F. SUGAY & CO., INC., should be as they are hereby exempted from any liability for
lack of employer-employee relationship with the claimants.

Pacific Products, Inc., appealed the above decision to the Commission. On August 24, 1962, Commissioner Jose Sanchez rendered judgment
affirming the compensability of the injuries and the amounts due them, but modified the decision of the Hearing Officer, by finding that R. F.
Sugay & Co., Inc., was the statutory employer of the claimants and should be liable to them. Pacific Products, Inc., was absolved from all
responsibility. In the decision, the Associate Commissioner, made the following findings and conclusions, to wit:

xxx xxx xxx

A careful study of the evidence leads us to the conclusion that, although the accident happened within the premises of the
respondent Pacific Products, Inc., the responsibility for the payment of the compensation due in this case should be lodged
somewhere else. In the first place, even the evidence presented by the claimants and the other two respondents clearly established
the fact that the accident occurred while the claimant, were painting the Office of Pacific Products Inc., an undertaking which had
nothing to do with the business of the latter. It was fairly shown that Pacific Products, Inc., was engaged in the manufacture and
sale of paints, varnish and other allied products, and, therefore, the work which was then being undertaken in its office at the time
of the accident has nothing to do with the nature of its business. The records disclose that the injured painter were hired, through
an intermediary, by R. F. Sugay & Co., which was purposely established "to engage itself in the constructions, repairs, remodelling
of all kinds of houses, residences, edifices and all such other buildings and all kinds of construction works allied thereto." (Exh. "11",
Articles of Incorporation of R. F. Sugay & Co., Inc., page 241 Records of the case.)

xxx xxx xxx

The evidence adduced by the parties indicates rather clearly that, except for the fact that the Pacific Products, Inc. supplied the
paint, it did not exercise any of the above-enumerated powers. The claimants were hired by one Rodolfo Babatid pursuant to the
instruction received by the latter from Romulo Sugay. They were paid by Eduardo Sugay, brother of Romulo and Secretary of R. F.
Sugay & Co., and were under the control of these persons during the time they were painting the office of Pacific Products, Inc.
Following the rulings enunciated in the abovecited decisions of the Supreme Court.1 we are constrained to disagree with the Hearing
Officer's decision in so far as it held that respondent Pacific Products, Inc. should be solely responsible for the payment of the
compensation he awarded in favor of the claimants. Neither can we see the reason of the Hearing Officer in ordering said
respondent to pay the compensation in this case after ruling categorically that "the herein claimants were casual employees of
Pacific Products, Inc." A casual employee,' by the way, is one "whose employment is purely casual and is not for the purposes of the
occupation or business of the employer." (Section 39[b] Workmen's. Compensation Act, as amended.)

xxx xxx xxx

... In a situation like this, much weight should be given to the testimony of a person who does not stand to lose or gain from the
outcome of the case. Rodolfo Babatid, who was presented by both the respondent Romulo Sugay and the claimants, swore on the
witness stand that he has been for a long time, an employee of the firm R. F. Sugay & Co. and that he hired the other painters
pursuant to Sugay as president of said firm. This witness, and the two claimants were in unison in declaring that they were paid by
the firm, thru its secretary Eduardo Sugay, who directly supervised them in their work. That the claimants were of the belief that
 they were hired by R. F. Sugay & Co., thru Mr. Babatid, is also shown by their declarations under oath that they were paid thru the
company payroll; which they signed. ... . These two persons, as already adverted to above, expressed their honest belief that they
were connected with R. F. Sugay & Co., having been hired by one who was known to be a trusted employee of said business
establishment. Under this set of facts it may be said that R. F. Sugay & Co., is now estopped from denying any relationship with the
claimants because, thru its responsible officials, it made others believe that the painters hired by Mr. Babatid were being employed
by it. Without insinuating that the dual role played by Romulo F. Sugay was intended to be used as a subterfuge of the corporation
to cloak the responsibilities of the corporation under his presidency, we must state that such dual roles cannot be allowed to confuse
the facts relating to employer-employee relationships.

The Commission en banc, on September 19, 1962, denied the motion for reconsideration stating that there was "nothing to warrant a
modification much less a reversal, of the decision sought to be reviewed." In the appeal of R. F. Sugay & Co., to this Court, it is insisted that
Pacific Products, Inc. was the employer of the claimants.

At the outset, We would wish to point out that this case is an appeal from the decision of the Workmen's Compensation Commission. Needless
to state, in this class of proceedings, only questions of law should be raised, the findings of facts made by the Commission, being conclusive
and binding upon this Court. (Bernardo vs. Pascual, L-13260, October 31, 1960.) Indeed, We are authorized to inquire into the facts, but only
when the conclusions thereupon are not supported by the evidence. In the case at bar, however, We find that the findings of facts made by
the Commissioner and concurred in by the Commission en banc are fully supported by the evidence on record which clearly points out that R.
F. Sugay & Co., is the statutory employer of the claimants. The decisive elements showing that it is the employer, are present, such as
selection and engagement; payment of wages; power of dismissal, and control (Viaña vs. Alejo-Alagadan, et al., May 31, 1956). These
powers were lodged in R. F. Sugay & Co. On this very score alone, the petition for review should be dismissed.

There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory that Romulo P. Sugay, its President, was
the one who entered into a contract of administration and supervision for the painting of the factory of the Pacific Products, Inc., and making
it appear that said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should be made answerable to the
compensation due to the claimants. We, however, agree with the Commission that "the dual roles of Romulo F. Sugay should not be allowed
to confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of corporate fiction is made as a shield
to perpetrate a fraud and/or confuse legitimate issues (here, the relation of employer-employee), the same should be pierced. Verily the R. F.
Sugay & Co., Inc. is a business conduit of R. F. Sugay.

IN VIEW HEREOF, the writ is denied, and the judgment appealed from, is hereby affirmed, in all respects. Costs taxed against petitioner R. F.
Sugay & Co., Inc., in both instances.
 [G.R. No. 120138. September 5, 1997]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS
CESAR AZURA and EDGARDO D. PABALAN, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS,
MA. LUISA T. MORALES, and DANTE D. MORALES,respondents.

DECISION

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners seek to annul the decision of the Court of
Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying petitioners motion for
reconsideration.

The present case involves two separate but interrelated conflicts. The facts leading to the first controversy are as follows:

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil Realty & Development Corporation while
private respondents who are the children of Judge Torres deceased brother Antonio A. Torres, constituted the minority stockholders. In
particular, their respective shareholdings and positions in the corporation were as follows:

Name of Stockholder Number of Percentage Position(s)

Shares

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair

Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director [1]

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an estate planning scheme under which he assigned to
Tormil Realty & Development Corporation (Tormil for brevity) various real properties he owned and his shares of stock in other corporations in
exchange for 225,972 Tormil Realty shares. Hence, on various dates in July and August of 1984, ten (10) deeds of assignment were executed
by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO

BE ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6, Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China Banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322
225,972 [2]

Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty and the revenues generated by
the said properties were correspondingly entered in the corporations books of account and financial records.

Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in the name of Tormil Realty,
except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained unsubscribed, all of which were
duly issued to and received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). [3]

Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents to approve the
needed increase in the corporations authorized capital stock (to cover the shortage of 972 shares due to Judge Torres under the estate
planning scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds of assignment covering the properties in Makati and
Pasay City.[4]

Noting the disappearance of the Makati and Pasay City properties from the corporations inventory of assets and financial records private
respondents, on 31 March 1987, were constrained to file a complaint with the Securities and Exchange Commission (SEC) docketed as SEC
Case No. 3153 to compel Judge Torres to deliver to Tormil Corporation the two (2) deeds of assignment covering the aforementioned Makati
and Pasay City properties which he had unilaterally revoked and to cause the registration of the corresponding titles in the name of
Tormil.Private respondents alleged that following the disappearance of the properties from the corporations inventory of assets, they found
that on October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a corporation named Torres-Pabalan Realty and Development Corporation and that as part of
Judge Torres contribution to the new corporation, he executed in its favor a Deed of Assignment conveying the same Makati and Pasay City
properties he had earlier transferred to Tormil.

The second controversy--involving the same parties--concerned the election of the 1987 corporate board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on 25 March 1987 in compliance
with the provisions of its by-laws.

Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to petitioners Tobias, Jocson, Jurisprudencia, Azura
and Pabalan. These assigned shares were in the nature of qualifying shares, for the sole purpose of meeting the legal requirement to be able
to elect them (Tobias and company) to the Board of Directors as Torres nominees.
 The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029, 028, 027, 026 and at the back of each
certificate the following inscription is found:

The present certificate and/or the one share it represents, conformably to the purpose and intention of the Deed of Assignment dated March
6, 1987, is not held by me under any claim of ownership and I acknowledge that I hold the same merely as trustee of Judge Manuel A.
Torres, Jr. and for the sole purpose of qualifying me as Director;

(Signature of Assignee) [5]

The reason behind the aforestated action was to remedy the inequitable lopsided set-up obtaining in the corporation, where,
notwithstanding his controlling interest in the corporation, the late Judge held only a single seat in the nine-member Board of Directors and
was, therefore, at the mercy of the minority, a combination of any two (2) of whom would suffice to overrule the majority stockholder in the
Boards decision making functions. [6]

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired therein was ably narrated by Attys. Benito
Cataran and Bayani De los Reyes, the official representatives dispatched by the SEC to observe the proceedings (upon request of the late
Judge Torres) in their report dated 27 March 1987:

xxx.

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in Urdaneta Village, Makati, Metro Manila. Upon
arrival, Josefina Torres introduced us to the stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina Carlos
and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personality to appear in the meeting claiming subject corporation is a
family and private firm. We explained that our appearance there was merely in response to the request of Manuel Torres, Jr. and that SEC
has jurisdiction over all registered corporations. Manuel Torres, Jr., a septuagenarian, argued that as holder of the major and controlling
shares, he approved of our attendance in the meeting.

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and
Atty. Augustus Cesar Azura arrived. Atty. Azura told the body that they came as counsels of Manuel Torres, Jr. and as stockholders having
assigned qualifying shares by Manuel Torres, Jr.

The stockholders meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally authorized by Manuel Torres, Jr., the President and
Chairman of the Board. The secretary when asked about the quorum, said that there was more than a quorum. Mr. Pabalan distributed copies
of the presidents report and the financial statements. Antonio Torres, Jr. requested time to study the said reports and brought out the
question of auditing the finances of the corporation which he claimed was approved previously by the board. Heated arguments ensued which
also touched on family matters. Antonio Torres, Jr. moved for the suspension of the meeting but Manuel Torres, Jr. voted for the continuation
of the proceedings.

Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the propriety of suspending the meeting but Antonio Torres,
Jr. objected reasoning out that we were just observers.

When the Chairman called for the election of directors, the Secretary refused to write down the names of nominees prompting Atty. Azura to
initiate the appointment of Atty. Jocson, Jr. as Acting Secretary.

Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros Torres cried out and told the group of Manuel
Torres, Jr. to leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma. Jacinta Torres in San Miguel Village, Makati, Metro
Manila. The undersigned joined them since the group with Manuel Torres, Jr. the one who requested for S.E.C. observers, represented the
majority of the outstanding capital stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected as directors for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

After the election, it was resolved that after the meeting, the new board of directors shall convene for the election of officers.

xxx. [7]

Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC Case No. 3161) praying in the main, that
the election of petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil because the assignment of shares
to them violated the minority stockholders right of pre-emption as provided in the corporations articles and by-laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing and adjudication.

On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of private respondents. The dispositive portion
thereof states, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to turn over and deliver to TORMIL through its
Corporate Secretary, Ma. Cristina T. Carlos: (a) the originals of the Deeds of Assignment dated July 13 and 24, 1984 together with the
owners duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for Makati, and 41527, 41528 and 41529 of the
Registry of Deeds for Pasay City and/or to cause the formal registration and transfer of title in and over such real properties in favor of
TORMIL with the proper government agency; (b) all corporate books of account, records and papers as may be necessary for the conduct of a
comprehensive audit examination, and to allow the examination and inspection of such accounting books, papers and records by any or all of
the corporate directors, officers and stockholders and/or their duly authorized representatives or auditors;
2. Declaring as permanent and final the writ of preliminary injunction issued by the Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents to the Board of Directors and executive positions of TORMIL held on
March 25, 1987, and all their acts and resolutions made for and in behalf of TORMIL by authority of and pursuant to such invalid appointment
& election held on March 25, 1987;

4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) and
by way of attorneys fees. [8]

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 April 1991, during the pendency of
said appeal, petitioner Manuel A. Torres, Jr. died.However, notice thereof was brought to the attention of the SEC not by petitioners counsel
but by private respondents in a Manifestation dated 24 April 1991.[9]

On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no administrator or legal representative of the late
Judge Torres estate has yet been appointed by the Regional Trial Court of Makati where Sp. Proc. No. M-1768 (In Matter of the Issuance of
the Last Will and Testament of Manuel A. Torres, Jr.) was pending. Two similar motions for suspension were filed by petitioners on 28 June
1993 and 9 July 1993.

On 19 July 1993, the SEC en banc issued an Order denying petitioners aforecited motions on the following ground:

Before the filing of these motions, the Commission en banc had already completed all proceedings and had likewise ruled on the merits of the
appealed cases. Viewed in this light, we thus feel that there is nothing left to be done except to deny these motions to suspend
proceedings. [10]

On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby affirmed and all motions pending before us incident
to this appealed case are necessarily DISMISSED.

SO ORDERED. [11]

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of Appeals by way of a petition for review
(docketed as CA-G.R. SP No. 31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which states:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is accordingly affirmed.

SO ORDERED. [12]

From the said decision, petitioners filed a motion for reconsideration which was denied in a resolution issued by the Court of Appeals
dated 10 May 1995. [13]

Insisting on their cause, petitioners filed the present petition for review alleging that the Court of Appeals committed the following errors
in its decision:

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL
RECORD OF S.E.C. - AC NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN OMISSION RESULTING IN
A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT
THE PROPER SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND CONSEQUENTLY, FOR WANT OF
JURISDICTION OVER THE SAID DECEASEDS TESTATE ESTATE, AND MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY
ITS APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. -AC NO. 339 NOT HAVING
ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE (AS
CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR INADEQUACY OF CAUSE (UNDER
ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING
ACTUALLY BEEN EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE QUESTIONED ASSIGNMENT OF
QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY AN ACTING CORPORATE SECRETARY AND
MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER STOCKHOLDERS. [14]

We shall resolve the issues in seriatim.

Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived them of procedural due
process. Without the evidence and the original records of the proceedings before the SEC, the Court of Appeals, petitioners adamantly state,
could not have possibly made a proper appreciation and correct determination of the issues, particularly the factual issues they had raised on
appeal. Petitioners also assert that since the Court of Appeals allegedly gave due course to their petition, the original records should have
been forwarded to said court.
 Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February 1991) which provides that:

8. WHEN PETITION GIVEN DUE COURSE.-The Court of Appeals shall give due course to the petition only when it shows prima facie that
the court, commission, board, office or agency concerned has committed errors of fact or law that would warrant reversal or modification of
the order, ruling or decision sought to be reviewed. The findings of fact of the court commission, board, office or agency concerned when
supported by substantial evidence shall be final.

xxx.

11. TRANSMITTAL OF RECORD.-Within fifteen (15) days from notice that the petition has been given due course, the court, commission,
board, office or agency concerned shall transmit to the Court of Appeals the original or a certified copy of the entire record of the proceeding
under review. The record to be transmitted may be abridged by agreement of all parties to the proceeding. The Court of Appeals may require
or permit subsequent correction or addition to the record.

Petitioners contend that the Court of Appeals had given due course to their petition as allegedly indicated by the following acts:

a) it granted the restraining order applied for by the herein petitioners, and after hearing, also the writ of preliminary injunction sought by
them; under the original SC Circular No. 1-91, a petition for review may be given due course at the onset (paragraph 8) upon a mere prima
facie finding of errors of fact or law having been committed, and such prima facie finding is but consistent with the grant of the extra-ordinary
writ of preliminary injunction;

b) it required the parties to submit simultaneous memoranda in its resolution dated October 15, 1993 (this is in addition to the comment
required to be filed by the respondents) and furthermore declared in the same resolution that the petition will be decided on the
merits, instead of outrightly dismissing the same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the respondent S.E.C. as having erred in denying the pertinent
motions to suspend proceedings; (bb) it declared the supposed error as having become a non-issue when the respondent C.A. proceeded to
hear (the) appeal; (cc) it formulated and applied its own theory of negotiorum gestio in justifying the non-substitution of the deceased
principal party in S.E C. -AC No. 339 and moreover, its theory of di minimis non curat lex (this, without first determining the true extent of
and the correct legal characterization of the so-called shortage of Tormil shares; and, (dd) it expressly affirmed the assailed decision of
respondent S.E.C .[15]

Petitioners contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the petition. The fact alone that the Court of Appeals
issued a restraining order and a writ of preliminary injunction and required the parties to submit their respective memoranda does not
indicate that the petition was given due course. The office of an injunction is merely to preserve the status quopending the disposition of the
case. The court can require the submission of memoranda in support of the respective claims and positions of the parties without necessarily
giving due course to the petition. The matter of whether or not to give due course to a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative Circular No. 1-95 (which took effect on 1
June 1995) wherein the procedure for appeals from quasi-judicial agencies to the Court of Appeals was clarified thus:

10. Due course.-- If upon the filing of the comment or such other pleadings or documents as may be required or allowed by the Court of
Appeals or upon the expiration of the period for the filing thereof, and on the bases of the petition or the record the Court of Appeals
finds prima facie that the court or agency concerned has committed errors of fact or law that would warrant reversal or modification of the
award, judgment, final order or resolution sought to be reviewed, it may give due course to the petition; otherwise, it shall dismiss the
same. The findings of fact of the court or agency concerned, when supported by substantial evidence, shall be binding on the Court of
Appeals.

11. Transmittal of record.-- Within fifteen (15) days from notice that the petition has been given due course, the Court of Appeals may
require the court or agency concerned to transmit the original or a legible certified true copy of the entire record of the proceeding under
review. The record to be transmitted may be abridged by agreement of all parties to the proceeding. The Court of Appeals may require or
permit subsequent correction of or addition to the record. (Underscoring ours.)

The aforecited circular now formalizes the correct practice and clearly states that in resolving appeals from quasi judicial agencies, it is
within the discretion of the Court of Appeals to have the original records of the proceedings under review be transmitted to it. In this
connection, petitioners claim that the Court of Appeals could not have decided the case on the merits without the records being brought
before it is patently lame. Indubitably, the Court of Appeals decided the case on the basis of the uncontroverted facts and admissions
contained in the pleadings, that is, the petition, comment, reply, rejoinder, memoranda, etc. filed by the parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for being rendered without the necessary
substitution of parties (for the deceased petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules of Court, which
provides as follows:

SEC. 17. Death of party.--After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as
may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the
appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately
appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the
opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring
the appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend they filed based as they were on the ground that
the Regional Trial Court of Makati, where the probate of the late Judge Torres will was pending, had yet to appoint an administrator or legal
representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order is issued by the Court for the appearance of the legal
representative or of the heirs of the deceased to be substituted for the deceased, and as a matter of fact no such substitution has ever been
effected, the trial held by the court without such legal representative or heirs, and the judgment rendered after such trial, are null and void
because the court acquired no jurisdiction over the persons of the legal representative or of the heirs upon whom the trial and the judgment
are not binding. [16]

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the Regional Trial Court of Makati for the ante-
mortem probate of his holographic will which he had executed on 31 October 1986. Testifying in the said proceedings, Judge Torres confirmed
his appointment of petitioner Edgardo D. Pabalan as the sole executor of his will and administrator of his estate. The proceedings, however,
were opposed by the same parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos, [17] who
are nephew and nieces of Judge Torres, being the children of his late brother Antonio A. Torres.

It can readily be observed therefore that the parties involved in the present controversy are virtually the same parties fighting over the
representation of the late Judge Torres estate. It should be recalled that the purpose behind the rule on substitution of parties is the
protection of the right of every party to due process. It is to ensure that the deceased party would continue to be properly represented in the
suit through the duly appointed legal representative of his estate. In the present case, this purpose has been substantially fulfilled (despite
the lack of formal substitution) in view of the peculiar fact that both proceedings involve practically the same parties. Both parties have been
fiercely fighting in the probate proceedings of Judge Torres holographic will for appointment as legal representative of his estate. Since both
parties claim interests over the estate, the rights of the estate were expected to be fully protected in the proceedings before the SEC en banc
and the Court of Appeals. In either case, whoever shall be appointed legal representative of Judge Torres estate (petitioner Pabalan or private
respondents) would no longer be a stranger to the present case, the said parties having voluntarily submitted to the jurisdiction of the SEC
and the Court of Appeals and having thoroughly participated in the proceedings.

The foregoing rationale finds support in the recent case of Vda. de Salazar v. CA, [18] wherein the Court expounded thus:

The need for substitution of heirs is based on the right to due process accruing to every party in any proceeding. The rationale underlying this
requirement in case a party dies during the pendency of proceedings of a nature not extinguished by such death, is that xxx the exercise of
judicial power to hear and determine a cause implicitly presupposes in the trial court, amongst other essentials, jurisdiction over the persons
of the parties. That jurisdiction was inevitably impaired upon the death of the protestee pending the proceedings below such that unless and
until a legal representative is for him duly named and within the jurisdiction of the trial court, no adjudication in the cause could have been
accorded any validity or binding effect upon any party, in representation of the deceased, without trenching upon the fundamental right to a
day in court which is the very essence of the constitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party having died in an action that survives, the trial held by the court
without appearance of the deceaseds legal representative or substitution of heirs and the judgment rendered after such trial, are null and void
because the court acquired no jurisdiction over the persons of the legal representatives or of the heirs upon whom the trial and the judgment
would be binding. This general rule notwithstanding, in denying petitioners motion for reconsideration, the Court of Appeals correctly ruled
that formal substitution of heirs is not necessary when the heirs themselves voluntarily appeared, participated in the case and presented
evidence in defense of deceased defendant. Attending the case at bench, after all, are these particular circumstances which negate petitioners
belated and seemingly ostensible claim of violation of her rights to due process. We should not lose sight of the principle underlying the
general rule that formal substitution of heirs must be effectuated for them to be bound by a subsequent judgment. Such had been the general
rule established not because the rule on substitution of heirs and that on appointment of a legal representative are jurisdictional requirements
per se but because non-compliance therewith results in the undeniable violation of the right to due process of those who, though not duly
notified of the proceedings, are substantially affected by the decision rendered therein. xxx.

It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC en banc had already fully heard the parties and
what remained was the evaluation of the evidence and rendition of the judgment.

Further, petitioners filed their motions to suspend proceedings only after more than two (2) years from the death of Judge
Torres. Petitioners counsel was even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of Court. [19] Instead, it was private
respondents who informed the SEC of Judge Torres death through a manifestation dated 24 April 1991.

For the SEC en banc to have suspended the proceedings to await the appointment of the legal representatives by the estate was
impractical and would have caused undue delay in the proceedings and a denial of justice. There is no telling when the probate court will
decide the issue, which may still be appealed to the higher courts.

In any case, there has been no final disposition of the properties of the late Judge Torres before the SEC. On the contrary, the decision
of the SEC en banc as affirmed by the Court of Appeals served to protect and preserve his estate. Consequently, the rule that when a party
dies, he should be substituted by his legal representative to protect the interest of his estate in observance of due process was not violated in
this case in view of its peculiar situation where the estate was fully protected by the presence of the parties who claim interest thereto either
as directors, stockholders or heirs.

Finally, we agree with petitioners contention that the principle of negotiorum gestio [20]
does not apply in the present case. Said principle
explicitly covers abandoned or neglected property or business.

III

Petitioners find legal basis for Judge Torres act of revoking the assignment of his properties in Makati and Pasay City to Tormil
corporation by relying on Art. 1191 of the Civil Code which provides that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.

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.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and
1388 and the Mortgage Law.

Petitioners contentions cannot be sustained. We see no justifiable reason to disturb the findings of SEC, as affirmed by the Court of
Appeals:

We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46) that -

x x x the shortage of 972 shares would not be valid ground for respondent Torres to unilaterally revoke the deeds of assignment he had
executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL real properties covered by TCT No. 374079 (Makati)
and TCT No. 41527, 41528 and 41529 (Pasay) respectively.

A comparison of the number of shares that respondent Torres received from TORMIL by virtue of the deeds of assignment and the stock
certificates issued by the latter to the former readily shows that TORMIL had substantially performed what was expected of it. In fact, the first
two issuances were in satisfaction to the properties being revoked by respondent Torres. Hence, the shortage of 972 shares would never be a
valid ground for the revocation of the deeds covering Pasay and Quezon City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.
The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the very object of the parties in entering into
contract. Art. 1355 of the Civil Code also provides: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influences. There being no fraud, mistake or undue influence exerted on respondent
Torres by TORMIL and the latter having already issued to the former of its 225,000 unissued shares, the most logical course of action is to
declare as null and void the deed of revocation executed by respondent Torres. (Rollo, pp. 45-46.) [21]

The aforequoted Civil Code provision does not apply in this particular situation for the obvious reason that a specific number of shares of
stock (as evidenced by stock certificates) had already been issued to the late Judge Torres in exchange for his Makati and Pasay City
properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE

1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd

TCT 144240 Quezon City)
2. July 13, 1984 TCT 77008 Manila)
TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay)
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th
10. August 29, 1984 Ayala Fund Stocks 1,322.1)
TOTAL 225,972.3

* Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds of Assignment he executed sometime in July and
August, 1984. [22] (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not have affected the assignment of
the Makati and Pasay City properties which were executed in 13 and 24 July 1984 and the consideration for which have been duly paid or
fulfilled but should have been applied logically to the last assignment of property -- Judge Torres Ayala Fund shares--which was executed on
29 August 1984.[23]

IV

Petitioners insist that the assignment of qualifying shares to the nominees of the late Judge Torres (herein petitioners) does not partake
of the real nature of a transfer or conveyance of shares of stock as would call for the imposition of stringent requirements (with respect to
the) recording of the transfer of said shares. Anyway, petitioners add, there was substantial compliance with the above-stated requirement
since said assignments were entered by the late Judge Torres himself in the corporations stock and transfer book on 6 March 1987, prior to
the 25 March 1987 annual stockholders meeting and which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed
Assistant Corporate Secretary by Judge Torres.

Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late Judge Torres by invalidating the questioned
entries in the stock and transfer book, simply because he initially made those entries (they were later affirmed by an acting corporate
secretary) and because the stock and transfer book was in his possession instead of the elected corporate secretary, if the background facts
herein-before narrated and the serious animosities that then reigned between the deceased Judge and his relatives are to be taken into
account;

xxx.

10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a measly number of stockholders, for the late
judge to have personal custody of corporate records; as president, chairman and majority stockholder, he had the prerogative of designating
an acting corporate secretary or to himself make the needed entries, in instances where the regular secretary, who is a mere subordinate, is
unavailable or intentionally defaults, which was the situation that obtained immediately prior to the 1987 annual stockholders meeting
of Tormil, as the late Judge Torres had so indicated in the stock and transfer book in the form of the entries now in question;

10.13. Surely, it would have been futile nay foolish for him to have insisted under those circumstances, for the regular secretary, who was
then part of a group ranged against him, to make the entries of the assignments in favor of his nominees; [24]

Petitioners contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private respondents--his nephew and nieces that should have placed
Judge Torres on his guard. He should have been more careful in ensuring that his actions (particularly the assignment of qualifying shares to
his nominees) comply with the requirements of the law. Petitioners cannot use the flimsy excuse that it would have been a vain attempt to
force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to
the opposite faction. It is the corporate secretarys duty and obligation to register valid transfers of stocks and if said corporate officer refuses
to comply, the transferor-stockholder may rightfully bring suit to compel performance.[25] In other words, there are remedies within the law
that petitioners could have availed of, instead of taking the law in their own hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records. Corollarily, he keeps the stock
and transfer book and makes proper and necessary entries therein.

Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL was not kept by Ms. Maria Cristina T. Carlos,
the corporate secretary but by respondent Torres, the President and Chairman of the Board of Directors of TORMIL. In contravention to the
above cited provision, the stock and transfer book was not kept at the principal office of the corporation either but at the place of respondent
Torres.
These being the obtaining circumstances, any entries made in the stock and transfer book on March 8, 1987 by respondent Torres of an
alleged transfer of nominal shares to Pabalan and Co. cannot therefore be given any valid effect. Where the entries made are not valid,
Pabalan and Co. cannot therefore be considered stockholders of record of TORMIL. Because they are not stockholders, they cannot therefore
be elected as directors of TORMIL. To rule otherwise would not only encourage violation of clear mandate of Sec. 74 of the Corporation Code
that stock and transfer book shall be kept in the principal office of the corporation but would likewise open the flood gates of confusion in the
corporation as to who has the proper custody of the stock and transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not the corporate secretary, at pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstanding capital stock of TORMIL is of no moment and is not a license for him to
arrogate unto himself a duty lodged to (sic) the corporate secretary. [26]

All corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not an
exemption. Such corporations cannot have rules and practices other than those established by law.

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED. SO ORDERED.
 [G.R. No. 119310. February 3, 1997]

JULIETA V. ESGUERRA, petitioner, vs. COURT OF APPEALS and SURESTE PROPERTIES, INC., respondents.

DECISION

PANGANIBAN, J.:

May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved
compromise agreement but without the knowledge of such co-owner? Is the corporate secretarys certification of the shareholders and
directors resolution authorizing such sale sufficient, or does the buyer need to go behind such certification and investigate further the truth
and veracity thereof?

These questions are answered by this Court as it resolves the instant petition challenging the Decision [1] in CA-G.R. SP No. 33307
promulgated May 31, 1994 by the respondent Court,[2]reversing the judgment of the trial court.

The Antecedent Facts

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

On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of
property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on 31 October 1985
impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants (Annex C, p. 23, Rollo).

The parties entered into a compromise agreement which was submitted to the court. On the basis of the said agreement, the court on 11
January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI
(Annex F and G, pp. 26-27, Rollo). The compromise agreement between (herein petitioner) and VECCI provides in part:

Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their respective counsels, submitted to this Court
on January 11, 1990 a Joint Motion for Partial Judgment Based on Compromise Agreement, pertinent provisions of which reads as follows:

1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall sell/alienate/transfer or dispose of in any lawful and convenient manner, and
under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders, all the following properties:

* real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila;

* real estate and building located at 104 Amorsolo Street, Legaspi Village, Makati, Metro Manila;

* real estate and improvements located at Barangay San Jose, Antipolo, Rizal;

* real estate and improvements located at Barangay San Jose, Antipolo, Rizal;

* real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and

* real estate and improvements located at Barangay Malaatis, San Mateo, Rizal.

2. After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds are realized therefrom, and after
all the financial obligations of defendant VECCI (those specified in the enabling resolutions and such other obligations determined to be due
and will become due) are completely paid and/or settled, defendant VECCI shall cause to be paid and/or remitted to the plaintiff such
amount/sum equivalent to fifty percent (50%) of the (net) resulting balance of such funds.

By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the net proceeds distributed
according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St., Legaspi Village,
Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus, on 7 August 1990, (herein
petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990
until the same be sold (p. 28,id.). VECCI opposed said motion (p. 31, Rollo).

On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was affirmed by this court in a
decision dated 17 May 1991 in CA-G.R. SP. No. 2380.VECCI resorted to the Supreme Court which on 4 May 1992 in G.R. No. 100441 affirmed
this courts decision the fallo of which reads:

The petition is without merit. As correctly found by the respondent Court of Appeals, it can be deduced from the terms of the Compromise
Agreement and from the nature of the action in the court a quo that the basis of the equal division of the proceeds of any sale or disposition
of any of the subject properties is the acknowledged ownership of private respondent over one-half of the said assets. Considering that the
other building has yet to be sold, it is but logical that pending its disposition and conformably with her one-half interest therein, private
respondent should be entitled to half of its rentals which forms part of her share in the fruits of the assets. To accord a different interpretation
of the Compromise Agreement would be prejudicial to the established rights of private respondent. (p. 36, Rollo).

Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties, Inc.) for P150,000,000.00 (sic). On 17 June
1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the ground that VECCI is not
the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms and conditions of the sale
(p.37, Rollo).

Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioners)
motion to declare the sale void ab initio. In its Manifestation (Sureste) points out that in the compromise agreement executed by VECCI and
(Julieta V. Esguerra), she gave her express consent to the sale of the said building (p.38, Rollo).

On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now Associate Justice of this court)
issued an Omnibus Order denying among others, (Surestes) motion, to which a motion for reconsideration was filed. [3]

After trial on the merits, the Regional Trial Court of Makati, Branch 133,[4] rendered its order, the dispositive portion of which reads:
WHEREFORE, the Court resolves as it is resolved that:

1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that:

a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at Amorsolo St., Legaspi Village,
Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and,

b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value thereof but ineffectual and
unenforceable with respect to the other half as the acknowledged owner of said portion was not consulted as to the terms and conditions of
the sale.

The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory.

2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well as plaintiffs
tenants at Esguerra Bldg. II;

3. Plaintiffs Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic.

4. Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on February 15, 1994 at 10:30 in
the morning for the physical examination of defendant or counsel.

SO ORDERED.[5]

From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the Court of Appeals which ruled
in its favor, viz.:

From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property unenforceable with
respect to one-half.

WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET ASIDE. No pronouncement as to cost.

SO ORDERED.[6]

Julieta Esguerras Motion for Reconsideration[7] dated June 15, 1994 was denied by the respondent Court in the second assailed
Resolution[8] promulgated on February 23, 1995.

Hence this petition.

The Issues

Petitioner submits the following assignment of errors:

x x x (I)n issuing the Decision (Annex A of the petition) and the Resolution (Annex B of the petition), the Court of Appeals decided
questions of substance contrary to law and applicable jurisprudence and acted without jurisdiction and/or with grave abuse of discretion
when:

It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of the acknowledged co-
owner thereof and in contravention of the terms of the compromise agreement as well as the Resolution of this Honorable Court in G.R.
No. 100441 wherein this Honorable Court recognized herein petitioners acknowledged ownership of - - - one-half of the subject property;
and,

It held that the trial court acted without jurisdiction and/or abused its discretion when it held that the questioned sale of the
property is ineffectual and unenforceable as to herein petitioners one-half (1/2) ownership/interest in the property since the sale was
made without her knowledge and consent.

BECAUSE:

A. No proper corporate action of VECCI was made to effect such sale as required under the compromise agreement;

B. The sale of the subject property was made in violation of the terms of the compromise agreement in that it was not
made with the approval/consent of the acknowledged owner of 1/2 of the said asset;

C. The prior sale of another property (the Esguerra Building I as distinguished from the subject property which is the
Esguerra Building II) included in the said compromise agreement was made only after the prior approval/consent of petitioner and
this procedure established a precedent that applied in the subsequent sale of the Esguerra Building II; and

D. Respondent Sureste as purchaser pendente lite of the subject property covered by a notice of lis pendens was in law
deemed to have been duly notified of the aforesaid conditions required for a valid sale of the subject property as well as of
petitioners acknowledged ownership - - - over one-half of the Esguerra Building II.[9]

Simply put, petitioner (1) assails VECCIs sale of Esguerra Building II to private respondent as unenforceable to the extent of her one-
half share, and (2) accuses the appellate court of acting without jurisdiction or with grave abuse of discretion in reversing the trial courts
finding to that effect.

The Courts Ruling

The petition has no merit.

 First Issue: Is the Contract of Sale Unenforceable?

The Civil Code provides that a contract is unenforceable when it is x x x entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted beyond his powers. [10] And that (a) contract entered into in the name of
another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, x x x .[11] After a
thorough review of the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste Properties, Inc.
valid. The sale was expressly and clearly authorized under the judicially-approved compromise agreement freely consented to and voluntarily
signed by petitioner Julieta Esguerra. Thus, petitioners contention that the sale is unenforceable as to her share for being unauthorized is
plainly incongruous with the express authority granted by the compromise agreement to VECCI, which specified no condition that the latter
shall first consult with the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court:

The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI , which was approved by the court, expressly
provides, among others, that the latter shall sell or otherwise dispose of certain properties, among them, Esguerra Bldgs. I and II, and fifty
(50%) percent of the net proceeds thereof to be given to the former. Pursuant to said agreement, VECCI sold the buildings.x x x

xxxxxxxxx

x x x The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition that the sale be in a lawful
and convenient manner and under the terms and conditions recited in the enabling resolutions of its Board of Directors and
stockholders. There is nothing in the said agreement requiring VECCI to consult the private respondent (Julieta Esguerra) before any sale (can
be concluded). Thus, when VECCI sold the property to (Sureste Properties, Inc.) as agreed upon, it need not consult the private
respondent.[12]

Moreover, petitioners contention runs counter to Article 1900 of the Civil Code which provides that:

So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within
the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding
between the principal and the agent.

Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because
it was executed in accordance with the compromise agreement, authorized not only by the parties thereto, who became co-principals in a
contract of agency created thereby, but by the approving court as well. Consequently, the sale to Sureste Properties, Inc. of Esguerra Building
II cannot in any manner or guise be deemed unenforceable, as contended by petitioner.

Consultation in the Sale of Esguerra Building I

Not a Binding Precedent

The petitioner further argues that VECCIs consulting her on the terms and conditions of its sale of Esguerra Building I set a binding
precedent to be followed by the latter on subsequent sales.She adds that in failing to consult her on the sale of Esguerra Building II, VECCI
acted unfairly and unjustly as evidenced by (a) the sale of said building for only P160,000,000.00 instead ofP200,000,000.00, which is the
best price obtainable in the market, (b) payment of real estate brokers commission of 5% instead of just 2% as in the sale of Esguerra 1
building, and (c) the denial of petitioners right of first refusal when her offer to purchase her one-half share for P80,000,000.00 as ordered by
the trial court was totally ignored.[13]

The Court is not persuaded. Petitioners argument is debunked by the very nature of a compromise agreement. The mere fact that
petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell
granted the former as expressly spelled out in the judicially-approved compromise agreement because a compromise once approved by final
orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or
forgery.[14] Hence, a decision on a compromise agreement is final and executory, x x x .[15]

Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been obtained. This is plainly
without legal basis since she already consented to the compromise agreement which authorized VECCI to sell the properties without the
requirement of prior consultation with her. It is a long established doctrine that the law does not relieve a party from the effects of an unwise,
foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no
power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise
investments.[16] It is a truism that a compromise agreement entered into by party-litigants, when not contrary to law, public order, public
policy, morals, or good custom is a valid contract which is the law between the parties themselves. It follows, therefore, that a compromise
agreement, not tainted with infirmity, irregularity, fraud or illegality is the law between the parties who are duty bound to abide by it and
observe strictly its terms and conditions[17] as in this case.Incidentally, private respondent Sureste Properties, Inc. submits that the petitioner
offered to buy her one-half share for only P75,000,000.00, not P80,000,000.00.[18] She therefore valued the whole building only
at P150,000,000.00 which amount is P10,000,000.00 less than the price of P160,000,000.00 paid by private respondent, the highest offer the
market has produced in two and a half years the building was offered for sale. Even the 5% real estate brokers commission was not disparate
with the standard practice in the real estate industry. Thus, the respondent Court aptly stated that:

x x x In affixing her signature on the compromise agreement, private respondent (Julieta Esguerra) has demonstrated her agreement to all
the terms and conditions therein and have (sic) given expressly her consent to all acts that may be performed pursuant thereto. She can not
later on repudiate the effects of her voluntary acts simply because it does not fit her. Her contention that she was not consulted as to the
terms of the sale has no leg to stand on.[19]

Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Besides,
such previous consultation -- even assuming arguendothat it was a binding precedent -- cannot bind private respondent Sureste which was
not a party thereto. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste Properties, Inc. and to undermine public
faith in court decisions approving compromise agreements.

Right of First Refusal Waived

The argument of petitioner that she was denied her right of first refusal is puerile. This alleged right, like other rights, may be
waived[20]as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses judicial
compromise agreement necessitated the sale of the spouses co-owned properties and its proceeds distributed fifty percent to each of them
which, therefor, resulted in its partition.[21] If petitioner wanted to keep such right of first refusal, she should have expressly reserved it in the
compromise agreement. For her failure to do so, she must live with its consequences.
 VECCIS Sale of Esguerra
Building II A Valid Exercise of Corporate Power

Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made under the terms
and conditions recited in the enabling resolutions of its Board of Directors and stockholders.[22] She rues that no shareholders or directors
meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper for not having complied with the
requirements mandated by Section 40 of the Corporation Code.[23]

Petitioners contention is plainly unmeritorious. The trial courts partial decision dated January 11, 1990 approving the compromise
agreement clearly showed that the enabling resolutions of its (VECCIs) board of directors and stockholders referred to were those then
already existing; to wit: (1) the resolution of the stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI
to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for such consideration as the board
of directors may deem expedient.[24] (2) the resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to
sell and/or dispose all or substantially all the property and assets of the corporation, at the highest available price/s they could be sold or
disposed of in cash, and in such manner as may be held convenient under the circumstances, and authorized the President Vicente B.
Esguerra, Jr. to negotiate, contract, execute and sign such sale for and in behalf of the corporation.[25] VECCIs sale of all the properties
mentioned in the judicially-approved compromise agreement was done on the basis of its Corporate Secretarys Certification of these two
resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCIs sale of these properties
valid. Being regular on its face, the Secretarys Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not
have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become
tortuously slow and unnecessarily hampered. Ineluctably, VECCIs sale of Esguerra Building II to private respondent was not ultra vires but a
valid execution of the trial courts partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of
Section 40 of the Corporation Code.

Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCIs corporate action in selling Esguerra Building
II on the basis of said resolutions and certification because she never raised this issue in VECCIs prior sales of the other properties sold
including the Esguerra Building I.[26] The same identical resolutions and certification were used in such prior sales.

Notice of Lis Pendens

Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any
subsequent transaction affecting the same, would have to be subject to the outcome [27] of the suit. In other words, a purchaser who buys
registered land with full notice of the fact that it is in litigation between the vendor and a third party x x x stands in the shoes of his vendor
and his title is subject to the incidents and result of the pending litigation x x x. [28] In the present case, the purchase made by private
respondent Sureste Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the
private respondents purchase remains subject to our decision in the instant case. The former is likewise deemed notified of all the incidents of
this case including the terms and conditions for the sale contained in the compromise agreement. However, petitioners inference that the
private respondent is also deemed to have been notified that the manner of the sale of the properties contained in the compromise
agreement should be made only upon prior consent/conformity of the herein petitioner is non sequitur. Nowhere in the compromise
agreement was this inference expressly or impliedly stated. In the final analysis, the determination of this issue ultimately depends on this
Courts disposition of this case.

Appealed Decision Consistent with Previous

Court of Appeals and Supreme Court Decisions

Petitioner maintains that the trial courts ruling that the sale of Esguerra Building II to Sureste is unenforceable to the extent of one-half
share of petitioner in the property is based on the Court of Appeals decision in G.R. SP No. 23780 dated May 17, 1991, and the Supreme
Courts decision in G.R. No. 100441 dated May 4, 1992 which both acknowledged petitioners one-half ownership of said building.[29] She
reasons that (a)s co-owner her consent or conformity to the sale was necessary for the validity or effectivity thereof insofar as her 1/2
share/ownership was concerned.[30] The Court disagrees. As discussed previously, this repetitive contention is negated by her consent to the
compromise agreement that authorized VECCI to sell the building without need of further consultation with her. Her co-ownership in the
building was not inconsistent with her authorizing another, specifically VECCI, to sell her share in this property via an agency arrangement. As
correctly stated by the respondent Court of Appeals, the only import of this Courts ruling in G.R. No. 100441 was as follows:

the only issue involved is whether or not private respondent is entitled to one-half of the rentals of the subject property pending its sale. The
rulings of the courts is (sic) therefore limited only to the issue of rental, there being no provision in the compromise agreement approved by
the court for the rentals earned from the building pending its sale. Nowhere in the said rulings did it question nor assail the authority granted
to VECCI to sell the said building. In fact, the decisions affirmed the authority granted to VECCI to sell the said building which invoked the
compromise agreement of the parties as a basis of the decision (Manifestation, p. 38, Rollo).[31]

Second Issue: Did the Appellate Court Act Without Jurisdiction

or With Grave Abuse of Discretion?

In the case of Alafriz vs. Nable,[32] this Court defined the phrases without jurisdiction and grave abuse of discretion as follows:

Without jurisdiction means that the court acted with absolute want of jurisdiction. x x x Grave abuse of discretion implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

Contrary to petitioners asseverations, the Court finds that the respondent Court of Appeals judiciously, correctly and certainly acted
within its jurisdiction in reversing the trial courts decision.As discussed, its decision is consistent with law and existing jurisprudence.

Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes only reversible errors of
the appellate court as grounds for review, and not grave abuse of discretion which is provided for by Rule 65. It is basic that where Rule 45 is
available, and in fact availed of as a remedy -- as in this case -- recourse under Rule 65 cannot be allowed either as an add-on or as a
substitute for appeal.

Finally, (c)ourts as a rule may not impose upon the parties a judgment different from their compromise agreement. It would be an
abuse of discretion.[33] Hence, in this case, it is the trial courts decision which is tainted with grave abuse of discretion for having injudiciously
added prior consultation to VECCIs authority to sell the properties, a condition not contained in the judicially-approved compromise
agreement.
 WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been committed by respondent Court. The
assailed Decision is AFFIRMED in toto. Costs against petitioner. SO ORDERED.
 [G.R. No. 120457. September 24, 1998]

SALOME PABON and VICENTE CAMONAYAN, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and SENIOR
MARKETING CORPORATION, respondents.

DECISION

MARTINEZ, J.:

The only issue in this petition for certiorari filed under Rule 65 of the old Rules of Court is whether summons was properly served on
private respondent Senior Marketing Corporation, through its bookkeeper, so as to confer jurisdiction on the Labor Arbiter over the said
corporation.

The antecedents of the case are as follows:

On May 24, 1994 and June 22, 1994, complaints[1] for illegal dismissal and non-payment of benefits were filed by petitioners Salome
Pabon and Vicente Camonayan against private respondent Senior Marketing Corporation (SMC) and its Field Manager, R-Jay Roxas Summons
and notices of hearings were sent to Roxas at private respondents provincial office in 13 Valley Homes, Patul Road, Santiago, Isabela which
were received by its bookkeeper, Mina Villanueva.

On September 15, 1994, the Labor Arbiter rendered a judgment[2] by default after finding that private respondent tried to evade all the
summons and orders of hearing by refusing to claim all the registered mail addressed to it. Thus, a copy of the Labor Arbiters Decision was
sent to private respondents principal office in Manila, the dispositive portion of which reads:

WHEREFORE, with all the foregoing considerations judgment is hereby rendered as follows:

1. Declaring complaints Salome Pabon and Vicente Camonayan illegally and unjustly dismissed in a manner that is whimsical and capricious;

2 Ordering respondents Senior Marketing Corporation and R-Jay Roxas jointly and severally to reinstate complaints to their former position
without loss of seniority rights and to pay them their full backwages and other benefits until they are actually reinstated computed as of
September 15, 1994 as follows:

x x x x x x x x x[3]

Instead of appealing the Labor Arbiters decision to the National Labor Relations Commission (NLRC), within ten (10) days from receipt
of the said decision, private respondent filed a motion for reconsideration/new trial [4] before the Labor Arbiter. It was only after the said ten-
day period had lapsed that private respondent appealed to the NLRC which, in a Decision [5] promulgated on March 31, 1995, disposed of the
appeal as follows:

WHEREFORE, the decision of the Labor Arbiter is hereby SET ASIDE and respondent Senior Marketing Corporation is hereby directed to
submit its evidence and for the Labor Arbiter to conduct such further proceedings as may be necessary for the expeditious resolution of this
instant case.

SO ORDERED.

In so ruling for herein private respondent, the NLRC opined that the Labor Arbiters conclusion that herein private respondent refused to
receive Notices was based on the Manifestation[6] of Salome Pabon dated August 30, 1994. It further reasoned, to wit:

The number of times that notices of hearings have been unclaimed by the respondent, or more precisely addressee R-Jay Roxas should have
placed the Labor Arbiter on guard as to the real cause thereof. He should not have merely relied on the unverified (sic) Manifestation of the
complainant, which he swallowed hook, line and sinker. Instead, the Labor Arbiter should have sent a notice of hearing to respondents
address in Manila, which he puzzingly did with regard to sending a copy of his decision of September 15, 1994. A little more circumspection
should have been resorted to by the Labor Arbiter.[7]

Thereafter, imputing grave abuse of discretion on the part of the NLRC, petitioners elevated the case to this Court via petition for
certiorari. They alleged that private respondent was properly served with summons in accordance with theRules of Court [8] through its
bookeeper at its provincial office address.[9] It is petitioners argument that by virtue of said service of summons, the Labor Arbiter acquired
jurisdiction over private respondent and that the latter, by deliberately failing to present evidence, cannot now cry transgression of its right to
due process simply because the Labor Arbiters decision is based solely on petitoners evidence.Petitioners likewise argue that private
respondents failure to file an appeal before the NLRC within the ten-day reglamentary period rendered by Labor Arbiters judgment final and
executory.[10]

For its part, private respondent contends that it was not validly served with summons, since its bookkeeper cannot be considered as an
agent under Section 13, Rule 14 of the old Rules of Court upon whom valid service can be made. Consequently, the Labor Arbiters decision is
void as it was rendered without jurisdiction over private respondent.

We rule for the petitioners. Courts acquire jurisdiction over the person of a party-defendant by virtue of the service of summons in the
manner required by law.[11] In the case at bar, although as a rule, modes of service of summons are strictly followed in order that the court
may acquire jurisdiction over the person of a defendant, such procedural modes, however, are liberally construed in quasi-judicial
proceedings, as in this case, substantial compliance with the same being considered adequate. [12]

Consequently, the conclusion of the NLRC that there was an invalid service of summons on herein private respondent failed to take
cognizance of the fact that the subject summons were received by its bookkeeper at private respondents provincial office. Such service had
satisfied the procedural requirement of proper notice. Thus, the finding of the NLRC that private respondent was deprived of the opportunity
to present its evidence by reason of the alleged defective service of summons is untenable.

We are of the view that a bookkeeper can be considered as an agent of private respondent corporation within the purview of Section 13,
Rule 14 of the old Rules of Court. The rationale of all rules with respect to service of process on a corporation is that such service must be
made to an agent of a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers served on him. [13] The bookkeepers task is one under consideration. The
job of a bookkeeper is so integrated with the corporation that his regular recording of the corporations business accounts [14] and essential
facts about the transactions of a business enterprise[15] safeguards the corporation from possible fraud being committed adverse to its own
corporate interest.

Although it may be true that the service of summons was made on a person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and complaint were in fact received by the corporation through its said clerk, the
Court finds that there was a substantial compliance with the rule on service of summons. Indeed the purpose of said rule as above stated to
assure service of summons on the corporation had thereby been attained. The need for speedy justice must prevail over technicality.[16]
 Blacks Law Dictionary defines an agent as a business representative, whose function is to bring about, modify, affect, accept
performance of, or terminate contractual obligations between principal and third person. [17]To this extent, an agent may also be shown to
represent his principal in some one or more of his relations to others, even though he may not have the power to enter into contracts. The
rules on service of process make service on agent sufficient. It does not in any way distinguish whether the agent be general or special, but is
complied with even by a service upon an agent having limited authority to represent his principal. As such, it does not necessarily connote an
officer of the corporation. However, though this may include employees other than officers of a corporation, this does not include employees
whose duties are not so integrated to the business that their absence or presence will not toll the entire operation of the business. It is for
this reason that we lend credence to the finding of the Labor Arbiter when it ruled that it required jurisdiction over private respondent on the
basis of Section 5, Rule III of the NLRC Rules of Procedure which provides:

Proof and completeness of service. The return is prima facie proof of the facts indicated therein. Service by registered mail is complete upon
receipt by the addressee or his agent; but if the addressee fails to claim his mail from the post office within five (5) days from the date of
the first notice of the postmaster, service shall take effect after such time.[18] (Emphasis supplied).

It is clear from the above-quoted rule that service by registered mail is complete upon receipt by the addressee or his agent. As can be
gleaned from the records, all summons and notices of hearings addressed to private respondent were served on and received by its
bookkeeper on behalf of private respondent as its employer who, under the circumstances of this case, is considered as an agent within the
contemplation of the aforecited NLRC rule. Such an employee is not one of those lesser employees of the corporation who would not have
been able to appreciate the importance of the papers delivered to her. In fact, in G&G Trading Corporation v. Court of Appeals,[19] we held
that service of summons was properly made to a corporation through a clerk who was not even authorized to receive the same on behalf of
its employer, since what is of paramount importance is that the purpose of the rule has been attained, thereby the interest of speedy justice
has been subserved. As ruled in said case

Although it may be true that the service of summons was made on a person not authorized to receive the same in behalf of the petitioner,
nevertheless since it appears that the summons and complaints were in fact received by the corporation through its said clerk, the court finds
that there was substantial compliance with the rule on service of summons. Indeed the purpose of said rule as above stated to assure service
fo summons on the corporation and thereby been attained. The need for speedy justice must prevail over a technicality.

WHEREFORE, the petition is hereby GRANTED; the assailed order of the National Labor Relations Commission dated March 31, 1995 is
hereby SET ASIDE for having been rendered with grave abuse of discretion; and the order of the Labor Arbiter Ricardo N. Olairez dated
September 15, 1994, in RAB II CNs. 05-00185-94 & 06-00254-94. Entitled: Salome Pabon, Vicente Camonayan, complainants, versus Senior
Marketing Corporation, R-Jay Roxas, Field Manager, respondents is hereby REINSTATED. SO ORDERED.
G.R. No. 111187 February 1, 1995

R. TRANSPORT CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, Former 15th Division, Manila, HON. SALVADOR S. ABAD SANTOS, as Presiding Judge, Regional Trial
Court of, Metro Manila, Branch 65 and FLOSERIDA L. CASTAÑEDA,respondents.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals in CA-G.R. SP No.
27647 and its resolution dated July 21, 1993 denying petitioner's motion for reconsideration.

On November 22, 1991, private respondent filed a complaint for damages arising from breach of contract of carriage against petitioner with
the Regional Trial Court, Branch 65, Makati Manila (docketed as Civil Case No. 91-3242).

Summons addressed to "R. Transport Corporation, Sucat Road, Parañaque" was prepared (Rollo, p. 31).

The process server of the trial court submitted his Officer's Return on December 6, 1991 stating:

This is to certify that on the 4th day of December 1991, copy of the summons together with complaint and all its annexes
attached thereto issued by this Honorable Court in the above-entitled case has been duly served upon the defendant R.
Transport, Inc., of Sucat Road, Parañaque and receipt was acknowledge (sic) by Mr. Cesar Pasquin who identified himself
as the operation (sic) manager of said company as evidence of (sic) his signature that appears at the lower right portion of
the original copy of the summons.

Wherefore, the original copy of this summons is respectfully returned to the Honorable Court of origin for its record and
information, DULY SERVED (Rollo, p. 60).

In an Order dated January 28, 1991, the trial court upon ex parte motion of private respondent, declared petitioner in default and appointed a
commissioner to receive evidence ex parte on February 18, 1992 (Rollo, p. 32).

On February 14, 1992, petitioner filed a Motion to Dismiss and to Stop Ex Parte Reception of Evidence (Rollo, p. 33). It asserted that it was
not properly served with summons and consequently, the trial court did not acquire jurisdiction over its person. It argued that none of the
officers enumerated in Section 13, Rule 14 of the Revised Rules of Court (namely, the corporation's president, manager, secretary, cashier,
agent or any of its directors) received any summons in Civil Case No. 91-3242.

In an Order dated February 18, 1992, the trial court denied petitioner's motion and allowed private respondent to adduce its evidence ex
parte on March 17, 1992 (Rollo, p. 36).

On March 4, 1992, petitioner filed a motion for reconsideration giving as an additional ground therefor that summons was served at Sucat,
Parañaque, where its bus terminal was located, and not at its principal office at No. 4474 Singian Street, Makati, Metro Manila, where its
president, general manager, secretary, agent and directors hold office. Petitioner asked, inter alia, that the trial court direct "the Clerk of
Court to issue another summons together with a copy of the complaint and serve such summons to the President, General Manager, Cashier,
or any of its Directors, with offices at Rizal Towers, 4474 Singian St., Makati, Metro Manila, who are authorized by law to receive these
summons on behalf of the defendant corporation" (Rollo, p. 39).

In an Order dated March 17, 1992, the trial court denied petitioner's motion for reconsideration for lack of merit (Rollo, p. 44).

Hence, petitioner filed a petition for certiorari with the Court of Appeals to nullify the above three orders of the trial court.

The Court of Appeals dismissed the petition ruling that the trial court did not commit any grave abuse of discretion in declaring the petitioner
in default and in denying petitioner's motion for reconsideration.

Petitioner moved for reconsideration of the appellate court's decision, submitting the affidavit of its President to the effect that its Operations
Manager was a certain Roger F. Lemi and not Cesar Pasquin.

In its Resolution dated July 21, 1993, the appellate court denied the motion.

Hence, this petition.

II

The affidavit filed by the president of petitioner — where she stated that the Operations Manager was not Cesar Pasquin but a certain Roger
F. Lemi — deserves scant weight for being self-serving. As correctly held by the appellate court, the allegations in the affidavit cannot
overcome the presumption stated in Section 3(m), Rule 131 of the Revised Rules of Court that official duty (that of the service of summons
by the process server) had been regularly performed. Thus, credence is to be given to the process server's Officer's Return of December 6,
1991, where it is stated that a copy of the summons was received at Sucat, Parañaque by a Cesar Pasquin, who identified himself as
petitioner's Operations Manager.

Furthermore, the certificate of service by the proper officer is prima facie evidence of the facts set out therein. Where such certificate shows
that service of summons in an action against a corporation was made by serving a copy thereof on a person therein named and described as
the managing agent of the company, it is prima facieevidences of the fact that the person on whom the summons was served was in fact the
managing agent of the company. To overcome the presumption arising from the certificate, the evidence must be clear and convincing
(Vargas and Co. v. Chan Hang Chiu, 29 Phil. 446 [1915]). Petitioner has failed to overcome such presumption.

We now come to the issue of whether there was valid service of summons. Petitioner contends that the summons was not served on the
proper officer of the corporation holding office at Singian Street, Makati, Metro Manila, but on the Operations Manager at petitioner's bus
terminal in Sucat, Parañaque.

As a general rule, service of summons must be made on the persons named in Section 13, Rule 14 of the Revised Rules of Court which
provides:
 Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of
the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent
or any of its directors.

Thus service on persons other than those mentioned in said Rule has been held as improper (ATM Trucking, Inc. v. Buencamino, 124 SCRA
434 [1983]; Delta Motor Sales Corporation v. Mangosing, 70 SCRA 598 [1976]).

Through the years, the rule on service of summons has been liberalized. Such liberalization is to give life to therationale behind Section 13 of
Rule 14, stated in Villa Rey Transit, Inc. v. Far East Motor Corporation, 81 SCRA 298 (1978) thus:

The rationale of all rules for service of process on corporations is that service must be made on a representative so
integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him.

Thus service of summons on persons other than those enumerated in Section 13 of Rule 14 have been held proper on the theory that those
persons served were holding positions of responsibility and could appreciate the importance of the papers handed them, and could be
expected to deliver the papers to the proper officer (Rebollido v. Court of Appeals, 170 SCRA 800 [1989]). These persons ranged from
ordinary clerks (Golden Country Farms, Inc. v. Sanvar Development Corporation, 214 SCRA 295 [1992]; G & G Trading v. Court of Appeals,
158 SCRA 466 [1988]), private secretaries of corporate executives (Summit Trading and Development Corporation v. Avendano, 135 SCRA
397 [1985]), retained counsel (Republic v. Ker & Company, Ltd., 18 SCRA 207 [1966]), officials who had charge or control of the operations
of the corporation, like the Assistant General Manager (Villa Rey Transit, Inc. v. Far East Motor Corporation, supra), and the corporation's
Chief of Finance and Administrative Officer (Far Corporation v. Francisco, 146 SCRA 197 [1986]). These individuals were considered "agents"
within the contemplation of Section 13 of Rule 14 (Filoil Marketing Corporation v. Marine Development Corporation of the Philippines, 117
SCRA 86 [1982]; Summit Trading and Development Corporation v. Francisco,supra).

Thus, we hold that service of summons on petitioner's Operations Manager was valid. He is an officer who may be relied upon to appreciate
the importance of the papers served on him. The purpose of Section 13 of Rule 14 was served. The fact that service was made at petitioner's
bus terminal at the address stated in the summons and not at its office in Makati does not render the service of summons invalid. In Villa Rey
Transit, Inc., supra, we held valid the service of summons made on the corporation's Assistant General Manager for Operations holding office
at the "sub-station" in Sampaloc, Manila.

As held in Gesulgon v. National Labor Relations Commission, 219 SCRA 561 (1993), where service of summons was effected on the
corporation's Assistant Manager:

It would be contrary to public policy to permit a corporation to free itself from the consequences of service upon it of legal
process by pleading the supposed failure of one of its officers to carry out the duties incumbent upon such officer (at pp.
569-570).

Petitioner is engaged in the transportation business, operating over 100 buses. Its central bus terminal is located at Sucat, Parañaque, from
where it conducts the bulk of its business. It was at that terminal where petitioner's Operations Manager was found and upon whom service
was made. We distinguish the instant case from First Integrated Bonding & Insurance Co., Inc. v. Dizon, 125 SCRA 440 (1983), where we
held that a branch manager does not come within the enumeration of Section 13, Rule 14, who are officers whose duties generally pertain to
the overall transportation business of the corporation and not merely to a branch or department thereof.

WHEREFORE, the petition is DENIED. SO ORDERED.

 [G.R. No. 136426. August 6, 1999]

E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs. HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC,
Branch 132, Makati City and IMPERIAL DEVELOPMENT CORPORATION, respondent.

DECISION

GONZAGA-REYES, J.:

Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of
preliminary injunction seeking to annul and set aside the Orders dated August 5, 1998 and November 20, 1998 of the public respondent
Judge Herminio I. Benito of the Regional Trial Court of Makati City, Branch 132 and praying that the public respondent court be ordered to
desist from further proceeding with Civil Case No. 98-824.

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan Luna St., Davao City and
with branch offices at 2492 Bay View Drive, Tambo, Paraaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City. Petitioner and
private respondent executed a Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land
located at Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low cost housing
units. They further agreed that in case of litigation regarding any dispute arising therefrom, the venue shall be in the proper courts of Makati.

On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of Contract and Damages against petitioner, as
defendant, before the Regional Trial Court of Makati allegedly for failure of the latter to comply with its contractual obligation in that, other
than a few unfinished low cost houses, there were no substantial developments therein.[1]

Summons, together with the complaint, were served upon the defendant, through its Branch Manager Engr. Wendell Sabulbero at the
stated address at Kolambog, Lapasan, Cagayan de Oro City[2] but the Sheriffs Return of Service[3] stated that the summons was duly served
upon defendant E. B. Villarosa & Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5, 1998 at their new office
Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the summons.

On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss [4]alleging that on May 6, 1998, summons intended for
defendant was served upon Engr. Wendell Sabulbero, an employee of defendant at its branch office at Cagayan de Oro City. Defendant
prayed for the dismissal of the complaint on the ground of improper service of summons and for lack of jurisdiction over the person of the
defendant. Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was improperly served upon
its employee in its branch office at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of
Civil Procedure upon whom service of summons may be made.

Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Default [5] alleging that defendant has failed to file an
Answer despite its receipt allegedly on May 5, 1998 of the summons and the complaint, as shown in the Sheriffs Return.

On June 22, 1998, plaintiff filed an Opposition to Defendants Motion to Dismiss[6] alleging that the records show that defendant, through
its branch manager, Engr. Wendell Sabulbero actually received the summons and the complaint on May 8, 1998 as evidenced by the
signature appearing on the copy of the summons and not on May 5, 1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in
the motion to dismiss; that defendant has transferred its office from Kolambog, Lapasan, Cagayan de Oro to its new office address at Villa
Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of the rule is to bring home to the corporation notice of the filing of the action.

On August 5, 1998, the trial court issued an Order[7] denying defendants Motion to Dismiss as well as plaintiffs Motion to Declare
Defendant in Default. Defendant was given ten (10) days within which to file a responsive pleading. The trial court stated that since the
summons and copy of the complaint were in fact received by the corporation through its branch manager Wendell Sabulbero, there was
substantial compliance with the rule on service of summons and consequently, it validly acquired jurisdiction over the person of the
defendant.

On August 19, 1998, defendant, by Special Appearance, filed a Motion for Reconsideration [8] alleging that Section 11, Rule 14 of the
new Rules did not liberalize but, on the contrary, restricted the service of summons on persons enumerated therein; and that the new
provision is very specific and clear in that the word manager was changed to general manager, secretary to corporate secretary, and
excluding therefrom agent and director.

On August 27, 1998, plaintiff filed an Opposition to defendants Motion for Reconsideration [9] alleging that defendants branch manager
did bring home to the defendant-corporation the notice of the filing of the action and by virtue of which a motion to dismiss was filed; and
that it was one (1) month after receipt of the summons and the complaint that defendant chose to file a motion to dismiss.

On September 4, 1998, defendant, by Special Appearance, filed a Reply[10] contending that the changes in the new rules are substantial
and not just general semantics.

Defendants Motion for Reconsideration was denied in the Order dated November 20, 1998.[11]

Hence, the present petition alleging that respondent court gravely abused its discretion tantamount to lack or in excess of jurisdiction in
denying petitioners motions to dismiss and for reconsideration, despite the fact that the trial court did not acquire jurisdiction over the person
of petitioner because the summons intended for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil
Procedure.

Private respondent filed its Comment to the petition citing the cases of Kanlaon Construction Enterprises Co., Inc. vs. NLRC[12] wherein it
was held that service upon a construction project manager is valid and in Gesulgon vs. NLRC [13] which held that a corporation is bound by the
service of summons upon its assistant manager.

The only issue for resolution is whether or not the trial court acquired jurisdiction over the person of petitioner upon service of summons
on its Branch Manager.

When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil Procedure was already in force.[14]

Section 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:

When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality,
service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel.
(underscoring supplied).

This provision revised the former Section 13, Rule 14 of the Rules of Court which provided that:

SEC. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made on the president,manager, secretary, cashier, agent, or any of its directors.
(underscoring supplied).
 Petitioner contends that the enumeration of persons to whom summons may be served is restricted, limited and exclusive following the
rule on statutory construction expressio unios est exclusio alterius and argues that if the Rules of Court Revision Committee intended to
liberalize the rule on service of summons, it could have easily done so by clear and concise language.

We agree with petitioner.

Earlier cases have uphold service of summons upon a construction project manager[15]; a corporations assistant manager[16]; ordinary
clerk of a corporation[17]; private secretary of corporate executives[18]; retained counsel[19]; officials who had charge or control of the
operations of the corporation, like the assistant general manager[20]; or the corporations Chief Finance and Administrative Officer[21]. In these
cases, these persons were considered as agent within the contemplation of the old rule.[22] Notably, under the new Rules, service of summons
upon an agent of the corporation is no longer authorized.

The cases cited by private respondent are therefore not in point.

In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure, summons on the respondent shall be served personally or
by registered mail on the party himself; if the party is represented by counsel or any other authorized representative or agent, summons shall
be served on such person. In said case, summons was served on one Engr. Estacio who managed and supervised the construction project in
Iligan City (although the principal address of the corporation is in Quezon City) and supervised the work of the employees. It was held that as
manager, he had sufficient responsibility and discretion to realize the importance of the legal papers served on him and to relay the same to
the president or other responsible officer of petitioner such that summons for petitioner was validly served on him as agent and authorized
representative of petitioner. Also in the Gesulgon case cited by private respondent, the summons was received by the clerk in the office of the
Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old rule), summons may be made upon the clerk who is
regarded as agent within the contemplation of the rule.

The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited
and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states general manager instead of only
manager; corporate secretary instead of secretary; and treasurer instead of cashier. The phrase agent, or any of its directors is conspicuously
deleted in the new rule.

The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice Florenz Regalado, thus: [23]

x x x the then Sec. 13 of this Rule allowed service upon a defendant corporation to be made on the president, manager, secretary, cashier,
agent or any of its directors. The aforesaid terms were obviously ambiguous and susceptible of broad and sometimes illogical
interpretations, especially the word agent of the corporation. The Filoil case, involving the litigation lawyer of the corporation who precisely
appeared to challenge the validity of service of summons but whose very appearance for that purpose was seized upon to validate the
defective service, is an illustration of the need for this revised section with limited scope and specific terminology. Thus the absurd result in
the Filoil case necessitated the amendment permitting service only on the in-house counsel of the corporation who is in effect an employee of
the corporation, as distinguished from an independent practitioner. (underscoring supplied)

Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision Committee, stated that (T)he rule must be strictly
observed. Service must be made to one named in (the) statute x x x.[24]

It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure, strict compliance with the rules has been
enjoined. In the case of Delta Motor Sales Corporation vs. Mangosing,[25] the Court held:

A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service
is made must be one who is named in the statute; otherwise the service is insufficient. x x x.

The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure
that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal
papers served on him. In other words, to bring home to the corporation notice of the filing of the action. x x x.

The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which
summons should be served on a domestic corporation. x x x. (underscoring supplied).

Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has been held as improper.[26] Even
under the old rule, service upon a general manager of a firms branch office has been held as improper as summons should have been served
at the firms principal office. In First Integrated Bonding & Ins. Co., Inc. vs. Dizon,[27] it was held that the service of summons on the general
manager of the insurance firms Cebu branch was improper; default order could have been obviated had the summons been served at the
firms principal office.

And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et al. [28] the Court succinctly clarified that, for the
guidance of the Bench and Bar, strictest compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of
service and filing) is mandated and the Court cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in order
to obviate delay in the administration of justice.

Accordingly, we rule that the service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro, instead
of upon the general manager at its principal office at Davao City is improper.Consequently, the trial court did not acquire jurisdiction over the
person of the petitioner.

The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person. There is no question that
the defendants voluntary appearance in the action is equivalent to service of summons. [29] Before, the rule was that a party may challenge
the jurisdiction of the court over his person by making a special appearance through a motion to dismiss and if in the same motion, the
movant raised other grounds or invoked affirmative relief which necessarily involves the exercise of the jurisdiction of the court, the party is
deemed to have submitted himself to the jurisdiction of the court. [30] This doctrine has been abandoned in the case of La Naval Drug
Corporation vs. Court of Appeals, et al.,[31] which became the basis of the adoption of a new provision in the former Section 23, which is now
Section 20 of Rule 14 of the 1997 Rules.Section 20 now provides that the inclusion in a motion to dismiss of other grounds aside from lack of
jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. The emplacement of this rule clearly underscores
the purpose to enforce strict enforcement of the rules on summons. Accordingly, the filing of a motion to dismiss, whether or not belatedly
filed by the defendant, his authorized agent or attorney, precisely objecting to the jurisdiction of the court over the person of the defendant
can by no means be deemed a submission to the jurisdiction of the court. There being no proper service of summons, the trial court cannot
take cognizance of a case for lack of jurisdiction over the person of the defendant. Any proceeding undertaken by the trial court will
consequently be null and void.[32]

WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public respondent trial court are ANNULLED and SET
ASIDE. The public respondent Regional Trial Court of Makati, Branch 132 is declared without jurisdiction to take cognizance of Civil Case No.
98-824, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. SO ORDERED.
G.R. No. L-56076 September 21, 1983

PALAY, INC. and ALBERT ONSTOTT, petitioner,

vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT respondents.

Santos, Calcetas-Santos & Geronimo Law Office for petitioner.

Wilfredo E. Dizon for private respondent.

MELENCIO-HERRERA, J.:

The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay,
Inc. and Alberto Onstott jointly and severally, to refund to private respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest
per annum, as resolved by the National Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution of
October 28, 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2, 1980, are being assailed in this petition.

On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, - covered by TCT No. 90454, and owned by said corporation. The sale price was P23,300.00 with 9% interest per annum, payable
with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period
of one month, without need of notice and with forfeiture of all installments paid.

Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5,
1967 for installments up to September 1967.

On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest,
and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with another letter dated June
20, 1973 reiterating the same request. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.

Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979, the NHA, finding the rescission void
in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation,
jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint
on November 8, 1974. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23,
1979. 1

On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law (O.P. Case No. 1459), respondent
Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for
lack of merit. Thus, the present petition wherein the following issues are raised:

Whether notice or demand is not mandatory under the circumstances and, therefore, may be dispensed with by stipulation
in a contract to sell.

II

Whether petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. Dumpit.

III

Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar.

IV

Whether respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of
respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent Nazario
M. Dumpit thereby denying substantial justice to the petitioners, particularly petitioner Onstott

We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the enforcement of the questioned Resolutions and of the Writ of
Execution that had been issued on December 2, 1980. On October 28, 1981, we dismissed the petition but upon petitioners' motion,
reconsidered the dismissal and gave due course to the petition on March 15, 1982.

On the first issue, petitioners maintain that it was justified in cancelling the contract to sell without prior notice or demand upon respondent in
view of paragraph 6 thereof which provides-

6. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed upon, the BUYER
shall be granted a month of grace within which to make the payment of the t in arrears together with the one
corresponding to the said month of grace. -It shall be understood, however, that should the month of grace herein granted
to the BUYER expire, without the payment & corresponding to both months having been satisfied, an interest of ten (10%)
per cent per annum shall be charged on the amounts the BUYER should have paid; it is understood further, that should a
period of NINETY (90) DAYS elapse to begin from the expiration of the month of grace hereinbefore mentioned, and the
BUYER shall not have paid all the amounts that the BUYER should have paid with the corresponding interest up to the date,
the SELLER shall have the right to declare this contract cancelled and of no effect without notice, and as a consequence
thereof, the SELLER may dispose of the lot/lots covered by this Contract in favor of other persons, as if this contract had
never been entered into. In case of such cancellation of this Contract, all the amounts which may have been paid by the
BUYER in accordance with the agreement, together with all the improvements made on the premises, shall be considered
as rents paid for the use and occupation of the above mentioned premises and for liquidated damages suffered by virtue of
the failure of the BUYER to fulfill his part of this agreement : and the BUYER hereby renounces his right to demand or
reclaim the return of the same and further obligates peacefully to vacate the premises and deliver the same to the SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in the cited cases,
there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in University of the Philippines vs.
Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. We quote the pertinent
excerpt:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved in account of
infractions by the other contracting party must be made known to the other and is always provisional being ever subject to
scrutiny and review by the proper court. If the other party denies that rescission is justified it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution
of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution
will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does
not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the
law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that
judicial action is necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co., vs. International Banking Corp.,
37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil 820) since in every case where the extrajudicial
resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action win be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation unless attack thereon should become barred by
acquiescense, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v. Footnote, Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page
140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from questioning in
court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder (Emphasis supplied).

Of similar import is the ruling in Nera vs. Vacante 4, reading:

A stipulation entitling one party to take possession of the land and building if the other party violates the contract does
not ex propio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention
and determination.

This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial rescission has legal effect where the other party does not oppose
it. 6 Where it is objected to, a judicial determination of the issue is still necessary.

In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns
the declaration, it shall be subject to judicial determination. 7

In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.

We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of
resolution, as held in the U.P. vs. Angeles case, supra

Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there was no contract to rescind in court because from the moment
the petitioner defaulted in the timely payment of the installments, the contract between the parties was deemed ipso facto rescinded."
However, it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of the land upon default by the buyer.

The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took effect on September 14, 1972, when it specifically provided:

Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender
value to the buyer. (Emphasis supplied).

The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it
was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. A waiver must be
certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it is a
matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Waiver of notice is
one such onerous and oppressive condition to buyers of real estate on installment payments.

Regarding the second issue on refund of the installment payments made by private respondent. Article 1385 of the Civil
Code provides:

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 sham 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.

In this case, indemnity for damages may be demanded from the person causing the loss.

As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced
by another acceptable lot. However, considering that the property had already been sold to a third person and there is no evidence on record
that other lots are still available, private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the proceeds of the second sale to another.

We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was made jointly and severally liable
with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company. It is basic that a
corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any
other legal entity to which it may be related. 11 As a general rule, a corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced
when it is used as a shield to further an end subversive of justice 12 ; or for purposes that could not have been intended by the law that
created it 13 ; or to defeat public convenience, justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or confuse legitimate
issues 15 ; or to circumvent the law or perpetuate deception 16 ; or as an alter ego, adjunct or business conduit for the sole benefit of the
stockholders. 17

We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person.

In this case, petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling
stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore,
be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this respect then, a modification of the
Resolution under review is called for.

WHEREFORE, the questioned Resolution of respondent public official, dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed
to refund to respondent Nazario M. Dumpit the amount of P13,722.50, with interest at twelve (12%) percent per annum from November 8,
1974, the date of the filing of the Complaint. The temporary Restraining Order heretofore issued is hereby lifted. No costs. SO ORDERED.
G.R. No. 89879 April 20, 1990

JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., and THE
SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

Sofronio A. Larcia and Conrado Abriol Padilla for petitioners.

Apolinario N. Lomabao, Jr. for private respondents.

GANCAYCO, J.:

Once again the parameters of the liability of the officers of a corporation as to unpaid wages and other claims of the employees of a
corporation which has a separate and distinct personality are brought to fore in this case.

On October 20, 1987, eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF) filed a complaint against the latter for illegal transfer
simultaneous with illegal dismissal without justifiable cause and in violation of the provision of the Labor Code on security of tenure as well as
the provisions of Batas Pambansa Blg. 130. Complainants demanded reinstatement with full backwages, living allowance, 13th month pay and
other benefits under existing laws and/or separation pay.

On October 21, 1987, PIF, through its General Manager, was notified about the complaint and summons for the hearing set for November 6,
1987. The hearing was re-set for November 27, 1987 for failure of respondents to appear. On November 30, 1987 respondents (petitioners
herein) moved for the cancellation of the hearing scheduled on November 6, 1987 so that they could engage a counsel to properly represent
them preferably on November 17, 1987.

On December 10, 1987 both parties were directed to submit their respective position papers within ten (10) days. By mutual agreement the
hearing was re-set on December 21, 1987 but on said date respondents and/or counsel failed to appear. The hearing was re-set on January
14, 1988 on which date respondents were given a deadline to submit their position paper.

On January 4, 1988 complainants filed their position paper. On January 14, 1988 counsel for respondents moved that he be given until
January 22, 1988 to file their position paper. The labor arbiter granted the motion. The PIF filed its position paper on January 22, 1988. The
heating for February 17, 1988 was re-set to March 9, 1988 and on March 29, 1988 on which dates respondents failed to appear.

On May 5, 1988, with leave of the labor arbiter, complainants filed their supplemental position paper impleading the petitioners as officers of
the PIF in the complaint for their illegal transfer to a new firm.

On July 13, 1988 a decision was rendered by the labor arbiter the dispositive part of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATION, respondent Philippine Inter-Fashion and its officers Mr. Jaime Pabalan and Mr.
Eduardo Lagdameo are hereby ordered to:

1. reinstate the sixty two (62) complainants to their former or equivalent position without loss of seniority rights and privileges;

2. to pay, jointly and severally, their backwages and other benefits from the time they were dismissed up to the time they are
actually reinstated, the computation to be based from the latest minimum wage law at the time of their dismissal. (See attached
Annex "A" of complainants' position paper.)

SO ORDERED. 1

Not satisfied therewith petitioners filed a motion for reconsideration in the First Division of the public respondent, National Labor Relations
Commission (NLRC), which nevertheless, affirmed the appealed decision and dismissed the appeal for lack of merit in a resolution dated June
30, 1989. Petitioners were ordered to pay the appeal fee in accordance with law.

Hence the herein petition for certiorari with prayer for the issuance of a temporary restraining order wherein the petitioners raised the
following issues:

THE ARBITER AND THE NLRC DID NOT ACQUIRE JURISDICTION OVER THE PERSONS OF THE PETITIONERS AND, THEREFORE, THE
DECISION AND THE RESOLUTION, UNDER DISPUTE, ARE NULL AND VOID.

THE DECISION AND THE NLRC RESOLUTION SUFFER FROM A LEGAL AND CONSTITUTIONAL INFIRMITY BECAUSE THEY SANCTION A
DEPRIVATION OF PETITIONERS' PROPERTIES WITHOUT DUE PROCESS OF LAW.

THE ARBITER AND THE NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN ADJUDGING PETITIONERS HEREIN AS JOINTLY AND
SEVERALLY LIABLE WITH PHILIPPINE INTER-FASHION, INC. TO PAY THE JUDGMENT DEBT.

On September 25, 1989 this Court dismissed the petition for insufficiency in form and substance, having failed to comply with the Rules of
Court and Administrative Circular No. 1-88 requiting the verification of the petition. A motion for reconsideration filed by the petitioners of the
said resolution was denied on October 16, 1989 for failure to raise any substantial arguments to warrant a modification thereof. However,
acting on an urgent motion to include the motion for reconsideration of the resolution of September 25, 1989 in the court's calendar which
the Court granted, on November 30, 1989 the Court resolved to set aside said resolutions of September 25, 1989 and October 16, 1989, and
to require respondents to comment thereon within ten (10) days from notice thereof. A temporary restraining order was issued enjoining
respondents from enforcing or implementing the questioned decision of the labor arbiter affirmed by the NLRC upon a bond to be filed by
petitioners in the amount of P100,000.00. However, on February 7, 1990 for failure of petitioner to file the required bond despite extensions
of time granted them, the Court resolved to lift the temporary restraining order issued on November 13, 1989.

Now to the merit of the petition.

Petitioners do not question the merits of the decision insofar as PIF is concerned in this proceeding.1âwphi1 The first two issues they raised
are to the effect that the public respondents never acquired jurisdiction over them as they have not been served with summons and thus they
were deprived due process.

The Court finds these grounds to be devoid of merit. As the record shows while originally it was PIF which was impleaded as respondent
before the labor arbiter, petitioners also appeared in their behalf through counsel. Thereafter when the supplemental position paper was filed
by complainants, petitioners were impleaded as respondents to which they filed an opposition inasmuch as they filed their own supplemental
position papers. They were therefore properly served with summons and they were not deprived of due process.

Petitioners contend however that under the circumstances of the case as officers of the corporation PIF they could not be jointly and severally
held liable with the corporation for its liability in this case.

The settled rule is that the corporation is vested by law with a personality separate and distinct from the persons composing it, including its
officers as well as from that of any other legal entity to which it may be related. Thus, a company manager acting in good faith within the
scope of his authority in terminating the services of certain employees cannot be held personally liable for damages. 2 Mere ownership by a
single stockholder or by another corporation of all or nearly all capital stocks of the corporation is not by itself sufficient ground for
disregarding the separate corporate personality. 3

As a general rule, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their
authority. 4 However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be
disregarded as follows:

This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its stockholders and
members, for, as this Court had held "where the incorporators and directors belong to a single family, the corporation and its
members can be considered as one in order to avoid its being used as an instrument to commit injustice," or to further an end
subversive of justice. In the case of Claparols vs. CIR involving almost similar facts as in this case, it was also held that the shield of
corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial obligations to employees.

To the same effect . . . (are) this Court's rulings in still other cases:

When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, and or (to) confuse legitimate issues the veil which protects the corporation will be lifted. 5

In this particular case complainants did not allege or show that petitioners, as officers of the corporation deliberately and maliciously designed
to evade the financial obligation of the corporation to its employees, or used the transfer of the employees as a means to perpetrate an illegal
act or as a vehicle for the evasion of existing obligations, the circumvention of statutes, or to confuse the legitimate issues.

Indeed, in the questioned resolution of the NLRC dated June 30, 1989 there is no finding as to why petitioners were being held jointly and
severally liable for the liability and obligation of the corporation except as to invocation of the ruling of this Court in A.C. Ransom Labor Union-
CCLU vs. NLRC 6 in that the liability in the cases of illegal termination of employees extends not only to the corporation as a corporate entity
but also to its responsible officers acting in the interest of the corporation or employer.

It must be noted, however, that A.C. Ransom Labor Union-CCLU vs. NLRC the corporation was a family corporation and that during the strike
the members of the family organized another corporation which was the Rosario Industrial Corporation to which all the assets of the A.C.
Ransom Corporation were transferred to continue its business which acts of such officers and agents of A.C. Ransom Corporation were
intended to avoid payment of its obligations to its employees. In such case this Court considered the president of the corporation to be
personally liable together with the corporation for the satisfaction of the claim of the employees. 7

Not one of the above circumstances has been shown to be present. Hence petitioners can not be held jointly and severally liable with the PIF
corporation under the questioned decision and resolution of the public respondent.

WHEREFORE, the petition is GRANTED and the questioned resolution of the public respondent dated June 30, 1989 is hereby modified by
relieving petitioners of any liability as officers of the PIF and holding that the liability shall be solely that of Philippine Inter-Fashion, Inc. No
costs. SO ORDERED.
G.R. No. L-18418 November 29, 1962

MINDANAO MOTOR LINE, INC., ET AL., petitioners,

vs.
HON. COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.

----------------------------------------

G.R. No. L-18419 November 29, 1962

ABOITIZ & CO., INC., petitioner,

vs.
HON. COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.

Carlos Dominguez, Jr., Ambrosio Padilla and Ciriaco Lopez, Jr., for petitioners.
Victor Clapano for respondents.

BAUTISTA ANGELO, J.:

On May 5, 1955, the Mindanao Federation of Labor, together with some laid off employees, filed a complaint for unfair labor practice against
the Mindanao Motor Line, Inc., its general Manager Jesus Moraza and Resident Manager Enrique Ponce, as well as against Aboitiz & Co., Inc.,
charging them having interfered with the complaining employees in their exercise of their right to organize as guaranteed by the Magna
Charta of Labor.

Respondents, in their answer, stated that the Mindanao Motor Line, Inc. is a corporate entity distinct and separate from the Aboitiz & Co.,
Inc., and that if the operation of the Cotabato-Parang-Iligan line was suspended on February 1, 1955, it was merely to protect the interest of
the Mindanao Motor Line, Inc. which had incurred heavy losses in its operation, which suspension resulted in the laying off of the employees
working on that line. They further averred that they never interfered with the union activities of the complaining employees who were laid off
only for the above reason and were given due notice of their separation and payment of their separation pay equivalent to one month salary.

After due trial, the Court of Industrial Relations, in an order issued on January 4, 1961, ordered respondent Mindanao Motor Line, Inc. to pay
back wages to the laid-off employees without reinstatement from February 1, 1955, the date of separation, up to and until June 10, 1958, the
date prior to the cancellation of the certificate of public convenience covering the line that was suspended. The full tenor of the dispositive
part of the order reads as follows:

IN VIEW OF THE FOREGOING, the Court believes that the respondents are guilty of the unfair labor practice as charged, thus
violating sec. 4(a), subsections 1 and 4 of R.A. No. 875. Due to the fact that the certificate of public convenience of respondent
Mindanao Motor Line, Inc., which has been issued for the operation of its TPU service has already been cancelled on June 11, 1958,
as per Exh. "17", the respondent company is hereby ordered to pay complaints to the exclusion of Antonio Actub, Orlando Siasico,
Feliciano Legaspi and Nieves Mendoza, back wages from February 1, 1955, the day of dismissal up to and until June 10, 1958, the
day before the cancellation of the certificate of public convenience without the necessity of reinstatement.

Both complainants and respondents filed a motion for reconsideration of the above order, complainants inviting attention to the fact that, if
they were to be accorded back wages the ones responsible would be not only the Mindanao Motor Line, Inc., but all the respondents jointly
and severally. Both motions were denied. However, alleging that a clerical error has been committed in issuing the dispositive part of the
order because not all the respondents were included in the payment of the pecuniary liability, the industrial court modified said dispositive
part so as to read as follows:

. . . the corrected portion should read in the following manner: "the respondents, Mindanao Motor Line, Inc., and/or Enrique Ponce,
Aboitiz and Co. and/or Jesus Moraza, are hereby ordered to pay complainants to the exclusion of Antonio Actub, Orlando Siasico,
Feliciano Legaspi and Nieves Mendoza, back wages from February 1, 1955 the day of dismissal up to and until June 10, 1958, the
day before the cancellation of the certificate of public convenience without the necessity of reinstatement."

Respondents again filed a motion for reconsideration, and the same having been denied, they interposed separately a petition for review. The
petition filed by Mindanao Motor Line, Inc., with respondents Enrique Ponce and Jesus Moraza was docketed as G.R. No. L-18418, whereas
the petition filed by Aboitiz & Co., Inc. was docketed as G.R. No. L-18419. Because of their close interrelation these two petitions were
consolidated in one single decision.

It is contended that respondent cannot be ordered to pay back wages to the complaining employees for the reason that the operation of the
transportation line where they were employed has been suspended and the certificate of public convenience that was issued for such
operation has been cancelled by the public Service Commission. As a matter of fact, they contend, the reinstatement of said complaining
employees was not ordered by the court for the same was not possible because the operation of the line where they were employed was
never resumed. In short, they argue, if no reinstatement can be ordered no back wages can be granted because "from the phraseology of the
law, the payment of back wages presupposes an accompanying order for reinstatement." And continuing with his argument, counsel says:
"An award for the payment of back wages necessarily implies reinstatement, or, at least, the possibility of reinstatement of the discharged
employees. It is implicit then that when the court does not or can not order the reinstatement of employees, there is absolutely no factual or
legal basis for the payment of back wages."

We disagree. While as a rule the payment of back wages follows as a necessary consequence of an order for reinstatement, it does not follow
that it reinstatement cannot be ordered, as when the service is discontinued, the employees illegally laid off should be deprived of the wages
they are entitled to, as should be the case when the company or employer is found guilty of unfair labor practice. This is the situation that
obtains herein. The industrial court found respondents guilty of the unfair labor practice imputed to them and so it is but fair that they be paid
their wages for the period they had been deprived of their employment.

We fined, however, merit in the contention that respondent Enrique Ponce and Jesus Moraza who were included as such should not be made
solidarily responsible for the payment of back wages, together with their employer the Mindanao Motor Line, Inc., for it clearly appears from
the record that they were merely agents who acted within the scope of their corporate positions as resident manager and general manager,
respectively, of the aforesaid company. Since they were impleaded merely as officers of the company and have acted only as such within the
scope of their authority, if any one should be held responsible for the consequence of their acts as such officers it is their employer, unless of
course it is shown that they have acted negligently or in bad faith. The evidence discloses nothing in this respect. It is a well-known principle
of law that an agent who acts in behalf of a disclosed principal within the scope of his authority cannot be held liable to third persons (Article
1897, new Civil Code; Bangue Generale Belge, et al. vs. Walter Bull & Co., Inc., et al., 47 O.G. 138; Zialcita-Yuseco v. Simmons, G.R. No.
L_7912, August 30, 1955).

We also find that of the 71 employees who were laid off on February 1, 1955, because of the alleged unfair labor practice, 31 were re-
employed on other lines operated by the company. If this is true, which apparently is, because it is not denied, it is unfair to order the
company to pay them back wages eve during the period of their re-employment, for the result would be that they will receive double
compensation during that period. The order should therefore, be modified in the sense of ordering the payment of back wages only from the
date of their separation to the date of their re-employment.

We likewise notice that the industrial court did not make any provision relative to the set-off or compensation of whatever wages or earnings
the complaining employees may have obtained during the period of their separation, which omission should be rectified, for, as this Court has
aptly said, "In estimating the damages in an action of this character for the period of time already past the employer may show in mitigation
of damages that the discharged employee obtained remunerative employment elsewhere or that in the exercise of due diligence he might
have obtained such employment."1

Finally, we find no merit in the contention that respondent Aboitiz & Co., Inc. should not have been included as such not being the operator
nor financier of the Mindanao Motor Line, Inc., for there is enough evidence on record to show the connection between the two companies. In
the first place, having been included as respondent, Aboitiz & Co., Inc. did not file any answer denying the acts constituting the unfair labor
practice charged one of which is the fact that the Land Transportation Division of Aboitiz & Co., Inc., of which Jesus Moraza is the general
manager controls and supervises the management and operation of the Mindanao Motor Line, Inc. In the second place, the record of the case
discloses that the central office of the Mindanao Motor Line, Inc. and the office of the Aboitiz & Co., Inc. Are located in the same place and
have the same postal address, namely, P.O. Box 65. It also appears that the thing that sparked the separation of the complainants is the
letter of one Ramon Aboitiz, apparently the manager of Aboitiz & Co., Inc., where it is shown that said company has suffered a heavy loss
because of the funds it had advanced to the Mindanao Motor line, Inc. for which reason he recommended that the operation of the line in
question be suspended. Indeed, the following argument advanced by the counsel of respondent court is very impressive.

The fact that Ramon Aboitiz admits that the Aboitiz & Company "had advanced the funds, . . ." for the operation of respondent
Mindanao Motor Line, Inc.; the fact that he had even decided for Aboitiz & Company to discontinue this financial assistance; and the
further fact that the common principal address of the principal actors responsible in the dismissal of respondent-workers herein is
P.O. Box 65, Cebu City, all show that Aboitiz & Company as alleged in the complaint a quo, controls and supervises the management
and operation of respondent Mindanao Motor Line, Inc. These facts were dug out from the records of the case a quo to show how
truly unfounded is petitioner-appellants' claim that there is a ". . . total and complete absence of any evidence supporting this
charge; . . .

WHEREFORE, the order of respondent court dated March 8, 1961, is hereby amended with regard to the following respects: (1) the 31
employees who were re-employed should be given back wages only from February 1, 1955, the day of dismissal, up to the date they were re-
employed; 2) respondents Enrique Ponce and Jesus Moraza should not be made responsible for the back wages that were ordered paid to the
complaining employees; (3)respondent companies are hereby authorized to set off from the back wages they were ordered to pay whatever
earnings the complaining employees may have obtained during the period of their separation. In all other respects, the said order is hereby
affirmed. No pronouncement as to costs.
G.R. No. 93073 December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled
"Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant",
which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory
notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank, ordering
defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo
Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest thereon at
16% per annum from the dates indicated, to wit:

Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid;
under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the promissory
note (Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under the promissory note (Exhibit "E"),
the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of
P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with
interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.

Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment
Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of
P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid

Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff
bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid.

Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12%
per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully
paid.

All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for reasonable
attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above
stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge.

With costs against the defendants.

SO ORDERED. 1

From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was
that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should
not be held personally liable for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters
Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas
is solidarity liable with Shozo Yamaguchi on each of the nine notes.

We find merit in this appeal.

From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1,
1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine
promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:

___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC
PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency...

On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed
names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit
proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6

of WORLDWIDE GARMENT MFG. CORP.

These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of defendant and private respondent.

On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation.

On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory
notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch
Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer
and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended
Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf
of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed
his signature.

In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily
liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following
reasons:

The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. 3 By
signing the notes, the maker promises to pay to the order of the payee or any holder 4according to the tenor thereof. 5 Based on the above
provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he
cannot escape liability arising therefrom.

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally
liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes
them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each
of the co-signers is deemed to have made an independent singular promise to pay the notes in full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the
presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and
several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to
a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for
his proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin
Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi
and Pinch Manufacturing Corporation as solidary debtors.

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the
liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not affect to the liability of private
respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, private respondent Fermin
Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.

Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change
of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality
of the original corporation.

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect changed. 10

A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect
on the identity of the corporation, or on its property, rights, or liabilities. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or
incurred. 12

As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by
officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change
of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents
if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as
follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from personal liability.

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the
name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be
permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability. 13

On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule otherwise. A
careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by
commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank
spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date.
The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant
to this case, thus:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the person in possesion
thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a reasonable time...

Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as determined by the trial
court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony
that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures
as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. We
take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the
banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but
read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as
per agreement. The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he
claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16%
to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of
money, goods or credit and court judgemets thereon, only in the absence of any stipulation between the parties.

In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at
any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per
annum.

This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way
of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of
damages. 15 This fine distinction was not taken into consideration by the appellate court, which instead made a general statement that the
interest rate be at 12% per annum.

Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law, the appellate
court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on
interest rates. 16

In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the decision of the
respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered
declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16%
interest per annum from the dates indicated, to wit:

Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under
promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the promissory note denominated
as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D, the
amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of
P86,130.31 with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from
November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November
27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note
marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for
not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo.

With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly and solidarity
liable with defendants for the amounts found, by the Court a quo. With costs against private respondent. SO ORDERED.
 [G.R. No. 112702. September 26, 1997]

NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
(CEPALCO),respondents.

[G.R. No. 113613. September 26, 1997]

PHIVIDEC INDUSTRIAL AUTHORITY, petitioner, vs. COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHTCO., INC.
(CEPALCO),respondents.

DECISION

ROMERO, J.:

Offered for resolution in these consolidated petitions for review on certiorari is the issue of whether or not the National Power
Corporation (NPC) has jurisdiction to determine whether it may supply electric power directly to the facilities of an industrial corporation in
areas where there is an existing and operating electric power franchisee.

On June 17, 1961, the Cagayan Electric and Power Light Company (CEPALCO) was enfranchised by Republic Act No. 3247 "to construct,
maintain and operate an electric light, heat and power system for the purpose of generating and/or distributing electric light, heat and/or
power for sale within the City of Cagayan de Oro and its suburbs" for fifty (50) years. Republic Act No. 3570, approved on June 21, 1963,
expanded the area of coverage of the franchise to include the municipalities of Tagoloan and Opol, both in the Province of Misamis
Oriental. On August 4, 1969, Republic Act No. 6020 further amended the same franchise to include in the areas of CEPALCO's authority of
"generating and distributing electric light and power for sale," the municipalities of Villanueva and Jasaan, also of the said province.

Presidential Decree No. 243, issued on July 12, 1973, created a "body corporate and politic" to be known as the Philippine Veterans
Investment Development Corporation (PHIVIDEC) vested with authority to engage in "commercial, industrial, mining, agricultural and other
enterprises" among other powers[1] and "to allow the full and continued employment of the productive capabilities of and investment of the
veterans and retirees of the Armed Forces of the Philippines." On August 13, 1974, Presidential Decree No. 538 was promulgated to create
the PHIVIDEC Industrial Authority (PIA), a subsidiary of PHIVIDEC, to carry out the government policy "to encourage, promote and sustain
the economic and social growth of the country and that the establishment of professionalized management of well-planned industrial areas
shall further this objective."[2] Under Sec. 3 of P.D. No. 538, the first area for development shall be located in the municipalities of Tagoloan
and Villanueva.[3] This area forms part of the PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).

As manager of PIE-MO, PIA granted the Ferrochrome Philippines, Inc. (FPI) and Metal Alloys Corporation (MAC) authority to operate in
its area of development. On July 6, 1979, PIA granted CEPALCO a temporary authority to retail electric power to the industries operating
within the PIE-MO.[4] The Agreement executed by PIA and CEPALCO authorized CEPALCO "to operate, administer, construct and distribute
electric power within the PHIVIDEC Industrial Estate, Misamis Oriental, such authority to be co-extensive with the territorial jurisdiction of
PHIVIDEC Industrial Estate, as defined in Sec. 3 of P.D. No. 538 and shall be for a period of five (5) years, renewable for another five (5)
years at the option of CEPALCO." The parties provided further that:

"9. At the end of the fifth year, or at the end of the 10th year, should this Agreement be thus renewed, PIA has the option to take
over the operation of the electric service and acquire by purchase CEPALCO's assets within PIE-MO. This option shall be
communicated to CEPALCO in writing at least 24 months before the date of acquistion of assets and takeover of operation by
PIA. Should PIA exercise its option to purchase the assets of CEPALCO in PIE-MO, PIA shall respect the right of ownership of and
maintenance by CEPALCO of those assets inside PIE-MO not covered by such purchase. x x x."

According to PIA,[5] CEPALCO proved no match to the power demands of the industries in PIE-MO that most of these companies
operating therein closed shop.[6] Impelled by a "desire to provide cheap power costs to power-intensive industries operating within the
Estate," PIA applied with the National Power Corporation (NPC) for direct power connection which the latter in due course approved.[7] One of
the companies which entered into an agreement with the NPC for a direct sale and supply of power was the Ferrochrome Phils., Inc. (FPI).

Contending that the said agreement violated its right as the authorized operator of an electric light and power system in the area and
the national electrification policy, CEPALCO filed Civil Case No. Q-35945, a petition for prohibition, mandamus and injunction before the
Regional Trial Court of Quezon City against the NPC. Notwithstanding NPC's claim that it was authorized by its Charter to sell electric power
"in bulk" to industrial enterprises, the lower court rendered a decision on May 2, 1984, restraining the NPC from supplying power directly to
FPI upon the ground that such direct sale, supply and delivery of electric power by the NPC to FPI was violative of the rights of CEPALCO
under its legislative franchise. Hence, the lower court ordered the NPC to "permanently desist" from effecting direct supply of power to the FPI
and "from entering into and/or implementing any agreement or arrangement for such direct power connection, unless coursed through the
power line" of CEPALCO.

Eventually, the case reached this Court through G.R. No. 72085.[8] On December 28, 1989, the Court denied the appeal interposed by
NPC on the ground that the statutory authority given to the NPC as regards direct supply of power to BOI-registered enterprises "should
always be subordinate to the 'total-electrification-of-the-entire-country-on-an-area-coverage basis policy' enunciated in P. D. No. 40."[9] We
held further that:

"Nor should we lose sight of the factual findings of the court a quo that petitioner-appellee CEPALCO had not only been authorized
by the Phividec Industrial Authority to provide electrical power to the Phividec Industrial Estate within which the FPI plant is
located, but that petitioner-appellee CEPALCO had in fact, supplied the latter's power requirements for the construction of its
plant, upon FPI's application therefor as early as October 17, 1980.

It bears emphasis then that 'it is only after a hearing (or an opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to match the reliability and rates of NPC that a direct connection with
NPC may be granted.' Here, petitioner-appellee's reliability as a power supplier and ability to match the NPC rates were never put
in issue.

It is immaterial that petitioner-appellee's franchise was not exclusive. A privilege to sell within specified territory, even if not
exclusive, is a valuable property right entitled to protection against unauthorized competition." [10]

Notwithstanding said decision, in September 1990, FPI filed a new application for the direct supply of electric power from NPC. The
Hearing Committee of the NPC had started hearing the application but CEPALCO filed with the Regional Trial Court of Quezon City a petition
for contempt against NPC officials led by Ernesto Aboitiz. On August 10, 1992, the trial court found the respondents in direct contempt of
court and accordingly imposed upon them a fine of 500.00 each.

The respondent NPC officials challenged before this Court the judgment holding them in contempt of court through G.R. No. 107809,
(Aboitiz v. Regino).[11] In the Decision of July 5, 1993, the Court upheld the contempt ruling and, after quoting the lower court's decision of
May 2, 1984 which the Court upheld in G.R. No. 72085, said:
 "These directives show that the lower court (and this Court) intended the arrangment between FPI and CEPALCO to be permanent
and free from NAPOCOR's influence or intervention. Any attempt on the part of NAPOCOR or its officers and/or employees to strike
a deal with FPI would be a clear and direct disobedience to a lawful order and therefore contemptuous.

The petitioners call the attention of the Court to the statement of CEPALCO that 'NAPOCOR has already implemented in full' the
May 2, 1984 decision of the lower court as affirmed by this Court. They suggest that in view of this, the decision no longer has any
binding effect upon the parties, or to put it another way, has become functus officio. Consequently, when they entertained the re-
application of FPI for direct power connection to NAPOCOR, they were not disobeying the May 2, 1984 order of the trial court and
so should not be held in contempt.

This argument must be rejected in view of our finding of the permanence and comprehensiveness of the challenged order of the
trial court. 'Permanent' is not a difficult word to understand. It means 'lasting or intended to last indefinitely without change.' As
for the scope of the order, NAPOCOR was directed to 'desist from effecting, causing, and continuing the direct supply, sale and
delivery of electricity from its power line to the plant of Ferrochrome Philippines, Inc., and from entering into and/or implementing
any agreement or arrangement for such direct power connection, unless coursed through the power line of petitioner."
(Underscoring supplied.)

Meanwhile, the NPC Hearing Committee[12] proceeded with its hearings. CEPALCO was duly notified thereof but it opted to question the
committee's jurisdiction. It did not submit any evidence. Consequently, in its Report and Recommendation dated September 27, 1991, the
committee gave weight to the evidence presented by FPI that CEPALCO charged higher rates than what the NPC would if allowed to supply
power directly to FPI. Although the committee considered as unfounded FPI's claim of CEPALCO's unreliability as a power supplier, [13] it
nonetheless held that:

"Form (sic) the foregoing and on the basis of the decision of the Supreme Court in the case of National Power Corporation and Fine
Chemicals (Phils.) Inc. v. The Court of Appeals and the Manila Electric Company, G.R. No. 84695, May 8, 1990, FPI is entitled to a
direct connection to NPC as applied for considering that CEPALCO is unwilling to match the rates of NPC for directly serving FPI
and that FPI is a duly registered BOI registered enterprises (sic). The Supreme Court in the aforestated case has ruled as follows:

'As consistently ruled by the Court pursuant to P.D. No. 380 as amended by P.D. No. 395, NPC is statutorily empowered
to directly service all the requirements of a BOI registered enterprise provided that, first, any affected private franchise
holder is afforded an opportunity to be heard on the application therefor and second, from such a hearing, it is
established that said private franchise holder is incapable or unwilling to match the reliability and rates of NPC for
directly serving the latter (National Power Corporation v. Jacinto, 134 SCRA 435 [1985]. National Power Corporation v.
Court of Appeals, 161 SCRA 103 [1988]).'"[14]

However, considering the "better and priority right" of PIA, the committee recommended that instead of a direct power connection by the NPC
to FPI, the connection should be made to PIA "as a utility user for its industrial Estate at Tagoloan, Misamis Oriental." [15]

For its part, on November 3, 1989, CEPALCO filed with the Energy Regulatory Board (ERB) a petition praying that the ERB "order the
discontinuance of all existing direct supply of power bythe NPC within petitioner's franchise area" (ERB Case No. 89-430). On July 17, 1992,
the ERB ruled that CEPALCO "is relatively efficient and reliable as manifested by its very low system losses (far from the 14% standard) and
very high power factors" and therefore CEPALCO is technically capable "to distribute power to its consumers within its franchise area,
particularly the industrial customers." It disposed of the petition as follows:

"WHEREFORE, in view of the foregoing premises, when the petitioner has been proven to be capable of distributing power to its industrial
consumers and having passed the secondary considerations with a passing mark of 85%, judgment is hereby rendered granting the relief
prayed for. Accordingly, it is hereby declared that all direct connection of industries to NPC within the franchise area of CEPALCO is no longer
necessary.Therefore, all existing NPC direct supply of power to industrial consumers within the franchise area of CEPALCO is hereby ordered
discontinued. x x x."[16]

However, during the pendency of the Aboitiz case in this Court or on August 3, 1992, PIA contracted the NPC for the construction of a
138 kilovolt (KV) transmission line from Namutulan substation to the receiving and/or substation of PIA. [17]

As expected, on February 17, 1993, CEPALCO filed in the Regional Trial Court of Pasig (Branch 68), a petition for certiorari, prohibition,
mandamus and injunction against the NPC and some officials of both the NPC and PIA.[18] Docketed as SCA No. 290, the petition specifically
sought the issuance of a temporary restraining order. However, after hearing, the prayer for the temporary restraining order was denied by
the court in its order of March 12, 1993.[19] CEPALCO filed a motion for the reconsideration of said order while NPC and PIA moved for the
dismissal of the petition.[20]

On June 23, 1993, noting the cases filed by CEPALCO all seeking exclusivity in the distribution of electric power to areas covered by its
franchise, the court[21] ruled that "the right of petitioner to supply electric power in the aforesaid area to the exclusion of other entities had
been settled once and for all by the Regional Trial Court of Quezon City wherein petitioner obtained a favorable judgment." Hence, the
petition was dismissed on the ground of res judicata.[22]

Forthwith, CEPALCO elevated the case to this Court through a petition for certiorari, prohibition and injunction with prayer for the
issuance of a preliminary injunction or a temporary restraining order. The petition was docketed as G.R. No. 110686 but on August 18,
1993, the Court referred it to the Court of Appeals pursuant to Sec. 9, paragraph 1 of B.P. Blg. 129 conferring upon the appellate court
original jurisdiction to issue writs of prohibition and certiorari and auxiliary writs.[23] In the Court of Appeals, the petition was docketed as CA-
G.R. No. 31935-SP.

On September 10, 1993, the Fifteenth Division of the Court of Appeals issued a resolution[24] denying the prayer for the issuance of a
temporary restraining order on the strength of Sec. 1 of P.D. No. 1818. It ruled that since the NPC is a public utility, it "enjoys the protective
mantle" of said decree prohibiting courts from issuing restraining orders or preliminary injunctions in cases involving infrastructure and
natural resource development projects of, and operated by, the government.[25]

However, on September 17, 1993, upon a motion for reconsideration filed by CEPALCO and a re-evaluation of the provisions of P.D. No.
1818, the Court of Appeals set aside its resolution of September 10, 1993 and held that:

"x x x the project intended by respondent NPC, which is the construction, completion and operation of the 138-kv line, is not in
consonance with the intendment of said Decree which is to protect public utilities and their projects and activities intended for
public convenience and necessity. The project of respondent NPC is intended to serve exclusively the needs of private entities,
Metal Alloys Corporation and Ferrochrome Philippine in Tagoloan, Misamis Oriental."

Accordingly, the Court of Appeals issued a temporary restraining order directing the private respondents therein "to immediately cease
and desist from proceeding with the construction, completion and operation of the 138-kv line subject of the petition." The NPC, PIA and the
officers of both were directed to explain why the preliminary injunction prayed for should not issue. [26]

In due course, the Court of Appeals rendered the decision[27] of November 15, 1993 assailed herein. After ruling that the lower court
gravely abused its discretion in dismissing the petition below on the grounds of res judicata and litis pendentia, the Court of Appeals
confronted squarely the issue of whether or not "the NPC itself has the power to determine the propriety of direct power connection from its
lines to any entity located within the franchise area of another public utility."[28]

Elucidating that the ruling of this Court in both G.R. No. 78609 (NPC v. Court of Appeals)[29] and G.R. No. 87697 (Del Monte
[Philippines], Inc. v. Hon. Felix M. de Guzman, etc., et al.)[30]categorically held that before a direct connection to the NPC may be granted, a
proper administrative body must conduct a hearing "to determine which entity, the franchise holder or the NPC, has the right to supply
electric power to the entity applying for direct connection," the Court of Appeals declared:
"We have no doubt that the ERB, and not the NPC, is the administrative body referred to by the Supreme Court where the hearing is to be
conducted to determine the propriety of direct connection. The charter of the ERB (PD 1206 in relation to EO 172) is clear on this:

"The Board shall, after due notice and hearing, exercise the following powers and functions, among others:

xxxxxxxxx

e. Issue Certificate of Public Convenience for the operation of electric power utilities and services, ... including the establishment and
regulation of areas of operation of particular operators of public power utilities and services, the fixing of standards and specifications in all
cases related to the issued Certificate of Public Convenience ..."

Moreover, NPC is not an administrative body as jurisprudentially defined, and that the NPC cannot usurp a power it has never been conferred
by its charter or by other law -- the power to determine the validity of direct connection agreement it enters into in violation of a power
distributor's franchise.

Thus, considering that PIA professes to be and intends to engage in the business of a public power utility, it must first apply for a public
convenience and necessity (conferment of operating authority) with the ERB. This may have been the opportune time for ERB to determine
whether to allow PIA to directly connect with NPC, with notice and opportunity for CEPALCO considering that, as the latter alleges, this new
line which NPC is installing duplicates that existing Cepalco 138 kv line which NPC itself turned over to Cepalco and for which it was paid in
full."

Consequently, the Court of Appeals affirmed the dismissal of the petition, annulled and set aside the decision of the Hearing Committee of the
NPC on direct connection with PIA, and ordered the NPC "to desist from continuing the construction of that NPC-Natumulan-Phividec 138 kv
transmission line."[31]

Without filing a motion for the reconsideration of said Decision, NPC filed in this Court on December 9, 1993, a motion for an extension
of time within which to file "the proper petition." The motion which was docketed as G.R. No. 112702, was granted on December 20, 1993
with warning that no further extension would be granted. Thereafter, NPC filed a motion praying that it be excused from filing the petition on
account of the filing by PIA in the Court of Appeals of a motion for the reconsideration of the Decision of November 15, 1993. In the
Resolution of February 2, 1994, the Court noted and granted petitioner's motion and considered the case "closed and terminated."[32] This
resolution was withdrawn in the Resolution of February 8, 1995[33] in view of the "inadvertent clerical error" terminating the case, after the
NPC had mailed its petition for review on certiorari on February 21, 1994.[34]

In the meantime, PIA filed a motion for reconsideration of the appellate court's Decision of November 15, 1993 arguing in the main that,
not being a party to previous cases between CEPALCO and NPC, it was not bound by decisions of this Court. The Court of Appeals denied the
motion on January 28, 1994 on the basis of stare decisis where once the court has laid down a principle of law as applicable to a certain state
of facts, it will adhere to and apply the principle to all future cases where the facts are substantially the same.[35] Hence, PIA filed a petition
for review on certiorari which was docketed as G.R. No. 113613.

G.R. Nos. 112702 and 113613 were consolidated on June 15, 1994.[36]

In G.R. No. 112702, petitioner NPC contends that private respondent CEPALCO is not entitled to relief because it has been forum-
shopping. Private respondent had filed Civil Case No. Q-93-14597 in the Regional Trial Court of Quezon City which had been forwarded to it
by the Regional Trial Court of Pasig. Said case and the instant case (SCA No. 290) deal with the same issue of restoring CEPALCO's right to
supply power to FPI and MAC. Petitioner thus contends that because the principle of litis pendentia applies, although other parties are
involved in the case before the Quezon City court, there is no basis for granting relief to private respondent CEPALCO "(s)ince the dismissal
for lack of jurisdiction was affirmed by the respondent court."[37]Corollarily, petitioner asserts that because the main case herein was
dismissed "without trial," the respondent appellate court should not have accorded private respondent affirmative relief. [38]

Petitioner NPC's contention is based on the fact that on October 6, 1992, private respondent CEPALCO filed against the NPC in the
Regional Trial Court of Pasig, Civil Case No. 62490, an action for specific performance and damages with prayer for preliminary mandatory
injunction directing the NPC to immediately restore to CEPALCO the distribution of power pertaining to MAC's consumption. [39] However, no
summons was served and the ex-parte writ prayed for was not issued. Nevertheless, the case was forwarded to the Regional Trial Court of
Quezon City where it was docketed as Civil Case No. 93-14597. That case was pending when SCA No. 290 was filed before the Regional Trial
Court of Pasig.

The Court of Appeals affirmed the lower court's dismissal of the case neither on the grounds of res judicata nor litis pendentia but on the
"only one unresolved issue, which
is whether theNPC itself has the power to determine the propriety of direct power connection from its lines to any entity located within the fra
nchise area of another public utility."[40] The Court of Appeals opined that the effects of litis pendentia could not have resulted in the dismissal
of SCA No. 290 because Civil Case No. Q-35945 which became G.R. No. 72085 was based on facts totally different from that of SCA No. 290.

In invoking litis pendentia, however, petitioner NPC refers to this case, SCA No. 290, and Civil Case No. 93-14597. SCA No. 290 and
Civil Case No. 93-14597 may both have the same objective, the restoration of CEPALCO's right to distribute power to PIE-MO areas under its
franchise aside from the fact that the cases involve practically the same parties. However, litis pendentia may not be successfully invoked to
cause the dismissal of SCA No. 290.

In order to constitute a ground for the abatement or dismissal of an action, litis pendentia must exhibit the concurrence of the following
requisites: (a) identity of parties, or at least such as representing the same interest in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts, and (c) identity in the two (2) cases should be such that the judgment that may be
rendered in the pending case would, regardless of which party is successful, amount to res judicata in the other.[41] As a rule, the second case
filed should be abated under the maxim qui prior est tempore, potior est jure. However, this rule is not a hard and fast one. The "priority-in-
time rule" may give way to the criterion of "more appropriate action." More recently, the criterion used was the "interest of justice rule."[42]

We hold that the last criterion should be the basis for resolving this case, although it was filed later than Civil Case No. 62490 which,
upon its transfer, became Civil Case No. 93-14795. In so doing, we shall avoid multiplicity of suits which is the matrix upon which litis
pendentia is anchored and eventually bring about the final settlement of the recurring issue of whether or not the NPC may supply power
directly to the industries within PIE-MO, notwithstanding the operation of franchisee CEPALCO in the same area.

It should be noted that there is yet pending another case, namely, Civil Case No. 91-383, instituted by PIA against CEPALCO in the
Regional Trial Court of Misamis Oriental which apparently deals with a related issue - PIA's franchise or authority to provide power
to enterprises within the PIE-MO.[43] Hence, the principle of litis pendentia which ordinarily demands the dismissal of an action filed later than
another, should be considered under the primordial concept of "interest of justice," in order that a recurrent issue common to all cases may
be definitively resolved.

The principal and common question raised in these consolidated cases is: whether or not the NPC may supply power directly to PIA in
the PIE-MO area where CEPALCO has a franchise.Petitioner PIA in G.R. No. 113613 asserts that it may receive power directly from the NPC
because it is a public utility. It avers that P.D. No. 538, as amended, empowers PIA "as and to be a public utility to operate and serve the
power needs within PIE-MO, i.e., a specific area constituting a small portion of petitioner's franchise coverage," without, however, specifying
the particular provision which so empowers PIA.[44]

A "public utility" is a business or service engaged in regularly supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone or telegraph service.[45] The term implies public use and service.[46]
 Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental and proprietary functions." [47] Sec. 4 of P.D. No. 538 specifically
confers upon it the following powers:

"a. To operate, administer and manage the PHIVIDEC Industrial Areas and other areas which shall hereafter be proclaimed,
designated and specified in subsequent Presidential Proclamation; to construct acquire, own, lease, operate and
maintain infrastructure facilities, factory buildings, warehouses, dams, reservoirs, water distribution, electric light and power
systems, telecommunications and transportation networks, or such other facilities and services necessary or useful in the conduct
of industry and commerce or in the attainment of the purposes and objectives of this Decree;" (Underscoring supplied.)

Clearly then, the PIA is authorized to render indirect service to the public by its administration of the PHIVIDEC industrial areas like the
PIE-MO and may, therefore, be considered a public utility. As it is expressly authorized by law to perform the functions of a public utility, a
certificate of public convenience, as suggested by the Court of Appeals, is not necessary for it to avail of a direct power connection from the
NPC. However, such authority to be a public utility may not be exercised in such a manner as to prejudice the rights of existing
franchisees. In fact, by its actions, PIA recognized the rights of the franchisees in the area.

Accordingly, in pursuit of its powers "to grant such franchise for and to operate and maintain within the Areas electric light, heat or
power systems," etc. under Sec. 4 (i) of P.D. No. 538 and its rule-making power under Sec. 4 (l) of the same law, on July 20, 1979, the PIA
Board of Directors promulgated the "Rules and Regulations To Implement the Intent and Provisions of Presidential Decree No. 538."[48] Rule
XI thereof on "Utilities and Services" provides as follows:

"SECTION 1. Utilities - It is the responsibility of the Authority to provide all required utilities and services inside the Estate:

x x x x x x x x x.

a) Contracts for the purchase of public utilities and/or services shall be subject to the prior approval of the Authority; Provided,
however, that similar contract(s) existing prior to the effectivity of this Rules and Regulations shall continue to be in full force
and effect.

x x x x x x x x x.

(Underscoring supplied.)

It should be noted that the Rules and Regulations took effect thirty (30) days after its publication in the Official Gazette on September
24, 1979 or more than three (3) months after the July 6, 1979 contract between PIA and CEPALCO was entered into. As such, the Rules and
Regulations itself allowed the continuance of the supply of electric power to PIE-MO by CEPALCO.

That the contract of July 6, 1979 was not renewed by the parties after the expiration of the five-year period stipulated therein did not
change the fact that within that five-year period, in violation of both the contract and its Rules and Regulations, PIA applied with the NPC for
direct power connection. The matter was aggravated by NPC's favorable action on the application, totally unmindful of the extent of its
powers under the law which, in National Power Corporation v. Court of Appeals,[49] the Court delimits as follows:

"x x x. It is immaterial whether the direct connection is merely an improvement or an increase in existing voltage, as alleged by
petitioner, or a totally new and separate electric service as claimed by private respondent. The law on the matter is clear. PD 40
promulgated on 7 November 1972 expressly provides that the generation of electric power shall be undertaken solely by the
NPC. However, Section 3 of the same decree also provides that the distribution of electric power shall be undertaken by
cooperatives, private utilities (such as the CEPALCO), local governments and other entities duly authorized, subject to state
regulation. (Underscoring supplied.)

The same case ruled that "(i)t is only after a hearing (or an opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to match the reliability and rates of NPC that a direct connection with NPC may be
granted."[50] As earlier stated, the Court arrived at the same ruling in the later cases of G.R. Nos. 72085, 84695 and87697.

Petitioner NPC attempted to abide by these rulings when it conducted a hearing to determine whether it may supply power directly to
PIA. While it notified CEPALCO of the hearing, the NPC is not the proper authority referred to by this Court in the aforementioned earlier
decisions, not only because the subject of the hearing is a matter involving the NPC itself, but also because the law has created the proper
administrative body vested with authority to conduct a hearing.

CEPALCO shares the view of the Court of Appeals that the Energy Regulatory Board (ERB) is the proper administrative body for such
hearings. However, a recent legislative development has overtaken said view.

The ERB, which used to be the Board of Energy, is tasked with the following powers and functions by Executive Order No. 172 which
took effect immediately after its issuance on May 8, 1987:

"SEC. 3. Jurisdiction, Powers and Functions of the Board. - When warranted and only when public necessity requires, the Board
may regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining, marketing
and distributing energy resources. x x x.

The Board shall, upon prior notice and hearing, exercise the following, among other powers and functions:

(a) Fix and regulate the prices of petroleum products;

(b) Fix and regulate the rate schedule or prices of piped gas to be charged by duly franchised gas companies which distribute gas by means of
underground pipe system;

(c) Fix and regulate the rates of pipeline concessionaires under the provisions of Republic Act No. 387, as amended, otherwise known as the
'Petroleum Act of 1949,' as amended by Presidential Decree No. 1700;

(d) Regulate the capacities of new refineries or additional capacities of existing refineries and license refineries that may be organized after
the issuance of this Executive Order, under such terms and conditions as are consistent with the national interest;

(e) Whenever the Board has determined that there is a shortage or any petroleum product, or when public interest so requires, it may take
such steps as it may consider necessary, including the temporary adjustment of the levels of prices of petroleum products and the payment to
the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by persons or entities engaged in the petroleum industry of such
amounts as may be determined by the Board, which will enable the importer to recover its cost of importation."

As may be gleaned from said provisions, the ERB is basically a price or rate-fixing agency. Apparently recognizing this basic function,
Republic Act No. 7638 (An Act Creating the Department of Energy, Rationalizing the Organization and Functions of Government Agencies
Related to Energy, and for Other Purposes),[51] which was approved on December 9, 1992 and which took effect fifteen days after its
complete publication in at least two (2) national newspapers of general circulation, specifically provides as follows:
 "SEC. 18. Rationalization or Transfer of Functions of Attached or Related Agencies.- The non-price regulatory jurisdiction, powers,
and functions of the Energy Regulatory Board as provided for in Section 3 of Executive Order No. 172 are hereby transferred to
the Department.

The foregoing transfer of powers and functions shall include all applicable funds and appropriations, records, equipment, property,
and such personnel as may be necessary. Provided, That only such amount of funds and appropriations of the Board as well as
only the personnel thereof which are completely or primarily involved in the exercise by said Board of its non-price regulatory
powers and functions shall be affected by such transfer.

The power of the NPC to determine, fix, and prescribe the rates being charged to its customers under Section 4 of Republic Act No.
6395, as amended, as well as the power of electric cooperatives to fix rates under Section 16 (o), Chapter II of Presidential Decree
No. 269, as amended, are hereby transferred to the Energy Regulatory Board. The Board shall exercise its new powers only after
due notice and hearing and under the same procedure provided for in Executive Order No. 172."

Upon the effectivity of Republic Act No. 7638, then Acting Chairman of the Energy Coordinating Council Delfin Lazaro transmitted to the
Department of Justice the query of whether or not the "non-power rate powers and functions" of the ERB are included in the "jurisdiction,
powers and functions transferred to the Department of Energy." Answering the query in the affirmative, the Department of Justice rendered
Opinion No. 22 dated February 12, 1993 the pertinent portion of which states:

"x x x we believe that since the provision of Section 18 on the transfer of certain powers and functions from ERB to DOE is clear
and unequivocal, and devoid of any ambiguity, in the sense that it categorically refers to 'non-price jurisdiction, powers and
functions' of ERB under Section 3 of E.O. No. 172, there is no room for interpretation, but only for application, of the law. This is a
cardinal rule of statutory construction.

Clearly, the parameters of the transfer of functions from ERB to DOE pursuant to Section 18, are circumscribed by the provision of
Section 3 of E.O. No. 172 alone, so that, if there are other 'related' functions of ERB under other provisions of E.O. No. 172 or
other energy laws, these 'related' functions, which may conceivably refer to what you call 'non-power rate powers and functions' of
ERB, are clearly not contemplated by Section 18 and are, therefore, not to be deemed included in the transfer of functions from
ERB to DOE under the said provision.

It may be argued that Section 26 of R.A. No. 7638 contains a repealing clause which provides that:

'All laws, presidential decrees, executive orders, rules and regulations or parts thereof, inconsistent with the provisions
of this Act, are hereby repealed or modified accordingly. x x x.'

and, therefore, all provisions of E.O. No. 172 and related laws which are inconsistent with the policy, purpose and intent of R.A.
No. 7638 are deemed repealed. It has been said, however, that a general repealing clause of such nature does not operate as an
express repeal because it fails to identify or designate the act or acts that are intended to be repealed. Rather, it is a clause which
predicates the intended repeal upon the condition that a substantial conflict must be found on existing and prior acts of the same
subject matter. Such being the case, the presumption against implied repeals and the rule on strict construction regarding implied
repeals shall apply ex propio vigore. For the legislature is presumed to know the existing laws so that, if repeal of particular or
specific laws is intended, the proper step is to so express it. The failure to add a specific repealing clause particularly mentioning
the statute to be repealed indicates that the intent was not to repeal any existing law on the matter, unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and the old laws (Iloilo Palay and Corn Planters Association, Inc. vs.
Feliciano, 13 SCRA 377; City of Naga vs. Agna, 71 SCRA 176, cited inAgpalo, Statutory Construction, 1990 Edition, pp. 191-
192).

In view of the foregoing, it is our opinion that only the non-price regulatory functions of ERB under Section 3 of E.O. 172 are
transferred to the DOE. All other powers of ERB which are not within the purview of its 'non-price regulatory jurisdiction, powers
and functions' as defined in Section 3 are not so transferred to DOE and accordingly remain vested in ERB."

The determination of which of two public utilities has the right to supply electric power to an area which is within the coverage of both is
certainly not a rate-fixing function which should remain with the ERB. It deals with the regulation of the distribution of energy resources
which, under Executive Order No. 172, was expressly a function of ERB. However, with the enactment of Republic Act No. 7638, the
Department of Energy took over such function. Hence, it is this Department which shall then determine whether CEPALCO or PIA should
supply power to PIE-MO.

Clearly, petitioner NPC's assertion that its "authority to entertain and hear direct connection applications is a necessary incident of its
express authority to sell electric power in bulk" is now baseless.[52] Even without the new legislation affecting its power to conduct hearings, it
is certainly irregular, if not downright anomalous for the NPC itself to determine whether it should supply power directly to the PIA or the
industries within the PIE-MO. It simply cannot arrogate unto itself the authority to exercise non-rate fixing powers which now devolves upon
the Department of Energy and to hear and eventually grant itself the right to supply power in bulk.[53]

On the other hand, ventilating the issue in a public hearing would not unduly prejudice CEPALCO although it was enfranchised by law
earlier than the PIA. Exclusivity of any public franchise has not been favored by this Court such that in most, if not all, grants by the
government to private corporations, the interpretation of rights, privileges or franchises is taken against the grantee.Thus in Alger Electric,
Inc. v. Court of Appeals,[54] the Court said:

"x x x Exclusivity is given by law with the understanding that the company enjoying it is self-sufficient and capable of supplying
the needed service or product at moderate or reasonable prices. It would be against public interest where the firm granted a
monopoly is merely an unnecessary conduit of electric power, jacking up prices as a superfluous middleman or an inefficient
producer which cannot supply cheap electricity to power intensive industries. It is in the public interest when industries dependent
on heavy use of electricity are given reliable and direct power at the lower costs thus enabling the sale of nationally marketed
products at prices within the reach of the masses. x x x."

WHEREFORE, both petitions in G.R. No. 112702 and 113613 are hereby DENIED. The Department of Energy is directed to conduct a
hearing with utmost dispatch to determine whether it is the Cagayan Electric Power and Light Co., Inc. or the National Power Corporation,
through the PHIVIDEC Industrial Authority, which should supply electric power to the industries in the PHIVIDEC Industrial Estate-Misamis
Oriental. This Decision is immediately executory. SO ORDERED
G.R. No. L-66394 February 5, 1990

PARADISE SAUNA, MASSAGE CORPORATION and JUANITO UY, plaintiff-appellee,

vs.
ALEJANDRO NG AND THE INTERMEDIATE APPELLATE COURT, defendants-appellants.

Augusto J. Salas for plaintiff-appellee.

Armado Marcelo for defendant-appellant.

GUTIERREZ, JR., J.:

Whether or not the contract between the petitioners and the private respondent is a lease or a management contract is the issue in this
petition for review. The petitioners assail the decision of the then Intermediate Appellate Court in AC-G.R. CV No. 65264 which affirmed in
toto the judgment of the Court of First Instance of Manila, Branch XII declaring the said contract as one of lease.

The disputed letter-contract signed by petitioner Juanito Uy in his capacity as President of the petitioner corporation reads:

Mr. Alejandro Ng
No. 8-A Boston Street
Quezon City

Dear Mr. Ng,

By authority of the Board of Directors, you are hereby appointed to MANAGE and ADMINISTER the PARADISE SAUNA and
MASSAGE CORPORATION effective January 1, 1976, under a commission basis over and above the amount of EIGHT
THOUSAND PESOS (P8,000.00) which should be remitted to us not later than the first five (5) days of each month starting
January 1, 1976.

In addition, you are to fulfill the following terms and conditions:

1. You are to remit the amount of Sixteen Thousand Pesos (Pl6,000.00) immediately after accepting this
appointment as a guarantee bond for the faithful performance of your duties and responsibilities.
However, this amount shall be returned to you after the duration of your appointment which will be up
to September 30, 1979. Otherwise, it will be forfeited if you do not comply with all your duties and
responsibilities.

2. Further, all government licenses, permits, utilities and services in the premises such as water, gas,
electricity, telephone, additional air conditioning units and the installation and repairs thereof and all
other repairs therein during your management shall be for your account;

3. The sole control and management of the premises shall belong to you and you are not responsible to
Anybody nor to Any Board of Directors except to me alone;

4. You are empowered to make any renovation, repairs and improvements but expenses shall be for
your account as well as to change or add personnels therein;

5. Please take all good care of all the equipment and facilities presently existing therein and see to it
that they are always in good working condition; Otherwise, the. loss and damage on any of this
equipment and facilities shall be borne by you;

6. In case, however, that you will not be in a position to continue Managing and Administering the
business profitably due to any Government Rules, Decree or Regulations or Force Majeure this
appointment shall be suspended for a period of 3 months for the purpose of determining whether or not
you can still continue managing the same.

Hoping that you find the same satisfactory and good luck.

(Sgd) JUANITO A. UY
President/Director (Rollo, P. 35)

This case arose from the petitioners' act of allegedly terminating the respondent's appointment as manager-administrator as a result of his
alleged failure to comply with the terms and conditions of his appointment. The termination took effect on January 15,1977.

Private respondent Ng, on January 21, 1977 filed with the Court of First Instance of Manila, Branch XII, a case for specific performance and
damages with prayer for a writ of preliminary mandatory injunction and attorney's fees against the petitioner. The case was docketed as Civil
Case No. 106511.

On January 28, 1977, the private respondent amended his complaint to one for breach of contract with damages with the same prayer for a
writ of preliminary injunction and attorney's fees.

The amended complaint alleged, among others, that on December 30, 1975, the petitioners agreed to lease in favor of the private respondent
their business called "Paradise Sauna and Massage Corporation" located at E. Rodriguez, Sr. Avenue, Quezon City and that they entered into
a contract whereby the latter shall have full control and management of the said business effective January 1, 1976 until September 30,1979;
that as lessee of the said business with full and sole control thereof, private respondent's principal obligation consists of only paying the
petitioners the sum of eight thousand pesos (P8,000.00 ) not later than the first five (5) days of each month as rentals and remitting to the
latter the sum of sixteen thousand pesos ( P16,000.00 ) as guarantee bond; that as such lessee, the private respondent assumed control and
management of the petitioner's business on January 1, 1976, hired and paid personnel to beef up its operations and tried religiously to
comply with his obligations like paying for his account all government licenses, permits, utilities and services in the premises such as water,
gas, electricity and telephone; that the private respondent paid all the monthly rentals due the petitioners until December 1976; that the
petitioner refused to accept the rental for January 1977 and asked the private respondent to vacate and leave the premises instead thereby
terminating his services and forfeiting his guarantee bond of sixteen thousand pesos ( P16,000.00 ); that on January 16, 1977, the
petitioners, assisted by Metrocom soldiers, entered the private respondent's office and through intimidations, forcibly ejected him from the
premises, assumed full control and supervision of the business and put another person in his place who immediately took possession of all
cash sales for the day; that the private respondent returned to the business premises the following day but he was refused entry and there
was a notice to all the employees in front of the premises signed by the petitioners to the effect that the private respondent's services had
been terminated and that another person had been appointed to take his place; that for having breached their contract, the private
respondent suffered damages in the amount of not less than P100,000.00 representing unrealized profits from the operation of the business,
forfeiture of the guarantee bond and value of his personal properties placed in the business which the petitioners appropriated to themselves;
that the private respondent shall prove further actual damages in the course of the trial resulting from the petitioners' failure to reinstate the
former immediately; and that the private respondent is entitled to moral damages in the amount of P50,000.00 and attorney's fees in the
amount of P30,000.00.

In their answer, the petitioners counter-alleged, among others, that the petitioner corporation is the operator of the sauna bath and massage
establishment in question, that petitioner Uy was the former manager and administrator of the said establishment which was then fully
equipped and staffed with more than thirty (30) personnel consisting of hospitality attendants and boy-helpers; that the petitioner corporation
is paying P4,000.00 as lease rentals for the premises occupied by it, that in his capacity as President-Director of the petitioner corporation
and in his desire to expand the operations of the same, petitioner Uy relinquished his position as manager-administrator of the said
establishment in favor of the private respondent as evidenced by the letter dated December 30, 1975 addressed to the latter; that private
respondent's appointment as manager-administrator was terminated on January 15, 1977 for violations of the terms and conditions of his
appointment, namely, failure to pay water and electric bills, failure to pay the salaries of the employees of the petitioner corporation, failure
to supply the provisions necessary for the conduct of the petitioners' sauna and massage business like lotion, towels and blankets, failure to
perform efficiently as manager-administrator of the petitioner corporation by managing the Rajah Sauna Bath in Ermita, Manila
simultaneously with his management of the petitioner corporation and by inducing the petitioners' customers to patronize the said Rajah
Sauna Bath instead of the petitioner corporation.

After trial, the lower court, on December 23, 1978 rendered judgment in favor of the private respondent with the following dispositive
portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment:

(a) declaring the letter-contract, Exhibit A, as a contract of lease covering the paradise sauna bath and massage clinic, and
not a contract of employment ;

(b) directing defendants to forthwith return the management and operation of the paradise sauna bath and massage clinic
to the plaintiff, so that plaintiff can operate and manage the same for the unexpired term of the lease of Two (2) Years,
Eight (8) Months and Fifteen (15) days;

(c) declaring the forfeiture by defendants of the plaintiffs deposit of P16,000.00 as null and void and declaring it as
subsisting for the purpose of which it was put up by plaintiff, if Exhibit A is made to continue, as decreed in par. (b) hereof,
otherwise, if or for any reason Exhibit A can not continue to be in force, directing defendants to jointly and severally pay to
plaintiff the said sum of P16,000.00;

(d) directing the defendants to account for and return to the plaintiff all the articles listed in Exhibit R, consisting of pages
1, 2 and 3, or in default thereof, to jointly and severally pay to the plaintiff in the following manner and in the following
amount, as far as it is practicable, to wit:

(1) P4,650.00 — for the cost of two television (sic) and the refrigerator, with an allowance of 30% for
depreciation costs, with interest thereon at the legal rate from date of this decision until it is fully paid;

(2) P11,540.30 — Cost price of certain items listed in page l of Exhibit R as recited elsewhere in the
body of this decision, with interest thereon at the legal rate from the date of this decision until it is fully
paid;

(e) directing the defendants to account for and to return to the plaintiff one rice cooker, one gas lantern, one medicine
cabinet with assorted medicines, one Akai Tape Recorder, Sixteen glass tumblers, five coffee cups, four intercom, two
telephone hands (sic), one Video, one color vibrator, eight drawerlocks, one electric fan with stand, one steel cabinet with
lock, 40 pieces nameplates with pictures, 30 cans Acaho, and two speakers with cabinet, all of which are listed on page 1
of Exhibit R, and in default of such delivery, directing defendants to pay jointly and severally the reasonable value thereof
taking into consideration the present costs of such items, with allowances of at least thirty per cent for their depreciation
costs, with interests thereon at 6% per annum from date of this decision until it is fully paid;

(f) directing defendants to account for and return to plaintiffs all the articles listed in page 2 of Exhibit R, or in default
thereof, directing defendants to pay jointly and severally to plaintiff the sum of P l,313.42, with interest thereon at 6% per
annum from the date of this decision, until it is fully paid;

(g) directing the defendants to account for and return to plaintiff all of Items 1 to 17 listed on page 2 of Exh. R, or in
default thereof, to pay jointly and severally the plaintiff the sum of P2,968.03, with interest thereon of 6% per annum from
date of this decision until it is fully paid;

(h) directing the defendants to account for and return to plaintiff all of the last six items listed on page 2 of Exhibit R, or in
default thereof, to pay jointly and severally the plaintiff the total costs of P7,999.55, with an allowance of 30% for their
depreciation costs, and with interest thereon at 6% per annum until it is fully paid;

(i) directing the defendants to account for and return to plaintiff all the articles listed on page 3 of Exhibit R, or in default
thereof, to jointly and severally pay to the plaintiff the cost price of P1,313.43, with interest thereon at the legal rate from
date of this decision until it is fully paid;

(j) directing the defendants to pay jointly and severally to the plaintiff the sums of P50,000.00 as moral damages and
P50,000 as exemplary damages;

(k) directing the plaintiff to pay defendants the sum of P28,572.45, with legal interest thereon from date of this decision
until it is fully paid. This sum shall be set off and made to reduce plaintiffs entitlement as awarded by this Court;

(l) dismissing all other claims which the parties have against each other for lack of merit;

Costs against defendants. (Pp. 111 to 114, Record on Appeal). (At pp. 24-27, Rollo)

On appeal, the then Intermediate Appellate Court, on November 29, 1983, affirmed in toto the decision of the trial court. The subsequent
motion for reconsideration by the petitioners was denied. Hence, this petition which presents three main arguments.
Firstly, the petitioners contend that the respondent Court sanctioned a legal error made by the trial court which is the reformation of Exhibit A
from a management contract to a lease contract contrary to Art. 1367 of the New Civil Code. In support of their contention, they averred that
when respondent Ng filed an action for specific performance then for breach of contract later, he should have been presumed to have
admitted the due execution and contents of the letter-contract marked as Exhibit A whereby he was appointed as manager-administrator of
the petitioner corporation and he should never have been allowed to deny the contents thereof for purposes of reforming the said instrument.
Article 1367 of the Civil Code states that:

Art. 1367—When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its
reformation.

The above quoted provision of law invoked by the petitioners cannot apply to respondent Ng's case. When Ng amended his original complaint
for specific performance which calls for an enforcement of Exhibit A to one for breach of contract, he did so as a matter of right since no
responsive pleading had been filed yet by the petitioners. The original complaint was filed on January 21, 1977 and was amended on January
28, 1977. The answer of the petitioners to the original complaint was filed only on February 4, 1977. Under Section 2, Rule 10 of the Revised
Rules of Court, "a party may amend his pleading once as a matter of course at any time before a responsive pleading is served . . . ." When a
pleading is amended, the original one is deemed abandoned. Hence, the amended pleading replaces the original one which no longer forms
part of the record and the trial of the case is made on the basis of the amended pleading only (see Ruymann and Farris v. Director of Lands et
al., 34 Phil. 428 [1916]). In the case at bar, respondent Ng, in his amended complaint brought an action for breach of contract not to enforce
his rights as manager-administrator but as lessee of the petitioner corporation. In the course of the trial, parol evidence was introduced to
prove that the contract in question was not a management contract as it appeared on its face but a lease contract.

Rule 130, Sec. 7 of the Revised Rules of Court provides that:

Sec. 7. Evidence of written agreements.— When the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be, between the parties and their successors-in-interest,
no evidence of the terms of the agreement other than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or
the validity of the agreement is put in issue by the pleadings;

(b) When there is an intrinsic ambiguity in the writing.

The term "agreement" includes wills. (Emphasis supplied)

In the instant case, the failure of a contract to express the true intent and agreement of the parties is raised. The fact that the allegations of
respondent Ng with respect to his rights as lessee of the petitioner corporation were made on the basis of' Exhibit A which was marked as
Annex "A" in the amended complaint meets the procedural requirement that said failure be put in issue by the pleadings.

In ruling that the subject contract is a lease contract and not a management contract, we adopt the findings of fact made by the trial court
and affirmed by the respondent court.

The claim of the petitioners that respondent Ng is their manager-administrator is untenable since it fails to pass the control test pertinent to
the existence of an employer-employee relationship. The control test asks whether the employer controls or has reserved the right to control
the employee not only as to the result of the work but also as to the means and methods by which the said work is to be accomplished (Social
Security System v. Court of Appeals, 156 SCRA 383 [1987]). Such control by the petitioners over respondent Ng is lacking. Exhibit A is in the
nature of a lease contract under Art. 1643 of the Civil Code which states that:

Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a
price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine (99) years
shall be valid.

We find no reason to disturb the findings of the two courts below that the disputed contract is a lease contract. The reasons given are:

(1) The respondent paid the petitioners a fixed P8,000.00 monthly even when the business suffers a loss. The P8,000.00
was paid at the start of the month with no attention paid to operating expenses, profits, and losses.

(2) The monthly receipts received by the petitioners from Alejandro Ng state that they were given for rentals from January
to October 1976. The receipts for November and December substitute the word "commission" for "rental". The respondent
explained the change by stating that petitioner Uy changed the receipt as he realized that subleasing the premises to Ng
was a violation of the contract with the owner and the latter might discover the violation. The receipts were prepared by
the petitioners but signed in the presence of the respondent when payment was made.

(3) The respondent was responsible for all licenses, permits, utilities and services, including the installation and repair of
all equipment such as airconditioning units. He had sole control and management and did not report to anybody.

Anent the argument that the respondent Court, in holding petitioner Uy severally liable with the petitioner corporation, departed from the rule
that a stockholder or officer of a corporation has a personality distinct from the corporation, we hold that the corporate entity theory cannot
apply in the instant case where it is being invoked as a cloak or shield for illegality. (see Tan Boon Bee & Co., Inc. v. Judge Jarencio, 163
SCRA 205 [1988]), There is proof obtaining in the case at bar as to the real nature of Exhibit A. Thus, being a party to a simulated contract of
management, petitioner Uy cannot be permitted to escape liability under the said contract by using the corporate entity theory. This is one
instance when the veil of corporate entity has to be pierced to avoid injustice and inequity.

Lastly, the petitioners argue that the respondent Court's award of moral and exemplary damages was contrary to law as there was no
showing of bad faith. In this case, the petitioners' manner of barring respondent Ng from his place of business with the use of Metrocom
soldiers instead of availing of the proper legal action constituted bad faith as contemplated by law considering that the petitioners were aware
of the real nature of the contract in question. The amount of P8,000.00 given monthly to the petitioners was received as "rentals" and not as
"commissions." Only the later receipts indicated that the P8,000.00 was for payment of "commission" and respondent Ng explained that the
change in the phraseology of the receipts was due to the fact that petitioner Uy wanted them to be so written since subleasing would
constitute a violation of the latter's contract with the owner of the business premises. Moral damages are recoverable in cases of breach of
contract where the defendant acted fraudulently or in bad faith (Art. 2220, New Civil Code). Exemplary damages, as well may be awarded in
contracts if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (Art. 2232, New Civil Code).

We feel, however, that the amount of moral and exemplary damages may be reduced considering the circumstances of the case. Mr. Uy was
unhappy about the continued life of the lease arrangement and Mr. Ng was aware of this. In some instances, rental payments were not made
promptly at the start of the month. Three checks initially bounced. Damage to the central airconditioning system and other equipment was
not repaired. Mr. Ng also operated another massage and sauna parlor—The Rajah Sauna Bath in Ermita—and Mr. Uy was convinced that
personnel and customers of Paradise Sauna were being enticed by the respondent to the other place thus eroding the goodwill and patronage
of the complaining establishment. All of these, however, mitigate but do not justify the acts accompanying the termination of the contract.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. The judgment appealed from is AFFIRMED with the
MODIFICATION that the award of moral and exemplary damages is hereby reduced to a total of P20,000. The term of the lease having
expired, the order to return the massage clinic to the private respondent is DELETED. SO ORDERED.
G.R. No. 82558 August 20, 1990

WESTERN AGRO INDUSTRIAL CORPORATION and ANTONIO RODRIGUEZ, petitioners

vs.
HON. COURT OF APPEALS and SIA'S AUTOMOTIVE AND DIESEL PARTS, INC., respondents.

Benjamin C. Santos Law Offices for petitioners.

Bonifacio, De La Cruz & Bonifacio Law Offices for private respondent.

GUTIERREZ, JR., J.:

The petitioners question the binding effect of the pre-trial order in this case and the liability imposed upon an officer solidarily with the
corporation he represented. The petitioners were ordered by both the trial court and the Court of Appeals to pay, jointly and severally, the
sum of P84,626.70, the interests thereon from June 6,1983 until paid, twenty-five percent (25%) of the amounts awarded as attorney's fees,
and costs.

On June 6, 1983 respondent SIA Automotive and Diesel Parts, Inc. (SIA) filed with the Regional Trial Court of Caloocan City a complaint for
"sum of money and damages" against petitioners Western Agro Industrial Corporation (WESGRO) and/or Antonio Rodriguez. The complaint
alleged that WESGRO is doing business through Antonio Rodriguez and on different occasions in 1980, 1981 and 1982, Rodriguez,
representing WESGRO bought on credit different automotive spare parts from the private respondent amounting to P100,753.80; that the
said amount has long become over due and yet the petitioners refused to pay despite repeated demands. The complaint prayed among others
that the defendants jointly and severally pay the plaintiff: (a) the principal sum of P100,753.80 plus legal interest and the sum equivalent to
25% in the form of attorney's fees as stipulated in the invoices covering the accounts.

In its answer with counterclaim, WESGRO admitted that it bought on credit various automotive spare parts from the respondent corporation
on different occasions in 1980, 1981 and 1982, represented by Antonio Rodriguez but denied that its total obligation was P100,753.80.
WESGRO alleged that this amount is bloated because it had already made various payments on different dates.

For his part, Antonio Rodriguez filed a motion to dismiss on the ground that the complaint states no cause of action against him. He alleged
that he is a director and officer of WESGRO and that he entered into the purchase contract with the respondent corporation in his capacity as
officer or agent of WESGRO and therefore such contract was with WESGRO as a distinct legal entity and did not confer rights much less
liabilities on him.

The trial court denied the motion to dismiss in its order dated November 23, 1983. The trial court ruled:

xxx xxx xxx

While it is true that contracts entered into by authorized officers or agents of a Corporation are contracts of the
Corporation as a distinct entity, yet under the circumstances above-mentioned, the Court finds it necessary to include
defendant, Antonio Rodriguez, as party defendant, for the Court to arrive at a judicious adjudication on the matter. (Rollo,
p.43)

Rodriguez filed with the then Intermediate Appellate Court a petition for certoriari, prohibition and mandamus for the review of the
aforestated order. The petition (docketed as Case No. AC-62562) was, however, denied.

In his answer with counterclaim, Rodriguez denied that "... WESGRO is doing business through answering defendant such allegation, being
misleading as he is only one of the officers representing WESGRO in various business transactions ..." (Rollo p. 45) and that "... his dealings
with the plaintiff were always in the name of WESGRO, a fact which is recognized by the plaintiff." (Rollo, p. 46). He, however, admitted that
he had represented WESGRO in purchasing certain spare parts on credit.

After several postponements, the pre-trial was held on April 9, 1984. On this same date, the trial court issued a Pre-Trial Order, to wit:

Parties agreed that the defendant, Western Agro Industrial Corporation ordered from the plaintiff, automotive spare parts
which have not been paid. Payment was agreed by Western Agro Industrial Corporation and Sia's Automotive and Diesel
Parts, Inc. that the defendant agreed to pay the plaintiff the sum of P85,000.00, more or less. The only question now
remaining in litigation is the remaining sum of P15,000.00, more or less. (Original Records, p. 68)

The initial hearing of the case was held on May 24, 1984. Upon agreement of the parties, the pre-trial order was amended to change the sum
of P85000.00 to P84,626.70. Upon the initiative of the petitioners' counsel, the order was further amended to show that ... it is only
defendant Western Agro Industrial Corporation that is admitting the liability not the defendant Antonio Rodriguez. (TSN page 15, May 24,
1984). During the same hearing, the respondent corporation rested its case after presenting the corporation's manager Juanito V. Lim, as its
sole witness together with several documents.

On the other hand, the petitioners manifested that after a review of the nature of the plaintiff's evidence they decided not to present any
evidence. Instead, they would simply file a memorandum. The motion was granted by the trial court in its order dated July 5, 1984.

On October 51,1984, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants, ordering defendants to pay jointly
and severally to the plaintiff the sum of P84,626.70 with legal rate of interest from the filing of the complaint on June 6,
1983 until fully paid; to pay, jointly and severally 25% of the amount awarded to plaintiff as attorney's fees; and to pay
the costs.

The Counterclaim is DISMISSED (Original Records, pp. 101-102)

As stated earlier, the trial court's decision was affirmed by the Court of Appeals. A motion for reconsideration was denied. Hence, this petition.

The issues raised can be categorized into the following: first, whether or not the petitioner are bound by the PRE-TRIAL ORDER of the trial
court; and second, whether or not petitioner Antonio Rodriguez can be made solidarily liable with the petitioner corporation for debts incurred
by the latter.

Anent the first issue, the petitioners capitalize on the fact that a copy of the pre-trial Order was not served on them. They theorize that since
the Pre-trial order was promulgated by the trial court without the direct participation of the parties, the latter, are not bound by the order
until such time that the same is served upon them, otherwise, admissions may be stated in the pre-trial order which were not made at, all
during the Pre-Trial Conference. The petitioners contend that the trial court erroneously stated that the petitioner corporation admitted its
liability.

The petitioners are correct in stating that notice to the parties of a Pre-Trial Order is indispensable, to afford them an opportunity to check the
accuracy of what transpired during a pre-trial conference. Procedural due process demands that such notice be served upon the parties in the
same manner as other orders, resolution and decision of the court in order that they may become binding upon the parties.

We, however take exception to the literal application of the rule in the instant case. The record shows that the petitioners knew all along the
existence of the Pre-trial Order and that the petitioner's counsel actively participated in the amendment of the order to change the amount of
the corporation's liability which was P85,00.00 in the Pre-Trial Order to P84,626.70 as agreed upon by the parties. The petitioner asked that
the admitted amount be amended to make the obligation reflect the truth. This can be gleaned from the tenor of the proceedings during the
trial of the case on May 24, 1984 where Atty. Benjamin C. Santos the petitioners' counsel was present and where the following transpired:

Atty. Bonifacio:

I will connect the materiality of this, Your Honor, because that is included in our complaint in the claim
of one hundred thousand something like that more or less. This amount is deemed included because
Western Agro Industrial Corporation only admitted more or less eighty-five thousand which is now the...

Court:

What is involved here according to you is fifteen thousand.

Atty. Bonifacio:

Yes, Your Honor.

Court:

Only fifteen thousand pesos (P15,000.00).

Atty. Bonifacio:

Because of your agreement stating to remand this to the lower court for hearing because that is the
only amount involved now.

Court:

As matter of fact, I have issued an order to the effect.

Atty. Bonifacio:

Yes, Your Honor. We have read it. But we are just marking more or less the admitted amount of
P85,000.00.

Atty. Santos:

To be exact, it would appear to be eighty-four thousand...

Court:

I have issued an order. Let me see the records. Pre-trial Order-Parties agreed that the defendant
Western Agro Industrial Corporation ordered from the plaintiff, automotive spare parts, which have not
been paid. Payment was agreed by Western Agro Industrial Corporation and Sia's Automotive and
Diesel Part Incorporated that the defendant agreed to pay the plaintiff the sum of P85,000.00 more or
less. The only question now remaining in litigation is the remaining sum of P15.000.00 more or less.
Why do you have to prove the P85,000,00?

Atty. Bonifacio:

We are just marking those exhibits, Your Honor.

Court:

This is the pre-trial order. Just mark those exhibits.

Atty. Bonifacio:

The admitted amount is actually P84,626.70, Your Honor. We are not proving the controverted portion
of P15,000.00.

Court:

What is the use when the defendant had admitted?

Atty. Bonifacio:

This is the controverted portion, Your Honor.

 Court:

Precisely, I am asking you to show evidence on the P15,000.00 which is the controversy.

Atty. Bonifacio:

We are now going to that, Your Honor. Court: What about this Worth Tucking?

Atty. Bonifacio:

The Worthy Trucking is the sister company of he defendant, Your Honor.

Court:

But that is already admitted by them. They will pay you already. They agreed to pay you, is it not? You
read your pre-trial older and that has not been questioned by any of the paties.

Atty. Santos:

Except for the exact amount. The order says P85,000.00 more or less.The order is still correct. Court:
You now correct the amount.

Atty. Santos:

Based on the document of plaintiff it is P84,626.70, Your Honor This is the amount admitted by
defendant Western Agro Industrial only.

Court:

Is that correct?

Atty. Bonifacio:

Is that correct? Yes, Your Honor. It is because in the pre-trial order it is P85,000.00 more or less. But
the exact amount is P84,626.70.

Court:

Order At the hearing today, the parties agreed that the defendants Western Agro Industrial Corporation
and Antonio Rodriguez are indebted tothe plaintiff in the amount of P84,626.70.

Atty. Santos:

May we interrupt at this juncture, Your Honor, it is only defendant Western Agro Industrial Corporation
that is admitting the liability, not the defendant Antonio Rodriguez.

Court:

Remove that Antonio Rodriguez. WHEREFORE, the pre-trial order dated April 9, 1984 is hereby
amended so as to correct the sum of P85,000.00 to P84,626.70.

Atty.

Bonifacio: Yes, Your Honor. (TSN, May 24, 1984, p. 10-15)

The petitioners are bound by their own admissions during the trial. Section 2, Rule 129 of the Rules of Court povides that "Admissions made
by the parties in the pleadings, or in the course of the trial or other proceedings do not require proof and cannot be contradicted unless
previously shown to have been made through palpable mistake." The petitioners have not shown that their admissions were tainted by
palpable mistake. They cannot claim that they had no notice of the pre-trial order.

It should be noted, however, that the admission regarding the amount of liability stated in the Pre-Trial Order pertained only to the petitioner
corporation. This was clarified during the trial. Hence, the parties agreed during the pre-trial order's amendment that it was only the
petitioner corporation which admitted its indebtedness to the respondent corporation in the amount of P84,626.70.

This brings us to the issue as to whether or not Antonio Rodriguez was correctly made solidarily liable with the petitioner corporation for the
P84,626.70 debt incurred by the latter.

In deciding this issue the appellate court ruled:

xxx xxx xxx

While it is true that contracts entered into the authorized officers or agents of a corporation are contracts of the corporation as a distinct
entity, yet the admission of appellant Rodriguez that he represented the corporation on different occasions in 1980, 1981, and 1982 and by
reason of this presentation defendant WESGRO bought on credit spare parts amounting to P100,000.00. more or less, laid the basis for
impleadinghim. The Court a quo was correct to include him as a proper party to arrive at a 'judicious adjudication on the matter.'

It should also be mentioned here that in defendant's (Rodriguez) Answer (par. 3), he admitted having represented
WESGRO in various business transactions. However, defendant WESGRO admitted they are only liable for P47,727.60.
Since there is the problem of who should shoulder the total obligation, the court was right in impleading defendant
Rodriguez.
 Moreover, defendant's (Rodriguez) motion to dismiss was denied by the court a quo and its petition for certiorari based on
such denial was likewise dismissed by this Court in AC GR Sp No. 02562. This Court in its decision dated April 30,1984
ruled as follows:

Considered in that light, we fail to see how respondent Judge could have acted with grave abuse of
discretion in denying petitioner's motion to dismiss. It was clearly alleged in the complaint in Case No.
C-10798 that petitioner acting for and in behalf of defendant corporation, incurred the obligation
involved. He directly dealt and transacted with plaintiff corporation, which, trusting in his
representations, agreed to deliver and in fact, delivered the goods on credit. Petitioner is therefore a
proper party whose inclusion as defendant in this case is necessary if complete relief is to be accorded
to party plaintiff.

In the foregoing instances, it is likewise pertinent to cite Section 13, Rule 3 of the Rules of Court, which provides:

Section 13. Alternative defendants where the plaintiff is uncertain against which of several persons he is
entitled to relief, he may join any or all of them as defendants in the alternative although a right to
relief against one may be inconsistent with a right to relief against the other. (Rollo, p. 28-29)

It appears, therefore, that the appellate courts ruling that Antonio Rodriguez is solidarily liable with WESGRO for the latter's P84,626.70
obligation to SIA is based principally on the ground that Rodriguez represented WESGRO in its dealings with SIA.

It is significant to note that SIA never questioned the legal personality of WESGRO. Hence, we can assume that WESGRO is a bona
fide corporation. Therefore, as a bona fide corporation, WESGRO should alone be liable for its corporate acts as duly authorized by its officers
and directors. (Caram Jr. v. Court of Appeals, 151 SCRA 372 [1987]). This is so, because a corporation "is invested by law with a separate
personality, separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related."
(Tan Boon Bee & Co Inc. v. Jarencio, 163 SCRA 205 [1988] citing Yutivo and Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160
[1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]). A corporation is an artificial person and can
transact its business only through its officers or agents. Necessarily, somebody has to act for it. The separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced and the individual stockholders may be personally liable to obligations of the
corporation only when the corporation is used "as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to
achieve equity or when necessary for the protection of creditors." (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan
Boon Bee & Co., Inc. v. Jarencio, supra).

In the case at bar, there is no showing that Antonio Rodriguez, a director and officer of WESGRO was not authorized by the corporation to
enter into purchase contracts with SIA. Moreover, the respondent corporation has not shown any circumstances which would necessitate the
piercing of the corporate veil so as to make Rodriguez personally liable for the obligations incurred by the petitioner. Hence, the inevitable
conclusion is that he was acting in behalf of the corporation when he executed the purchase contracts with the respondent corporation. In
other words, Rodriguez' acts in representing the petitioner corporation in its dealings with the respondent corporation are corporate acts for
which only the corporation should be made liable for any obligations arising from them.

WHEREFORE, the instant petition is hereby PARTLY GRANTED. The questioned decision of the Court of Appeals is modified in that petitioner
Antonio Rodriguez is declared not liable jointly and severally or otherwise with petitioner WESTERN AGRO INDUSTRIAL CORPORATION for the
money awards in favor of respondent Sia's Automotive and Diesel Parts, Inc. The decision is affirmed in other respects. SO ORDERED.
G.R. No. L-48494 June 30, 1949

BANQUE GENERALE BELGE, S. A. DE AMBERES, BELGICA, DEUTSCH ASIATISCHE BANK, and UNION COMMERCIALE D'OUTREMER,
S.A., plaintiffs-appellants,
vs.
WALTER BULL and CO., INC. and WALTER BULL, defendant-appellants.

Manuel Escudero for plaintiffs-appellants.

Juan L. Orbeta for defendants-appellants.

PARAS, J.:

On June 13, 1932, the plaintiffs filed a complaint in the Court of First Instance of Manila against the defendants. Under the first cause of
action, the plaintiffs seek to terminate a commercial commission and to recover from defendants all the properties covered by said
commission. Under the second cause of action, it is prayed that the defendants be required to present monthly statements of accounts from
September 1, 1931. Under the third cause of action, the plaintiffs seek to recover from the defendants the balances found due and owing to
the plaintiffs. The defendant Walter Bull and Co., Inc. questions the personality of the plaintiffs; denies having violated the commercial
commission mentioned in the complaint; and, by way of counterclaim, seeks to recover from the plaintiffs the sum of P1,957.07 due to said
defendant under the commission, and the sum of P283,786.49 as damages resulting from the preliminary attachment issued at the instance
of the plaintiffs upon the commencement of their complaint. The other defendant, Walter Bull, also disputes the personality of the plaintiffs;
alleges that said defendant was maliciously included in the complaint, as his participation in the commission mentioned in the complaint,was
in his official capacity as president and manager of the defendant corporation Walter Bull and Co., Inc.; and as counterclaim seeks to recover
from the plaintiffs the sum of P75,000 as damages suffered by reason of the preliminary attachment obtained by the plaintiffs at the
commencement of the action. After trial, the Court of First Instance of Manila rendered, on June 2, 1941, a decision absolving the defendants
from the complaint, absloving the plaintiffs from the defendants' counterclaims, and ordering that the unsold goods covered by the
commercial commission be delivered to the plaintiffs after payment of warehouse fees and other expenses, if any, with costs againts the
plaintiffs. From this judgment both the plaintiffs and the defendants appealed. The plaintiffs have assigned sixteen errors, while the
defendants, five.

The record of this case is very voluminous. After examining the exhaustive briefs and memoranda of both parties, in the light of the evidence
presented, we are constrained to uphold the appealed decision.

The commercial commission referred to in the complaint and identified in the record of Exhibit A, was executed on November 16, 1931,
between Banque Generale Belge, Dutsch Asiatische Bank, and Union Commerciale D'Outremer, represented by Atty. Alfredo Chicote, as
principal, and Walter Bull and Co., Inc., represented by its president Walter Bull, as agent. The subject matter of the commission consisted of
three sets of properties, namely, "Paramount" goods, "Tungsha" goods and "Mercantile Bank" goods, having a total value of P55,353.99.

We shall first consider the appeal of the plaintiffs. Their assignments of error may substantially be narrowed down to the general contentions
that: (1) The defendants violated various conditions of the commission and committed various misappropriations. (2) The total value of the
goods covered by the commission was P70,226.53, and not P55,353.99 as found by the trial court. (3) The trial court should have ordered
the payment to the plaintiffs of the sum of P4,387.44, the proceeds of the sale of goods belonging to the commission and deposited with the
sheriff which was later delivered to the defendants upon the latter's filing of a bond. (4) The accounts presented by the defendants are
erroneous and should have been disallowed.

The trial court was correct in holding that Walter Bull cannot personally be liable under the commission, inasmuch as he signed the contract in
his official capacity as president and manager of the defendant corporation Walter Bull and Co., Inc. It is true that the contract provided that
the commission was in consideration of the Walter Bull and that if the latter should cease to be the manager of the corporation, the
commission would ipso facto be terminated. But this stipulation did not personally bind Walter Bull to the contract, although it might in fact
have led the plaintiffs to appoint the corporation as their agent. If the intention was to bind Walter Bull in his individual capacity, the contract
should have so provided. It it elementary that a corporation has a personality separate and distinct from the persons composing it.

The capital mistake of the plaintiffs in supposing that the defendant corporation is liable to the plaintiffs upon liquidation of the commercial
commission, is in assuming that the value of the properties covered by the commission is P70,226.43; and this mistake is obviously due to
the fact that the plaintiffs have considered the value of the goods of the "Mercantile Bank" group as being P25,756.41, instead of, as correctly
found by the trial court, only some P11,001.46.

The principal violation of the commisiom imputed by the plaintiffs to the defendants consists in the charge that the defendants sold goods at
prices below those specified in the commission. The defendants admits having made some such sales, but contend that they were known to
and authorized by the plaintiffs; and the trial court found for the defendants. We are inclined to sustain the latter's theory. The supporting
testimony of Walter Bull is corroborated by a letter of the Union Commerciale D'Outremer (Exhibit F) addressed to Chicote, authorizing the
sale of goods at as low as 60 per cent of the inventory prices, in order to speed up liquidation. The fundamental reason is that the goods, if
not actually in bad condition, were hard to conserve. C. Kelling, who had the "Paramount' goods for six months previous to the date when the
commercial commission came into effect, had manisfested that they were unsaleable garbage (basuras invendibles) and that the same were
stored in a hot and unsuitable warehouse (Exhibit I). In a motion (Exhibit 13) filed in civil case No. 38764 by Chicote, the latter alleged that
the stock consisting mainly of medicinal products and textiles were very difficult to conserve. It is true that the inventory (Exhibit J) does not
show that the goods in question were in bad condition, but the same is not conclusive. In the first place, the condition of the stock could not
be determined from mere appearance of the containers. In the second place, the point is immaterial in view of the subsequent authority given
by the plaintiffs to sell even at 60 percent of the inventory prices.

Moreover, with respect to certain "Paramount" and "Tungsha" goods sold by the defendants prior to November 16, 1941, when the
commission was entered into, it is evident that the prices specified in the inventory cannot control, notwithstanding the fact that the
commission provided that the terms thereof retroacted to September 1, 1931. The reason is simple and it is that the said prices could not
have been known prior to the existence of the commission. We believe that the retroactive effect of the contract was intended to cover only
the stock actually in existence at the time of the execution of the commercial commission.

The plaintiffs contend that the defendants simulated sales of certain goods to O. Lagman and A. Villanueva (employees of the defendant
corporation) under invoices Nos.208 and 209 in order to appropriate for themselves said goods. This contention aws also properly overruled
by the trial court. There is evidence to the effect that the alleged transfers were made with the knowledge and conformity of Chicote, the
representative of the plaintiffs, as an arrangement calculated to expedite sales. Under the arrangement, Lagman and Villanueva did not pay
anything and the goods nominally transferred back to the defendant corporation, for the latter to advertise and sell the same in its own name,
the purpose being to boost sales and avoid conflicts with the Bureau of Internal Revenue. The operation resulted in the loss of the defendants
of some P508.71 (Exhibit 287). The advertisements were published in several weeklies (Liwayway, Hiwaga and Sampaguita), in addition to
pamphlets circulated by Bull. Furthermore, Chicote's nephew, Lalana, was the cashier and assistant accountant of the defendant corporation
and must undoubtedly have informed Chicote of all the important operations and transaction of the defendant corporation. It appears also
that the unsold goods covered by invoices No. 208 and No. 209 were returned to the credit of the plaintiffs.

With respect to the cash sales evidenced by Exhibits L-9, L-10 and L-11 which the plaintiffs contend are also simulated, we agree with the
trial court that they were known by Chicote and his nephew Antonio Lalana and werebona fide sales to third parties.
The failure of the defendants corporation to submit monthly statements of accounts or to pay to the plaintiffs the monthly balances is now of
no moment, bacause said failure is at most merely a just cause for terminating the commercial commission. The important thing is that
statements of accounts (Exhibit 471 and 472) were presented by the defendants within 30 days after the commencement of the trial, and
that said statements (showing no balance in favor of the plaintiffs) have been approved by the trial court.

The plaintiffs contend that the defendants collected commission on the sales and not, as stipulated in the contract, on the amount actually
collected. The charge is more apparent than real. It is admitted by the defendants that, at the suggestion of their accountant (J. Turiano
Santiago), the entries books show the collection of their authorized commission of 10 per cent on the amounts of all sales, in order to avoid
differences with the Bureau of Internal Revenue. However, in cases of uncollected accounts or returned merchandise, the defendants made
corresponding book entries for readjustment.We are of the opinion that the trial court committed no error on this aspect of the case,
especially when, even assuming that the accounting practice followed by the defendants was irregular, the result conformed to the agreement
contained in the commercial commission. With respect to the other 5 per cent charge against the plaintiffs, also assailed by the latter, it may
be pointed out that it represented a certain fixed amount plus 3 per cent (amounting in all to 5 per cent) paid to agents and resellers, and this
is expressly authorized by the commission.

It is insisted by the plaintiffs that the defendants were without authority to continue with the commission after the filing of the complaint. This
is early erroneous. The purpose of the compliant is to obtain a judicial declaration terminating the contract, and as long as the court had not
given the signal for the defendants to stop, the latter were not legally bound to do so. The record does not show that the defendants were
preliminarily ordered to refrain from performing the contract. Although the goods covered by the commission had been attached, they were
nevertheless released after the dissolution of the attachment, its logical consequence being the return of the goods to the defendants from
whom they were levied upon. Moreover, there seems to be no ground for plaintiff's criticism, as it appears that the defendants had offered to
turn over to Alfredo Chicote, plaintiffs' representative, all unsold merchandise, but the latter refused.

We find no merit in the various criticism of the plaintiffs directed to the proposition that the defendants, in their statements of accounts,
charged against their principals unauthorized or annecessary expenses. Indeed, a preponderance of the evidence support the view that the
defendants limited the exoenses of the commission to the items specified in the contract, namely: P100 for rental of office; premiums for fire
insurance; sales taxes; personnel expenses not exceeding P200 a month; P50 for delivery and collection expenses.

As regards the plaintiffs' claim that the amount of P4,387.44 representing the proceeds of sales by the sheriff during the existence of the
attachment, and later delivered to the defendants upon the filing by the latter a bond, should have been ordered by the trial court to be
returned to the plaintiffs, it is sufficient to state that said amount, which consisted of the proceeds of sales not only of the goods belonging to
the commission but also of those belonging to the defendants corporation, had been absorbed and included in the statementof accounts
(Exhibit 472) presented by the defendants before the trial court. Upon the approval thereof by the court, it bacame unnecessary for it to
make any pronouncement on the matter.

The "Merchatile Bank" goods to be the subject of the commercial commission after the defendants had paid to the Merchantile Bank of China
the sum of P7,500, the amount of the latter's lien on the property. It is alleged by the plaintiffs that they were opposed to the transaction and
that the same was in fact carried out for the sole benefit of the defendants. This contention is unfounded. The evidence shows that Alfredo
Chicote was furnished by the Bank Commissioner with a copy of his motion (Exhibit 1-6) to sell said goods to the Union Commerciale
D'Outremer and that he stamped his conformity to said motion. It also appears that the sum of P5,540.93 was paid with the last cash balance
in favor of the plaintiffs and the remaining sum of P1,959.07 with money of the defendant corporation. The result is that, practically speaking,
it cannot be contended by the plaintiffs that there never was any cash balance in their favor, since, in lieu of the amount of P5,540.93
representing proceeds of previous sales under the commission, the plaintiffs were credited with the "Merchantile Bank" goods.

The foregoing discussion disposes of the fundamental contention of the plaintiffs which make it superflous for us to further deal with various
accessory details or items mentioned in the volumnious briefs and memoranda of the parties. It follows that the statements of accounts
presented by the defendants and approved by the court are in order.

We now come to the appeal of the defendants. In view of the result reached as to plaintiffs' appeal, it is unnecessary for us to consider the
defense set up by the defendants in the lower court, having reference to the personality of the plaintiffs to sue. Neither is it necessary to
inquire into tha action of the trial court in disallowing the sum of P1,957.07 appearing in the statements of accounts presented by the
defendants as being due in favor of the defendants corporation, for the reason that the point has not been made the subject of any
assignment of error by the defendants.

The errors assigned by the defendants are directed to the failure of the trial court to award damages in favor of the defendants as a result of
the preliminary attachment obtained by the plaintiffs at the commencement of the action. The defendants have made an elaborate discussion
tending to establish the amount of alleged damages which the trial court found to be too speculative. We are nevertheless convinced that the
plaintiffs, in obtaining the preliminary attachment, acted in good faith, and this circumstances is fatal to any award for damages. It is true
that the defendants have been absolved from the complaint, but this does not go to show that the plaintiffs acted with malice in attaching
defendants' properties. The result of this action cannot affect the bona fide belief of the plaintiffs in the justness of their claim against the
defendants. The appealed judgment is therefore affirmed, without costs. So ordered.
G.R. No. 111008 November 7, 1994

TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners,

vs.
HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA, respondents.

Emilio G. Abrogena for petitioners.

Constante B. Albano for private respondent.

VITUG, J.:

This petition for review on certiorari challenges the 04th March 1993 decision of the Court of Appeals and its resolution of 01 July 1993
denying the motion for reconsideration.

On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of "Farmers Machineries," sold to Tramat Mercantile, Inc.
("Tramat"), one (1) unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine. In payment, David Ong, Tramat's
president and manager, issued a check for P33,500.00 (apparently replacing an earlier postdated check for P33,080.00). Tramat, in turn, sold
the tractor, together with an attached lawn mower fabricated by it, to the Metropolitan Waterworks and Sewerage System ("NAWASA") for
P67,000.00. David Ong caused a "stop payment" of the check when NAWASA refused to pay the tractor and lawn mower after discovering
that, aside from some stated defects of the attached lawn mower, the engine (sold by de la Cuesta) was a reconditioned unit.

On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's fees of P10,000.00, and the costs of suit.
Ong, in his answer, averred, among other things, that de la Cuesta had no cause of action; that the questioned transaction was between
plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal capacity; and that the payment of the check was stopped because the
subject tractor had been priced as a brand new, not as a reconditioned unit.

On 02 November 1989, after the reception of evidence, the trial court rendered a decision, the dispositive portions of which read:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered:

1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P33,500.00 with legal
interest thereon at the rate of 12% per annum from July 7, 1984 until fully paid; and

2. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P10,000.00 as
attorney's fees, and the costs of this suit.

SO ORDERED. 1

An appeal was timely interposed by the defendants. On 04 March 1993, the Court of Appeals affirmed in toto the decision of the trial court.
Defendant-appellants' motion for reconsideration was denied.

Hence, the instant petition.

We could find no reason to reverse the factual findings of both the trial court and the appellate court, particularly in holding that the contract
between de la Cuesta and TRAMAT was one of absolute, not conditional, sale of the tractor and that de la Cuesta did not violate any warranty
on the sale of the tractor to TRAMAT. The appellate court, in its decision, adequately explained:

If the perfection of the sale was dependent upon acceptance by the MWSS of the subject tractor why did the appellants
issue a check in payment of the item to the appellee? And long after MWSS had complained about the defective tractor
engine, and after the appellee had failed to remedy the defect, why did the appellants still draw and deliver a replacement
check to the appellee for the increased amount of P33,500.00?

These payments argue against the claim now made by the defendants that the sale was conditional.

According to the appellee, the additional amount covered the cost of replacing the oil gasket of the tractor engine when it
was repaired in Soledad Cac's gasoline station in Quezon City. The appellants, on the other hand, claims the amount
represented the freight charges for transporting the tractor from Cauayan, Isabela to Metro Manila.

The appellants should have explained why they failed to include the freight charges in the first check. The tractor was
transported from Isabela to Metro Manila as early as April 1984, and the first check was drawn at about the same time.
The freight charges cannot be said to have been incurred when the tractor engine was delivered back to the supplier for
repairs. The appellants admitted that the engine was not brought back to Isabela. The repairs were done at Soledad Cac's
gasoline station in Quezon City.

Anent the first assigned error, We sustain the trial court's finding that at the time of the purchase, the appellants did not
reveal to the appellee the true purpose for which the tractor would be used. Granting that the appellants informed the
appellee that they would be reselling the unit to the MWSS, an entity admittedly not engaged in farming, and that they
ordered the tractor without the power tiller, an indispensable accessory if the tractor would be used in farming, these in
themselves would not constitute the required implied notice to the appellee as seller.

xxx xxx xxx

In regard to the second assigned error, We do not agree that the appellee should have been held liable for the tractor's
alleged hidden defects. . . .

It has to be noted in this regard that, to satisfy the requirements of the MWSS, the appellants borrowed a lawn mower
from the MWSS so they could fabricate one such mower. The appellants' witness stated that the kind of mid-mounted lawn
mower was being manufactured by their competitor, Alpha Machinery, which had by then stopped supplying the same
(tsn,
Nov. 29, 1988, pp. 73-74). There is no showing that the appellants had had any previous experience in the fabrication of
this lawn mower. In fact, as aforesaid, they had to borrow one from the MWSS which they could copy. But although they
made a copy with the same specifications and design, there was no assurance that the copy would function as well as with
the model.
 xxx xxx xxx

Although the trial court discussed it in a different light, We view the matter in the same way the trial court did — that the
lawn mower as fabricated by the appellants was the root of the parties' problems.

Having had no previous experience in the manufacture of lawn mowers of the same type as that in litigation, and in a
possibly patent-infringing effort to undercut their competition, the appellants gathered enough daring to do the fabrication
themselves. But the product might have proved too much for the subject tractor to power, and the tractor's engine was
strained beyond its limits, causing it to overheat and damage its gaskets.

No wonder, then, it was a gasket Soledad Cac had to replace, at a cost chargeable to the appellants. No wonder,
furthermore, the appellants' witness declared that even after the replacement of that one gasket, the engine still leaked oil
after being torture-tested. The integrity of the other engine gaskets might have been impaired, too. Such was the burden
placed on the engine. The engine malfunctioned not necessarily because the engine, as alleged by the appellants, had
been a reconditioned, and not a brand new, one. It malfunctioned because it was made to do what it simply could not. 2

It was, nevertheless, an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta under the questioned transaction.
Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and separate personality. As
such, it should only be the corporation, not the person acting for and on its behalf, that properly could be made liable thereon. 3

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when —

1. He assents (a) to a patently unlawful act of the corporation, or

(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; 4

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; 5

3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or

4. He is made, by a specific provision of law, to personally answer for his corporate action. 7

In the case at bench, there is no indication that petitioner David Ong could be held personally accountable under any of the abovementioned
cases.

WHEREFORE, the petition is given DUE COURSE and the decision of the trial court, affirmed by the appellate court, is MODIFIED insofar as it
holds petitioner David Ong jointly and severally liable with Tramat Mercantile, Inc., which portion of the questioned judgment is SET ASIDE.
In all other respects, the decision appealed from is AFFIRMED. No costs. SO ORDERED.
G.R. No. 114787 June 2, 1995

MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and CELSO B. BALBASTRO respondents.

VITUG, J.:

A prime focus in the instant petition is the question of when to hold a director or officer of a corporation solidarily obligated with the latter for
a corporate liability.

The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B. Balbastro against herein petitioners, MAM
Realty Development Corporation ("MAM") and its Vice President Manuel P. Centeno, for wage differentials, "ECOLA," overtime pay, incentive
leave pay, 13th month pay (for the years 1988 and 1989), holiday pay and rest day pay. Balbastro alleged that he was employed by MAM as
a pump operator in 1982 and had since performed such work at its Rancho Estate, Marikina, Metro Manila. He earned a basic monthly salary
of P1,590.00 for seven days of work a week that started from 6:00 a.m. to up until 6:00 p.m. daily.

MAM countered that Balbastro had previously been employed by Francisco Cacho and Co., Inc., the developer of Rancho Estates. Sometime in
May 1982, his services were contracted by MAM for the operation of the Rancho Estates' water pump. He was engaged, however, not as an
employee, but as a service contractor, at an agreed fee of P1,590.00 a month. Similar arrangements were likewise entered into by MAM with
one Rodolfo Mercado and with a security guard of Rancho Estates III Homeowners' Association. Under the agreement, Balbastro was merely
made to open and close on a daily basis the water supply system of the different phases of the subdivision in accordance with its water
rationing scheme. He worked for only a maximum period of three hours a day, and he made use of his free time by offering plumbing services
to the residents of the subdivision. He was not at all subject to the control or supervision of MAM for, in fact, his work could so also be done
either by Mercado or by the security guard. On 23 May 1990, prior to the filing of the complaint, MAM executed a Deed of Transfer, 1effective
01 July 1990, in favor of the Rancho Estates Phase III Homeowners Association, Inc., conveying to the latter all its rights and interests over
the water system in the subdivision.

In a decision, dated 23 December 1991, the Labor Arbiter dismissed the complaint for lack of merit.

On appeal to it, respondent National Labor Relations Commission ("NLRC") rendered judgment (a) setting aside the questioned decision of the
Labor Arbiter and (b) referring the case, pursuant to Article 218(c) of the Labor Code, to Arbiter Cristeta D. Tamayo for further hearing and
submission of a report within 20 days from receipt of the Order. 2 On 21 March 1994, respondent Commissioner, after considering the report
of Labor Arbiter Tamayo, ordered:

WHEREFORE, the respondents are hereby directed to pay jointly and severally complainant the sum of P86,641.05 as
above-computed. 3

The instant petition asseverates that respondent NLRC gravely abused its discretion, amounting to lack or excess of jurisdiction, (1)
in finding that an employer-employee relationship existed between petitioners and private respondent and (2) in holding petitioners
jointly and severally liable for the money claims awarded to private respondent.

Once again, the matter of ascertaining the existence of an employer-employee relationship is raised. Repeatedly, we have said that this
factual issue is determined by:

(a) the selection and engagement of the employee;

(b) the payment of wages;

(c) the power of dismissal; and

(d) the employer's power to control the employee with respect to the result of the work to be done and to the means and
methods by which the work is to be accomplished.

We see no grave abuse of discretion on the part of NLRC in finding a full satisfaction, in the case at bench, of the criteria to establish
that employer-employee relationship. The power of control, the most important feature of that relationship and, here, a point of
controversy, refers merely to the existence of the power and not to the actual exercise thereof. It is not essential for the employer
to actually supervise the performance of duties of the employee; it is enough that the former has a right to wield the power. 4 It is
hard to accede to the contention of petitioners that private respondent should be considered totally free from such control merely
because the work could equally and easily be done either by Mercado or by the subdivision's security guard. Not without any
significance is that private respondent's employment with MAM has been registered by petitioners with the Social Security System. 5

It would seem that the money claims awarded to private respondent were computed from 06 March 1988 to 06 March 1991, 6 the latter being
the date of the filing of the complaint. The NLRC might have missed the transfer by MAM of the water system to the Homeowners Association
on 01 July 1990, a matter that would appear not to be in dispute. Accordingly, the period for the computation of the money claims should
only be for the period from 06 March 1988 to 01 July 1990 (when petitioner corporation could be deemed to have ceased from the activity for
which private respondent was employed), and petitioner corporation should, instead, be made liable for the employee's separation pay
equivalent to one-half (1/2) month pay for every year of
service. 7 While the transfer was allegedly due to MAM's financial constraints, unfortunately for petitioner corporation, however, it failed to
sufficiently establish that its business losses or financial reverses were serious enough that possibly can warrant an exemption under the
law. 8

We agree with petitioners, however, that the NLRC erred in holding Centeno jointly and severally liable with MAM. A corporation, being a
juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are
not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the following cases: 9

1. When directors and trustees or, in appropriate cases, the officers of a corporation —

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and
other persons. 10
 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto. 11

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable
with the Corporation. 12

4 When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. 13

In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the corporation for the
termination of employment of employees done with malice or in bad faith. 14

In the case at Bench, there is nothing substantial on record that can justify, prescinding from the foregoing, petitioner Centeno's solidary
liability with the corporation.

An extra note. Private respondent avers that the questioned decision, having already become final and executory, could no longer be
reviewed by this Court. The petition before us has been filed under Rule 65 of the Rules of Court, there being no appeal, or any other plain,
speedy and adequate remedy in the ordinary course of law from decisions of the National Labor Relations Commission; it is a relief that is
open so long as it is availed of within a reasonable time.

WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC for a re-computation of private respondent's
monetary awards, which, conformably with this opinion, shall be paid solely by petitioner MAM Realty Development Corporation. No special
pronouncement on costs. SO ORDERED.
 [G.R. No. 96453. August 4, 1999]

NATIONAL FOOD AUTHORITY, ROSELINDA GERALDEZ, RAMON SARGAN and ADELINA A. YAP, petitioners, vs. THE HON. COURT
OF APPEALS AND HONGFIL SHIPPING CORPORATION, respondents.

DECISION

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court of the Decision, [1] of the Court of Appeals which
affirmed the decision of Branch 165 of the Regional Trial Court, Pasig City in Civil Case No. 55892, entitled Hongfil Shipping Corporation vs.
National Food Authority, Roselinda Geraldez, Ramon Sargan and Adelina A. Yap,[2] ordering the National Food Authority to pay plaintiffs claim
for demurrage and deadfreight.

The facts that matter are undisputed.

National Food Authority (NFA), thru its officers then, Emil Ong, Roselinda Geraldez, Ramon Sargan and Adelina A. Yap, entered into a
Letter of Agreement for Vessel /Barge Hire[3] with Hongfil Shipping Corporation (Hongfil) for the shipment of 200,000 bags of corn grains from
Cagayan de Oro City to Manila, under the following terms and conditions, to wit:

1. Name of Vessel/Barge : MV CHARLIE/DIANE

2. Cargo : Corn grains in bag

3. Quantity : Two Hundred Thousand bags, more or less

4. Loading Port : One Safe Berth at Cagayan de Oro Port

5. Discharging Port : One Safe Berth at North Harbor, Manila

6. Laydays (Loading and Unloading): : Customary Quick Dispatch (CQD)

7. Demurrage/Dispatch : None

8. Freight Rate : Seven Pesos 30/100 (P7.30) per bar or a total of P1,460,000.00 based on out-turn weight at 50 kilos per bag

9. Payment of Freight : Loading - 25% upon completion of loading; 25% upon commence-ment of discharge and balance 15 days after
presentation of complete billing documents subject to usual accounting auditing
regulations and procedures.

NFA sent Hongfil a Letter of Advice that its (Hongfil) vessel should proceed to Cagayan de Oro City. On February 6, 1987, M/V
DIANE/CHARLIE of Hongfil arrived in Cagayan de Oro City 1500 hours. Hongfil notified the Provincial Manager of NFA in Cagayan de Oro,
Eduardo A. Mercado, of its said vessels readiness to load and the latter received the said notification on February 9, 1987. [4]

A certification of charging rate was then issued by Gold City Integrated Port Services, Inc. (INPORT), the arrastre firm in Cagayan de
Oro City, which certified that it would take them (INPORT) seven (7) days, eight (8) hours and forty-three (43) minutes[5] to load the 200,000
bags of NFA corn grains.

On February 10, 1987, loading on the vessel commenced and was terminated on March 4, 1987. As there was a strike staged by the
arrastre workers and in view of the refusal of the striking stevedores to attend to their work, the loading of said corn grains took twenty-one
(21) days, fifteen hours (15) and eighteen (18) minutes to finish.

On March 6, 1987, the NFA Provincial Manager allowed MV CHARLIE/DIANE to depart for the Port of Manila. On March 11, 1987, the
vessel arrived at the Port of Manila and a certification of discharging rate was issued at the instance of Hongfil, stating that it would take
twelve (12) days, six (6) hours and twenty-two (22) minutes to discharge the 200, 000 bags of corn grains.

Unfortunately, unloading only commenced on March 15, 1987 and was completed on April 7, 1987. It took a total period of twenty (20)
days, fourteen (14) hours and thirty-three (33) minutes to finish the unloading, due to the unavailability of a berthing space for M/V
CHARLIE/DIANE.

After the discharging was completed, NFA paid Hongfil the amount of P1,006,972.11 covering the shipment of corn grains. Thereafter,
Hongfil sent its billing to NFA, claiming payment for freight covering the shut-out load or deadfreight as well as demurrage, allegedly
sustained during the loading and unloading of subject shipment of corn grains.

When NFA refused to pay the amount reflected in the billing, Hongfil brought an action against NFA and its officers for recovery of
deadfreight and demurrage, docketed as Civil Case No. 55892 before Branch 165 of the Regional Trial Court in Pasig City.

On February 29, 1989, after trial, the Regional Trial Court handed down its decision[6] in favor of Hongfil and against NFA and its
officers, disposing thus:

IN VIEW OF THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and against the defendants, ordering:

1. defendant National Food Authority, and the public defendants, to pay the plaintiff the following:

a) P242,367.30, in and as payment of the deadfreight or unloaded cargo; and

B) P1,152,687.50, in and as payment as of demurrage claim;

2. defendants to pay plaintiff, jointly and severally the amount of P50,000.00, for and as attorneys fees; and

3. Expenses of litigation or the costs of this suit.

The counterclaim of defendants are hereby dismissed for lack of merit.

SO ORDERED.

On appeal, the Court of Appeals affirmed with modification the judgment by deleting therefrom the award of attorneys fees.

Undaunted, petitioners have come to this Court via the instant petition for review under Rule 45 of the Revised Rules of Court, raising as
issues:

WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE FOR DEADFREIGHT;

II

WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE FOR DEMURRAGE; AND

III

WHETHER OR NOT PERSONAL CIVIL LIABILITY MAY ATTACH TO THE OFFICERS OF NFA.

It bears stressing that subject Letter of Agreement is considered a Charter Party. A charter party is classified into (1) bareboat or
demise charter and (2) contract of affreightment. Subject contract is one of affreightment, whereby the owner of the vessel leases part or all
of its space to haul goods for others. It is a contract for special service to be rendered by the owner of the vessel. Under such contract the
ship owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the
vessel in return for his payment of the charter hire.[7]

Anent the first issue, petitioners contend that the respondent corporation is not entitled to deadfreight as the contract itself limited their
liability. Section 7 of the Letter Agreement for Vessel/Barge Hire provided a freight rate of Seven and 30/100 (P7.30) Pesos per bag or a total
of P1,460,000 based on out-turn weight of 50 kilos per bag.

The Court of Appeals, however, held that since the charter of MV CHARLIE/DIANE was for the whole vessel, and inasmuch as the vessel
may no longer accept any other cargo without the consent of the charterer NFA, the latter is liable to pay the total amount of P1,460,000.00
based on 200,000 bags, at the rate of P7.30 per bag; in accordance with the Letter of Agreement for Vessel/Barge Hire which stipulated:

xxx xxx xxx

2. Cargo : Corn Grains in Bags

3. Quantity : Two Hundred Thousand Bags, more or less

xxx xxx xxx

7. Freight Rate : Seven Pesos 30/100 (P7.30) per bag or a total of P1,460,000.00 based on out-turn weight at 50 kilos per bag. (Exh. A)

The submission of petitioners is unsustainable. They theorize that what should be paid for was what was actually unloaded and not the
number of bags of corn grains NFA contracted to load.

Under the law, the cargo not loaded is considered as deadfreight. It is the amount paid by or recoverable from a charterer of a ship for
the portion of the ships capacity the latter contracted for but failed to occupy. [8] Explicit and succinct is the law that the liability for
deadfreight is on the charterer. The law in point is Article 680 of the Code of Commerce, which provides:

Art. 680. A charterer who does not complete the full cargo he bound himself to ship shall pay the freightage of the amount he fails to ship, if
the captain does not take other freight to complete the load of the vessel, in which case the first charterer shall pay the difference, should
there be any.

Petitioners anchor their stance on the phrase 200,000 bags, more or less, which, according to them, meant more than 200,000 or less
than 200,000 bags. As what was actually unloaded was less than 200,000 bags, NFA should only to pay for the freight therefor and not for
200,000 bags; petitioners contend.

Petitioners contention is untenable. The words more or less when used in relation to quantity or distance, are words of safety and
caution, intended to cover some slight or unimportant inaccuracy. It allows an adjustment to the demands of circumstances which do not
weaken or destroy the statements of distance and quantity when no other guides are available.[9]

In fact, it is further disclosed by the evidence that there was a communication from NFA Administrator Emil Ong to Oscar Sanchez,
Manager of Hongfil Shipping Corporation, stating clearly that the vessel M/V CHARLIE/DIANE was chartered to load our 200,000 bags corn
grains from Cagayan de Oro to Manila at P7.30 per 50 kg./bag.[10] Therefrom, it can be gleaned unerringly that the charter party was
to transport 200,000 bags of corn grains.

It is thus decisively clear that the letter of agreement covered 200,000 bags of corn grains but only 166,798 bags were unloaded at the
Port of Manila. Consequently, shut-out load or deadfreight of 33,201 bags at P7.30 per bag or P242,367.30 should be paid by NFA to Hongfil
Shipping Corporation.

On the second issue of whether or not petitioner is liable for the payment of demurrage, petitioners theorize that NFA is not liable for
the payment of demurrage since the Letter of Agreement for Vessel/Barge Hire expressly stipulated Demurrage/Dispatch: NONE.

The Court of Appeals, however, adjudged petitioners liable for demurrage, ratiocinating thus:

As regards the claim for demurrage, the letter of agreement between the parties does not contain any provision for the amount of demurrage,
which is the sum fixed by the contract of carriage, or which is allowed, as remuneration to the owner of the ship for the detention of his
vessel beyond the number of days allowed by the charter party for loading or unloading or for sailing (Agbayani, Commercial Laws of the
Philippines, Vol. IV, 1983 ed, p. 243). Nonetheless, despite the absence of an express provision on demurrage in the agreement, such
demurrage may be demanded under the law. Article 656 of the Code of Commerce provides:

Article 656. If in the charter party the time in which the loading or unloading are to take place is not stated, the usages of the port where
these acts are to take place shall be observed. After the stipulated customary period has passed, and there is no express provision in the
charter party fixing the indemnity for delay, the Captain shall be entitled to demand demurrage for the lay days and extra lay days which may
have elapsed in loading and unloading.(underscoring supplied)

While the right to demand demurrage is vested in the captain of the vessel, the said right may very well be exercised by the shipowner
appellee which is the principal of the captain.
Moreover, while the causes of delay may not be wholly attributable to appellant NFA (except the old and defective bags or sacks used), the
same may not also be blamed on appellee Hongfil (except the allegedly defective munkcrane).

Incidentally , the Office of the Government Corporate Counsel, in its Opinion No. 130, series of 1987, dated December 9, 1987, which is of
persuasive force, opined that appellant NFA is liable for both deadfreight and demurrage (Exhs. O and P).[11]

Demurrage is the sum fixed in a charter party as a renumeration to the owner of the ship for the detention of his vessel beyond the
number of days allowed by the charter party for loading or unloading or for sailing. [12] Liability for demurrage, using the word in its strict
technical sense, exists only when expressly stipulated in the contract.[13]

Shipper or charterer is liable for the payment of demurrage claims when he exceeds the period for loading or unloading as agreed upon
or the agreed laydays. The period for such may ormay not be stipulated in the contract.[14] A charter party may either provide for a fixed
laydays or contain general or indefinite words such as customary quick dispatch or as fast as the steamer can load.

In the case under scrutiny, the charter party provides merely for a general or indefinite words of customary quick dispatch.

The stipulation Laydays (Loading and Unloading): Customary Quick Dispatch implies that loading and unloading of the cargo should be
within a reasonable period of time. Due diligence should be exercised according to the customs and usages of the port or ports of call. The
circumstances obtaining at the time of loading and unloading are to be taken into account in the determination of Customary Quick
Dispatch.[15]

What is a reasonable time depends on the existing as opposed to normal circumstances, at the port of loading and the custom of the
port.[16]

While what was certified to by the arrastre did not tally with the actual period of loading and unloading, it appears that the cause of
delay was not imputable to either of the parties. The cause of delay during the loading was the strike staged by the crew of the arrastre
operator, and the unavailability of a berthing space for the vessel during the unloading. The lack of a berthing space was understandable
under the circumstances since the North Harbor in Manila, where the unloading took place, is a large port but there was congestion due to the
number of ships or vessels which were all waiting to dock.

Delay in loading or unloading, to be deemed as a demurrage, runs against the charterer as soon as the vessel is detained for an
unreasonable length of time from the arrival of the vessel because no available berthing space was provided for the vessel due to the
negligence of the charterer or by reason of circumstances caused by the fault of the charterer.

In the present case, charterer NFA could not be held liable for demurrage for the delay resulting from the aforementioned
circumstances. The provision Laydays: Customary Quick Dispatch invoked by Hongfil is unavailing as a basis for requiring the charterer to pay
for demurrage absent convincing proof that the time for the loading or unloading in question was beyond the reasonable time within the
contemplation of the charter party. Here, the Court holds that the delay sued upon was still within the reasonable time embraced in the
stipulation of Customary Quick Dispatch.

In a contract of affreightment, the shipper or charterer merely contracts a vessel to carry its cargo with the corresponding duty to
provide for the berthing space for the loading or unloading.Charterer is merely required to exercise ordinary diligence in ensuring that a
berthing space be made available for the vessel. The charterer does not make itself an absolute insurer against all events which cannot be
foreseen or are inevitable. The law only requires the exercise of due diligence on the part of the charterer to scout or look for a berthing
space.

Furthermore, considering that subject contract of affreightment contains an express provision Demurrage/Dispatch: NONE, the same
left the parties with no other recourse but to apply the literal meaning of such stipulation. The cardinal rule is that where, as in this case, the
terms of the contract are clear and leave no doubt over the intention of the contracting parties, the literal meaning of its stipulations is
controlling.[17]

The provision Demurrage/Dispatch: NONE can be interpreted as a waiver by Hongfil of the right to claim for demurrages. Waiver is a
renunciation of what has been established in favor of one or for his benefit, because he prejudices nobody thereby; if he suffers loss, he is the
one to blame.[18] As Hongfil freely entered into subject charter party which providing for Demurrage/Dispatch: NONE, it cannot escape the
inevitable consequence of its inability to collect demurrage. Well-settled is the doctrine that a contract between parties which is not contrary
to law, morals, good customs, public order or public policy, is the law binding on both of them.[19]

On the issue of whether personal civil liability may attach to the officers of NFA, the court rules in the negative.

In the case of MAM Realty vs. NLRC,[20] the Court held that a corporation, being a juridical entity, may act only through its officers,
directors and employees. Obligations incurred or contracted by them, acting as such corporate agents, are not theirs but the direct
accountability of the corporation they represent.

The exceptions wherein personal civil liability may attach to a corporate officer are:

1. When directors and trustees or, in appropriate cases, the officers of a corporation-

a. vote for or assent to patently unlawful acts of the corporation;

b. act in bad faith or with gross negligence in directing the corporate affairs;

c. are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

2. When a director or officer has consented to the issuance of watered stocks, or who, having knowledge thereof, did not forth
with file with the corporate secretary his written objection thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the
corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.[21] (italics
supplied)

The present case under scrutiny does not fall under any of such exceptions. A careful perusal of the contract litigated upon reveals that
the petitioners, as officers of NFA, did not bind themselves to be personally liable nor did they ink any undertaking that should NFA fail to pay
Hongfils claims, they would be personally liable. Hongfil has not cited any provision of law under which the officers of NFA are liable under the
contract entered into.

What is more, there is nothing on record to show that the petitioner-officers acted in bad faith or were guilty of gross negligence, to
warrant personal liability. Neither the trial court nor the Court of Appeals found of bad faith or gross negligence on the part of the said officers
of NFA.

Bad faith or negligence is a question of fact and is evidentiary. It has been held that bad faith does not simply mean bad judgment or
negligence; it imparts a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through
some motive or interest or ill-will; it partakes of the nature of fraud.[22]

As regards the deletion by the Court of Appeals of the attorneys fees awarded below, the same is upheld, absent any factual and legal
basis therefor.
 WHEREFORE, the decision of the Court of Appeals, dated November 29, 1990, in CA G.R. CV No. 21243 is hereby AFFIRMED with
MODIFICATION. Petitioner NFA is ordered to pay Hongfil Shipping Corporation the amount of P242,367.30 for deadfreight. The award
of P1,152,687.50 for demurrage is deleted and set aside for lack of proper basis.

Petitioners Roselinda Geraldez, Ramon Sargan and Adelina A. Yap are absolved of any liability to the respondent corporation. No
pronouncement as to costs. SO ORDERED.
G.R. No. L-69494 June 10, 1986

A.C. RANSOM LABOR UNION-CCLU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, First Division, A.C. RANSOM (PHILS.) CORPORATION, RUBEN HERNANDEZ,
MAXIMO C. HERNANDEZ, JR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ, CELESTINO C.
HERNANDEZ & MA. ROSARIO HERNANDEZ, respondents.

MELENCIO-HERRERA, J.:

The facts relevant to this case may be related as follows:

1. Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was established in 1933 by Maximo C. Hernandez, Sr. It was a
"family" corporation, the stockholders of which were/are members of the Hernandez family. It has a compound in Las Pinas Rizal, where it
has been engaged in the manufacture mainly of ink and articles associated with ink.

2. On June 6, 1961, employees of RANSOM, most of them being members of petitioner Labor UNION, went on strike and established a picket
line which, however, was lifted on June 21st with most of the strikers returning and being allowed to resume their work by RANSOM Twenty-
two (22) strikers were refused reinstatement by the Company.

3. During 1969, the same Hernandez family organized another corporation, Rosario Industrial Corporation (ROSARIO, for short) which also
engaged, in the RANSOM Compound, in the business of manufacture of ink and products associated with ink.

4. The strike became the subject of Cases Nos. 2848 — ULP and 2880 — ULP of the Court of Industrial Relations which, on December 19,
1972, ordered RANSOM "its officers and agents to reinstate the 22 strikers with back wages from July 25, 1969.

5. On April 2, 1973, RANSOM filed an application for clearance to close or cease operations effective May 1, 1973, which was granted by the
Ministry of Labor and Employment in its Order of June 7, 1973, without prejudice to the right of employees to seek redress of grievance, if
any. Although it has stopped operations, RANSOM has continued its personality as a corporation. For practical purposes, reinstatement of the
22 strikers has been precluded. As a matter of fact, reinstatement is not an issue in this case.

6. Back wages of the 22 strikers were subsequently computed at P164,984.00, probably in early 1974. The exact date is not reflected in the
record.

7. Up to September 9, 1976, petitioner UNION had filed about ten (10) motions for execution against RANSOM; but all of them could not be
implemented, presumably for failure to find leviable assets of RANSOM; although it appears that, in 1975, RANSOM had sold machineries and
equipment for P28million to Revelations Manufacturing Corporation.

8. Directly related to this case is the last Motion for Execution, dated December 18, 1978, filed by petitioner UNION wherein it asked that
officers and agents of RANSOM be held personally liable for payment of the back wages. That Motion was granted by Labor Arbiter, Tito F.
Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly authorized a Writ of Execution to be issued for P164,984.00 (the back
wages) against RANSOM and seven officers and directors of the Company who are the named individual respondents herein. RANSOM took an
appeal to NLRC which affirmed the GENILO ORDER, except as modified in the body of its decision of July 31, 1984.

9. In RANSOM's appeal to the NLRC, two issues were raised:

(a) One of the issues was:

THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND EXECUTORY IN 1973, IS IT
ENFORCEABLE BY A WRIT OF EXECUTION ISSUED IN 1980 OR MORE THAN FIVE YEARS AFTER THE FINALITY OF THE
DECISION SOUGHT TO BE ENFORCED?

The corresponding ruling made by NLRC was:

Perforce respondent's theory that execution proceedings must stop after the lapse of five (5) years and that a motion to
revive need be filed, must fail. Suffice it to state also that the statute of limitations has been devised to operate primarily
against those who sleep on their rights, not against those who assert their right but fail for causes beyond their control.
The above recital of facts contradicts respondent's contention that the CIR decision of August 19, 1972 had remained
dormant to require a motion to revive.

(b) The second issue raised was:

IS THE JUDGMENT AGAINST A CORPORATION TO REINSTATE ITS DISMISSED EMPLOYEES WITH BACKWAGES,
ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS IN THEIR INDIVIDUAL, PRIVATE AND PERSONAL CAPACITIES WHO
WERE NOT PARTIES IN THE CASE WHERE THE JUDGMENT WAS RENDERED;

The NLRC ruling was:

As to the liability of the respondent's officers and agents, we agree with the contention of the respondent-appellant that
there is nothing in the Order dated May 11, 1986 that would justify the holding of the individual officers and agents of
respondent in their personal capacity. As a general rule, officers of the corporation are not liable personally for the official
acts unless they have exceeded the scope of their authority. In the absence of evidence showing that the officers
mentioned in the Order of the Labor Arbiter dated March 11, 1980 have exceeded their authority, the writ of execution can
not be enforced against them, especially so since they were not given a chance to be heard.

RANSOM and the seven individual respondents in this case have not appealed from the ruling of the NLRC that Section 6, Rule 39, is not
invocable by them in regards to the execution of the decision of December 19, 1972. Hence, the issue can no longer be raised herein. Even if
the said section were applicable, the 5-year period therein mentioned may not have expired by December 18, 1978 because the period should
be counted only from the time the back wages were determined, which could have been in early 1974.

We now come to the NLRC's decision upholding non-personal liabilities of the individual respondents herein for back wages of the 22 strikers.

(a) Article 265 of the labor Code, in part. expressly provides:

 Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled
to reinstatement with fill back wages.

Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five
hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor
Code which provides:

(c) 'Employer includes any person acting in the interest of an employer directly or indirectly. The term shall not include any
labor organization or any of its officers or agents except when acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who
can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the
technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages.
That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided:

(b) If any violation of his Act is committed by a corporation, trust, partnership or association, the manager or in his
default, the person acting as such when the violation took place, shall be responsible. In the case of a government
corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or
commission of some other person, over whom he has no control, in which case the latter shall be held responsible.

In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty "shall be imposed upon the
guilty officer or officers" of the corporation.

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. in the
instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers,
organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased
operation on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.

(d) The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay the back wages of the 22
strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the
corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager" or in his
default, the person acting as such. In RANSOM, the President appears to be the Manager.

(e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion What the personal
liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a continuing joint and several personal
liabilities of all who x-ray have thereafter succeeded to the office of president; otherwise, the 22 strikers may be deprived of their rights by
the election of a president without leviable assets.

WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo
of March 11, 1980 is reinstated with the modification that personal liability for the back wages due the 22 strikers shall be limited to Ruben
Hernandez, who was President of RANSOM in 1974, jointly and severally with other Presidents of the same corporation who had been elected
as such after 1972 or up to the time the corporate life was terminated. SO ORDERED.
G.R. No. 80863 April 27, 1989

ANTONIO M. VILLANUEVA and FULGENCIO B. LAVAREZ, petitioners,

vs.
HONORABLE ABEDNEGO O. ADRE, Presiding Judge, Regional Trial Court, Branch 22, 11th Judicial Region, and LUCIO
VELAYO, respondents.

SARMIENTO, J.:

The central question in the petition at bar is whether or not the regular courts may stay an execution decreed by the labor arbiters and what
the consequences are of such a recourse to the courts.

The case began from a complaint, dated January 6, 1977, for recovery of unpaid thirteenth-month pay filed by the Sarangani Marine and
General Workers Union-ALU with the Department of Labor (Regional Office No. XI, General Santos City) against the South Cotabato
Integrated Port Services, Inc. (SCIPSI), a Philippine corporation. Later, thirty-seven SCIPSI employees, non-union members apparently, filed
their own complaint. The labor arbiter consolidated the twin complaints and after hearing, ordered a dismissal on December 29, 1977. On
appeal, however, the National Labor Relations Commission, on June 9, 1981, reversed and accordingly, ordered the private respondents,
SCIPSI and its president and general, Lucio Velayo, to pay the thirteenth-month pays demanded. The private respondents' motion for
reconsideration was denied, and the decision has since attained finality.

Thereafter, the parties, on orders of the labor arbiter, were made to appear before a corporate auditing examiner to determine the private
respondents' exact liability. On October 24, 1986, the corporate auditing examiner submitted an accounting and found the private
respondents liable in the total sum of Pl,134,000.00. Thereupon, the private respondents interposed an objection and prayed for a revision. It
appears, however, that the private respondents never pursued their exceptions. 1

On January 16,1987, the union moved for execution and pursuant thereto, the labor arbiter issued a writ of execution. As a result, the sheriff
levied on two parcels of land, both registered in Lucio Velayo's name, with an area of 400 and 979 square meters.

On February 14, 1987, both SCIPSI and Velayo petitioned this Court 2 on certiorari with injunction on the ground, fundamentally that the
Department of Labor's examiner erred in her determination of the private respondents pecuniary liabilities.

On February 16,1987, Velayo alone filed a petition with the respondent court (Special Case No. 227) on a cause of action based on an alleged
irregular execution, on the ground that he "was never a party to the labor case" 3and that "a corporation (that is, SCIPSI has a separate and
distinct personality from this incorporators, stockholders and officers." 4

On February 17, 1987, the respondent court issued a temporary restraining order enjoining execution of the judgment in the aforementioned
labor cases. On March 5, 1987, the petitioner moved for dismissal for lack of jurisdiction and litis pendentia.

On the strength of this Court's decision in National Mines Allied Workers Union v. Vera, 5 the trial judge denied the motion to dismiss.
Reconsideration having been likewise denied, the union as well as the labor arbiter (Antonio Villanueva) and the sheriff (Fulgencio Lavarez)
themselves, on October 22, 1987, instituted these certiorari proceedings. 6

Meanwhile, on April 27,1988, the parties (in G.R. Nos. 7730001) submitted a Compromise Agreement whereby the private respondents
agreed to pay, in installments, the reduced sum of P637,400.00 to the workers. On May 11, 1988, we issued a Resolution approving the
Compromise Agreement, and considering the cases (G.R. Nos. 77300-01) closed and terminated. 7

At the same time, we issued (in this petition) a Resolution requiring the private respondents and/or counsel, Atty. Oscar Dinipol, to show
cause why they should not be held in contempt for forum-shopping. On December 9,1988, Atty. Dinopol filed a manifestation praying for
dismissal "not because it has become moot and academic in view of the compromise agreement executed by the parties in G.R. Nos. 77300-
01 (but because) the subject or cause of action (thereof) is totally different from the cause of action in the above-entitled case." 8

On whether or not this case has become moot and academic in view of the compromise reached in G.R. Nos. 77300-01, the Court rules in the
affirmative. It should be noted that the instant petition has been brought as a result of the execution of the judgment rendered below, and
since the parties, by virtue of the compromise, have spelled out the manner by which payment shall be made, execution by means of levy,
the question confronting the court herein, may no longer be carried out. Nevertheless, because of the ethical implications of the acts of the
private respondents, the Court is constrained to render its judgment if only to forestall future similar acts and for the guidance of the bench
and the bar.

We likewise render judgment notwithstanding Atty. Oscar Dinopol's pending prayer for extension of time to file his comment to our show
cause Resolution of November 7, 1988. We consider his manifestation, dated November 29,1988, urging us not to dismiss this case for having
became moot and academic but because the petition lacks merit as his comment. We do so for one because it has been the position of the
private respondents that Special Case No. 227 and G.R. Nos. 77300-01 could stand together and for another, because of the compelling need
to dispose of labor cases with utmost dispatch. We take this as his defense to that show-cause Resolution. Parenthetically, we find him
mistaken for supposing that our Resolution is based on the simultaneous commencement of Special Case No. 227 and G.R. Nos. 77300-01.
This is not the act that forced suspicions on our part of efforts by the private respondents to "shop for a friendly forum". Rather, it is the
institution of Special Case No. 227, despite the pendency of the labor proceedings below, that led us to those suspicions. G.R. Nos. 77300-01,
on the other hand, were brought primarily on the question of the exact amount SCIPSI is liable to pay. It is on its face, a legitimate ground
for certiorari, and for this reason we accepted the parties compromise reached there, instead of dismissing it.

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal
or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in
anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which
the second suit was brought, has no jurisdiction.

Accordingly, the respondent court must be held to be in error assuming jurisdiction over Special Case No. 227. It is well-established that the
courts cannot enjoin execution of judgment rendered by the National Labor Relations Commission. 9

The respondent Lucio Velayo's reliance upon National Mines and Allied Workers Union v. Vera 10 is not well-taken. In that case, the properties
involved belonged to third persons, a development that provided a civil dimension to the labor case, and a development that gave the courts
the jurisdiction. In the case at bar, however, Velayo cannot be said to be a stranger to the proceedings for a number of reasons. First, and as
pointed out by the Solicitor General, and as the records will amply show, he, Velayo, was a party to the proceedings below where he took part
actively in defense of his case. We quote:

... It is not true that Lucio Velayo was not a party in the labor cases. The caption of the labor cases shows he was a
respondent. The records of the labor cases show that he participated in the proceedings therein, without raising the issue
 that he was not a party nor the employer of the complainants. Thus, the Motion for Reconsideration dated August 7, 1981
attached to the Petition as Annex B was filed by both SCIPS and Lucio Velayo. SCIPS and Velayo discussed the merits of
the cases in said motion and there was nary a mention of the allegation of Velayo now that he not not a party in the cases
nor an employer of the complainants. Likewise, the Exception and/or Opposition to Report of Examiner dated November
13, 1986, attached to the Petition as Annex F, was also filed by both SCIPS and Velayo and, like the Motion for
Reconsideration aforementioned, it does not mention anything about Velayo not being a party and not being an employer
of complainants. 11

Certainly, he cannot now be heard to say that he was no party to the controversy.

The fact that he was never mentioned in the pleadings before the petitioner-labor arbiter is of no moment.The fact is that he himself had
questioned the findings of the corporate auditor (in G.R. Nos. 77300-01) and this is enough evidence that he admits personal liability,
although he does not agree with the amount supposedly due from him. His remonstrances came too late in the day.

But other than estoppel, the law itself stands as a formidable obstacle to Velayo's claims. In A.C. Ransom Labor Union-CCLU v. NLRC 12 we
held that in case of corporations. It is the president who responds personally for violation of the labor pay laws. We quote:

Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five
hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article
212 (c) of the Labor Code which provides:

(c) 'Employer' of the Labor Code which provides: which 'Employer' includes any person acting in the interest of an
employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except
when acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must
have an officer who can be presumed to be the employer, being "the person acting in the interest of (the) employer"
RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-
payment of back wages. That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided:

(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the manager or in his
default, the person acting as such when the violation took place, shall be responsible. In the case of a government
corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or
commission of some other person, over whom he has no control, in which case the latter shall be held responsible.

In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty shall be
imposed upon the guilty officer or officers of the corporation.

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back
wages. In the instant case, it would appear that RANSOM, in 1969, foreesing the possibility or probability of payment of
back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the
22 strikers win their case. RANSOM actually ceased operations on May 1, 1973 after the December 19, 1972 Decision of
the Court of Industrial Relations was promulgated against RANSOM.

(d) The record does not clearly Identify the "officer or officers" of RANSOM directly responsible for failure to pay the back
wages of the 22 strikers. In the absence of definite proof in that regard, we behave it should be presumed that the
responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA
602, criminal responsibility is with the "Manager or in his default, the person acting as such." In RANSOM, the President
appears to be the Manager.

(e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion
that the personal liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a
continuing joint and several personal liabilities of all who may have thereafter succeeded to the office of president;
otherwise, the 22 striken may be deprived of their rights by the election of a president without leviable assets. 13

Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of SCIPSI's separate corporate existence. The
theory of corporate entity, in the first place, was not meant to promote unfair objectives or otherwise, to shield them. This Court has not
hesitated in penetrating the veil of corporate fiction when it would defeat the ends envisaged by law, 14 not to mention the clear decree of the
Labor Code.

And if Velayo truly had a valid objection (to the levy on his properties), he could have raised it at the earliest hour, and in the course of the
labor proceedings themselves. But, as we earlier indicated, he raised nary a finger there, and he cannot raise it now, much less in a separate
proceeding. He is not only estopped, litis pendencia is a bar to such a separate action. 15

While the instant case has been rendered moot and academic by reason of the out-of-court settlement between the parties, that development
will not absolve Velayo and/or his counsel, Atty. Oscar Dinopol 16 from charges of forum-shopping. In Buan v. Lopez, Jr., supra, we declared
that forum- shopping is an act of malpractice that constitutes contempt of court.

In this connection, we reject Atty. Dinopol's pretense that no Identity exists between Special Case No. 227 and the labor case that had
precipitated it. The fact remains that in Special Case No. 227, he assails the execution of the judgment of the National Labor Relations
Commission, the same relief he could have asked for in the very labor proceeding. The fact that he likewise prayed for damages therein will
not alter the essence of the petition- to stay execution-and in which the claim for damages is but an incidental relief.

Clearly, both Velayo and Atty. Dinopol must account for forum-shopping.
WHEREFORE, judgment is rendered: (1) DISMISSING the petition for having become moot and academic; (2) ORDERING the respondent
judge to dismiss Special Case No. 227; (3) DECLARING the respondent, Lucio Velayo and Atty. Oscar Dinopol IN CONTEMPT and ORDERING
them to pay a fine of Pl,000.00 each within five (5) days from notice; and (4) SUSPENDING Atty. Oscar Dinopol, for a period of three (3)
months effective from notice, from the practice of law. Let a copy of this Decision be entered in his record. THIS DECISION IS IMMEDIATELY
EXECUTORY. IT IS SO ORDERED.
 [G.R. No. 113907. February 28, 2000]

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP), ITS PRESIDENT BEDA MAGDALENA
VILLANUEVA, MARIO DAGANIO, DONATO GUERRERO BELLA P. SANCHEZ, ELENA TOBIS, RHODA TAMAYO, LIWAYWAY
MALLILIN, ELOISA SANTOS, DOMINADOR REBULLO, JOSE IRLAND, TEOFILA QUEJADA, VICENTE SAMONTINA, FELICITAS
DURIAN, ANTONIO POLDO, ANGELINA TUGNA, SALVADOR PENALOSA, LUZVIMINDA TUBIG, ILUMINADA RIVERA, ROMULO
SUMILANG, NENITA BARBELONIA, LEVI BASILIA, RICARDO PALAGA, MERCY ROBLES, LEODEGARIO GARIN, DOMINGO
ECLARINAL, MELCHOR GALLARDO, MARCELO GARIN, ROSALINA BAUTISTA, MARY ANN TALIGATOS, ALEJANDRO SANTOS,
ANTONIO FRAGA, LUZ GAPULTOS, MAGDALENA URSUA, EUGENIO ORDAN, LIGAYA MANALO, PEPITO DELA PAZ, PERLITA
DIMAQUIAT, MYRNA VASQUEZ, FLORENTINA SAMPAGA, ARACELI FRAGA, MAXIMINA FAUSTINO, MARINA TAN, OLIGARIO
LOMO, PRECILA EUSEBIO, SUSAN ABOGANO, CAROLINA MANINANG, GINA GLIFONIA, OSCAR SOTTO, CELEDONA MALIGAYA,
EFREN VELASQUEZ, DELIA ANOVER, JOSEPHINE TALIMORO, MAGDALENA TABOR, NARCISA SARMIENTO, SUSAN MACASIEB,
FELICIDAD SISON, PRICELA CARTA, MILA MACAHILIG, CORAZON NUNALA, VISITACION ELAMBRE, ELIZABETH INOFRE,
VIOLETA BARTE, LUZVIMINDA VILLOSA, NORMA SALVADOR, ELIZABETH BOGATE, MERLYN BALBOA, EUFRECINA SARMIENTO,
SIMPLICIA BORLEO, MATERNIDAD DAVID, LAILA JOP, POTENCIANA CULALA, LUCIVITA NAVARRO, ROLANDO BOTIN, AMELITA
MAGALONA, AGNES CENA, NOLI BARTOLAY, DANTE AQUINO, HERMINIA RILLON, CANDIDA APARIJADO, LYDIA JIMENEZ,
ELIZABETH ANOCHE, ALDA MURO, TERESA VILLANUEVA, TERESITA RECUENCO, ELIZA SERRANO, ESTELLA POLINAR,
GERTRUDES NUNEZ, FELIPE BADIOLA, ROSLYN FERNANDEZ, OSCAR PAGUTA, NATIVIDAD BALIWAS, ELIZABETH BARCIBAL,
CYNTHIA ESTELLER, TEODORA SANTOS, ALICIA PILAR, MILA PATENO, GLORIA CATRIZ, MILA MACAHILIG, ADELAIDA DE LEON,
ROSENDO EDILO, ARSENIA ESPIRITU, NUMERIANO CABRERA, CONCEPSION ARRIOLA, PAULINA DIMAPASOK, ANGELA SANGCO,
PRESILA ARIAS, ZENAIDA NUNES, EDITHA IGNACIO, ROSA GUIRON, TERESITA CANETA, ALICIA ARRO, TEOFILO RUWETAS,
CARLING AGCAOILI, ROSA NOLASCO, GERLIE PALALON, CLAUDIO DIRAS, LETICIA ALBOS, AURORA ALUBOG, LOLITA ACALEN,
GREGORIO ALIVIO, GUILLERMO ANICETA, ANGELIE ANDRADA, SUSAN ANGELES, ISABELITA AURIN, MANUELA AVELINA,
CARLING AGCAOILI, TERESITA ALANO, LOLITA AURIN, EMMABETH ARCIAGA, CRESENCIA ACUNA, LUZVMINDA ABINES,
FLORENCIA ADALID, OLIVIA AGUSTIN, EVANGELINE ALCORAN, ROSALINA ALFERES, LORNA AMANTE, FLORENTINA AMBITO,
JULIETA AMANONCO, CARMEN AMARILLO, JOSEFINA AMBAGAN, ZENAIDA ANAYA, MARIA ANGLO, EDITHA ANTA ZO, MARY
JANE ANTE, ANDREA AQUINO, ROWENA ARABIT, MARIETA ARAGON, REBECCA ARCENA, LYDIA ARCIDO, FERNANDO ARENAS,
GREGORIO ARGUELLES, EDITHA ARRIOLA, EMMA ATIENZA, EMMA ATIENZA, TEODY ATIENZA, ELIZABETH AUSTRIA, DIOSA
AZARES, SOLIDA AZAINA, MILAGROS BUAG, MARIA BANADERA, EDNALYN BRAGA, OFELIA BITANGA, FREDISMINDA BUGUIS,
VIOLETA BALLESTEROS, ROSARIO BALLADJAY, BETTY BORIO, ROMANA BAUTISTA, SUSARA BRAVO, LILIA BAHINGTING,
ENIETA BALDOZA, DAMIANA BANGCORE, HERMINIA BARIL, PETRONA BARRIOS, MILAGROS BARRAMEDA, PERLA BAUTISTA,
CLARITA BAUTISTA, ROSALINA BAUTISTA, ADELINA BELGA, CONSOLACION BENAS, MARIA BEREZO, MERCEDES BEREBER,
VIOLETA BISCOCHO, ERNESTO BRIONES, ALVINA BROSOTO, AGUSTINA BUNYI, CARMEN BUGNOT, ERLINDA BUENAFLOR, LITA
BAQUIN, CONSEJO BABOL, CRISANTA BACOLOD, CELIA DE BACTAT, MAZIMA BAGA, ELENA BALADAD, ROSARIO BALADJAY,
AMALIA BALAGTAS, ANITA BALAGTAS, MARIA BALAKIT, RUFINA BALATAN, REBECCA BALDERAMA, AMELIA BALLESTER, BELEN
BARQUIO, BERNANDITA BASILIDES, HELEN BATO, HELEN BAUTISTA, ROMANA BAUTISTA, ALMEDA BAYTA, AVELINA BELAYON,
NORMA DE BELEN, THELMA DE BELEN, JOCELYN BELTRAN, ELENA BENITEZ, VIRGINIA BERNARDINO, MERLINA BINUYAG, LINA
BINUYA, BLESILDA BISNAR, SHIRLEY BOLIVAR, CRESENTACION MEDLO, JOCELYN BONIFACIO, AMELIA BORBE, AMALIA
BOROMEO, ZENAIDA BRAVO, RODRIGO BEULDA, TERESITA MENDEZ, ELENA CAMAN, LALIANE CANDELARIA, MARRY CARUJANO,
REVELINA CORANES, MARITESS CABRERA, JUSTINA CLAZADA, APOLONIA DELA CRUZ, VICTORIA CRUZ, JOSEFINA DELA CRUZ,
MARITESS CATANGHAL, EDNA CRUZ, LUCIA DE CASTRO, JOSIE CARIASO, OFELIA CERVANTES, MEDITA CORTADO, AMALIA
CASAJEROS, LUCINA CASTILIO, EMMA CARPIO, ANACORITA CABALES, YOLANDA CAMO, MILA CAMAZUELA, ANITA CANTO,
ESTELA CANCERAN, FEMENCIA CANCIO, CYNTHIA CAPALAD, MERLE CASTILLO, JESUSA CASTRO, CECILIA CASTILLO, SILVERITA
CASTRODES, VIVIAN CELLANO, NORMA CELINO, TERESITA CELSO, GLORIA COLINA, EFIPANIA CONSTANTINO, SALVACION
CONSULTA, MEDITA CORTADO, AIDA CRUZ, MARISSA DELA CRUZ, EDITO CORCILLES, JELYNE CRUZ, ROSA CORPOS, ROSITA
CUGONA, ELSIE CABELLES, EMMA CADUT, VICTORIA CALANZA, BARBARA CALATA, IMELDA CALDERON, CRISTINA CALIDGUID,
EMMALINDA CAMALON, MARIA CAMERINO, CARMENCITA CAMPO, CONNIE CANEZO, LOURDES CAPANANG, MA. MILAGROS
CAPILI, MYRNA T. CAPIRAL, FLOR SAMPAGA, SUSAN B. CARINO, ROSARIO CARIZON, VIRGINIA DEL CARMEN, EMMA CARPIO,
PRESCILA CARTA, FE CASERO, LUZ DE CASTRO, ANNA CATARONGAN, JOSEFINA CASTISIMO, JOY MANALO, EMMIE CAWALING,
JOVITA CARA, MARINA CERBITO, MARY CAREJANO, ESTELA R. CHAVEZ, CONCEPCION PARAJA, GINA CLAUDIO, FLORDELIZA
CORALES, EDITO CORCIELER, ROSA C. CORROS, AMELIA CRUZ, JELYNE CRUZ, WILFREDO DELA CRUZ, REINA CUEVAS, MARILOU
DEJECES, JOSEPHINE DESACULA, EDITHA DEE, EDITHA DIAZ, VIRGIE DOMONDON, CELSA DOROPAW, VIOLETA DUMELINA,
MARIBEL DIMATATAC, ELBERTO DAGANIO, LETECIA DAGOHOY, DINDO DALUZ, ANGELITA DANTES, GLORIA DAYO, LUCIA DE
CASTRO, CARLITA DE GUZMAN, CARMEN DELA CRUZ, MERCY DE LEON, MARY DELOS REYES, MARIETA DEPILO, MATILDE
DIBLAS, JULIETA DIMAYUGA, TEODORA DIMAYUGA, YOLANDA DOMDOM, LUCITA DONATO, NELMA DORADO, RITA DORADO,
SUSAN DUNTON, HERMINIA SAN ESTEBAN, AMALI EUGENIO, OLIVIA EUSOYA, ERNESTO ESCOBIN, EVELYN ESCUREL, LYDIA
ESCOBIN, VICENTE E. ELOIDA, ELENA EGAR, GLORIA ERENO, NORMA ESPIRIDION, ARSENIA ESPIRITU, AURORA ESTACIO,
DEMETRIA ESTONELO, MILAGROS FONSEGA, LYDIA FLORENTINO, JULIA FARABIER, TRINIDAD FATALLA, IMELDA FLORES,
JESSINA FRANCO, MA. CRISTINA FRIJAS, ESPECTACION FERRER, BERDENA FLORES, LEONILA FRANCISCO, BERNARDA
FAUSTINO, DOLORES FACUNDO, CRESTITA FAMILARAN, EMELITA FIGUERAS, MA. VIRGINIA FLORENDO, AURORA FRANCISCO,
MA. JESUSA FRANCISCO, NENITA FUENTES, MARILOU GOLINGAN, JUANITA GUERRERO, LYDIA GUEVARRA, SOCORRO
GONZAGA, PATRICIA GOMEO, ROSALINDA GALAPIN, CARMELITA GALVEZ, TERESA GLE, SONIA GONZALES, PRIMITA GOMEZ,
THERESA GALUA, JOSEFINA GELUA, BRENDA GONZAGA, FLORA GALLARDO, LUCINDA GRACILLA, VICTORIA GOZUM, NENITA
GAMAO, EDNA GARCIA, DANILO GARCIA, ROSARIO GIRAY, ARACELI GOMEZ, JOEMARIE GONZAGA, NELIA GONZAGA, MARY
GRANCE GOZON, CARMEN GONZALES, MERLITA GREGORIO, HERMINIA GONZALES, CARLITA DE GUZMAN, MODESTA
GABRENTINA, EDITHA GADDI, SALVACIO GALIAS, MERLINDA GALIDO, MELINDA GAMIT, JULIETA GARCIA, EMELITA GAVINO,
CHARITO GILLIA, GENERA GONEDA, CRESTITA GONZALES, HERMINIA GONZALES, FRANCISCA GUILING, JULIAN HERNANDEZ,
GLECERIA HERRADURA, SUSANA HIPOLITO, NERISSA HAZ, SUSAN HERNAEZ, APOLONIA ISON, SUSAN IBARRA, LUDIVINA
IGNACIO, CHOLITA INFANTE, JULIETA ITURRIOS, ANITA IBO, MIRASOL INGALLA, JULIO JARDINIANO, MERLITA JULAO,
JULIETA JULIAN, MARIBETH DE JOSE, JOSEPHINE JENER, IMELDA JATAP, JULIETA JAVIER, SALOME JAVIER, VICTORIA JAVIER,
SALVACION JOMOLO, EDNA JARNE, LYDIA JIMENEZ, TERESITA DE JUAN, MARILYN LUARCA, ROSITA LOSITO, ROSALINA
LUMAYAG, LORNA LARGA, CRESTETA DE LEON, ZENAIDA LEGASPI, ADELAIDA LEON, IMELDA DE LEON, MELITINA LUMABI,
LYDIA LUMABI, ASUNCION LUMACANG, REGINA LAPIADRIO, MELANIA LUBUGUAN, EVANGELINE LACAP, PELAGIA LACSI,
LORNA LAGUI, VIRGIE LAITAN, VIRGINIA LEE, CRESTELITA DE LEON, FELICISIMA LEONERO, DIOSA LOPE, ANGELITA LOPEZ,
TERESITA LORICA, JUANITA MENDIETA, JUANITA MARANQUEZ, JANET MALIFERO, INAS MORADOS, MELANIE MANING, LUCENA
MABANGLO, CLARITA MEJIA, IRENE MENDOZA, LILIA MORTA, VIGINIA MARAY, CHARITO MASINAHON, FILMA MALAYA, LILIA
MORTA, VIRGINIA MARAY, CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA, ROSITA MATIBAG, LORENZA MLINA, SABINA
DEL MUNDO, EDITHA MUYCO, NARCISA MABEZA, MA. FE MACATANGAY, CONCEPCION MAGDARAOG, IMELDA MAHIYA, ELSA
MALLARI, LIGAYA MANAHAN, SOLEDA MANLAPAS, VIRGINIA MAPA, JOSEI MARCOS, LIBRADA MARQUEZ, VIRGINIA MAZA,
JULIANITA MENDIETA, EDILBERTA MENDOZA, IRENE MERCADO, HELEN MEROY, CRISTINA MEJARES, CECILIA MILLET, EMELITA
MINON, JOSEPHINE MIRANA, PERLITA MIRANO, EVANGELINE MISBAL, ELEANOR MORALES, TERESITA MORILLA, LYDIA NUDO,
MYRIAM NAVAL, CAROLINA NOLIA, ALICIA NUNEZ, MAGDALENA NAGUIDA, ELSA NICOL, LILIA NACIONALES, MA. LIZA MABO,
REMEDIOS NIEVES, MARGARITA NUYLAN, TERESITA NIEVES, PORFERIA NARAG, RHODORA NUCASA, CORAZON OCRAY, LILIA
OLIMPO, VERONA OVERENCIA, FERMIN OSENA, FLORENCIA OLIVAROS, SOLEDAD OBEAS, NARISSA OLIVEROS, PELAGIA
ORTEGA, SUSAN ORTEGA, CRISTINA PRENCIPE, PURITA PENGSON, REBECCA PACERAN, EDNA PARINA, MARIETA PINAT,
EPIFANIA PAJERLAN, ROSALINA PASIBE, CECILIA DELA PAZ, LORETA PENA, APOLONIA PALCONIT, FRANCISCO PAGUIO, LYDIA
PAMINTAHON, ELSIE PACALDO, TERESITA PADILLA, MYRNA PINEDA, MERCEIDTA PEREZ, NOVENA PORLUCAS, TERESITA
PODPOD, ADORACION PORNOBI, ALICIA PERILLO, HELEN JOY PENDAL, LOURDES PACHECO, LUZVIMINDA PAGALA, LORETA
PAGAPULAN, FRANCISCO PAGUIO, PRISCO PALACA, FLORA PAMINTUAN, NOEMI PARISALES, JOSEPHINE PATRICIO, CRISTINA
PE BENITO, ANGELA PECO, ANGELITA PENA, ESTER PENONES, NORMA PEREZ, MAURA PERSEVERANCIA, MARINA PETILLA,
JOSIE PIA, ZULVILITA PIODO, REBECCA PACERAN, CLARITA POLICARPIO, MAXIMO POTENTO, PORFIRIO POTENTO,
FLORDELIZA PUMARAS, FERNANDO QUEVEDO, JULIANA QUINDOZA, CHARITO QUIROZ, CARMELITA ROSINO, RODELIA
RAYONDOYON, FLORENCIA RAGOS, REBECCA ROSALES, ROSALYN RIVERO, FRANCISCO RUIZ, FRANCIA ROSERO, EMELY RUBIO,
EDILBERTO RUIO, JUANA RUBY, RAQUEL REYES, MERCY ROBLES, ESTELA RELANO, ROSITA REYES NIMFA RENDON, EPIFANIO
RAMIRO, MURIEL REALCO, BERNARDITA RED, LEONITA RODIL, BENITA REBOLA, DELMA REGALARIO, LENY REDILLAS, JULIETA
DELA ROSA, FELICITAS DELA ROSA, SUSAN RAFALLO, ELENA RONDINA, NORMA RACELIS, JOSEPHINE RAGEL, ESPERANZA
RAMIREZ, LUZVIMINDA RANADA, CRISTINA RAPINSAN, JOCELYN RED, ORLANDO REYES, TERESITA REYES, ANGELITA
ROBERTO, DELIA ROCHA, EDLTRUDES ROMERO, MELECIA ROSALES, ZENAIDA ROTAO, BELEN RUBIS, FE RUEDA, SYLVIA
SONGCAYAWON, CRISTINA SANANO, NERCISA SARMIENTO, HELEN SIBAL, ESTELITA SANTOS, NORMA SILVESTRE, DARLITA
SINGSON, EUFROCINA SARMIENTO, MYRNA SAMSON, EMERLINA SADIA, LORNA SALAZAR, AVELINA SALVADOR, NACIFORA
SALAZAR, TITA SEUS, MARIFE SANTOS, GRACIA SARMIENTO, ANGELITA SUMANGIL, ELIZABETH SICAT, MA. VICTORIA SIDELA,
ANALITA SALVADOR, MARITES SANTOS, VIRGINIA SANTOS, THELMA SARONG, NILDA SAYAT, FANCITA SEGUNDO, FYNAIDA
SAGUI, EDITHA SALAZAR, EDNA SALZAR, EMMA SALENDARIO, SOLEDAD SAMSON, EDNA SAN DIEGO, TERESITA SAN GABRIEL,
GERTRUDES SAN JOSE, EGLECERIA OSANCHEZ, ESTRELLA SANCHEZ, CECILIA DELOS SANTOS, LUISA SEGOVIA, JOCELYN
SENDING ELENA SONGALIA, FELICITAS SORIANO, OFELIA TIBAYAN, AIDA TIRNIDA, MONICA TIBAYAN, CRISTETA TAMBARAN,
GLORIA TACDA, NENVINA, FELINA TEVES, ANTONINA DELA TORRE, MAXIMA TANILON, NENA TABAT, ZOSIMA TOLOSA, MARITA
TENOSO, IMELDA TANIO, LUZ TANIO, EVANGELINE TAYO, JOSEFINA TINGTING, ARSENIA TISOY, MAGDALENA TRAJANO,
JOSEFINA UBALDE, GINA UMALI, IRMA VALENZUELA, FELY VALDEZ, PAULINA VALEZ, ROSELITA VALLENTE, LOURDES VELASCO,
AIDA VILLA, FRANCISCA VILLARITO, ZENAIDA VISMONTE, DELIA VILLAMIEL, NENITA VASQUEZ, JOCELYN VILLASIS,
FERMARGARITA VARGAS, CELIA VALLE, MILA CONCEPCION VIRAY, DOMINGA VALDEZ, LUZVIMINDA VOCINA, MADELINE
VIVERO, RUFINA VELASCO, AUREA VIDALEON, GLORIA DEL VALLE, THELMA VALLOYAS, CYNTHIA DELA VEGA, ADELA
VILLAGOMEZ, TERESITA VINLUAN, EUFEMIA VITAN, GLORIA VILLAFLORES, EDORACION VALDEZ, ANGELITA VALDEZ,
ILUMINADA VALENCI, MYRNA VASQUEZ, EVELYN VEJERAMO, TEODORA VELASQUEZ, EDAN VILLANUEVA, PURITA VILLASENOR,
SALVADOR WILSON, EMELINA YU, ADELFA YU, ANA ABRIGUE, VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, MERCEDITA
CASTILLO, JOCELYN CASTRO, CREMENIA DELA CRUZ, JOSEPHINE IGNACIO, MELITA ILILANGOS, LIGAYA LUMAYAT, DELIA
LUMBES, ROSITA LIBRADO, DELIA LAGRAMADA, GEMMA MAGPANTAY, EMILY MENDOZA, FIDELA PANGANIBAN, LEONOR
RIZALDO, ILUMINDA RIVERA, DIVINA SAMBAYAN, ELMERITA SOLAYAO, NANCY SAMALA, JOSIE SUMARAN, LUZVIMINDA
ABINES, ALMA ACOL, ROBERTO ADRIATICO, GLORIA AGUINALDO, ROSARIO ALEYO, CRISTETA ALEJANDRO, LILIA ALMOGUERA,
CARMEN AMARILLO, TRINIDAD ARDANIEL, CERINA AVENTAJADO, ZENAIDA AVAYA, LOLITA ARABIS, MARIA ARSENIA, SOFIA
AGUINALDO, SALVE ABAD, JOSEFINA AMBANGAN EMILIA AQUINO, JOSEFINA AQUINO, JULIANA AUSAN, AMERCIANA ACOSTA,
CONCEPCION ALEROZA, DIANA ADOVOS, FELY ADVINCULA, SEOMINTA ARIAS, JOSEPHINE ARCEDE, NORMA AMISTOSO,
PRESENTACION ALONOS, EMMA ATIENZA, LEONIDA AQUINO, ANITA ARILLON, ADELAIDA ARELLANO, NORMA AMISTOSO,
JOSEPHINE ARCEDE, SEMIONITA ARIAS, JOSEFINA BANTUG, LOLITA BARTE, HERMINIA BASCO, MARGARITA BOTARDO,
RUFINO BUGNOT, LOLITA BUSTILLO, ISABEL BALAKIT, ROSARIO BARRERO, TESSIE BALBOS, NORMA BENISANO, GUILLERMA
BRUGES, BERNADETTE BARTOLOME, SHIRLEY BELMONTE, MERONA BELZA, AZUCENA BERNALES, JOSE BASCO, NIMPHA
BANTOG, BENILDA BUBAN, REGINA BUBAN, SALOME BARRAMEDA, IRENE BISCO, FELICITAS BAUTISTA, VIOLETA BURA, LINA
BINUYA, BIBIANA BAARDE, ELSA BAES, ANASTACIA BELONZO, SONIA BENOYO, ELIZABETH BACUNGAN, PATRICIA
BARRAMEDA, ERLINDA BARCELONA, EMMA BANICO, APOLONIA BUNAO, LUCITA BOLEA, PACIFICA BARCELONA, EDITHA
BASIJAN, RENITA BADAMA, ELENA BALADAD, CRESENCIA BAJO, BERNADITA BASILID, MELINDA BEATO, YOLANDA BATANES,
EDITHA BORILLA, ANITA BAS, ELSA CALIPUNDAN, MARIA CAMERINO, VIRGINIA CAMPOSANO, MILAGROS CAPILI, CARINA
CARINO, EUFEMIA CASIHAN, NENITA CASTRO, FLORENCIA CASUBUAN, GIRLIE CENTENO, MARIANITA CHIQUITO, IMELDA DELA
CRUZ, TEODOSIA CONG, TEOFILA CARACOL, TERESITA CANTA, IRENEA CUNANAN, JULITA CANDILOSAS, VIOLETA CIERES,
MILAGROS DELA CRUZ, FLOREPES CAPULONG, CARMENCITA CAMPO, MARILYN CARILLO, RUTH DELA CRUZ, RITA CIJAS, LYDIA
CASTOR, VIRGIE CALUBAD, EMELITA CABERA, CRISTETA CRUZ, ERLINDA COGADAS, IMELDA CALDERON, SUSIE LUZ CEZAR,
ESTELA CHAVEZ, NORMA CABRERA, ELDA DAGATAN, LEONISA DIMACUNA, ERNA DUGTONG, FLORDELISA DIGMA, VIRGILIO
DADIOS, LOLITA DAGTA, ADELAIDA DORADO, CELSA DATUMANONG, VIRGINIA DOCTOLERO, EDNA SAN DIEGO, JULIETA DANG,
JULIETA DORANTINAO, LOLITA DAGANO, JUDITH DIAZ, MARIA ENICANE, MARITA ESCARDE, ENRIMITA ESMAYOR, ROSARIO
EPIRITU, REMEDIOS EMBOLTORIO, IRENE ESTUITA, TERESITA ERESE, ERMELINDA ELEZO, MARIA ESTAREJA, MERLITA
ESQUERRA, YOLANDA FELICITAS, FRUTO FRANCIA, MARTHA FRUTO, LILIA FLORES, SALVACION FORTALESA, JUDITH FAJARDO,
SUSANA FERNANDO, EDWIN FRANCISCO, NENITA GREGORY, ROSA CAMILO, MARIVIC GERRARDO, CHARITA GOREMBALEM,
NORMA GRANDE, DOLORES GUTIERREZ, CHARLIE GARCIA, LUZ GALVEZ, ADELAIDA GAMILLA, LUZ GAPULTOS, ERLINDA
GARCIA, HELEN GARCIA, ERLINDA GAUDIA, FRANCISCA GUILING, MINTA HERRERA, ASUNCION HONOA, JUAN HERNANDEZ,
LUCERIA ANNA MAE HERNANDEZ, JULIANA HERNANDEZ, EDITHA IGNACIO, ANITA INOCENCIO, EULALIA INSORIO, ESTELITA
IRLANDA, MILAGROS IGNACIO, LINDA JABONILLO, ADELIMA JAEL, ROWENA JARABJO, ROBERT JAVILINAR, CLARITA JOSE,
CARMENCITA JUNDEZ, SOFIA LALUCIS, GLORIA LABITORIA, ANGELITA LODES, ERLINDA LATOGA, EVELYN LEGASPI, ROMEO
LIMCHOCO, JESUS LARA, ESTRELLA DE LUNA, LORETA LAREZA, JOSEPHINE ALSCO, MERCY DE LEON, CONSOLACION LIBAO,
MARILYN LIWAG, TERESITA LIZAZO, LILIA MACAPAGAL, SALVACION MACAREZA, AMALIA MADO, TERESITA MADRIAGA, JOVITA
MAGNAYE, JEAN MALABAD, FRANCISCA MENDOZA, NELCITA MANGANTANG, TERESITA NELLA, GENEROZA MERCADO, CRISTETA
MOJANA, BERNARDA MONGADO, LYDIA MIRANDA, ELISA MADRILEJOS, LOIDA MAGSINO, AMELIA MALTO, JULITA MAHIBA,
MYRNA MAYORES, LUISA MARAIG, FLORENCIA MARAIG, EMMA MONZON, IMELDA MAGDANGAN, VICTORIA MARTIN, NOEMI
MANGUILLO, BASILIZA MEDINA, VICTORIO MERCADO, ESTELA MAYPA, EMILIA MENDOZA, LINA MAGPANTAY, FELICIANA
MANLOLO, ELENA MANACOP, WILMA MORENO, JUANA MENDOZA, EVELYN DEL MUNDO, ROSIE MATUTINA, MATILDE MANALO,
TERESITA MENDEZ, FELIPINA MAGONCIA, MARIA MANZANO, LIGAYA MANALO, LETICIA MARCHA, MARINA MANDIGMA,
LETICIA MANDASOC, PRESCILLA MARTINEZ, JULIA MENDOZA, PACITA MAGALLANES, ANGELINA MARJES, SHIRLEY MELIGRITO,
IRENE MERCADO, ELISA MAATUBANG, MARCELINA NICOLAS, AGUSTINA NICOLAS, ROSA NOLASCO, WILMA NILAYE, VIOLETA
ORACION, ANGELA OSTAYA, JUANITA OSAYOS, MAGDALENA OCAMPO, MARDIANA OCTA, ROSELA OPAO, LIBRADA OCAMPO,
YOLANDA OLIVER, MARCIA ORLANDA, PAGDUNAN, RITA PABILONA, MYRA PALACA, BETHLEHEM PALINES, GINA PALIGAR,
NORMA PALIGAR, DELMA PEREZ, CLAUDIA PRADO, JULIE PUTONG, LUDIVINA PAGSALINGAN, MERLYN PANALIGAN, VIOLETA
PANAMBITAN, NOREN PAR, ERLINDA PARAGAS, MILA PARINO, REBECCA PENAFLOR, IMELDA PENAMORA, JERMICILLIN
PERALTA, REBECCA PIAPES, EDITHA PILAR, MAROBETH PILLADO, DIOSCORO PIMENTEL, AURORA LAS PINAS, EVANGELINA
PINON, MA. NITA PONDOC, MA. MERCEDES PODPOD, ANGELITO PANDEZ, LIGAYA PIGTAIN, LEONILA QUIAMBAO, ELENA
QUINO, MARITESS QUIJANO, CHOLITA REBUENO, LOLITA REYES, JOCELYN RAMOS, ROSITA RAMIREZ, ELINORA RAMOS,
ISABEL RAMOS, ANNABELLE RESURRECCION, EMMA REYES, ALILY ROXAS, MARY GRACE DELOS REYES, JOCELYN DEL ROSARIO,
JOSEFINA RABUSA, ANGELITA ROTAIRO, SAMCETA ROSETA, EDERLINA RUIZ, ZENAIDA ROSARIO, BENITA REBOLA, ROSITA
REVILLA, ROSITA SANTOS, ROWENA SALAZAR, EMILYN SARMIENTO, ANA SENIS, ELOISA SANTOS, NARCISA SONGLIAD, ELMA
SONGALIA, AMPARA SABIO, JESSIE SANCHEZ, VIVIAN SAMILO, GLORIA SUMALINOG, ROSALINA DELOS SANTOS, MARIETA
SOMBRERO, HELEN SERRETARIO, TEODORO SULIT, BELLA SONGUINES, LINDA SARANTAN, ESTELLA SALABAR, MILAGROS
SISON, GLORIA TALIDAGA, CECILIA TEODORO, ROMILLA TUAZON, AMELITA TABULAO, MACARIA TORRES, LUTGARDA TUSI,
ESTELLA TORREJOS, VICTORIA TAN, MERLITA DELA VEGA, WEVINA ORENCIA, REMEDIOS BALECHA, TERESITA TIBAR, LACHICA
LEONORA, JULITA YBUT, JOSEFINA ZABALA, WINNIE ZALDARIAGA, BENHUR ANTENERO, MARCELINA ANTENERO, ANTONINA
ALAPAN, EDITHA ANTOZO, ROWENA ARABIT, ANDRA AQUINO, TERESITA ANGULO, MARIA ANGLO, MYRNA ALBOS, ELENITA
AUSTRIA, ANNA ABRIGUE, VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, REMEDIOS BOLECHE, MACARIA BARRIOS, THELMA
BELEN, ESTELLA BARRETTO, JOCELYN CHAVEZ, VIRGINIA CAPISTRANO, BENEDICTA CINCO, YOLLY CATPANG, REINA CUEVAS,
VICTORIA CALANZA, FE CASERO, ROBERTA CATALBAS, LOURDES CAPANANG, CLEMENCIA CRUZ, JOCELYN COSTO, MERCEDITA
CASTILLO, EDITHA DEE, LUCITA DONATO, NORMA ESPIRIDION, LORETA FERNANDEZ, AURORA FRANCISCO, VILMA FAJARDO,
MODESTA GABRENTINA, TERESITA GABRIEL, SALVACION GAMBOA, JOSEPHINE IGNACIO, SUSAN IBARRA, ESPERANZA
JABSON, OSCAR JAMBARO, ROSANNA JARDIN, CORAZON JALOCON, ZENAIDA LEGASPI, DELLA LAGRAMADA, ROSITA
LIBRANDO, LIGAYA LUMAYOT, DELIA LUMBIS, LEONORA LANCHICA, RELAGIA LACSI, JOSEFINA LUMBO, VIOLETA DE LUNA,
EVELYN MADRID, TERESITA MORILLA, GEMMA MAGPANTAY, EMILY MENDOZA, IRENEA MEDINA, NARCISA MABEZA, ROSANNA
MEDINA, DELIA MARTINEZ, ROSARIO MAG-ISA, EDITHA MENDOZA, EDILBERTA MENDOZA, FIDELA PANGANIBAN, OFELIA
PANGANIBAN, AZUCENA POSTGO, LOURDES PACHECO, LILIA PADILLA, MARISSA PEREZ, FLORDELIZA PUMARES, LUZ REYES,
NORMA RACELIS, LEONOR RIZALDO, JOSIE SUMASAR, NANCY SAMALA, EMERLITA SOLAYAO, MERCEDITA SAMANIEGO,
BLANDINA SIMBULAN, JOCELYN SENDING, LUISITA TABERRERO, TERESITA TIBAR, ESTERLINA VALDEZ, GLORIA VEJERANO,
ILUMINADA VALENCIA, MERLITA DELA VEGA, VIRGIE LAITAN, JULIET VILLARAMA, LUISISTA OCAMPO, NARIO ANDRES,
ANSELMA TULFO, GLORIA MATEO, FLANIA MENDOZA, CONNIE CANGO, EDITHA SALAZAR, MYRNA DELOS SANTOS, TERESITA
SERGIO, CHARITO GILLA, FLORENTINA HERNAEZ, BERNARDINO VIRGINIA, AMPO ANACORITA, SYLVIA POASADAS, ESTRELLA
ESPIRITU, CONCORDIA LUZURIAGA, MARINA CERBITO, EMMA REYES, NOEMI PENISALES, CLARITA POLICARPIO, BELEN
BANGUIO, HERMINIA ADVINCULA, LILIA MORTA, REGINA LAPIDARIO, LORNA LARGA, TERESITA VINLUAN, MARITA TENOSO,
NILDS SAYAT, THELMA SARONG, DELMA REGALIS, SUSAN RAFAULO, ELENA RONDINA, MYRNA PIENDA, VIOLETA DUMELINA,
FLORENCIA ADALID, FILMA MELAYA, ERLINDA DE BAUTISTA, MATILDE DE BLAS, DOLORES FACUNDO, REBECCA LEDAMA, MA.
FE MACATANGAY, EMELITA MINON, NORMA PAGUIO, ELIZA VASQUEZ, GLORIA VILLARINO, MA. JESUS FRANCISCO, TERESITA
GURPIDO, LIGAYA MANALO, FE PINEDA, MIRIAM OCMAR, LUISA SEGOVIA, TEODY ATIENZA, SOLEDA AZCURE, CARMEN DELA
CRUZ, DMETRIA ESTONELO, MA. FLORIDA LOAZNO, IMELDA MAHIYA, EDILBERTA MENDOZA, SYLVIA POSADAS, SUSANA
ORTEGA, JOSEPHINE D. TALIMORO, TERESITA LORECA, ARSENIA TISOY, LIGAYA MANALO, TERESITA GURPIO, FE PINEDA, and
MARIA JESUS FRANCISCO, petitioners, vs. HON. CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M.
GREENFIELD (B), INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT, MARCIANO HALOG,
GODOFREDO PACENO, SR., GERVACIO CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA,
GAUDENCIO RACHO, SANTIAGO IBANEZ, AND RODRIGO AGUILING, respondents.

DECISION

PURISIMA, J.:

At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court to annul the decision of the National Labor Relations Commission
in an unfair labor practice case instituted by a local union against its employer company and the officers of its national federation.

The petitioner, Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG), hereinafter referred to as the "local union", is an
affiliate of the private respondent, United Lumber and General Workers of the Philippines (ULGWP), referred to as the "federation". The
collective bargaining agreement between MSMG and M. Greenfield, Inc. names the parties as follows:

"This agreement made and entered into by and between:

M. GREENFIELD, INC. (B) a corporation duly organized in accordance with the laws of the Republic of the
Philippines with office address at Km. 14, Merville Road, Paraaque, Metro Manila, represented in this act by its
General manager, Mr. Carlos T. Javelosa, hereinafter referred to as the Company;

-and-

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (B) (MSMG)/UNITED LUMBER AND GENERAL
WORKERS OF THE PHILIPPINES (ULGWP), a legitimate labor organization with address at Suite 404, Trinity
Building, T.M. Kalaw Street, Manila, represented in this act by a Negotiating Committee headed by its National
President, Mr. Godofredo Paceno, Sr., referred to in this Agreement as the UNION."[1]

The CBA includes, among others, the following pertinent provisions:

Article II-Union Security

Section 1. Coverage and Scope. All employees who are covered by this Agreement and presently members of the UNION
shall remain members of the UNION for the duration of this Agreement as a condition precedent to continued employment
with the COMPANY.

xxxxxx

xxxxxx

Section 4. Dismissal. Any such employee mentioned in Section 2 hereof, who fails to maintain his membership in the
UNION for non-payment of UNION dues, for resignation and for violation of UNIONs Constitution and By-Laws and any new
employee as defined in Section 2 of this Article shall upon written notice of such failure to join or to maintain membership
in the UNION and upon written recommendation to the COMPANY by the UNION, be dismissed from the employment by
the COMPANY; provided, however, that the UNION shall hold the COMPANY free and blameless from any and all liabilities
that may arise should the dismissed employee question, in any manner, his dismissal; provided, further that the matter of
the employees dismissal under this Article may be submitted as a grievance under Article XIII and, provided, finally, that
no such written recommendation shall be made upon the COMPANY nor shall COMPANY be compelled to act upon any such
recommendation within the period of sixty (60) days prior to the expiry date of this Agreement conformably to law."

Article IX

Section 4. Program Fund - The Company shall provide the amount of P10, 000.00 a month for a continuing labor education
program which shall be remitted to the Federation x x x."[2]

On September 12, 1986, a local union election was held under the auspices of the ULGWP wherein the herein petitioner, Beda Magdalena
Villanueva, and the other union officers were proclaimed as winners. Minutes of the said election were duly filed with the Bureau of Labor
Relations on September 29, 1986.

On March 21, 1987, a Petition for Impeachment was filed with the national federation ULGWP by the defeated candidates in the
aforementioned election.

On June 16, 1987, the federation conducted an audit of the local union funds. The investigation did not yield any unfavorable result and the
local union officers were cleared of the charges of anomaly in the custody, handling and disposition of the union funds.

The 14 defeated candidates filed a Petition for Impeachment/Expulsion of the local union officers with the DOLE NCR on November 5, 1987,
docketed as NCR-OD-M-11-780-87. However, the same was dismissed on March 2, 1988, by Med-Arbiter Renato Parungo for failure to
substantiate the charges and to present evidence in support of the allegations.

On April 17, 1988, the local union held a general membership meeting at the Caruncho Complex in Pasig. Several union members failed to
attend the meeting, prompting the Executive Board to create a committee tasked to investigate the non-attendance of several union
members in the said assembly, pursuant to Sections 4 and 5, Article V of the Constitution and By-Laws of the union, which read:

"Seksyon 4. Ang mga kinukusang hindi pagdalo o hindi paglahok sa lahat ng hakbangin ng unyon ng sinumang kasapi o
pinuno ay maaaring maging sanhi ng pagtitiwalag o pagpapataw ng multa ng hindi hihigit sa P50.00 sa bawat araw na
nagkulang.

Seksyon 5. Ang sinumang dadalo na aalis ng hindi pa natatapos ang pulong ay ituturing na pagliban at maparusahan ito ng
alinsunod sa Article V, Seksyong 4 ng Saligang Batas na ito. Sino mang kasapi o pisyales na mahuli and dating sa takdang
 oras ng di lalampas sa isang oras ay magmumulta ng P25.00 at babawasin sa sahod sa pamamagitan ng salary deduction
at higit sa isang oras ng pagdating ng huli ay ituturing na pagliban.[3]

On June 27, 1988, the local union wrote respondent company a letter requesting it to deduct the union fines from the wages/salaries of those
union members who failed to attend the general membership meeting. A portion of the said letter stated:

"xxx xxx xxx

In connection with Section 4 Article II of our existing Collective Bargaining Agreement, please deduct the amount of
P50.00 from each of the union members named in said annexes on the payroll of July 2-8, 1988 as fine for their failure to
attend said general membership meeting."[4]

In a Memorandum dated July 3, 1988, the Secretary General of the national federation, Godofredo Paceo, Jr. disapproved the resolution of
the local union imposing the P50.00 fine. The union officers protested such action by the Federation in a Reply dated July 4, 1988.

On July 11, 1988, the Federation wrote respondent company a letter advising the latter not to deduct the fifty-peso fine from the salaries of
the union members requesting that:

" x x x any and all future representations by MSMG affecting a number of members be first cleared from the federation
before corresponding action by the Company."[5]

The following day, respondent company sent a reply to petitioner unions request in a letter, stating that it cannot deduct fines from the
employees salary without going against certain laws. The company suggested that the union refer the matter to the proper government office
for resolution in order to avoid placing the company in the middle of the issue.

The imposition of P50.00 fine became the subject of bitter disagreement between the Federation and the local union culminating in the latters
declaration of general autonomy from the former through Resolution No. 10 passed by the local executive board and ratified by the general
membership on July 16, 1988.

In retaliation, the national federation asked respondent company to stop the remittance of the local unions share in the education funds
effective August 1988. This was objected to by the local union which demanded that the education fund be remitted to it in full.

The company was thus constrained to file a Complaint for Interpleader with a Petition for Declaratory Relief with the Med-Arbitration Branch
of the Department of Labor and Employment, docketed as Case No. OD-M-8-435-88. This was resolved on October 28, 1988, by Med-Arbiter
Anastacio Bactin in an Order, disposing thus:

"WHEREFORE, premises considered, it is hereby ordered:

1. That the United Lumber and General Workers of the Philippines (ULGWP) through its local union officers shall administer
the collective bargaining agreement (CBA).

2. That petitioner company shall remit the P10,000.00 monthly labor education program fund to the ULGWP subject to the
condition that it shall use the said amount for its intended purpose.

3. That the Treasurer of the MSMG shall be authorized to collect from the 356 union members the amount of P50.00 as
penalty for their failure to attend the general membership assembly on April 17, 1988.

However, if the MSMG Officers could present the individual written authorizations of the 356 union members, then the
company is obliged to deduct from the salaries of the 356 union members the P50.00 fine." [6]

On appeal, Director Pura-Ferrer Calleja issued a Resolution dated February 7, 1989, which modified in part the earlier disposition, to wit:

"WHEREFORE, premises considered, the appealed portion is hereby modified to the extent that the company should remit
the amount of five thousand pesos (P5,000.00) of the P10,000.00 monthly labor education program fund to ULGWP and
the other P5,000.00 to MSMG, both unions to use the same for its intended purpose."[7]

Meanwhile, on September 2, 1988, several local unions (Top Form, M. Greenfield, Grosby, Triumph International, General Milling, and Vander
Hons chapters) filed a Petition for Audit and Examination of the federation and education funds of ULGWP which was granted by Med-Arbiter
Rasidali Abdullah on December 25, 1988 in an Order which directed the audit and examination of the books of account of ULGWP.

On September 30, 1988, the officials of ULGWP called a Special National Executive Board Meeting at Nasipit, Agusan del Norte where a
Resolution was passed placing the MSMG under trusteeship and appointing respondent Cesar Clarete as administrator.

On October 27, 1988, the said administrator wrote the respondent company informing the latter of its designation of a certain Alfredo
Kalingking as local union president and "disauthorizing" the incumbent union officers from representing the employees. This action by the
national federation was protested by the petitioners in a letter to respondent company dated November 11, 1988.

On November 13, 1988, the petitioner union officers received identical letters from the administrator requiring them to explain within 72
hours why they should not be removed from their office and expelled from union membership.

On November 26, 1988, petitioners replied:

(a) Questioning the validity of the alleged National Executive Board Resolution placing their union under trusteeship;

(b) Justifying the action of their union in declaring a general autonomy from ULGWP due to the latters inability to give
proper educational, organizational and legal services to its affiliates and the pendency of the audit of the federation funds;

(c) Advising that their union did not commit any act of disloyalty as it has remained an affiliate of ULGWP;

(d) Giving ULGWP a period of five (5) days to cease and desist from further committing acts of coercion, intimidation and
harrassment.[8]
However, as early as November 21, 1988, the officers were expelled from the ULGWP. The termination letter read:

"Effective today, November 21, 1988, you are hereby expelled from UNITED LUMBER AND GENERAL WORKERS OF THE
PHILIPPINES (ULGWP) for committing acts of disloyalty and/or acts inimical to the interest and violative to the Constitution
and by-laws of your federation.

You failed and/or refused to offer an explanation inspite of the time granted to you.

Since you are no longer a member of good standing, ULGWP is constrained to recommend for your termination from your
employment, and provided in Article II Section 4, known as UNION SECURITY, in the Collective Bargaining agreement." [9]

On the same day, the federation advised respondent company of the expulsion of the 30 union officers and demanded their separation from
employment pursuant to the Union Security Clause in their collective bargaining agreement. This demand was reiterated twice, through
letters dated February 21 and March 4, 1989, respectively, to respondent company.

Thereafter, the Federation filed a Notice of Strike with the National Conciliation and Mediation Board to compel the company to effect the
immediate termination of the expelled union officers.

On March 7, 1989, under the pressure of a threatened strike, respondent company terminated the 30 union officers from employment,
serving them identical copies of the termination letter reproduced below:

We received a demand letter dated 21 November 1988 from the United Lumber and General Workers of the Philippines
(ULGWP) demanding for your dismissal from employment pursuant to the provisions of Article II, Section 4 of the existing
Collective Bargaining Agreement (CBA). In the said demand letter, ULGWP informed us that as of November 21, 1988, you
were expelled from the said federation "for committing acts of disloyalty and/or acts inimical to the interest of ULGWP and
violative to its Constitution and By-laws particularly Article V, Section 6, 9, and 12, Article XIII, Section 8."

In subsequent letters dated 21 February and 4 March 1989, the ULGWP reiterated its demand for your dismissal, pointing
out that notwithstanding your expulsion from the federation, you have continued in your employment with the company in
violation of Sec. 1 and 4 of Article II of our CBA, and of existing provisions of law.

In view thereof, we are left with no alternative but to comply with the provisions of the Union Security Clause of our CBA.
Accordingly, we hereby serve notice upon you that we are dismissing you from your employment with M. Greenfield, Inc.,
pursuant to Sections 1 and 4, Article II of the CBA effective immediately."[10]

On that same day, the expelled union officers assigned in the first shift were physically or bodily brought out of the company premises by the
companys security guards. Likewise, those assigned to the second shift were not allowed to report for work. This provoked some of the
members of the local union to demonstrate their protest for the dismissal of the said union officers. Some union members left their work
posts and walked out of the company premises.

On the other hand, the Federation, having achieved its objective, withdrew the Notice of Strike filed with the NCMB.

On March 8, 1989, the petitioners filed a Notice of Strike with the NCMB, DOLE, Manila, docketed as Case No. NCMB-NCR-NS-03-216-89,
alleging the following grounds for the strike:

(a) Discrimination

(b) Interference in union activities

(c) Mass dismissal of union officers and shop stewards

(d) Threats, coercion and intimidation

(e) Union busting

The following day, March 9, 1989, a strike vote referendum was conducted and out of 2, 103 union members who cast their votes, 2,086
members voted to declare a strike.

On March 10, 1989, the thirty (30) dismissed union officers filed an urgent petition, docketed as Case No. NCMB-NCR-NS-03-216-89, with the
Offfice of the Secretary of the Department of Labor and Employment praying for the suspension of the effects of their termination from
employment. However, the petition was dismissed by then Secretary Franklin Drilon on April 11, 1989, the pertinent portion of which stated
as follows:

"At this point in time, it is clear that the dispute at M. Greenfield is purely an intra-union matter. No mass lay-off is evident
as the terminations have been limited to those allegedly leading the secessionist group leaving MSMG-ULGWP to form a
union under the KMU. xxx

xxx xxx xxx

WHEREFORE, finding no sufficient jurisdiction to warrant the exercise of our extraordinary authority under Article 277 (b)
of the Labor Code, as amended, the instant Petition is hereby DISMISSED for lack of merit.

SO ORDERED."[11]

On March 13 and 14, 1989, a total of 78 union shop stewards were placed under preventive suspension by respondent company. This
prompted the union members to again stage a walk-out and resulted in the official declaration of strike at around 3:30 in the afternoon of
March 14, 1989. The strike was attended with violence, force and intimidation on both sides resulting to physical injuries to several
employees, both striking and non-striking, and damage to company properties.

The employees who participated in the strike and allegedly figured in the violent incident were placed under preventive suspension by
respondent company. The company also sent return-to-work notices to the home addresses of the striking employees thrice successively, on
March 27, April 8 and April 31, 1989, respectively. However, respondent company admitted that only 261 employees were eventually
accepted back to work. Those who did not respond to the return-to-work notice were sent termination letters dated May 17, 1989,
reproduced below:

M. Greenfield Inc., (B)

Km. 14, Merville Rd., Paraaque, M.M.

May 17, 1989

xxx

On March 14, 1989, without justifiable cause and without due notice, you left your work assignment at the prejudice of the
Companys operations. On March 27, April 11, and April 21, 1989, we sent you notices to report to the Company. Inspite of
your receipt of said notices, we have not heard from you up to this date.

Accordingly, for your failure to report, it is construed that you have effectively abandoned your employment and the
Company is, therefore, constrained to dismiss you for said cause.

Very truly yours,

M. GREENFIELD, INC., (B)

By:

WENZEL STEPHEN LIGOT

Asst. HRD Manager"[12]

On August 7, 1989, the petitioners filed a verified complaint with the Arbitration Branch, National Capital Region, DOLE, Manila, docketed as
Case No. NCR-00-09-04199-89, charging private respondents of unfair labor practice which consists of union busting, illegal dismissal, illegal
suspension, interference in union activities, discrimination, threats, intimidation, coercion, violence, and oppresion.

After the filing of the complaint, the lease contracts on the respondent companys office and factory at Merville Subdivision, Paraaque expired
and were not renewed. Upon demand of the owners of the premises, the company was compelled to vacate its office and factory.

Thereafter, the company transferred its administration and account/client servicing department at AFP-RSBS Industrial Park in Taguig, Metro
Manila. For failure to find a suitable place in Metro Manila for relocation of its factory and manufacturing operations, the company was
constrained to move the said departments to Tacloban, Leyte. Hence, on April 16, 1990, respondent company accordingly notified its
employees of a temporary shutdown. in operations. Employees who were interested in relocating to Tacloban were advised to enlist on or
before April 23, 1990.

The complaint for unfair labor practice was assigned to Labor Arbiter Manuel Asuncion but was thereafter reassigned to Labor Arbiter
Cresencio Ramos when respondents moved to inhibit him from acting on the case.

On December 15, 1992, finding the termination to be valid in compliance with the union security clause of the collective bargaining
agreement, Labor Arbiter Cresencio Ramos dismissed the complaint.

Petitioners then appealed to the NLRC. During its pendency, Commissioner Romeo Putong retired from the service, leaving only two
commissioners, Commissioner Vicente Veloso III and Hon. Chairman Bartolome Carale in the First Division. When Commissioner Veloso
inhibited himself from the case, Commissioner Joaquin Tanodra of the Third Division was temporarily designated to sit in the First Division for
the proper disposition of the case.

The First Division affirmed the Labor Arbiters disposition. With the denial of their motion for reconsideration on January 28, 1994, petitioners
elevated the case to this Court, attributing grave abuse of discretion to public respondent NLRC in:

I. UPHOLDING THE DISMISSAL OF THE UNION OFFICERS BY RESPONDENT COMPANY AS VALID;

II. HOLDING THAT THE STRIKE STAGED BYTHE PETITIONERS AS ILLEGAL;

III. HOLDING THAT THE PETITIONER EMPLOYEES WERE DEEMED TO HAVE ABANDONED THEIR WORK AND HENCE,
VALIDLY DISMISSED BY RESPONDENT COMPANY; AND

IV. NOT FINDING RESPONDENT COMPANY AND RESPONDENT FEDERATION OFFICERS GUILTY OF ACTS OF UNFAIR LABOR
PRACTICE.

Notwithstanding the several issues raised by the petitioners and respondents in the voluminous pleadings presented before the NLRC and this
Court, they revolve around and proceed from the issue of whether or not respondent company was justified in dismissing petitioner
employees merely upon the labor federations demand for the enforcement of the union security clause embodied in their collective bargaining
agreement.

Before delving into the main issue, the procedural flaw pointed out by the petitioners should first be resolved.

Petitioners contend that the decision rendered by the First Division of the NLRC is not valid because Commissioner Tanodra, who is from the
Third Division, did not have any lawful authority to sit, much less write the ponencia, on a case pending before the First Division. It is claimed
that a commissioner from one division of the NLRC cannot be assigned or temporarily designated to another division because each division is
assigned a particular territorial jurisdiction. Thus, the decision rendered did not have any legal effect at all for being irregularly issued.

Petitioners argument is misplaced. Article 213 of the Labor Code in enumerating the powers of the Chairman of the National Labor Relations
Commission provides that:
 "The concurrence of two (2) Commissioners of a division shall be necessary for the pronouncement of a judgment or
resolution. Whenever the required membership in a division is not complete and the concurrence of two (2) commissioners
to arrive at a judgment or resolution cannot be obtained, the Chairman shall designate such number of additional
Commissioners from the other divisions as may be necessary."

It must be remembered that during the pendency of the case in the First Division of the NLRC, one of the three commissioners, Commissioner
Romeo Putong, retired, leaving Chairman Bartolome Carale and Commissioner Vicente Veloso III. Subsequently, Commissioner Veloso
inhibited himself from the case because the counsel for the petitioners was his former classmate in law school. The First Division was thus left
with only one commissioner. Since the law requires the concurrence of two commisioners to arrive at a judgment or resolution, the
Commission was constrained to temporarily designate a commissioner from another division to complete the First Division. There is nothing
irregular at all in such a temporary designation for the law empowers the Chairman to make temporary assignments whenever the required
concurrence is not met. The law does not say that a commissioner from the first division cannot be temporarily assigned to the second or
third division to fill the gap or vice versa. The territorial divisions do not confer exclusive jurisdiction to each division and are merely designed
for administrative efficiency.

Going into the merits of the case, the court finds that the Complaint for unfair labor practice filed by the petitioners against respondent
company which charges union busting, illegal dismissal, illegal suspension, interference in union activities, discrimination, threats,
intimidation, coercion, violence, and oppression actually proceeds from one main issue which is the termination of several employees by
respondent company upon the demand of the labor federation pursuant to the union security clause embodied in their collective bargaining
agreement.

Petitioners contend that their dismissal from work was effected in an arbitrary, hasty, capricious and illegal manner because it was
undertaken by the respondent company without any prior administrative investigation; that, had respondent company conducted prior
independent investigation it would have found that their expulsion from the union was unlawful similarly for lack of prior administrative
investigation; that the federation cannot recommend the dismissal of the union officers because it was not a principal party to the collective
bargaining agreement between the company and the union; that public respondents acted with grave abuse of discretion when they declared
petitioners dismissals as valid and the union strike as illegal and in not declaring that respondents were guilty of unfair labor practice.

Private respondents, on the other hand, maintain that the thirty dismissed employees who were former officers of the federation have no
cause of action against the company, the termination of their employment having been made upon the demand of the federation pursuant to
the union security clause of the CBA; the expelled officers of the local union were accorded due process of law prior to their expulsion from
their federation; that the strike conducted by the petitioners was illegal for noncompliance with the requirements; that the employees who
participated in the illegal strike and in the commission of violence thereof were validly terminated from work; that petitioners were deemed to
have abandoned their employment when they did not respond to the three return to work notices sent to them; that petitioner labor union
has no legal personality to file and prosecute the case for and on behalf of the individual employees as the right to do so is personal to the
latter; and that, the officers of respondent company cannot be liable because as mere corporate officers, they acted within the scope of their
authority.

Public respondent, through the Labor Arbiter, ruled that the dismissed union officers were validly and legally terminated because the dismissal
was effected in compliance with the union security clause of the CBA which is the law between the parties. And this was affimed by the
Commission on appeal. Moreover, the Labor Arbiter declared that notwithstanding the lack of a prior administrative investigation by
respondent company, under the union security clause provision in the CBA, the company cannot look into the legality or illegality of the
recommendation to dismiss by the union nd the obligation to dismiss is ministerial on the part of the company. [13]

This ruling of the NLRC is erroneous. Although this Court has ruled that union security clauses embodied in the collective bargaining
agreement may be validly enforced and that dismissals pursuant thereto may likewise be valid, this does not erode the fundamental
requirement of due process. The reason behind the enforcement of union security clauses which is the sanctity and inviolability of
contracts[14] cannot override ones right to due process.

In the case of Cario vs. National Labor Relations Commission,[15] this Court pronounced that while the company, under a maintenance of
membership provision of the collective bargaining agreement, is bound to dismiss any employee expelled by the union for disloyalty upon its
written request, this undertaking should not be done hastily and summarily. The company acts in bad faith in dismissing a worker without
giving him the benefit of a hearing.

"The power to dismiss is a normal prerogative of the employer. However, this is not without limitation. The employer is
bound to exercise caution in terminating the services of his employees especially so when it is made upon the request of a
labor union pursuant to the Collective Bargaining Agreement, xxx. Dismissals must not be arbitrary and capricious. Due
process must be observed in dismissing an employee because it affects not only his position but also his means of
livelihood. Employers should respect and protect the rights of their employees, which include the right to labor."

In the case under scrutiny, petitioner union officers were expelled by the federation for allegedly commiting acts of disloyalty and/or inimical
to the interest of ULGWP and in violation of its Constitution and By-laws. Upon demand of the federation, the company terminated the
petitioners without conducting a separate and independent investigation. Respondent company did not inquire into the cause of the expulsion
and whether or not the federation had sufficient grounds to effect the same. Relying merely upon the federations allegations, respondent
company terminated petitioners from employment when a separate inquiry could have revealed if the federation had acted arbitrarily and
capriciously in expelling the union officers. Respondent companys allegation that petitioners were accorded due process is belied by the
termination letters received by the petitioners which state that the dismissal shall be immediately effective.

As held in the aforecited case of Cario, "the right of an employee to be informed of the charges against him and to reasonable opportunity to
present his side in a controversy with either the company or his own union is not wiped away by a union security clause or a union shop
clause in a collective bargaining agreement. An employee is entitled to be protected not only from a company which disregards his rights but
also from his own union the leadership of which could yield to the temptation of swift and arbitrary expulsion from membership and mere
dismissal from his job."

While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security clause of the
collective bargaining agreement upon the recommendation by the union, this dismissal should not be done hastily and summarily thereby
eroding the employees right to due process, self-organization and security of tenure. The enforcement of union security clauses is authorized
by law provided such enforcement is not characterized by arbitrariness, and always with due process. [16] Even on the assumption that the
federation had valid grounds to expell the union officers, due process requires that these union officers be accorded a separate hearing by
respondent company.

In its decision, public respondent also declared that if complainants (herein petitioners) have any recourse in law, their right of action is
against the federation and not against the company or its officers, relying on the findings of the Labor Secretary that the issue of expulsion of
petitioner union officers by the federation is a purely intra-union matter.

Again, such a contention is untenable. While it is true that the issue of expulsion of the local union officers is originally between the local
union and the federation, hence, intra-union in character, the issue was later on converted into a termination dispute when the company
dismissed the petitioners from work without the benefit of a separate notice and hearing. As a matter of fact, the records reveal that the the
termination was effective on the same day that the the termination notice was served on the petitioners.
In the case of Liberty Cotton Mills Workers Union vs. Liberty Cotton Mills, Inc. [17], the Court held the company liable for the payment of
backwages for having acted in bad faith in effecting the dismissal of the employees.

"xxx Bad faith on the part of the respondent company may be gleaned from the fact that the petitioner workers were
dismissed hastily and summarily. At best, it was guilty of a tortious act, for which it must assume solidary liability, since it
apparently chose to summarily dismiss the workers at the unions instance secure in the unions contractual undertaking
that the union would hold it free from any liability arising from such dismissal."

Thus, notwithstanding the fact that the dismissal was at the instance of the federation and that it undertook to hold the company free from
any liability resulting from such a dismissal, the company may still be held liable if it was remiss in its duty to accord the would-be dismissed
employees their right to be heard on the matter.

Anent petitioners contention that the federation was not a principal party to the collective bargaining agreement between the company and
the union, suffice it to say that the matter was already ruled upon in the Interpleader case filed by respondent company. Med-Arbiter
Anastacio Bactin thus ruled:

After a careful examination of the facts and evidences presented by the parties, this Officer hereby renders its decision as
follows:

1.) It appears on record that in the Collective Bargaining Agreement (CBA) which took effect on July 1, 1986, the
contracting parties are M. Greenfield, Inc. (B) and Malayang Samahan ng Mga Manggagawa sa M. Greenfield, Inc. (B)
(MSMG)/United Lumber and General Workers of the Philippines (ULGWP). However, MSMG was not yet a registered labor
organization at the time of the signing of the CBA. Hence, the union referred to in the CBA is the ULGWP." [18]

Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest as follows:

It is undisputed that ULGWP is the certified sole and exclusive collective bargaining agent of all the regular rank-and-file
workers of the company, M. Greenfield, Inc. (pages 31-32 of the records).

It has been established also that the company and ULGWP signed a 3-year collective bargaining agreement effective July
1, 1986 up to June 30, 1989.[19]

Although the issue of whether or not the federation had reasonable grounds to expel the petitioner union officers is properly within the
original and exclusive jurisdiction of the Bureau of Labor Relations, being an intra-union conflict, this Court deems it justifiable that such issue
be nonetheless ruled upon, as the Labor Arbiter did, for to remand the same to the Bureau of Labor Relations would be to intolerably delay
the case.

The Labor Arbiter found that petitioner union officers were justifiably expelled from the federation for committing acts of disloyalty when it
"undertook to disaffiliate from the federation by charging ULGWP with failure to provide any legal, educational or organizational support to the
local. x x x and declared autonomy, wherein they prohibit the federation from interfering in any internal and external affairs of the local
union."[20]

It is well-settled that findings of facts of the NLRC are entitled to great respect and are generally binding on this Court, but it is equally well-
settled that the Court will not uphold erroneous conclusions of the NLRC as when the Court finds insufficient or insubstantial evidence on
record to support those factual findings. The same holds true when it is perceived that far too much is concluded, inferred or deduced from
the bare or incomplete facts appearing of record.[21]

In its decision, the Labor Arbiter declared that the act of disaffiliation and declaration of autonomy by the local union was part of its "plan to
take over the respondent federation." This is purely conjecture and speculation on the part of public respondent, totally unsupported by the
evidence.

A local union has the right to disaffiliate from its mother union or declare its autonomy. A local union, being a separate and voluntary
association, is free to serve the interests of all its members including the freedom to disaffiliate or declare its autonomy from the federation to
which it belongs when circumstances warrant, in accordance with the constitutional guarantee of freedom of association.[22]

The purpose of affiliation by a local union with a mother union or a federation

"xxx is to increase by collective action the bargaining power in respect of the terms and conditions of labor. Yet the locals
remained the basic units of association, free to serve their own and the common interest of all, subject to the restraints
imposed by the Constitution and By-Laws of the Association, and free also to renounce the affiliation for mutual welfare
upon the terms laid down in the agreement which brought it into existence."[23]

Thus, a local union which has affiliated itself with a federation is free to sever such affiliation anytime and such disaffiliation cannot be
considered disloyalty. In the absence of specific provisions in the federations constitution prohibiting disaffiliation or the declaration of
autonomy of a local union, a local may dissociate with its parent union.[24]

The evidence on hand does not show that there is such a provision in ULGWPs constitution. Respondents reliance upon Article V, Section 6, of
the federations constitution is not right because said section, in fact, bolsters the petitioner unions claim of its right to declare autonomy:

Section 6. The autonomy of a local union affiliated with ULGWP shall be respected insofar as it pertains to its internal
affairs, except as provided elsewhere in this Constitution.

There is no disloyalty to speak of, neither is there any violation of the federations constitution because there is nothing in the said constitution
which specifically prohibits disaffiliation or declaration of autonomy. Hence, there cannot be any valid dismissal because Article II, Section 4 of
the union security clause in the CBA limits the dismissal to only three (3) grounds, to wit: failure to maintain membership in the union (1) for
non-payment of union dues, (2) for resignation; and (3) for violation of the unions Constitution and By-Laws.

To support the finding of disloyalty, the Labor Arbiter gave weight to the fact that on February 26, 1989, the petitioners declared as vacant all
the responsible positions of ULGWP, filled these vacancies through an election and filed a petition for the registration of UWP as a national
federation. It should be pointed out, however, that these occurred after the federation had already expelled the union officers. The expulsion
was effective November 21, 1988. Therefore, the act of establishing a different federation, entirely separate from the federation which
expelled them, is but a normal retaliatory reaction to their expulsion.

With regard to the issue of the legality or illegality of the strike, the Labor Arbiter held that the strike was illegal for the following reasons: (1)
it was based on an intra-union dispute which cannot properly be the subject of a strike, the right to strike being limited to cases of bargaining
deadlocks and unfair labor practice (2) it was made in violation of the "no strike, no lock-out" clause in the CBA, and (3) it was attended with
violence, force and intimidation upon the persons of the company officials, other employees reporting for work and third persons having
legitimate business with the company, resulting to serious physical injuries to several employees and damage to company property.

On the submission that the strike was illegal for being grounded on a non-strikeable issue, that is, the intra-union conflict between the
federation and the local union, it bears reiterating that when respondent company dismissed the union officers, the issue was transformed
into a termination dispute and brought respondent company into the picture. Petitioners believed in good faith that in dismissing them upon
request by the federation, respondent company was guilty of unfair labor pratice in that it violated the petitioners right to self-organization.
The strike was staged to protest respondent companys act of dismissing the union officers. Even if the allegations of unfair labor practice are
subsequently found out to be untrue, the presumption of legality of the strike prevails.[25]

Another reason why the Labor Arbiter declared the strike illegal is due to the existence of a no strike no lockout provision in the CBA. Again,
such a ruling is erroneous. A no strike, no lock out provision can only be invoked when the strike is economic in nature, i.e. to force wage or
other concessions from the employer which he is not required by law to grant.[26] Such a provision cannot be used to assail the legality of a
strike which is grounded on unfair labor practice, as was the honest belief of herein petitioners. Again, whether or not there was indeed unfair
labor practice does not affect the strike.

On the allegation of violence committed in the course of the strike, it must be remembered that the Labor Arbiter and the Commission found
that "the parties are agreed that there were violent incidents x x x resulting to injuries to both sides, the union and management." [27] The
evidence on record show that the violence cannot be attributed to the striking employees alone for the company itself employed hired men to
pacify the strikers. With violence committed on both sides, the management and the employees, such violence cannot be a ground for
declaring the strike as illegal.

With respect to the dismissal of individual petitioners, the Labor Arbiter declared that their refusal to heed respondents recall to work notice is
a clear indication that they were no longer interested in continuing their employment and is deemed abandonment. It is admitted that three
return to work notices were sent by respondent company to the striking employees on March 27, April 11, and April 21, 1989 and that 261
employees who responded to the notice were admittted back to work.

However, jurisprudence holds that for abandonment of work to exist, it is essential (1) that the employee must have failed to report for work
or must have been absent without valid or justifiable reason; and (2) that there must have been a clear intention to sever the employer-
employee relationship manifested by some overt acts.[28] Deliberate and unjustified refusal on the part of the employee to go back to his work
post amd resume his employment must be established. Absence must be accompanied by overt acts unerringly pointing to the fact that the
employee simply does not want to work anymore.[29] And the burden of proof to show that there was unjustified refusal to go back to work
rests on the employer.

In the present case, respondents failed to prove that there was a clear intention on the part of the striking employees to sever their
employer-employee relationship. Although admittedly the company sent three return to work notices to them, it has not been substantially
proven that these notices were actually sent and received by the employees. As a matter of fact, some employees deny that they ever
received such notices. Others alleged that they were refused entry to the company premises by the security guards and were advised to
secure a clearance from ULGWP and to sign a waiver. Some employees who responded to the notice were allegedly told to wait for further
notice from respondent company as there was lack of work.

Furthermore, this Court has ruled that an employee who took steps to protest his lay-off cannot be said to have abandoned his work.[30] The
filing of a complaint for illegal dismissal is inconsistent with the allegation of abandonment. In the case under consideration, the petitioners
did, in fact, file a complaint when they were refused reinstatement by respondent company.

Anent public respondents finding that there was no unfair labor practice on the part of respondent company and federation officers, the Court
sustains the same. As earlier discussed, union security clauses in collective bargaining agreements, if freely and voluntarily entered into, are
valid and binding. Corrolarily, dismissals pursuant to union security clauses are valid and legal subject only to the requirement of due process,
that is, notice and hearing prior to dismissal. Thus, the dismissal of an employee by the company pursuant to a labor unions demand in
accordance with a union security agreement does not constitute unfair labor practice.[31]

However, the dismissal was invalidated in this case because of respondent companys failure to accord petitioners with due process, that is,
notice and hearing prior to their termination. Also, said dismissal was invalidated because the reason relied upon by respondent Federation
was not valid. Nonetheless, the dismissal still does not constitute unfair labor practice.

Lastly, the Court is of the opinion, and so holds, that respondent company officials cannot be held personally liable for damages on account of
the employees dismissal because the employer corporation has a personality separate and distinct from its officers who merely acted as its
agents.

It has come to the attention of this Court that the 30-day prior notice requirement for the dismissal of employees has been repeatedly
violated and the sanction imposed for such violation enunciated in Wenphil Corporation vs. NLRC[32] has become an ineffective deterrent.
Thus, the Court recently promulgated a decision to reinforce and make more effective the requirement of notice and hearing, a procedure that
must be observed before termination of employment can be legally effected.

In Ruben Serrano vs. NLRC and Isetann Department Store (G.R. No. 117040, January 27, 2000), the Court ruled that an employee who is
dismissed, whether or not for just or authorized cause but without prior notice of his termination, is entitled to full backwages from the time
he was terminated until the decision in his case becomes final, when the dismissal was for cause; and in case the dismissal was without just
or valid cause, the backwages shall be computed from the time of his dismissal until his actual reinstatement. In the case at bar, where the
requirement of notice and hearing was not complied with, the aforecited doctrine laid down in the Serrano case applies.
WHEREFORE, the Petition is GRANTED; the decision of the National Labor Relations Commission in case No. NCR-00-09-04199-89 is
REVERSED and SET ASIDE; and the respondent company is hereby ordered to immediately reinstate the petitioners to their respective
positions. Should reinstatement be not feasible, respondent company shall pay separation pay of one month salary for every year of service.
Since petitioners were terminated without the requisite written notice at least 30 days prior to their termination, following the recent ruling in
the case ofRuben Serrano vs. National Labor Relations Commission and Isetann Department Store, the respondent company is hereby
ordered to pay full backwages to petitioner-employees while the Federation is also ordered to pay full backwages to petitioner-union officers
who were dismissed upon its instigation. Since the dismissal of petitioners was without cause, backwages shall be computed from the time
the herein petitioner employees and union officers were dismissed until their actual reinstatement. Should reinstatement be not feasible, their
backwages shall be computed from the time petitioners were terminated until the finality of this decision. Costs against the respondent
company. SO ORDERED.
G.R. No. 85416 July 24, 1990

FRANCISCO V. DEL ROSARIO, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents.

Jardeleza, Sobreviñas, Diaz, Hayudini & Bodegon Law Offices for petitioner.

Lourdes T. Pagayatan for private respondent.

CORTES, J.:

In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4, 1986
dismissing the complaint for money claims for lack of merit. The decision was appealed to the National Labor Relations Commission (NLRC),
which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb
Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as salary differentials,
and $2,420.03, as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987
and entry of judgment was made on September 24, 1987.

A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer operating and was financially incapable of
satisfying the judgment. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by
the officers, led by petitioner, the president and general manager of the corporation.

On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read:

WHEREFORE, premises considered, let an alias writ of Execution be issued and the handling sheriff is ordered to execute
against the properties of Mr. Francisco V. del -Rosario and if insufficient, against the cash and/or surety bond of Bonding
Company concerned for the full satisfaction of the judgment awarded.

Petitioner appealed to the NLRC. On September 23, 1988, the NLRC dismissed the appeal. On October 21, 1988, petitioner's motion for
reconsideration was denied.

Thus, this petition was filed on October 28, 1988, alleging that the NLRC gravely abused its discretion. On November 10, 1988 the Court
issued a temporary restraining order enjoining the enforcement of the NLRC's decision dated September 23, 1988 and resolution dated
October 21, 1988. The petition was given due course on June 14, 1989.

After considering the undisputed facts and the arguments raised in the pleadings, the Court finds grave abuse of discretion on the part of the
NLRC.

The action of the NLRC affirming the issuance of an alias writ of execution against petitioner, on the theory that the corporate personality of
Philsa should be disregarded, was founded primarily on the following findings of the POEA —

xxx xxx xxx

6. Per the certification issued by the Licensing Division of this Office, it appears that Philsa Construction & Trading Co.,
Inc., with office address at 126 Pioneer St., Mandaluyong, Metro Manila, represented by Mr. Francisco V. del Rosario,
President and General Manager, was formerly a registered construction contractor whose authority was originally issued on
July 21, 1978 but was already delisted from the list of agencies/entities on August 15, 1986 for inactivity;

7. Per another certification issued by the Licensing Division of this Office, it also appears that another corporation, Philsa
International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was
registered as a licensed private employment agency whose license was issued on November 5, 1981, represented by the
same Mr. Francisco V. del Rosario as its President/ General Manager.

and an application of the ruling of the Court in A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269.

However, we find that the NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is totally misplaced.

1. Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders [Civil Code, Art. 44; Corporation
Code, sec. 2]. But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend
crime, the corporation shall be considered as a mere association of persons [Koppel (Phil.), Inc. v. Yatco, 77 Phil. 496 (1946), citing 1
Fletcher, Cyclopedia of Corporations, 135-136; see also Palay, Inc. v. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638], and its
responsible officers and/or stockholders shall be held individually liable [Namarco v. Associated Finance Co., Inc., G.R. No. L-20886, April 27,
1967, 19 SCRA 962]. For the same reasons, a corporation shall be liable for the obligations of a stockholder [Palacio v. Fely Transportation
Company, G.R. No. L-15121, August 31, 1962, 5 SCRA 1011; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, G.R. No. L-20502,
February 26, 1965, 13 SCRA 290], or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall
attach to the latter [Koppel v. Yatco, supra; Liddell & Co. v. Collector of Internal Revenue, G.R. No. L-9687, June 30, 1961, 2 SCRA 632].

But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It
cannot be presumed.

In this regard we find the NLRC's decision wanting. The conclusion that Philsa allowed its license to expire so as to evade payment of private
respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains inviolable.

Consider the following undisputed facts:

(1) Private respondent filed his complaint with the POEA on June 4, 1985;

(2) The last renewal of Philsa's license expired on October 12, 1985;

(3) The POEA dismissed private respondent's complaint on February 4, 1986;

 (4) Philsa was delisted for inactivity on August 15, 1986; *

(5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30, 1987 that the judgment awarding
differentials and benefits to private respondent was rendered.

Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor
of private respondent. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its
delisting.

Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA as a private employment
agency imply fraud since it was organized and registered in 1981, several years before private respondent filed his complaint with the POEA in
1985. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the
consequent adverse judgment against Philsa

Likewise, substantial identity of the incorporators of the two corporations does not necessarily imply fraud.

The circumstances of this case distinguish it from those in earlier decisions of the Court in labor cases where the veil of corporate fiction was
pierced.

In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil. 160 (1953), La Campana Coffee Factory, Inc.
and La Campana Gaugau Packing were substantially owned by the same person. They had one office, one management, and a single payroll
for both businesses. The laborers of the gaugaufactory and the coffee factory were also interchangeable, i.e., the workers in one factory
worked also in the other factory.

In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613, the Claparols Steel and Nail Plant, which was
ordered to pay its workers backwages, ceased operations on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols
Steel Corporation. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in
operations. Moreover, all the assets of the steel and nail plant were transferred to the new corporation.

2. As earlier stated, we also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is inapplicable to this case. In A. C. Ransom,
the Court said:

... In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back
wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22
strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the
Court of Industrial Relations was promulgated against RANSOM. [At p. 274.]

The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new corporation was created, owned by the same
family, engaging in the same business and operating in the same compound.

Thus, considering that the non-payment of the workers was a continuing situation, the Court adjudged its President, the "responsible officer"
of the corporation, personally liable for the backwages awarded, he being the chief operation officer or "manager" who could be held
criminally liable for violations of Republic Act No. 602 (the old Minimum Wage Law.)

In the case now before us, not only has there been a failure to establish fraud, but it has also not been shown that petitioner is the corporate
officer responsible for private respondent's predicament. It must be emphasized that the claim for differentials and benefits was actually
directed against the foreign employer. Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign
employer, an undertaking required by the rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of cash and surety bonds [Rule
11, sec. 4], in order to ensure that overseas workers shall find satisfaction for awards in their favor.

At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash
and surety bonds filed with the POEA. As provided in the POEA Rules and Regulations —

... The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the
license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the
Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the
Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. ... [Rule II,
see. 4.]

Quite evidently, these bonds do not answer for a single specific liability, but for all sorts of liabilities of the recruiter to the worker and to the
POEA. Moreover, the obligations guaranteed by the bonds are continuing. Thus, the bonds are subject to replenishment when they are
garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license [Rule II, sec. 19]. Furthermore, a cash
bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three (3) years
[Rule II, sec. 20]. All these, to ensure recovery from the recruiter.

It is therefore surprising why the POEA ordered execution "against the properties of Mr. Francisco V. del Rosarioand if insufficient, against the
cash and/or surety bond of Bonding Company concerned for the till satisfaction of the judgment awarded" in complete disregard of the
scheme outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have affirmed the POEA.
WHEREFORE, the petition is GRANTED and the decision and resolution of the NLRC, dated September 23, 1988 and October 21, 1988,
respectively, in POEA Case No. 85-06-0394 are SET ASIDE. The temporary restraining order issued by the Court on November 10, 1988 is
MADE PERMANENT. SO ORDERED.
G.R. No. 79907 March 16, 1989

SAMUEL CASAS LIM, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and VICTORIA R. CALSADO, respondents.

G.R. No. 79975. March 16, 1989

SWEET LINES, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION; HON. NESTOR C. LIM (In his capacity as Labor Arbiter of the Ministry of Labor and
Employment and VICTORIA R. CALSADO, respondents.

Puruganan, Chato, Chato & Tan Law Office for petitioner.

Leo C. Romero for petitioner Sweet Lines, Inc.

Andrea R. dela Cueva for Victoria R. Calsado.

CRUZ, J.:

These two cases have been consolidated because they relate to the same factual antecedents and the same private respondent. The issues
are:

1. In G.R. No. 79975, whether or not the private respondent was an employee of the petitioner and, if so, had been
illegally dismissed; and corollarily, whether or not the NLRC had jurisdiction over their dispute.

2. In G.R. No. 79907, whether or not the petitioner could be held solidarity liable with Sweet Lines, Inc. to the private
respondent.

The record shows that private respondent Victoria Calsado was hired by Sweet Lines, Inc. on March 5, 1981, as Senior Branch Officer of its
International Accounts Department for a fixed salary and a stipulated 5 % commission on sales production. On December 1, 1983, after
tendering her resignation to accept another offer of employment, she was persuaded to remain with an offer of her promotion to Manager of
the Department with corresponding increase in compensation, which she accepted. She was also allowed to buy a second-hand Colt Lancer
pursuant to a liberal car plan under which one-half of the cost was to be paid by the company and the other half was to be deducted from her
salary. Relations began to sour later, however, when she repeatedly asked for payment of her commissions, which had accumulated and were
long overdue. She also complained of the inordinate demands on her time even when she was sick and in the hospital. Finally, on July 16,
1985, she was served with a letter from Samuel Casas Lim, the other petitioner, informing her that her "employment with Sweet Lines" would
terminate on August 5, 1985. Efforts were also taken by Sweet Lines to forcibly take the car from her, culminating in an action for replevin
against her in the regional trial court of Manila.

On August 14, 1985, Calsado filed a complaint against both petitioners for illegal dismissal, illegal deduction, and unpaid wages and
commissions plus moral and exemplary damages, among other claims. 1 There followed an extended hearing where she testified on the
details of her employment, emphasizing her unsatisfactory treatment by the management of Sweet Lines and especially the termination of
her services without the required notice and hearing and without valid cause. She also presented four other witnesses to corroborate her
charges.

The respondents' defenses were based mainly on the claim that Calsado was not an employee of Sweet Lines but an independent contractor
and that therefore their dispute with her came under the jurisdiction of the civil courts and not of the Labor Arbiter. 2 On this matter the
private respondent pointedly comments:

At this point, private respondent would like to underscore the fact that while private respondent in the proceedings before
the Labor Arbiter presented five witnesses including herself, all of whom were cross-examined by petitioners, and
numerous documents which were marked as Exhs. "A" to "GG-8d" and 858 receipts and bills, all of which were duly
identified and testified to by private respondent and her witnesses and examined by petitioners, petitioner failed to present
any single evidence, testimonial or documentary, to controvert private respondent's evidence. All that they presented were
their unsubstantiated pleadings not one of which was under oath, not even their position paper which, under the NLRC
rules (Sec. 2, Rule 7, Revised Rules of the NLRC), have to be verified. 3

On December 29, 1986, decision was rendered against the two petitioners by the Labor Arbiter 4 who held them liable in solidum to the
complainant for the following amounts:

(a) Separation pay equivalent to one month pay for every year of service based on her latest basic salary of P2,500.00
plus allowance of P500.00, or a total monthly pay of P3,000.00;

(b) Backwages based on her last monthly pay rate of P3,000.00 to be computed from the time of her dismissal to the
actual payment of her separation pay;

(c) Proportionate 13th month pay for the year 1985;

(d) Sales commission in the sum of P432,656.68;

(e) Moral damages of P100,000.00;

(f) Exemplary damages of P10,000.00; and

(g) Attorney's fees of P10,000.00 plus 25 % of the total monetary awards in favor of the complainant.

The decision was appealed to the National Labor Relations Commission and affirmed in toto except as to the attorney's fees, which were
reduced to 10% of the total award. 5 Both Sweet Lines and Lim then came to us in separate petitions to raise the above-stated issues. On
October 14, 1987, we issued a temporary restraining order against the enforcement of the decision of the public respondent dated September
11, 1987. 6 The petitions were consolidated on December 7, 1987, and given due course on May 16, 1987, with the parties being required to
submit their respective memoranda. On the first question, we hold that the employee-employer relations between Calsado and Sweet Lines
have been sufficiently established. The following documents submitted by the former and not controverted by the latter should belie the claim
that Calsado was only an independent contractor over whom Sweet Lines had no control.

1. Certification issued by Sweet Lines, lnc. dated May 2l,1984, stating that private respondent 'is employed with this
company since March 5, 1982 up to the present, presently designated as International Accounts Manager of the Sweet
Lines, Inc., Manila Branch." (Exh. "W" )

2. Termination letter issued by Samuel Casas Lim to private respondent reading. 'Your employment with Sweet lines, Inc.
will cease effective August 15, 1985. In connection with the foregoing, you are entitled to (1) separation pay equivalent to
one half month of every year of service ... ; (2) The computed money value of unused vacation leave ... ; (3) Thirteenth
month pay ... ;" (Exh. "W")

3. Notice of private respondent's promotion effective December 1, 1982 from Senior Branch Officer to Manager,
International Accounts, with an increase in basic salary from P1,250 to P2,500 a month; (Exh. "D")

4. Computation of her salary, allowance and 13th month pay differentials on account of her promotion, prepared and
approved by the proper officials of petitioner Sweet Lines, Inc. whose signatures appear thereon; (Exh. "E")

5. Certification dated September 6, 19M issued by the petitioner company, subscribed and sworn to before a notary public
declaring that private respondent was then an Account Executive of Sweet Lines, Inc.; (Exh. "E")

6. Certification, notarized on January 10, 1985, by Atty. Gregorio Francisco, counsel for petitioner company, that private
respondent "is a bona fide employee of Sweet Lines, Inc. and presently holding the position of Manager, International
Account.' (Exh. "Y")

7. Approved application for sick leave of private respondent for 15 days from March 7, 1985 to April 3, 1985. (Exh. "I")

There is in the above exhibits a consistent and categorical recognition of Calsado as an employee of petitioner Sweet Lines. Indeed, its
notarized certification that Calsado was its bona fide employee is irrefutable. The petitioner cannot now argue that the grant to her of the
13th month pay and even the differential pay was a mere accomodation like the car plan (which, for that matter, is a benefit usually extended
only to employees). If it is true that Sweet Lines had no control over her and left her free to determine her work schedule, there would have
been no reason at all for its approval of her application for sick leave from March 7, 1985 to April 3, 1985. The termination letter itself, which
was signed by the other petitioner as Vice President of Sweet Lines, said she was "entitled" to certain payments as a result of the cessation of
her "employment with Sweet Lines, Inc."

Sweet Lines has also failed to substantiate its allegation that Calsado was an independent contractor, as it should have, with evidence
showing inter alia that she had the financial resources and other means or equipment to operate as such. One must prove what one alleges,
but Sweet Lines confined itself to mere denials.

At any rate, the determination of the existence of employee-employer relations is a factual finding which this Court will not disturb or reverse
in the absence of a showing of grave abuse of discretion. We do not see such justification here. On the contrary, the ascertainment of the
employment status of the private respondent was made on the basis of the criteria consistently employed by the Court in the determination of
the employee- employer relationship. 7 We find from the record that all these test have been satisfied.

Such relationship having been established, the third issue is automatically resolved and requires not much elaboration. Suffice it only to stress
that the damages claimed by private respondent as a result of her illegal dismissal and the violation of the terms and conditions of her
employment also come within the jurisdiction of the Labor Arbiter as a contrary rule would result in the splitting of actions and the consequent
multiplication of suits. So we recently affirmed in Limquiaco v. Ramolete 8 and more positively in National Union of Bank Employees v.
Lazaro, 9 where we declared:

As we stated, the damages (allegedly) suffered by the petitioners only form part of the civil component of the injury arising
from the unfair labor practice. Under Article 247 of the Code, "the civil aspects of all cases involving unfair labor practices
which may include claims for damages and other affirmative relief, shall be under the jurisdiction of the labor arbiters.

On the fourth issue, we agree with petitioner Lim that he cannot be held personally liable with Sweet Lines for merely having signed the letter
informing Calsado of her separation. There is no evidence that he acted with malice or bad faith. The letter, in fact, informed her not only of
her separation but also of the benefits due her as a result of the termination of her services.

It is true that Lim has raised this matter rather tardily and also that he belongs to a closed corporation controlled by the members of one
family only. But these circumstances should not be allowed to operate against him if he is to be accorded substantial justice in the resolution
of the private respondent's claim. As we said in Ortigas vs. Lufthansa German Airlines, 10 the Court is "clothed with ample authority to review
matters, even if they are not assigned as errors in the appeal, if it finds that its consideration is necessary in arriving at a just decision of the
case." As for the second charge, the mere fact that Lim is part of the family corporation does not mean that all its acts are imputable to him
directly and personally. His acts were official acts, done in his capacity as Vice President of Sweet Lines and on its behalf. There is no showing
that he acted without or in excess of his authority or was motivated by personal ill-will toward Calsado. The applicable decision is Sunio v.
NLRC, 11 where it was held:

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There
appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with 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 of itself sufficient ground for
disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally
answerable for the payment of private respondents' back salaries.

The case of Ransom v. NLRC 12 is not in point because there the debtor corporation actually ceased operations after the decision of the Court
of Industrial Relations was promulgated against it, making it necessary to enforce it against its former president. Sweet lines is still existing
and able to satisfy the judgment in favor of the private respondent.

The Solicitor General, invoking equity rather than law, observes that making Lim solidarity liable with Sweet Lines will ensure payment of
Calsado's claim. But this precaution, even assuming it to be valid, is really unnecessary. in fact, as a condition for the issuance of our
temporary restraining order of October 14, 1987, Sweet Lines posted as required a bond in the amount of P850,000.00, which should cover
the amounts awarded to the private respondent.13
We especially uphold the award of moral and exemplary damages in view of the acts of harassment and bad faith testified to by the private
respondent and not refuted by Sweet Lines. Her treatment during her employment, the delays in the payment of her commissions, the
pressures exerted upon her even when she was sick in the hospital, the suggestion of one of the company officers that she discuss her
complaints with him alone in a private place, her arbitrary separation, the questionable attempts to get the vehicle from her after her
dismissal, among other aggravations, clearly demonstrate the validity of the private respondent's complaints.

Finally, we hold that the contention of Sweet Lines that separation pay and back wages are inconsistent with each other is not well-taken.
Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer.
Back wages represent compensation that should have been earned but were not collected because of the unjust dismissal. The bases for
computing the two are different, the first being usually the length of the employee's service and the second the actual period when he was
unlawfully prevented from working.

We have ordered the payment of both in proper case 14 as otherwise the employee might be deprived of benefits justly due him. Thus, if an
employee who has worked only one year is sustained by the labor court after three years from his unjust dismissal, granting him separation
pay only would entitle him to only one month salary. There is no reason why he should not also be paid three years back wages
corresponding to the period when he could not return to his work or could not find employment elsewhere.

WHEREFORE, subject to the modification that the award of backwages shall be limited to only three years, in accordance with existing policy,
G.R. No. 79975 is DISMISSED, with costs against the petitioner, G.R. No. 79907 is GRANTED and petitioner Samuel Casas Lim is hereby
absolved of liability in his personal capacity. The temporary restraining order dated October 14, 1987, is LIFTED. It is so ordered.
G.R. No. 78345 September 21, 1990

JOSE M. MAGLUTAC, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, COMMART (PHIL.), INC. AND JESUS T. MAGLUTAC,respondents.

G.R. No. 78637 September 21, 1990

COMMART (PHIL.), INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION AND JOSE M. MAGLUTAC, respondents.

V.E. Del Rosario & Associates for COMMART (Phils.) Inc. Panganiban, Benitez, Barinaga & Bautista Law Offices for Jose Maglutac.

MEDIALDEA, J.:

These petitions for certiorari seek the review of the decision of respondent National Labor Relations Commission promulgated on April 30,
1987 in NLRC Case No. NCR-11-3887-84. Both parties filed their petitions with this Court which were consolidated on motion of Jesus T.
Maglutac and Commart (Phils.), Inc. and by resolution of this Court dated August 12, 1987 (p. 74, Rollo of G.R. No. 78345).

Jose M. Maglutac, petitioner in G.R. No. 78345 (hereinafter referred to as complainant) was employed by Commart (Phils.), Inc. (hereinafter
referred to as Commart) sometime in February, 1980 and rose to become the Manager of its Energy Equipment Sales. On October 3, 1984,
he received a notice of termination signed by Joaquin S. Cenzon, Vice-President-General Manager and Corporate Secretary of CMS
International, a corporation controlled by Commart. The notice of termination reads:

You are hereby notified and advised that the Board of Directors of this Corporation, acting on the unanimous resolution,
have decided that your continued employment in this company, will not be in the best interest of the corporation.

You are therefore discharged of all your duties and responsibilities as Manager, Energy Equipment Sales effective
immediately.

The termination of your services is without prejudice to any future action, private or legal, that the Company may take to
demand restitution, enforce collection or require repayment of whatever financial obligations you now have incurred, to the
company. (p. 50, Rollo)

Thereafter, Jose Maglutac filed a complaint for illegal dismissal against Commart and Jesus T. Maglutac, President and Chairman of the Board
of Directors of Commart. The complainant alleged that his dismissal was part of a vendetta drive against his parents who dared to expose the
massive and fraudulent diversion of company funds to the company president's private accounts, stressing that complainant's efficiency and
effectiveness were never put to question when very suddenly he received his notice of termination (p. 51, Rollo).

Commart and Jesus T. Maglutac, on the other hand, justified the dismissal for lack of trust and confidence brought about by complainant and
his family's establishment of a company, MM International, in direct competition with Commart. After the parties submitted their respective
position papers, the Labor Arbiter assigned to the case, Jose Collado, Jr., rendered a decision on January 11, 1986 finding that complainant
was illegally dismissed. The dispositive portion of the decision reads:

WHEREFORE, respondents are hereby ordered to reinstate complainant to his former position with full backwages without
loss of seniority rights and other personnel (sic) privileges, to pay complainant jointly and severally P 200,000.00 in moral
damages, P20,000.00 in exemplary damages and to pay ten per cent (10%) attorney's fees.

SO ORDERED. (p. 57, Rollo)

Commart and Jesus T. Maglutac filed a motion for reconsideration of the decision of the Labor Arbiter which was treated as an appeal to the
National Labor Relations Commission (NLRC). On April 30, 1987, a decision was rendered by the NLRC modifying the decision of the Labor
Arbiter, The NLRC affirmed the finding of the Labor Arbiter that complainant was illegally dismissed by Commart but it deleted the award for
moral and exemplary damages in favor of complainant and absolved Jesus T. Maglutac from any personal liability to the complainant. The
pertinent portion of the decision reads:

xxx xxx xxx

We agree however, to the contention of individual respondent that he should not have been held liable in solidum with the
corporation. He is merely a nominal party to the case and made so only in his capacity as President and Chairman of the
Board of Directors of the respondent corporation. The respondent corporation has a separate and distinct personality from
that of its stockholders and its officers, and respondent Jesus T. Maglutac simply cannot be held personally liable for his
corporate acts.

Finally, we delete the award of moral and exemplary damages to complainant for lack of factual and legal basis.

WHEREFORE, as above modified, the appealed decision is hereby Affirmed and the appeal dismissed for lack of merit.

SO ORDERED. (pp. 44-45, Rollo)

Both parties filed their respective motions for reconsideration of the decision of the NLRC. Commart and Jesus T. Maglutac questioned the
NLRC's finding that the complainant was dismissed without just cause. For his part, complainant questioned the decision insofar as it deleted
the award of moral and exemplary damages and the non- holding of a joint and several liability of Jesus T. Maglutac and Commart.
Complainant's motion was denied on June 5, 1987 (p. 46, Rollo in G.R. No. 78345). Commart and Jesus T. Maglutac's motion for
reconsideration was also denied on May 29,1987 (p. 25, Rollo in G.R. No. 78637). Hence, the instant petitions both alleging grave abuse of
discretion on the part of respondent NLRC.

In G.R. No. 78345, complainant Jose M. Maglutac raised the following grounds:

(1) RESPONDENT NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION AND EVEN CONTRAVENED EXISTING LAWS AND JURISPRUDENCE IN HOLDING THAT THERE
IS NO FACTUAL OR LEGAL BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES.
 (2) RESPONDENT NATIONAL LABOR RELATIONS COMMISSION COMMITTED GRAVE ABUSE OF DISCRETION AND
CONTRAVENED EXISTING LAWS AND JURISPRUDENCE IN HOLDING THAT RESPONDENT JESUS T. MAGLUTAC SHOULD
NOT HAVE BEEN HELD LIABLE IN SOLIDUM WITH THE RESPONDENT CORPORATION FOR HE IS MERELY A NOMINAL PARTY
TO THE CASE AND MADE SO ONLY IN HIS CAPACITY AS PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS OF
RESPONDENT CORPORATION, AND SIMPLY CANNOT BE HELD LIABLE FOR HIS CORPORATE ACT (p. 30, Rollo)

In G.R. No. 78637, Commart and Jesus Maglutac raised the following grounds:

(I) RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE REINSTATEMENT OF PRIVATE
RESPONDENT PLUS PAYMENT OF BACKWAGES DESPITE CLEAR PROOF THAT SAID RESPONDENT COMMITTED AN ACT
INIMICAL TO PETITIONER'S INTEREST.

(II) RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN SUSTAINING THE ARBITER'S DECISION WHICH
WAS ISSUED IN VIOLATION OF DUE PROCESS OF LAW. (p. 8, Rollo)

On August 29, 1988, Commart filed a manifestation stating that it had become insolvent and that it had suspended operations since January,
1986 (p. 172-A:, Rollo).

In G.R. No. 78345, complainant argued that because of the Labor Arbiter and the NLRC's findings that his dismissal was not merely without
just cause but was also an act of vendetta, malice attended the act. Consequently, he is entitled to moral and exemplary damages under the
Civil Code.

We agree. In the case of Primero v. Intermediate Appellate Court, G.R. No. 72644, December 14,1987,156 SCRA 435, We held that in cases
of illegal dismissal, in addition to the reliefs granted under the Labor Code, other forms of damages under the Civil Code may be granted.
Thus,

The legislative intent appears clear to allow recovery in proceedings before Labor Arbiters of moral and other forms of
damages, in all cases or matters arising from employer-employee relations. This would no doubt include, particularly,
instances where an employee has been unlawfully dismissed. In such a case, the Labor Arbiter has jurisdiction to award to
the dismissed employee not only the reliefs specifically provided by labor laws, but also moral and other forms of damages
governed by the Civil Code. Moral damages would be recoverable, for example, where the dismissal of the employee was
not only effected without authorized cause and /or due process for which relief is granted by the Labor Code but was
attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals good
customs or public policy for which the obtainable relief is determined by the Civil Code (not the Labor Code). Stated
otherwise, if the evidence adduced by the employee before the Labor Arbiter should establish that the employer did indeed
terminate the employee's services without just cause or without according him due process, the Labor Arbiter's judgment
shall be for the employer to reinstate the employee and pay him his backwages or, exceptionally, for the employee simply
to receive separation pay. These are reliefs explicitly prescribed by the Labor Code. But any award of moral damages by
the Labor Arbiter obviously cannot be based on the Labor Code but should be grounded on the Civil Code.

Moral damages may be awarded to compensate one for diverse injuries such as mental anguish, besmirched reputation,
wounded feelings and social humiliation. It is however not enough that such injuries have arisen; it is essential that they
have sprung from a wrongful act or omission of the defendant which was the proximate cause thereof (Guita v. Court of
Appeals, 139 SCRA 576)

From the findings of the Labor Arbiter as affirmed by the NLRC, there is sufficient basis for an award of moral and exemplary damages in the
instant case. The alleged loss of trust and confidence on complainant because of his family's establishment of MM International, a company
allegedly in direct competition with Commart, was belied by the findings of the Labor Arbiter:

The formation of another corporation by complainant's parents including the complainant himself cannot be used to justify
the termination of complainant. The formation came about before complainant's parents brought a minority stockholders'
derivative suit and in fact, this was with the sanction of respondent company's president. The following handwritten
communications by respondent Jesus Maglutac show that he even encouraged the organization of MM International Inc.
which Articles of Incorporation show complainant among the incorporating directors. (p. 32, Rollo)

Moreover, the complainant was dismissed without due process. His dismissal was made effective immediately and he was not given an
opportunity to present his side. As found by the Labor Arbiter:

After studying in depth the facts and the evidence it is difficult to divert from the fact that the dismissal of complainant was
triggered by his parent's filing a derivative suit against respondents with the Securities and Exchange Commission where it
is alleged that the company's president and his wife siphoned company funds to their private bank accounts. Complainant's
cause of termination cannot easily and simply be detached from the filing of the minority stockholders' derivative suit as
this dismissal came abruptly shortly after the derivative suit was filed. Complainant's brother who was likewise employed
by respondents was likewise dismissed and this came on the heels of the suit filed with the Securities and Exchange
Commission.

The sequence of events should not be overlooked. It provides the link for the dismissal of complainant and his brother.
Worse, the requirement of due process was blatantly violated. Ms notice of termination dated October 3, 1984 ipso
facto states that his dismissal is effective immediately. It should have dawned upon the senses of respondents that BP 130
strictly enjoins an employer to terminate an employee provided the latter is given the opportunity to answer charges
imputed against him as basis for disciplinary action. The case at bar prominently reveals respondent's oversight of the
requirements of the law. On this score alone, the illegality of complainant's dismissal is bared eloquently more than ever.

It appears very clearly that the feud between complainant's parents and respondent's president, the brother of
complainant's father, seethed to an intolerable point not sparing innocent people among whom is the complainant. Like a
wild fire spreading its path, complainant's close kins were sacked from their employ with respondent corporation in what is
termed by complainant as a 'vendetta drive.' But blood spawned as a result of the derivative suit filed by complainant's
parents, although the suit is, legally speaking, intended to 'protect and safeguard the company's interest from further
depredation.' (pp. 31-32, Rollo)

Where the employee's dismissal was effected without procedural fairness, an award of exemplary damages in her favor can only be justified if
her dismissal was affected in a wanton, oppressive or malevolent manner (National Service Corp., et al. v. NLRC, G.R. No. 69870, Nov. 29,
1988). The Labor Arbiter justified the award of moral damages from its finding of the oppressive and malevolent manner the complainant and
his relatives were treated after Jesus T. Maglutac found out that a derivative suit was filed by complainant's family with the Securities and
Exchange Commission accusing him and his wife of diverting corporation assets to their personal accounts. The Labor Arbiter justified the
award of damages, thus:
 Complainant undoubtedly was exposed to undue humiliation as a result of his dismissal. From the taunts and sleepless
nights he suffered, the pain cannot be more than imagined. The oppressive and malevolent treatment which respondents
subjected him to, including the ill-concealed attempt to deprive him of his rights to the car that he had acquired through
the company's car plan, not to mention the vindictive manner in which his mother was removed as a director and his
brother dismissed from CMS International, furnishes adequate basis for the claim for moral and exemplary damages. (pp.
35-36, Rollo)

We agree however, with the contention of the Solicitor General that the award by the Labor Arbiter of P 200,000.00 moral damages and
P20,000.00 exemplary damages is excessive, In the exercise of our discretion, We reduce the award of damages to P40,000.00 as moral
damages and P10,000.00 as exemplary damages (See General Bank v. C.A., G.R. No. L-42724, April 9, 1985).

The second ground raised by complainant, that is, that individual respondent Jesus T. Maglutac should be held jointly and severally liable with
Commart is also meritorious. In the case of Chua v. NLRC, G.R. 81450, Feb. 15, 1990, citing the case of A.C. Ransom Labor Union-CCLU v.
NLRC, 142 SCRA 269, We affirmed the finding of the Labor Arbiter and the NLRC that the vice-president of a corporation who was the most
ranking officer of the corporation can be held jointly and severally liable with the corporation for the payment of the unpaid wages of its
president. It was held:

We resolve the issue in the light of the precedent set in the case of A.C. Ransom Labor Union-CCLU v. National Labor
Relations Commission (142 SCRA 269 [1986]). In this case, the Court set aside the decision of the NLRC upholding the
personal non-liability of the individual officers and agents of the corporation unless they have acted beyond the scope of
their authority. In thus reversing the NLRC decision, the Court ruled that the president or presidents of the corporation
may be held liable for the corporations's obligations to its workers.

The Court explained:

(c) Employer includes any person acting in the interest of an employer directly or indirectly. The term shall not include any
labor organization or any of its officers or agents except when acting as employer.

...Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the 'person
acting in the interest of employer,' RANSOM. The Corporation, only in the technical sense is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-
payment of backwages. ...(At pp. 273-274-1 Emphasis supplied)

xxx xxx xxx

This court continued:

xxx xxx xxx

(d) The record does not clearly Identify the 'officer or officers of RANSOM directly responsible for failure to pay backwages
of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible
officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal
responsibility is with the 'manager or in his default, the person acting as such.' In RANSOM, the President appears to be
the Manager. (At p. 274)

In the instant case, it was correct for the private respondent to have impleaded the petitioner in the complaint considering
that the latter was the highest and most ranking official of the corporation after the private respondent had resigned.
Certainly, there should be an officer directly responsible for the failure to pay the wages of the corporation's president. In
this case, such officer happened to be the vice-president.

And, in the later case of Gudez, et al., v. NLRC, et al., G.R. No. 83023, March 23, 1990, We held the president and treasurer, Herminia
Crisologo, jointly and severally liable with the corporation. In the said case, the employer corporation, Retired Army Protective Security
Agency, Inc. (RAPSA), was ordered to cease operations and the corporation, on the same day when the Labor Arbiter promulgated its
decision, filed a petition for voluntary insolvency, We held:

... The foregoing circumstances make it more necessary to hold respondent Crisologo liable for the claims due to
petitioners; otherwise, any decision that would be rendered in favor of the latter would be useless and ineffective for there
would no one against whom it can be enforced.

The same circumstances obtain in the instant case in the light of the manifestation of Commart that it had become insolvent and that it had
suspended operations.

Moreover, not only was Jesus T. Maglutac the most ranking officer of Commart at the time of the termination of the complainant, it was
likewise found that he had a direct hand in the latter's dismissal. The Labor Arbiter therefore, correctly ruled that Jesus T. Maglutac was
jointly and severally liable with Commart.

In G.R. No. 78637, Jesus T. Maglutac would want Us to reverse the findings of the Labor Arbiter and the NLRC that complainant Jose M.
Maglutac was dismissed without just cause. The matter, being factual, is beyond the authority of this court to review. Factual findings of
administrative agencies are generally final and binding upon this Court when supported by substantial evidence as in the instant case.

Likewise, respondents' claim that they were denied due process because the Labor Arbiter rendered judgment on the basis of complainant's
reply-position paper without furnishing them a copy thereof, is not meritorious. Where the records show that in response to the complaint
before the Labor Arbiter rendered his decision, Commart and Jesus T. Maglutac submitted a position paper, complete with annexes where
they set out and argued the factual as well as the legal basis of their positions, their due process argument must fail. (see Llora Motors, Inc.
v. Franklin Drilon, G.R. 82895, 7 Nov, 1989) The procedure by which issues are resolved based on position papers, affidavits and other
documentary evidence is recognized as not violative of due process (AMS Farming Corp. v. Pura Ferrer-Calleja, G.R. No. 80557, Feb. 1988).
The failure of complainant to serve a copy of his Reply-Position Paper is therefore, not fatal, it having been established that Commart and
Jesus T. Maglutac were afforded a reasonable opportunity to present their sides. Moreover, the existence of the letters written by individual
respondent Jesus T. Maglutac encouraging the formation of MM International was never denied by him before the NLRC nor before this Court.

While an employer has its own interests to protect, and pursuant thereto, it may terminate a managerial employee for a
just cause, such prerogative to dismiss or lay-off an employee must be exercised without abuse of discretion. Its
implementation should be tempered with compassion and understanding. The employer should bear in mind that in the
execution of said prerogative, what is at stake is not only the employees position but his livelihood. The fact that one is a
 managerial employee does not by itself exclude him from the protection of the constitutional guarantee of security of
tenure (Santo v. NLRC, G.R. 76991, Oct. 28, 1988).

One final point. It cannot now be expected that the harmonious and pleasant working relationship between the parties in this case prior to the
bringing of the derivative suit with the Securities and Exchange Commission and the filing of complaint for illegal dismissal with the labor
Arbiter, can be revived. The relationship had been so strained ' that to order the reinstatement of the complainant would not be wise. Where
the relationship of employer to employee is so strained and ruptured as to preclude a harmonious working relationship should reinstatement
of the employee be decreed, the latter should be afforded the right to separation pay where the employer does not have to endure the
continued services of the employee in whom it has lost confidence (Esmalin v. NLRC, G.R. 67880, 15 September 1989, Bautista v. Enciong,
G.R. No. L-52824, 16 March 1988, Asiaworld Publishing House Inc. v. Hon. Ople, et al., G.R. No. 56398, July 23, 1987).

ACCORDINGLY, a decision is hereby rendered as follows:

1. In G.R. No. 78345, the petition is GRANTED. The decision of the Labor Arbiter is REINSTATED but the award of damages is reduced to P
40,000.00 as moral damages and P 10,000.00 as exemplary damages. In lieu of reinstatement, private respondents are ordered to pay
complainant separation pay of one month salary for every year of service in addition to his backwages equivalent to three years.

2. In G.R. No. 78637, the petition is DISMISSED. SO ORDERED.

G.R. No. 83023 March 23, 1990

ELADIO A. GUDEZ, AMERICO DOROTAN, DIONISIO BENZON, NICANOR DE LUYON, WARLITO MARTINEZ, LORETO VALERA,
ROMEO CRISOSTOMO, BARTOLOME FLORES, FELIPE CORPUZ, JOLLY BISNAR, VICENTE PERALTA (DECEASED), AS REPRESENTED
BY HIS LEGAL REPRESENTATIVE VICENTE PERALTA, JR., ANTONIO SAJORDA, ROMAN ANGCO, EUFRACIO CALDERON, JESUS
TAMONDONG, GOMERCIENDO CANETE, PEDRO RUFON, PEDRITO, POLINGA AND DAMASO VALERA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, RETIRED ARMY PROTECTIVE AND SECURITY AGENCY (RAPSA) INC., AND MRS.
HERMINIA A. CRISOLOGO, respondents.

Ammanuel O. Salas for petitioners.

Jose T. Collado Jr. for RAPSA.

Godofredo Q. Asuncion for Crisologo.

MEDIALDEA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court seeking the annulment of the resolution of the respondent National Labor
Relations Commission dated March 10, 1988 in four cases, numbered as follows: NLRC NCR CASE NOS. 9-3695-86,11-4504-86,12-4831-86
and 1-366-87, modifying the decision of the Labor Arbiter which granted petitioners' claim for separation pay and other monetary demands
against private respondents.

The antecedent facts are as follows:

Petitioners were formerly employed by respondent Retired Army Protective and Security Agency Inc. (RAPSA for brevity) as executive
director, security guards and supervisors. Respondent RAPSA is a corporation engaged in providing security services. It has for its president
and treasurer, respondent Herminia A. Crisologo.

In a letter dated July 3, 1986, Col. Ricardo A. Carranceja of the Philippine Constabulary, Supervisory Unit for Security and Investigation
Agencies (PCSUSIA for brevity) ordered RAPSA to cease operations and to turn over their firearms to the Firearms and Explosive Unit of the
Philippine Constabulary. However, in another letter dated July 18, 1986, the PCSUSIA allowed RAPSA to continue its operations up to August
15, 1986 for the winding up of its affairs. Hence on the aforesaid date, RAPSA ceased its operations and terminated the employment of
petitioners.

In view of the closing of RAPSA, the latter's clients obtained the security services of another agency named Emilio Salting Alviar Protective
and Security Agency (ESAPSA f•r brevity).

Petitioners filed their separate complaints with the Labor Arbiter against RAPSA, Herminia Crisologo, ESAPSA and Malou Alviar, for separation
pay, recovery of lost tool deposit, allowances and other monetary claims.

On September 25, 1987, the Labor Arbiter rendered a decision in the above-mentioned cases, the dispositive portion of which is as follows:

WHEREFORE, judgment is hereby rendered ordering respondents RAPSA and Mrs. Herminia A. Crisologo to pay
complainants their separation pay equivalent to one-half month pay for every year of service, the lost tool deposit and
cash bond deposit.

The complaint of Luis Villanueva docketed as NCR-1-366-87 is hereby dismissed without prejudice for failure to prosecute.
Likewise, complainants Gregorio Ballena, Renato Garcia, Jaime Taborda, Felino Rosales, Renato Calico are hereby dropped
as complainants and their complaints are dismissed without prejudice for failure to prosecute.

The motion to Dismiss filed by Dolorico Sabarrido, Godofredo Navalta, Raul Gonzales, Feliciano Victoria Domingo Gaoat,
Buenaventura Fernando, Perfecto Fernando and Eliseo Villaruel are granted.

SO ORDERED. (p. 60, Rollo)

Not satisfied with the decision, respondent RAPSA, thru counsel, filed its memorandum of appeal with the respondent National Labor Relations
Commission. The name of respondent Herminia Crisologo was added and inserted by handwriting in the memorandum of appeal to make it
appear that respondent Crisologo was also appealing from the Labor Arbiter to the respondent Commission (see p. 61, Rollo).

On March 10, 1988, respondent Commission rendered a decision which states, inter alia:

x x x.

On this point, we find that indeed the Memorandum of Appeal reveals that the name of individual respondent Herminia A.
Crisologo was not typewritten. But the fact remains that Mrs. Crisologo was charged as owner of RAPSA and both of them
were represented by one counsel. Simply stated, their counsel are one and the same. And said counsel filed the position
paper in their behalf. The alleged intercalation was definitely not an afterthought. We consider it as a mere oversight.

It is elementary that a corporation is possessed with juridical personality separate and distinct from that of the
stockholders. As such, the liabilities of a corporation are not by law considered as personal liabilities of the stockholders or
members save under certain circumstances when the veil of corporate fiction has been pierced. In this light, we cannot
safely state that Mrs. Crisologo is the owner of RAPSA. She may be a holder of stocks but definitely not its owner. It is
improper therefore to hold her liable in her personal capacity-more so as an alleged owner. In fine, the liability should be
shouldered alone by RAPSA.

WHEREFORE, the instant appeal is dismissed. The Decision of the Labor Arbiter is MODIFIED as above-discussed. SO
ORDERED. (pp. 82-85, Rollo)

Hence, the instant petition.

The two issues to resolved in the instant case are 1) whether or not an appeal was made by respondent Herminia Crisologo from the decision
of the Labor Arbiter to the respondent Commission; and 2) whether or not respondent Crisologo may be held solidarity liable with respondent
corporation for separation pay and other monetary claims due to petitioners.

Anent the first issue, petitioners contend that the memorandum of appeal filed with the respondent NLRC by Jose T. Collado, counsel for
respondent RAPSA, cannot be considered as the appeal also of respondent Crisologo; that aside from the fact that the latter's name was
merely inserted in the memorandum by means of handwriting, the counsel of respondent RAPSA had no authority to represent respondent
Crisologo in the latter's appeal, as she was represented by a different lawyer in the proceedings before the labor arbiter. Petitioners also
allege that respondent Crisologo and Jose T. Collado, counsel for respondent RAPSA had not complied with the procedure on substitution of
counsel.

The above contentions are meritorious. We are aware of the time-honored principle that administrative and quasi-judicial bodies like the
National Labor Relations Commission are not bound by the technical rules of procedure in the adjudication of cases. However, the rule on
substitution of counsel or employment of additional counsel is still observed in labor cases. Thus, there can be no valid substitution of counsel
until the prescribed procedure is followed, to wit: 1) there must be filed a written application for substitution; 2) there must be filed the
written consent of the client to the substitution; 3) there must be filed the written consent of the attorney to be substituted, if such consent
can be obtained; and 4) in case such written consent cannot be procured, there must be filed with the application for substitution, proof of the
service of notice of such motion in the manner required by the rules on the attorney to be substituted (Philippine Apparel Workers Union v.
NLRC, L50320, October 27, 1983, 125 SCRA 391). Records do not show that the above procedure had been complied with. Hence, We find
that there was no valid substitution of counsel and that counsel for respondent RAPSA was not authorized to appeal for and in behalf of
respondent Crisologo.

Even if the Court were to ignore the contentions of petitioners dealing with the technical aspect of this case, and granting arguendo, that
respondent Crisologo had made an appeal to the respondent Commission, this petition can still stand on the merits taking into account the
second issue raised therein.

Petitioners submit that on the basis of the legal definition of employer provided for in Article 212 par. c of the Labor Code, not only is the
juridical entity held liable for the money claims due to its employees but also the responsible natural person or persons acting in the interest
of such juridical entity; and that respondent Crisologo, being the president of respondent RAPSA should therefore be held jointly and severally
liable with the corporation for such labor claims.

The foregoing contentions are impressed with merit. The issue regarding the personal liability of the officers of a corporation for the payment
of wages and money claims to its employees has been settled by this Court in the case of A.C. Ransom Labor Union-CCLU v. National Labor
Relations Commission, June 10, 1986, 142 SCRA 269, and subsequently in the recent case of Chua v. National Labor Relations
Commission, G.R. No. 81450, February 15, 1990. In those cases, this Court provided that the president or presidents of the corporation may
be held liable for the corporation's obligations to its workers. We further ruled therein, inter alia:

.... The answer is found in Article 212(c) of the Labor Code which provides:

(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly. The term shag not include
any labor organization or any of its officers or agents except when acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must
have an officer who can be presumed to be the employer, being the 'person acting in the interest of (the) employer'
RANSOM. The corporation, only in the technical sense, is the employer.

(d) The record does not clearly Identify the 'officer or officers' of RANSOM directly responsible for failure to pay the
backwages of the 22 strikers, In the absence of definite proof in that regard, we believe it should be presumed that the
responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. ... (pp. 273-
274, supra)

There is no dispute herein that respondent Crisologo is in fact the president of respondent corporation, RAPSA. Neither is there any doubt that
respondent RAPSA had closed its business upon the order of the Philippine Constabulary and that. as a consequence thereof the services of
petitioner employees were terminated without awarding them separation pay as required under the Labor Code. It is significant to note that
the respondent corporation had ceased to exist when the Labor Arbiter rendered its decision holding respondent Crisologo jointly and
severally liable with respondent corporation for the money claims of its employees. Moreover, records show that on September 25, 1987,
which is the same day when the Labor Arbiter's decision was promulgated, RAPSA filed a petition for voluntary insolvency with the Regional
Trial Court of Makati. The foregoing circumstances make it more necessary to hold respondent Crisologo liable for the claims due to
petitioners; otherwise, any decision that would be rendered in favor of the latter would be useless and ineffective for there would be no one
against whom it can be enforced. Thus, where the employer corporation is no longer existing and unable to satisfy the judgment in favor of
the employee, the officer should be held liable for acting on behalf of the corporation (see Lim v. NLRC, G.R. 79907 and Sweet Lines Inc. v.
NLRC, G.R. 79975, March 16, 1989).

ACCORDINGLY, the petition is hereby GRANTED and the decision of the respondent National Labor Relations Commission dated March 10,
1988 is REVERSED and SET ASIDE. The decision of the Labor Arbiter is hereby REINSTATED. SO ORDERED.
G.R. No. 81450 February 15, 1990

JOHNSON G. CHUA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and JESUS G. CHUA, respondents.

Harly Bajamunde for petitioner.

Cabatit & Dadios Law Offices for private respondent.

GUTIERREZ, JR., J.:

Can the vice-president be held jointly and severally liable with the corporation for the unpaid wages of the company's former president? This
is the issue presented before us in the instant petition.

City Air International Brokerage Corporation is a family corporation with the private respondent, Jesus Chua, serving as its president from
October, 1984 up to the time of his resignation in March, 1985 while the petitioner, Johnson Chua is the vice-president.

On May 13, 1985, the private respondent filed a complaint with the National Labor Relations Commission (NLRC) for illegal dismissal and
recovery of unpaid wages for the period November 15, 1984 up to March 31, 1985.

After the parties had filed their respective position papers, Labor Arbiter Amelia Guloy rendered a decision, the dispositive portion of which
reads:

WHEREFORE, respondent City Air International Corporation and/or Mr. Johnson Chua is hereby ordered to pay complainant
his unpaid wages of P29,250.00. (Rollo, p. 9)

On appeal to the National Labor Relations Commission (NLRC), the Third Division affirmed the decision of the Labor Arbiter in a resolution
dated June 30, 1987. A motion for reconsideration was likewise denied on December 7, 1987.

The petitioner filed the present petition. There is no question that the private respondent is entitled to his wages while serving as president
and employee of the company. As borne out by the records, the private respondent was paid the sum of P9,750.00 for his first monthly
remuneration as president of City Air International Brokerage. The records also show that the corporation's accountant had already prepared
the statement of account showing private respondent's unpaid salary in the amount of P29,250.00. The amount was confirmed by Mr. Hernani
C. Belamide, a certified Public Accountant who examined and audited the corporation's financial statements for the period October 1, 1984 up
to March 31, 1985. Undeniably, the private respondent is entitled to his salary during the period he served as president of the corporation.

The petitioner, however, argues that he cannot be held personally liable for the unpaid wages of the private respondent. He contends that the
corporation alone, which has a personality separate and distinct from its members or stockholders, should be the one held liable for corporate
obligations.

We resolve the issue in the light of the precedent set in the case of A.C. Ransom Labor Union-CCLU v. National Labor Relations
Commission (142 SCRA 269 [1986]). In this case, the Court set aside the decision of the NLRC upholding the personal non-liability of the
individual officers and agents of the corporation unless they have acted beyond the scope of their authority. In thus reversing in the NLRC
decision, the Court ruled that the president or presidents of the corporation may be held liable for the corporation's obligations to its workers.

The Court explained:

(c) Employer includes any person acting in the interest of an employer directly or indirectly. The term shall not include any
labor organization or any of its officers or agents except when acting as employer.

. . . Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the
'person acting in the interest of employer.' RANSOM. The Corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-
payment of backwages. ... (At p. 273-274; Emphasis supplied)

xxx xxx xxx

This Court continued:

xxx xxx xxx

(d) The record does not clearly Identify the officer or officers of RANSOM directly responsible for failure to pay the
backwages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the
responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA
602, criminal responsibility is with the manager or in his default, the person acting as such.' In RANSOM, the President
appears to be the Manager. (At p. 274)

In the instant case, it was correct for the private respondent to have impleaded the petitioner in the complaint considering that the latter was
the highest and most ranking official of the corporation after the private respondent had resigned. Certainly, there should be an officer
directly responsible for the failure to pay the wages of the corporation's president. In this case, such officer happened to be the vice-
president.

Moreover, there are peculiar circumstances attendant to this case which point to the petitioner as the person also directly responsible to the
private respondent for his salaries. These lead us further to sustain the decision of the NLRC.

It is the general rule that findings of fact of quasi-judicial agencies which have acquired expertise because their jurisdiction is confined to
specific matters are accorded not only respect by this Court but at times even finality if such findings are supported by substantial evidence.
(Arica v. National Labor Relations Commission, G.R. No. 78210, February 28, 1989; Johnson and Johnson Labor Union - FFW v. Director of
Labor Relations, G.R. No. 76427, February 21, 1989; Reyes v. Ministry of Labor, G.R. No. L-48705, February 9, 1989). The instant case is not
an exception to the rule. There is substantial evidence to support the decision.
As found by the labor arbiter, the private respondent and petitioner are brothers, serving as the president and vice-president respectively of
the family corporation. At the time of the filing of the complaint for illegal dismissal and unpaid wages or commission by the private
respondent the petitioner, as Vice-President, was the highest and most ranking official of said corporation. He caused the preparation and
verified the position paper dated August 6, 1985, the appeal memorandum dated December 20, 1985, and the motion for the reconsideration
of the NLRC decision on August 10, 1987. He showed personal interest in the case of Jesus Chua despite the fact that a new corporate
president in the person of Jose Beltran had been elected on May 20, 1985. Beltran could have handled this case in .behalf of the corporation
but he did not do so. Since the records fail to show that the petitioner was authorized by the corporation to pursue or defend the case filed
against it by the private respondent and yet the petitioner personally acted in the case and showed keen interest in its progress, he must be
held responsible for its outcome. The records show that personal animosity existed between these two (2) brothers. With the petitioner's
manifest interest in the case and his being the top officer after his brother was eased out, there is enough reason to believe that the
petitioner had a hand in the dismissal of the private respondent. We, therefore see no reversible error committed by the NLRC in applying
Article 289 of the Labor Code which provides:

Art. 289. Who are liable when committed by other than natural person. — If the offense is committed by a corporation,
trust, firm, partnership, association or any other entity, the penalty shall be imposed upon the guilty officer or officers of
such corporation, trust, firm, partnership, association or entity.

WHEREFORE, the petition is hereby DISMISSED. The questioned decision of the National Labor Relations Commission is AFFIRMED. SO
ORDERED.
G.R. No. 90856 July 23, 1992

ARTURO DE GUZMAN, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER MA. LOURDES A. SALES, AVELINO D. VALLESTEROL, ALEJANDRO
Q. FRIAS, LINDA DE LA CRUZ, CORAZON M. DE LA FUENTE, LILIA F. FLORO, and MARIO F. JAYME, respondents.

CRUZ, J.:

It is a fundamental principle of law and human conduct that a person "must, in the exercise of his rights and in the performance of his duties,
act with justice, give every one his due, and observe honesty and good faith." 1 This is the principle we shall apply in the case at bar to gauge
the petitioner's motives in his dealings with the private respondents.

Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries Agency, Ltd., which was based in Hongkong. On
June 30, 1986, he received a telex message from Leo A. Fialla, managing director of AMAL in its main office, advising him of the closure of
the company due to financial reverses. This message triggered the series of events that are the subject of this litigation.

Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila office. The employees then sent a letter to AMAL
accepting its decision to close, subject to the payment to them of their current salaries, severance pay, and other statutory benefits. De
Guzman joined them in these representations.

These requests were, however, not heeded. Consequently, the employees, now herein private respondents, lodged a complaint with the NLRC
against AMAL, through Leo A. Fialla and Arturo de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and
vacation leave benefits, 13th month pay, and bonus.

For his part, the petitioner began selling some of AMAL's assets and applied the proceeds thereof, as well as the remaining assets, to the
payment of his claims against the company. He also organized Susarco, Inc., with himself as its president and his wife as one of the
incorporators and a member of the board of directors. This company is engaged in the same line of business and has the same clients as that
of the dissolved AMAL.

With this development, Susarco and its officers were impleaded in the amended complaint of the private respondents. Later, William Quasha
and/or Cirilo Asperilla were also included in the suit as the resident agents of AMAL of the Philippines.

On November 7, 1986, the petitioner filed his own complaint with the NLRC against AMAL for his remaining unsatisfied claims.

On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was assigned, rendered a decision ordering AMAL to
pay the petitioner the amount of P371,469.59 as separation pay, unpaid salary and commissions, after deducting the value of the assets
earlier appropriated by the petitioner. 2

On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents' complaint, rendered a decision —

1. Ordering Respondents AMAL and Arturo de Guzman to pay jointly and severally to each Complainant separation pay
computed at one-half month pay for every year of service, backwages for one month, unpaid salaries for June 16-30,
1986, 13th month pay from January to June 30, 1986 and incentive leave pay equivalent to two and-a-half days pay;

2. Dismissing the complaint against respondents Leo Fialla, William Quasha, Susarco, Inc. and its directors Susan de
Guzman, Pacita Castaneda, George Estomata and Cynthia Serrano for lack of basis and/or merit;

3. Dismissing the claims for damages for lack of basis;

4. Ordering respondents AMAL and Arturo de Guzman to pay jointly and severally attorney's fees to Complainants
equivalent to 10% of the monetary awards herein. 3

This decision was on appeal affirmed in toto by the NLRC, which is now faulted for grave abuse of discretion in this petition for certiorari.

The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over the complaint of the private respondents against AMAL in
view of their previous employment relationship. He argues, however, that the public respondents acted without or in excess of jurisdiction in
holding him jointly and severally liable with AMAL as he was not an employer of the private respondents.

The Solicitor General and the private respondents disagree. They maintain that the petitioner, being AMAL's highest local representative in the
Philippines, may be held personally answerable for the private respondents' claims because he is included in the term "employer" under Art.
212 (c), (now e) of the Labor Code which provides:

Art. 212. Definitions. —

xxx xxx xxx

c. "Employer" includes any person acting in the interest of an employer, directly or indirectly. . . .

In the leading case of A.C. Ransom Labor Union-CCLU vs. NLRC, 4 as affirmed in the subsequent cases of Gudez vs.NLRC, 5 and Maglutac vs.
NLRC, 6 this Court treated the president of the employer corporation as an "employer" and held him solidarily liable with the said corporation
for the payment of the employees' money claims. So was the vice-president of the employer corporation in the case of Chua vs. NLRC. 7

The aforecited cases will not apply to the instant case, however, because the persons who were there made personally liable for the
employees' claims were stockholders-officers of the respondent corporation. In the case at bar, the petitioner, while admittedly the highest
ranking local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less a member of the board of directors or
an officer thereof. He is at most only a managerial employee under Art. 212 (m) of the Labor Code, which reads in relevant part as follows:

Art 212. Definitions. —

xxx xxx xxx

 m. Managerial employee is one who is vested with powers and prerogatives to lay down and execute management policies
and/or to
hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees. . . .

As such, the petitioner cannot be held directly responsible for the decision to close the business that resulted in his separation and that of the
private respondents. That decision came directly and exclusively from AMAL. The petitioner's participation was limited to the enforcement of
this decision in line with his duties as general manager of the company. Even in a normal situation, in fact, he would not be liable, as a
managerial employee of AMAL, for the monetary claims of its employees. There should be no question that the private respondents' recourse
for such claims cannot be against the petitioner but against AMAL and AMAL alone.

The judgment in favor of the private respondents could have been enforced against the properties of AMAL located in this country except for
one difficulty. The problem is that these properties have already been appropriated by the petitioner to satisfy his own claims against the
company.

By so doing, has the petitioner incurred liability to the private respondents?

The Labor Arbiter believed he had because of his bad faith and ruled as follows:

Considering that Respondent A. de Guzman is guilty of bad faith in appropriating for himself the properties of Respondent
AMAL to the prejudice of Complainants herein whose claims are known to Respondent at the time he made the disposition
of AMAL's properties, he is held jointly and severally liable with Respondent AMAL for the award of unpaid wages,
separation pay, backwages for one month, 13th month pay and cash value of unused vacation leave.

In Velayo v. Shell Co. of the Philippines, 8 Commercial Air Lines, Inc. (CALI), knowing that it did not have enough assets to pay off its
liabilities, called a meeting of its creditors where it announced that in case of non-agreement on a pro-rata distribution of its assets, including
the C-54 plant in California, it would file insolvency proceedings. Shell Company of the Philippines, one of its creditors, took advantage of this
information and immediately made a telegraphic assignment of its credits in favor of its sister corporation in the United States. The latter
thereupon promptly attached the plane in California and disposed of the same, thus depriving the other creditors of their proportionate share
in its value. The Court declared that Shell had acted in bad faith and betrayed the trust of the other creditors of CALI. The said company was
ordered to pay them compensatory damages in a sum equal to the value of the C-54 plane at the time it assigned its credit and exemplary
damages in the sum of P25,000.00.

We quote with approval the following observations of Labor Arbiter Sales in her decision:

While the legitimacy of Respondent A. de Guzman's claims against AMAL is not questioned, it must be stated that the
manner and the means by which he satisfied such claims are evidently characterized by bad faith on his part. For one,
Respondent A. de Guzman took advantage of his position as General Manager and arrogated to himself the right to retain
possession and ownership of all properties owned and left by AMAL in the Philippines, even if he knew that Complainants
herein have similar valid claims for unpaid wages and other employee benefits from the Respondent AMAL. . . .

Another strong indication of bad faith on the part of Respondent A. de Guzman is his filing of a separate complaint against
AMAL before the NLRC Arbitration Branch about four (4) months after the filing of the instant case without informing this
Office about the existence of said case during the proceedings in the instant case. This case was deemed submitted for
decision on May 18, 1987 but it was only on June 2, 1987 that Respondent A. de Guzman formally notified this Office
through his Supplemental Position Paper of his pending complaint before Arbiter Eduardo Magno docketed as NLRC Case
No. 11-4441-86. Under Rule V, Section 4 of the revised rules of the NLRC, it is provided that:

Sec. 4. CONSOLIDATION OF CASES — where there are two or more cases pending before different
Labor Arbiters in the same Regional Arbitration Branch involving thesame employer and issues or the
same parties with different issues, the case which was filed last shall be consolidated with the first to
avoid unnecessary costs or delay. Such cases shall be disposed of by the Labor Arbiter to whom the first
case was assigned. (Emphasis supplied).

Had Respondent A. de Guzman given timely notice of his complaint, his case could have been consolidated with this case
and the issues in both cases could have been resolved in a manner that would give due consideration to the rights and
liabilities of all parties in interest at the least, in case consolidation is objected to or no longer possible, the Complainants
herein could have been given a chance to intervene in the other case so that whatever disposition might be rendered by
Arbiter Magno would include consideration of Complainants' claims herein.

It is not disputed that the petitioner in the case at bar had his own claims against AMAL and consequently had some proportionate right over
its assets. However, this right ceased to exist when, knowing fully well that the private respondents had similarly valid claims, he took
advantage of his position as general manager and applied AMAL's assets in payment exclusively of his own claims.

According to Tolentino in his distinguished work on the Civil Code:

The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of
others. The mask of a right without the spirit of justice which gives it life, is repugnant to the modern concept of social law.
It cannot be said that a person exercises a right when he unnecessarily prejudices another or offends morals or good
customs. Over and above the specific precepts of positive law are the supreme norms of justice which the law develops
and which are expressed in three principles: honeste vivere, alterum non laedre and just suum quique tribuere; and he
who violates them violates the law. For this reason, it is not permissible to abuse our rights to prejudice others. 9

The modern tendency, he continues, is to depart from the classical and traditional theory, and to grant indemnity for damages in cases where
there is an abuse of rights, even when the act is not illicit. Law cannot be given an anti-social effect. If mere fault or negligence in one's acts
can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make him liable. A person should be
protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he
acts with negligence or abuse. 10

The above-mentioned principles are contained in Article 19 of the Civil Code which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

This is supplemented by Article 21 of the same Code thus:

 Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.

Applying these provisions, we hold that although the petitioner cannot be made solidarily liable with AMAL for the monetary demand of its
employees, he is nevertheless directly liable to them for his questionable conduct in attempting to deprive them of their just share in the
assets of AMAL.

Under Art. 2219, (10) of the Civil Code, moral damages may be recovered for the acts referred to in Art. 21. InBert Osmeña & Associates
vs. Court of Appeals, 11 we held that "fraud and bad faith having been established, the award of moral damages is in order." And in Pan
Pacific Company (Phil.) vs. Phil. Advertising Corp., 12 moral damages were awarded against the defendant for its wanton and deliberate
refusal to pay the just debt due the plaintiff.

It is settled that the court can grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured
party. 13 In the case at bar, while the private respondents did not categorically pray for damages, they did allege that the petitioner, taking
advantage of his position as general manager, had appropriated the properties of AMAL in payment of his own claims against the company.
That was averment enough of the injury they suffered as a result of the petitioner's bad faith.

The fact that no actual or compensatory damages was proven before the trial court does not adversely affect the private respondents' right to
recover moral damages. We have held that moral damages may be awarded in the cases referred to in the chapter on Human Relations of the
Civil Code (Articles 19-36) without need of proof that the wrongful act complained of had caused any physical injury upon the complainant. 14

When moral damages are awarded, exemplary damages may also be decreed. 15 Exemplary damages are imposed by the way of example or
correction for the public good, in additional to moral, temperate, liquidated or compensatory damages. 16 According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They are an antidote so that the poison of
wickedness may not run through the body politic." 17 These damages are legally assessible against him.

The petitioner asserts that, assuming the private respondents to have a cause of action against him for his alleged bad faith, the civil courts
and not the Labor Arbiter have jurisdiction over the case.

In Associated Citizen Bank, et al. vs. Judge Japson, 18

this Court held:

Primarily, the issue to be resolved is whether or not the respondent court has jurisdiction to hear and decide an action for
damages based on the dismissal of the employee.

On all fours to the above issue is the ruling of this Court in Primero v. Intermediate Appellate Court(156 SCRA 435 [1987])
which once again reiterated the doctrine that the jurisdiction of the Labor Arbiter under Article 217 of the Labor Code is
broad and comprehensive enough to include claims for moral and exemplary damages sought to be recovered by an
employee whose services has been illegally terminated by is employer (Ebon v. De Guzman, 113 SCRA 55 [1982]; Aguda
v. Vallejos, 113 SCRA 69 [1982]; Getz Corporation v. Court of Appeals, 116 SCRA 86 [1982]).

For the unlawful termination of employment, this Court in Primero v. Intermediate Appellate Court, supra, ruled that the
Labor Arbiter had the exclusive and original jurisdiction over claims for moral and other forms of damages, so that the
employee in the proceedings before the Labor Arbiter should prosecute his claims not only for reliefs specified under the
Labor Code but also for damages under the Civil Code.

. . . Question of damages which arose out of or connected with the labor dispute should be determined by the labor
tribunal to the exclusion of the regular courts of justice (Limquiaco, Jr. v. Ramolete, 156 SCRA 162 [1987]). The regular
courts have no jurisdiction over claims for moral and exemplary damages arising from illegal dismissal of an employee
(Vargas v. Akai Philippines, Inc., 156 SCRA 531 [1987]).

Although the question of damages arising from the petitioner's bad faith has not directly sprung from the illegal dismissal, it is clearly
intertwined therewith. The predicament of the private respondents caused by their dismissal was aggravated by the petitioner's act in the
arrogating to himself all of AMAL's assets to the exclusion of its other creditors, including its employees. The issue of bad faith is incidental to
the main action for illegal dismissal and is thus properly cognizable by the Labor Arbiter.

We agree that, strictly speaking, the determination of the amount thereof would require a remand to the Labor Arbiter. However, inasmuch as
the private respondents were separated in 1986 and this case has been pending since then, the interests of justice demand the direct
resolution of this motion in this proceeding.

As this Court has consistently declared:

. . . it is a cherished rule of procedure for this Court to always strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if this case is remanded to
the trial court only to have its decision raised again tot the Indeterminate Appellate Court and from there to this Court.
(Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37)

Remand of the case to the lower court for further reception of evidence is not necessary where the court is in a position to
resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and the expeditious
administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further
proceedings, such as where the ends of justice would not be subserved by the remand of the case or when public interest
demands an early disposition of the case. (Lianga Bay Logging Co., Inc. v. CA, 157 SCRA 357)

Sound practice seeks to accommodate the theory which avoids waste of time, effort and expense, both to the parties and
the government, not to speak of delay in the disposal of the case (cf. Fernandez v. Garcia, 92 Phil. 592, 597). A marked
characteristics of our judicial set-up is that where the dictates of justice so demand . . . the Supreme Court should act, and
act with finality. (Li Siu Liat v. Republic, 21 SCRA 1039, 1046, citing Samal v. CA, 99 Phil. 230 and U.S. v. Gimenez, 34
Phil. 74). In this case, the dictates of justice do demand that this Court act, and act with finality. (Beautifont, Inc. v. CA,
157 SCRA 481)

It is stressed that the petitioner's liability to the private respondents is a direct liability in the form of moral and exemplary damages and not
a solidary liability with AMAL for the claims of its employees against the company. He is being held liable not because he is the general
manager of AMAL but because he took advantage of his position by applying the properties of AMAL to the payment exclusively of his own
claims to the detriment of other employees.

WHEREFORE, the questioned decision is AFFIRMED but with the modification that the petitioner shall not be held jointly and severally liable
with AMAL for the private respondents' money claims against the latter. However, for his bad faith in arrogating to himself AMAL's properties
to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the private respondents moral damages in the sum of
P20,00.00 and exemplary damages in the sum of P20,00.00; and 2) to return the assets of AMAL that he has appropriated, or the value
thereof, with legal interests thereon from the date of the appropriation until they are actually restored, these amounts to be proportionately
distributed among the private respondents in satisfaction of the judgment rendered in their favor against AMAL. SO ORDERED.
G.R. No. 111807 June 14, 1996

AHS/PHILIPPINES, INC., GERVACIO R. AMISTOSO and CONSTANCIO V. HALILI, petitioners,

vs.
COURT OF APPEALS and ALFONSO R. BAYANI, respondents.

BELLOSILLO, J.:p

American Hospital Supplies/Philippines, Inc. (AHS), its president Gervacio R. Amistoso, and its vice-president Constancio V. Halili seek to set
aside the 31 August 1993 Decision of respondent Court of Appeals 1 in CA-G.R. CV No. 32416 affirming the 25 January 1989 Decision of the
Regional Trial Court of Cebu City 2 awarding actual and compensatory damages to private respondent Alfonso R. Bayani, a dentist, who was
dismissed from the service without the clearance then required from the Secretary of Labor.

Petitioner corporation was engaged in the sale and manufacture of medicines and pharmaceuticals in the country and did substantial business
with government hospitals. On 1 June 1970 it hired private respondent as an Area Manager for Visayas and Mindanao, and later appointed
him Manager of its Cebu branch. On 30 January 1978 private respondent was dismissed from the service. At that time he was receiving a
monthly compensation of P3,180.00.

On 5 May 1978 private respondent filed a complaint for damages before the trial court alleging that in the course of their business petitioners
were directly encouraging, abetting and promoting bribery in the guise of "commissions," "entertainment expenses" and "representation
expenses" which were given to various government hospital officials in exchange for favorable recommendations, approvals and actual
purchases of medicines and pharmaceuticals. For his refusal to take direct and personal hand in giving "bribe money" he was dismissed. In
his complaint he asked for an amount of not less than P520,000.00 as moral and consequential damages, P25,000.00 as exemplary damages
and P50,000.00 for attorney's fees. On the other hand petitioner in its answer claims that private respondent was not dismissed but that he
himself resigned on his own volition.

On 25 January 1989 the trial court ruled that private respondent was illegally dismissed and awarded him P297,600.00 as actual and
compensatory damages representing the minimum salary that he could have earned for the next 8 years until his retirement at 60 if he was
not dismissed illegally, and P25,000.00 as attorney's fees. The trial court held that there was illegal dismissal because petitioner failed to
secure a prior clearance from the Secretary of Labor before actually terminating the services of private respondent, but not for
insubordination or disloyalty nor for his obstinate refusal to participate in the bribery. The trial court further ruled that private respondent was
not entitled to moral and exemplary damages since "(his) hands are also tainted with the same corruption that he complained about" 3 --

It appears that it was only when the repressive regime of then President Marcos started cracking down on "bribe takers"
and "bribe givers" that Dr. Bayani must have started to have certain feelings of guilt and claimed that he wanted the
"status quo" to be maintained, and that he will just allow his salesmen and agents to deliver the bribe money instead of
him or Rene Simpao. Consequently, it is inescapable that as admitted by Dr. Bayani, he has been a party or privy to the
giving out of sales REPS or (money) by signing checks which he bluntly called bribe money disguised as sales REP of 5%.
Under the principle that he who comes to court must come with clean hands, Dr. Bayani cannot now pretend that he was
innocent of the corrupt practices of his company and had clean hands as regards the same . . . . His hands are therefore
equally tainted, are mired in the fifth of this corruption, in the matter of the giving of these "kickbacks" . . . . As a matter
of conscience, he should have resigned, as that was the most honorable thing for him to do and accept the offer of
Mr. Halili to pay his separation pay if he only tendered immediately his resignation. The court, therefore, is hard put, to
award damages to the plaintiff in this case after betraying the confidences of his company because it would only serve his
own selfish and disloyal ends. Although this is in no way saying, that this court condones corruption, yet it is evident from
the proofs submitted to this court that the plaintiff was part of the corruption spun and woven, by the giving of 5% REPS
to the doctors listed in his voluminous exhibits and was dismissed for insubordination and disloyalty. 4

On appeal, respondent Court of Appeals affirmed in toto the decision of the trial court; hence this petition for review.

Petitioners contend that respondent court erred (1) in affirming the decision of the trial court holding that private respondent was illegally
dismissed from the service for failure of petitioner to secure a prior clearance from the Department of Labor when the absence of a clearance
was never put in issue during the trial; (2) in ruling that the prior-clearance rule applies to private respondent who is a managerial employee,
assuming that the prior-clearance rule is a legitimate issue; (3) in affirming petitioner's liability for damages in an amount equal to private
respondent's monthly salary multiplied by the number of years prior to his retirement age, assuming that lack of clearance is a proper issue;
(4) when it disregarded decisions of this Court allowing backwages up to three (3) years only; (5) when it held petitioner Gervacio Amistoso
personally liable when there is nothing on record to show that he had anything to do with the dismissal of private respondent; (6) when it
likewise held petitioner Constancio Halili personally liable for dismissing private respondent when said act was done in his official capacity as
vice-president of the corporation; and (7) when it affirmed petitioner's liability for attorney's fees.

At the outset it must be noted that when the complaint for damages was filed on 5 May 1978 the applicable law was P.D. 1367 5 which
amended Sec. 217, par. (a), of the Labor Code by providing that "the Regional Directors (of the Ministry of Labor) shall not indorse and Labor
Arbiters shall not entertain claims for moral or other forms of damages." The claim of respondent Bayani for moral, exemplary and
consequential damages was thus correctly filed before the then Court of First Instance.

We go back to the findings and conclusions of the trial court. A reading of the complaint for damages filed by respondent Bayani readily shows
that his cause of action stems from his allegation that "(he) has been unlawfully dismissed . . . because of (his) refusal to take direct and
personal hand in giving out these bribe money to various hospitals or government officials with which (petitioners) have been doing
business." 6 Petitioners for their part deny the allegation of respondent Bayani that he was dismissed. They claim he resigned. Thus, as
succinctly put by the trial court, "[t]he issue . . . is whether the plaintiff (herein respondent) Dr. Alfonso R. Bayani really resigned and
whether Bayani was dismissed for his alleged refusal to cooperate in giving bribe money." 7 In resolving the instant issue, the trial court held -
-

From the testimonies of the plaintiff himself and that of defendants' witnesses Ranulfo Payos and Constancio Halili, the
inescapable conclusion that the court can arrive at, is that Bayani did not really resign. In fact he only intended to do so.
This apparent from Exh. "FFFFF" and that Halili was forcing Bayani to tender his resignation, and so he sent Payos to Cebu
City in order to receive his letter of resignation. To prove that Halili wanted really Bayani to resign, he even offered him a
severance pay from their retirement fund of the company if he would tender his immediate resignation, even though
according to him, the retirement fund is not supposed to be paid to any employee who resigns. It also appears very clear
that Bayani was allowed to decide for himself when to resign, after he was allowed to go back to Cebu to confer and
consult his family, regarding his intended resignation. It is also evident that Bayani asked if there was an opening in Manila
or in Luzon. But already, the mind of Halili was closed, not to give him any other position as he said he does not believe in
transferring a problem, from one area to another. In fact, it was already decided that they would close the Cebu Branch
and convert it into a depot. From the telegram sent by Dr. Bayani which is Exh. "FFFFFF", Bayani said that he was not
going to report to Manila anymore, and he considered this as the very act of resignation because he (Halili) expected
Bayani to tender his resignation. And so, when Bayani did not tender his resignation, Halili sent Payos to terminate him,
when it became clear from the resignation, Halili sent Payos to terminate him, when it became clear from the
communications made by Payos to Halili that Bayani could not be disuaded from filing corruption charges against the
defendant corporation AHS and exposing it in the newspaper. This was evidently considered by Payos as untenable, and so
 they have decided to terminate the services of Bayani by compelling him to turn over the office to Mr. Roberto Veloro, who
was already scheduled anyway, to replace Bayani according to the admission of Payos, nothwithstanding, that the
expected letter of resignation of Bayani, for he was already relieved effectively on January 26. But he did not wait until
January 31, 1978. The court, therefore arrives at the conclusion that Bayani was dismissed because of his obstinate
threats to file a corruption charge against the company and its officers before the Military Tribunal in Cebu which the
defendant company considered as insubordination and disloyalty. 8

However the trial court ruled that while respondent Bayani was dismissed, he was not illegally dismissed for his "obstinate threats to file a
corruption charge against the company" as he was a "part of the corruption spun and woven, by the giving. of 5% REPS to the doctors listed
in his voluminous exhibits." Rather, he was found to have been unlawfully dismissed from the service since his employer did not secure the
required prior clearance from the Ministry of Labor before his services were actually terminated --

Obviously, therefore, the state of the law at the time that the plaintiff in this case was dismissed required the employer
AHS and defendants herein, to secure a clearance to terminate the plaintiff from has been for at least one year with the
employer. Plaintiff has worked for 7 1/2 years before he was terminated. Whether there was cause or not therefore the
defendants should have obtained a prior clearance from the Ministry of Labor to dismiss the plaintiff. This is the cause of
the illegality of the dismissal and not because the plaintiff was uncooperative in the giving of, alleged bribe money for, as
the court has already declared, it does not believe that the plaintiff is innocent of this very corrupt practice alleged by him,
and that according to his own testimony, and that of defendants' witnesses, the "payola" or the giving of cash incentives
directly to the doctors had already been stopped in view of Blair Memorandum. 9

In resolving the case at bench we defer to the well entrenched doctrine that factual findings of the trial court shall not be disturbed on appeal
unless the trial court has overlooked or ignored some fact or circumstance of sufficient weight or significance which, if considered, would alter
the situation. We have carefully assessed the record of this case and find no fact or circumstance which the trial court may have disregarded.
Accordingly we affirm its factual findings that Dr. Alfonso R. Bayani did not resign, as what petitioners would want to impress upon this Court,
but was actually dismissed from the service for insubordination and disloyalty because of his refusal to continue to give out "commissions,"
"entertainment expenses," and "representation expenses" to government doctors in exchange for sales contracts, and because of his
obstinate threats to file a corruption charge against petitioners.

However we cannot sustain the conclusions of the trial court that respondent Bayani was illegally dismissed on account of petitioner's failure
to secure a prior clearance. For, simply; the lack of prior clearance is not a legitimate issue as it was not alleged by respondent Bayani in his
complaint; neither was it litigated by the parties. In fact whether respondent Bayani is a managerial employee to which the prior-clearance
rule does not apply has yet to be resolved, since from the evidence submitted it was not sufficiently established if respondent Bayani was
indeed a managerial employee. Consequently, we now resolve whether respondent Bayani was validly terminated for insubordination and
disloyalty.

We have repeatedly said that two (2) requisites must concur so as to constitute a valid dismissal from employment: (1) the dismissal must be
for any of the causes expressed in Art. 282 of the Labor Code, and, (2) the employee must be given an opportunity to be heard and to defend
himself. 10 Under Art 282, as amended, an employer may terminate an employment for any of the following causes: (a) serious misconduct or
willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; (b) gross and habitual
neglect by the employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by his employer or duly
authorized representative; (d) commission of a crime or offense by the employee against the person of his employer or any immediate
member of his family or his duly authorized representative; and, (e) other causes analogous to the foregoing.

It has been established that respondent Bayani was dismissed for insubordination and disloyalty which correspond to serious misconduct or
willful disobedience under par. (a) of Art. 282. But in Gold City Integrated Port Services, Inc. v. NLRC 11 we explained that willful disobedience
of the employer's lawful orders, as a just cause for dismissal of an employee, envisages the concurrence of at least two (2) requisites: the
employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a wrongful and perverse attitude;
and the order violated must have been reasonable, lawful, made known to the employee and must pertain to the duties which he had been
engaged to discharge. Thus in Mañebo v. NLRC 12 we held that in order that an employer may terminate an employee on the ground of willful
disobedience to the former's orders, regulations or instructions, it must be established that the said orders, regulations or instructions are (a)
reasonable and lawful, (b) sufficiently known to the employee, and (c) in connection with the duties which the employee has been engaged to
discharge.

In the instant case, it is quite apparent that the subject order, i.e., to personally give "commissions," "entertainment expenses," and
"representation expenses" to government doctors in exchange for sales contracts, was unreasonable and unlawful as it subjected respondent
Bayani to criminal prosecution for graft and corruption. Definitely, the giving of commissions and entertainment and representation expenses
to government officials in exchange for the approval of sales contracts is from all indications prohibited and punishable by existing laws on
corruption of public officials. Accordingly respondent Bayani cannot be validly dismissed for refusing to heed the order to hand out
"commissions" to government doctors.

While it may be true, as the trial court said, that the hands of respondent Bayani are "equally tainted, and mired in the filth of this corruption,
in the matter of the giving of these 'kickbacks,"' as "it is evident from the proofs submitted to this court that (he) was part of the corruption
spun and woven, by the giving of 5% REPS to the doctors listed in his voluminous exhibits," 13 the Court believes that should he decide not to
be part of the corrupt system anymore, whatever his reasons are, he should not be dismissed. A reforming employee should not be penalized,
much less with dismissal from employment at that.

When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers the matter a case of illegal
dismissal and the burden is on the employer to prove that the termination was for a valid or authorized cause. 14 In this case the employer
has miserably failed to discharge that burden. All told, we hold that respondent Bayani was dismissed without a just and valid cause.

We turn to the award of back wages. Respondent Bayani was illegally dismissed on 30 January 1978. At that time the prevailing doctrine was
the so-called Mercury Drug Rule which was first explained by Mr. Justice Teehankee (later Chief Justice) in his Separate Opinion in Mercury
Drug Co. v. Court of Industrial Relations 15 and later applied in full in FEATI University Faculty Club v. FEATI University. 16 The so called
Mercury Drug Rule awards back wages equivalent to three (3) years (where the case is not terminated sooner), without qualification and
deduction. The three-year period was used as the base figure of Mr. Justice Teehankee opined that "[n]ormally, the trial of the case and
resolution of the appeal should be given preference and terminated within a period of three years (one year for trial and decision in the
industrial court and two years for briefs, etc., and decision in this Court)." 17

Appying the Mercury Drug Rule to the case at bar, respondent Bayani is entitled to be paid the sum of ONE HUNDRED FOURTEEN THOUSAND
FOUR HUNDRED EIGHTY PESOS (P114,480.00) as back wages for three (3) years without deduction or qualification --

P3,180.00 (Bayani's last monthly salary)

x 12 months
—————
P38,160.00 (Bayani's salary for one year)
 P38,160.00
x 3 years
————
P114,480.00 (Bayani's back wages for three years)

We move to the question of reinstatement. Illegally dismissed employees are entitled to reinstatement is not possible, the illegally dismissed
employees are entitled to separation pay and back wages. In the instant case it is more prudent and practical not to order reinstatement
since this case has already dragged on for about 18 years. After 18 years it can now be fairly expected that respondent Bayani would find
difficulty to fit into the employment structure of petitioner corporation, not to mention the fact that after all those years he may already be
comfortable with his new endeavors. Besides the relationship between petitioners and respondent Bayani has been unduly strained, more so
since the latter held a key position where he could work efficiently and effectively only if he enjoyed the full and complete trust and
confidence of top management. Therefore instead of reinstatement, we hold that respondent Bayani is entitled to separation pay equivalent to
one (1) month salary for every .year of service or in the amount of TWENTY THOUSAND SIX HUNDRED SEVENTY PESOS (P20,670.00), thus -
-

P3,180.00 (Bayani's last monthly salary)

x 6.5 (Bayani's years of service)

————
P20,670.00

On the issue, of joint and solidary liability of petitioner Amistoso as president of petitioner corporation, and of petitioner Halili as vice-
president of the same corporation, we have already said that corporate officers are not personally liable for money claims of discharged
corporate employees unless they acted with evident malice and bad faith in terminating their employment. 18 In the case at bar, while
petitioners Amistoso and Halili may have had a hand in the relief of respondent. Bayani, there are no indications of malice and bad faith on
their part. We take exception to the conclusion of respondent Court of Appeals that "the manner by which Halili and Amistoso acted is
characterized by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' 19 On the contrary it is apparent that the
relief order was a business judgment on the part of the officers, with the best interest of the corporation in mind, based on their opinion that
respondent Bayani had failed to perform the duties expected of him. Hence both the trial court and respondent Court of Appeals committed a
reversible error in holding petitioners Amistoso and Halili jointly and solidarily liable with petitioner corporation. We however agree with the
conclusion of respondent Court of Appeals that because of the unlawful act of petitioner corporation, private respondent is entitled to recover
attorney's fees as he was compelled to litigate and incur expenses to protect his interests. 20

WHEREFORE, the Decision of 31 August 1993 of respondent Court of Appeals affirming the 25 January 1989 Decision of the RTC of Cebu City
is MODIFIED. Petitioner American Hospital Supplies/Philippines, Inc., is ordered to PAY respondent dentist Alfonso R. Bayani: (a) back wages
for three (3) years without deduction or qualification in the amount of ONE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED EIGHTY PESOS
(P114,480.00); (b) separation pay equivalent to one (1) month salary for every year of service or TWENTY THOUSAND SIX HUNDRED
SEVENTY PESOS (P20,670.00); and, (c) attorney's fees of TWENTY FIVE THOUSAND PESOS (P25,000.00). SO ORDERED.
 [G.R. No. 117473. April 15, 1997]

REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and DANIEL VALENZUELA, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, BONIFACIO RED, VICTORIA PADILLA, MA. SUSAN R. CALWIT, SONIA DELA CRUZ, SUSAN DE
LA CRUZ, EDNA WAHINGON, NANCY B. CENITA and BENEDICTO A. TULABING, respondents.

DECISION

PADILLA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court to annul and set aside the decision dated 29 April 1994 rendered by
the National Labor Relations Commission (NLRC) in NLRC Case No. 005024-93 entitled "Bonifacio Red, et al., v. Reah's Corporation, et. al.",
which affirmed the decision of the Labor arbiter holding individual petitioners jointly and severally liable with petitioner Reah's Corporation to
pay private respondents' claims for underpayment of wages, holiday pay, 13th month pay and separation pay.

The facts, as culled by the labor arbiter from the position papers of both parties, are as follows:

"Complainant Bonifacio Red alleges that he started working as a supervisor at the health and sauna parlor of respondents from September 5,
1977 to November 6, 1990, with a salary of P50.00, that the said establishment was closed by respondents on November 6, 1990, without
any notice and without paying his wages, separation pay and other benefits under the law; and that he works a minimum of twelve (12)
hours a day without being paid overtime.

Complainant Benedicto Tulabing alleges that he started on December 16, 1986 up to November 6, 1990 in the same establishment with a
salary of P26.00 a day; that he works thirteen (13) hours a day without payment of overtime pay.

Complainant Nancy Cenita and Susan Calwit alleges [sic] that they were hired as waitresses on May 20, 1990 up to November 6, 1990 and
paid on commission basis at P0.25 per bottle of beer sold to or consumed by the customers and that they work ten (10) hours a day without
being paid overtime.

Complainants Edna Wahingon, Susan dela Cruz, Sonia dela Cruz and Victoria Padilla claims [sic] working as attendants and were hired on
different dates until November 6, 1990. All were paid on commission basis at the rate of twenty (20%) percent of the service fee paid by the
customers, P90.00 and P110.00 respectively, for ordinary and VIP service; that they render(ed) eleven (11) hours of work a day without
being paid overtime; and that the closure of the health parlor was illegal as they were not notified.

On the other hand, respondents allege that sometime in 1986, a certain Ms. Soledad Domingo, the sole proprietress and operator of Rainbow
Sauna located at 316 Araneta Avenue, Quezon City, offered to sell her business to respondent Reah's Corporation. After the sale, all the
assets of Ms. Domingo were turned over to respondent Reah's, which put a sing-along coffee shop and massage clinic; that complainant Red
started his employment on the first week of December 1988 as a roomboy at P50.00/day and was given living quarters inside the premises as
he requested; that sometime in March 1989, complainant Red asked permission to go to Bicol for a period of ten (10) days, which was
granted, and was given an advance money of P1,200.00 to bring some girls from the province to work as attendants at the respondent's
massage clinic; that it was only on January 1, 1990 that complainant Red returned and was re-hired under the same terms and conditions of
his previous employment with the understanding that he will have to refund the P1,200.00 cash advance given to him; that due to poor
business, increase in the rental cost and the failure of Meralco to reconnect the electrical services in the establishment, it suffered losses
leading to its closure."[1]

On 6 May 1993, the labor arbiter rendered judgment dismissing private respondents' complaints for unfair labor practice and illegal
dismissal but upholding the claims for separation pay, underpayment of wages, holiday pay and 13th month pay. All eight (8) private
respondents were awarded separation pay. However, only Bonifacio Red and Benedicto Tulabing were declared entitled to the claimed labor
standard benefits as the rest were found to have been employed on commission basis. The labor arbiter further awarded attorney's fees to
private respondents Bonifacio Red and Benedicto Tulabing amounting to ten (10%) percent of their adjudged money claims.

Petitioners appealed the labor arbiter's decision to the NLRC, contending mainly that Article 283 of the Labor Code, "exempts
establishment(s) from payment of termination pay when the closure of business is due to serious business losses or financial reverses"; that
petitioners Castulo, Pascua and Valenzuela, while admittedly the acting chairman of the board, board member and accountant acting manager
respectively of Reah's Corporation, cannot be held jointly and severally liable with Reah's "unless there is evidence to show that the cause of
the closure of the business was due to the criminal negligence of the [respondent] officers."

The NLRC dismissed the appeal based on the following dispositions:

"Anent the issue on separation pay, Article 283 of the Labor Code provides that '[T]he employer may x x x terminate the employment of any
employee due to x x x the closing or cessation of operation of the establishment or undertaking x x x by serving a written notice on the
workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. x x x.' This, respondents failed to
comply. Neither did respondents present any evidence to prove that Reah's closure was really due to SERIOUS business losses or financial
reverses. We only have respondents' mere say-so on the matter.

The Supreme Court held in Basilio Balasbas vs. NLRC, et. al. (G.R. No. 85286, August 24, 1992, 3rd Division, Romero, J.) that -

'Under Article 283 of the Labor Code, the closure of a business establishment or reduction of personnel is a ground for the termination of the
services of any employee unless the closing or retrenching is for the purpose of circumventing the provision of the law. But while business
reverses can be a just cause for terminating employees, these must be sufficiently proved by the employer. (Indino vs. NLRC, G.R. No.
80352, September 29, 1989, 178 SCRA 168).'

Thus, we cannot but agree that complainants are entitled to the payment of separation pay."[2]

Petitioners filed a motion for reconsideration but this was denied by the NLRC on 30 August 1994. In the present petition, petitioners
raise three (3) issues which, for brevity and clarity, may be simplified as follows:

I.

WHETHER OR NOT PETITIONERS-OFFICERS CAN BE HELD JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN THE PAYMENT OF
SEPARATION PAY TO PRIVATE RESPONDENTS UNDER ARTICLE 283 OF THE LABOR CODE.
 II.

WHETHER OR NOT THE OFFICERS OF REAH'S CORPORATION CAN BE HELD JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN
PAYMENT OF THE MONETARY CLAIMS AWARDED PRIVATE RESPONDENTS IN THE ABSENCE OF ANY FINDING OF UNFAIR LABOR PRACTICES
OR ILLEGAL DISMISSAL.

III.

WHETHER OR NOT THERE IS LEGAL BASIS FOR THE NLRC TO AFFIRM THE AWARD OF 10% ATTORNEY'S FEES TO PRIVATE RESPONDENTS.

Petitioners argue that since the charges of illegal dismissal and unfair labor practices were dismissed by the labor arbiter, they cannot
be held solidarily liable with the corporation for the payment of separation pay and labor standard benefits to private respondents, when they
used their business judgment to close the establishment because of serious business losses. They contend that even if they were the top
corporate officers of Reah's corporation at the time they closed the business, the corporation has a personality that is separate and distinct
from its officers and stockholders. Since there was no finding that they violated Sec. 31 of the Corporation Code [3] they cannot be held
solidarily liable with the corporation. Petitioners further maintain that the corporation also cannot be held liable because Article 283 of the
Labor Code "orders payment of separation pay only when the closure of the business is due to causes other than serious business losses or
financial reverses".

Petitioners have obviously resorted to a misreading of the last sentence of Article 283 which provides that -

" x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least () month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year."

It is not the function of the law nor its intent to supplant the prerogative of management in running its business, such as, to compel the
latter to operate at a continuing loss. Thus, Article 283 provides as an authorized cause in the termination of employment the "closing or
cessation of operation of the establishment or undertaking". However, the burden of proving that the termination was for a valid or authorized
cause shall rest on the employer.[4] If the business closure is due to serious losses or financial reverses, the employer must present sufficient
proof of its actual or imminent losses; it must show proof that the cessation of or withdrawal from business operations was bona fide in
character.[5]

The grant of separation pay, as an incidence of termination of employment under Article 283, is a statutory obligation on the part of the
employer and a demandable right on the part of the employee, except only where the closure or cessation of operations was due to serious
business losses or financial reverses and there is sufficient proof of this fact or condition. In the absence of such proof of serious business
losses or financial reverses, the employer closing his business is obligated to pay his employees and workers their separation pay.

The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the employer, the affected
employee is entitled to separation pay. This is consistent with the state policy of treating labor as a primary social economic force, affording
full protection to its rights as well as its welfare.[6] The exception is when the closure of business or cessation of operations is due to serious
business losses or financial reverses; duly proved, in which case, the right of affected employees to separation pay is lost for obvious
reasons. In the case at bar, the corporation's alleged serious business losses and financial reverses were not amply shown or proved.

We now proceed to rule on the corollary issue of whether or not individual petitioners Castulo, Pascua and Valenzuela should be held
liable in solidum with the corporation (REAH's) in the payment to private respondents of separation pay and labor standard benefits.

As a general rule established by legal fiction, the corporation has a personality separate and distinct from its officers, stockholders and
members. Hence, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their
authority. This fictional veil, however, can be pierced by the very same law which created it when "the notion of the legal entity is used as a
means to perpetrate fraud, an illegal act, as a vehicle for the evasion of an existing obligation, and to confuse legitimate issues". Under the
Labor Code, for instance, when a corporation violates a provision declared to be penal in nature, the penalty shall be imposed upon the guilty
officer or officers of the corporation.[7]

The Solicitor General, in behalf of private respondents, argues that the doctrine laid down in the case of A.C. Ransom Labor Union -
CCLU v. NLRC[8] should be applied to the case at bar.In that case, a judgment against a corporation (A.C. Ransom) to reinstate its dismissed
employees with back wages was declared to be a continuing solidary liability of the company president and all who may have thereafter
succeeded to said office after the records failed to identify the officer or agents directly responsible for failure to pay the back wages of its
employees. The Court noted Ransom's subterfuge in organizing another family corporation while the case was on litigation with the intent to
phase out the existing corporation in case of an adverse decision, as what actually happened when it ceased operations a few months after
the labor arbiter ruled in favor of Ransom's employees.

The basis, said the Court, is found in Article 212(c) of the Labor Code which provides that "an employer includes any person acting in
the interest of an employer, directly or indirectly." "Since Ransom is an artificial person, it must have an officer who can be presumed to be
the employer, x x x. The corporation only in the technical sense is the employer."

This ruling was eventually applied by the Court in the following cases: Maglutac v. NLRC[9] an illegal dismissal case, where the most
ranking officer of Commart, petitioner therein, was held solidarily liable with the corporation which thereafter became insolvent and
suspended operations; Chua v. NLRC,[10] also an illegal dismissal case, where the vice-president of a corporation was held solidarily liable with
the corporation for the payment of the unpaid salaries of its president; and in Gudez v. NLRC,[11] where the president and treasurer were held
solidarily liable with the corporation which had ceased operations but failed to pay the wage and money claims of its employees.

These cases, however, should be construed still as exceptions to the doctrine of separate personality of a corporation which should
remain as the guiding rule in determining corporate liability to its employees. At the very least, as what we held in Pabalan v. NLRC,[12] to
justify solidary liability, "there must be an allegation or showing that the officers of the corporation deliberately or maliciously designed to
evade the financial obligation of the corporation to its employees", or a showing that the officers indiscriminately stopped its business to
perpetrate an illegal act, as a vehicle for the evasion of existing obligations, in circumvention of statutes, and to confuse legitimate issues.

In the case at bar, the thrust of petitioners' arguments was aimed at confining liability solely to the corporation, as if the entity were an
automaton designed to perform functions at the push of a button. The issue, however, is not limited to payment of separation pay under
Article 283 but also payment of labor standard benefits such as underpayment of wages, holiday pay and 13th month pay to two of the
private respondents. While there is no sufficient evidence to conclude that petitioners have indiscriminately stopped the entity's business, at
the same time, petitioners have opted to abstain from presenting sufficient evidence to establish the serious and adverse financial condition of
the company.

As the NLRC aptly stated:

"Neither did respondents (petitioners) present any evidence to prove that Reah's closure was really due to SERIOUS business losses or
financial reverses. We only have respondents mere say-so on the matter."[13]

This uncaring attitude on the part of the officers of Reah's gives credence to the supposition that they simply ignored the side of the
workers who, more or less, were only demanding what is due them in accordance with law. In fine, these officers were conscious that the
corporation was violating labor standard provisions but they did not act to correct these violations; instead, they abruptly closed
business. Neither did they offer separation pay to the employees as they conveniently resorted to a lame excuse that they suffered serious
business losses, knowing fully well that they had no substantial proof in their hands to prove such losses.
 The findings of the NLRC did not indicate whether or not Reah's Corporation has continued its personality after it had stopped operations
when it closed its sing-along, coffee shop, and massage clinic in November 1990. But in its petition, petitioners aver, among others, that the
"company totally folded for lack of patrons, (disconnection of) light and discontinuance of the leased premises [sic] for failure to pay the
increased monthly rentals from P8,000 to P20,000."[14] Under the Rules of Evidence, petitioners are bound by the allegations contained in
their pleading. Since petitioners themselves have admitted that they have dissolved the corporation de facto, the Court presumes that Reah's
Corporation had become insolvent and therefore would be unable to satisfy the judgment in favor of its employees. Under these
circumstances, we cannot allow labor to go home with an empty victory. Neither would it be oppressive to capital to hold petitioners Castulo,
Pascua and Valenzuela solidarily liable with Reah's Corporation because the law presumes that they have acted in the latter's interest when
they obstinately refused to grant the labor standard benefits and separation pay due private respondent-employees.

The last issue raised by petitioners is whether there is legal basis for the payment of 10% attorney's fees out of the total amount
awarded to private respondents Red and Tulabing. The Court finds this portion of the assailed decision to have been rendered with grave
abuse of discretion as both the labor arbiter and the NLRC failed to make an express finding of fact and cite the applicable law to justify the
grant of such award. Under Article 111 of the Labor Code, 10% attorneys fees may be assessed only in cases where there is an unlawful
withholding of wages,[15] or under Article 222 those arising from collective bargaining negotiations that may be charged against union funds in
an amount to be agreed upon by the parties. None of these situations exists in the case at bar.

WHEREFORE, the decision of respondent National Labor Relations Commission is hereby AFFIRMED in so far as it holds petitioners
Castulo, Pascua, and Valenzuela jointly and severally liable with Reah's Corporation to pay all private respondents separation pay and private
respondents Red and Tulabing other monetary benefits but the award of ten percent (10%) attorneys fees is hereby DELETED for lack of
factual and legal basis. SO ORDERED.
 [G.R. No. 121434. June 2, 1997]

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F. BASILIO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION,
LUZVIMINDA SANTOS, SHIRLEY PORRAS, CARMEN ELIZARDE, ET. AL., respondents.

DECISION

HERMOSISIMA, JR., J.:

Sought to be reversed in this special civil action for certiorari and prohibition are the Resolutions of public respondent National Labor
Relations Commission (NLRC, for brevity), dated September 30, 1993, December 7, 1995, and May 24, 1995, holding petitioners herein liable
for the illegal dismissal of private respondents and ordering them to pay the latter separation pay plus backwages.

Private respondents were employed by Crispa, Inc. for many years in the latter's garments factory located in Pasig Boulevard, Pasig
City. Sometime in September, 1991, private respondents' services were terminated on the ground of retrenchment due to alleged serious
business losses suffered by Crispa, Inc. in the years immediately preceding 1990. Thereafter, respondent employees, on November, 1991,
filed before the NLRC, National Capital Region, Manila, three (3) separate complaints for illegal dismissal and diminution of compensation
against Crispa, Inc., Valeriano Floro , and the petitioners. Valeriano Floro was a major stockholder, incorporator and Director of Crispa, Inc.,
while the petitioners were high ranking officers and directors of the company. Said complaints were consolidated in order to expedite the
proceedings. The case was assigned to Labor Arbiter Raul Aquino.

On July 20, 1992, after due hearing, Labor Arbiter Aquino rendered a decision dismissing the complaints for illegal dismissal but at the
same time ordering Crispa, Inc., Floro and the petitioners to pay respondent employees separation pays equivalent to seventeen (17) days
for every year of service, viz:

"WHEREFORE, premises considered, the instant complaint for illegal dismissal is hereby DISMISSED for lack of merit. However, as discussed
in this decision, respondents is (sic) hereby directed to pay the separationpay of the complainants equivalent to seventeen (17) days for
every year of service and computed as follows:

xxxxxxxxx

All other claims are hereby dismissed for lack of merit. Respondent is hereby ordered to pay 10% attorney's fees based on the award.

SO ORDERED."[1]

Dissatisfied, private respondents appealed before the public respondent NLRC. In a Resolution dated September 30, 1993, the Second
Division of the NLRC found Crispa, Inc., Valeriano Floro, together with the petitioners liable for illegal dismissal and modified the award of
separation pay in the amount of one (1) month for every year of service instead of seventeen (17) days, towit:

"WHEREFORE, the assailed Decision is hereby Affirmed with Modification in so far as the award of separation pay is concerned to the effect
that respondents are ordered to pay complainants one month for every year of service, instead of 17 days.

All other rulings are hereby AFFIRMED."[2]

Petitioners filed a Motion for Reconsideration on November 12, 1993 but the same was denied by the NLRC in a Resolution dated
December 7, 1993, thus:

"After due consideration of the Motion for Reconsideration filed by respondents on November 12, 1995, from the Resolution of September 30,
1993, the Commission (Second Division) RESOLVED to deny the same for lack of merit."[3]

On August 8, 1994, private respondents sought a clarification of public respondent NLRC's Resolution dated September 30, 1993 insofar
as the computation of separation pay by the Examination and computation division was concerned as well as the failure of the Resolution to
award them full backwages despite the finding of illegal dismissal.

On April 21, 1995, the NLRC, treating the Motion to Clarity Judgment as an Appeal, granted the same in this wise:

"ACCORDINGLY, in view of the foregoing, the complainants-appelles Motion to Clarify Judgment is partially GRANTED and Mr. Ricardo Atienza,
Acting Chief of the Examination and computation Division is hereby directed to include in the computation, six months backwages as provided
for in the September 30, 1993 Resolution of the Division, which was however omitted in the dispositive portion thereof.

SO ORDERED."[4]

Petitioners filed a Motion for Reconsideration of the April 21, 1995 Resolution, which was denied in another Resolution [5] dated May 24,
1995.

Hence, this petition.

We shall dismiss the petition. The law recognizes the right of every business entity to reduce its work force if the same is made
necessary by compelling economic factors which would endanger its existence or stability. In spite of overwhelming support granted by the
social justice provisions of our Constitution in favor of labor, the fundamental law itself guarantees, even during the process of tilting the
scales of social justice towards workers and employees, "the right of enterprises to reasonable returns of investment and to expansion and
growth."[6] To hold otherwise would not only be oppressive and inhuman,[7] but also counter-productive and ultimately subversive of the
nation's thrust towards a resurgence in our economy which would ultimately benefit the majority of our people. Where appropriate and where
conditions are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business
losses,[8] the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has rendered certain
employees redundant.[9] Thus, Article 283 of the Labor Code, which covers retrenchment, reads as follows:

"Art. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to
the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on
the worker and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to
the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least
his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year."
 Retrenchment, or "lay-off" in layman's parlance, is the termination of employment initiated by the employer through no fault of the
employee's and without prejudice to the latter, resorted to by the management during periods of business recession, industrial depression, or
seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of a plant for a new production program
or the introduction of new methods or more efficient machinery, or of automation.[10] Simply put, it is an act of employer of dismissing
employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right
consistently recognized and affirmed by this court.[11] Nevertheless, while it is true that retrenchment is a management prerogative, it is still
subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence. And since retrenchment
strikes at the very core of an individual's employment, which may be the only lifeline on which he and his family depend for survival, [12] the
burden clearly falls upon the employer to prove economic or business losses with appropriate supporting evidence. [13] Any claim of actual or
potential business losses must satisfy certain established standards before any reduction of personnel becomes legal, viz:

"1. The losses expected and sought to be avoided must be substantial and not merely de minimis in extent;

2. The substantial losses apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith
by the employer;

3. The retrenchment must be reasonably necessary and likely to effectively prevent the expected losses.

4. The alleged losses. If already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and
convincing evidence."[14]

In sustaining the company's submission that it suffered serious business losses in 1991, thus necessitating the retrenchment of
respondent employees, the Labor Arbiter found:

"On the ground invoke by respondent for closing its business, i.e., serious losses and financial straits, responded submitted Financial Report
wherein it incurred a net loss of Forty(sic) Three Million Four Hundred Eighteen Thousand Two Hundred Seventy Two and Ninety eight
Centavos(P43,418,272.98) in 1991. Thus, based on all the foregoing, we are constrained that respondent was, indeed, suffering from
financial reverses that would justify its decision to close down its business. Hence, under Section 9 (b) Book VI, Rule III of Omnibus Rules
implementing the Labor Code, it provides:

'Section 9. (b) Where the termination of employment is due to retrenchment to prevent losses and in case of closure or cessation of
operations of establishment or undertaking not due to serious business losses or financial reverses, or where the employee suffers from a
disease and his continued employment is prohibited by law or is prejudicial to his health or the health of his co-employees, the employee shall
be entitled to termination pay equivalent to at least one-half month pay for every year of service, a fraction of at least six months being
considered as one whole year."'[15]

The NLRC, in its September 30, 1993 Resolution, however, reversed the foregoing findings of the Labor Arbiter and adjudged Crispa,
Inc. as well as the petitioners liable for illegal dismissal.The NLRC ruled, thus:

"We observed that the basis of the Labor Arbiter in sustaining the argument of financial reverses is the Statement of Profit and Losses
submitted by the respondent (Supra.). The same however, does not bear the signature of a certified public accountant or audited by an
independent auditor. Briefly stated, it has no evidentiary value. As such the allege financial losses which cause the temporary closure of
respondent CRISPA, Inc. has not been sufficiently established. In the case of Lopez Sugar Corp. vs. FFW, 189 SCRA 179, the Supreme Court
held that 'alleged losses if already realized and the expected losses sought to be forestalled must be proved by sufficient and commencing
(sic) evidence. Consequently, there being no financial reverses for (sic) men (sic) the termination of herein complainants from their
employment is perforce illegal."[16]

We are more in accord with the aforequoted observations made by the NLRC. It is true that administrative and quasi-judicial bodies like
the NLRC are not bound by the technical rules of procedure in the adjudication of cases. [17] However, this procedural rule should not be
construed as a license to disregard certain fundamental evidentiary rules. While the rules of evidence prevailing in the courts of law or equity
are not controlling in proceedings before the NLRC, the evidence presented before it must at least have a modicum of admissibility for it to be
given some probative value.[18] The Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses, without the
accompanying signature of a certified public accountant or audited by an independent auditor, are nothing but self-serving documents which
ought to be treated as a mere scrap of paper devoid of any probative value. For sure, this is not the kind of sufficient and convincing evidence
necessary to discharge the burden of proof required of petitioners to establish the alleged losses suffered by Crispa, Inc. in the years
immediately preceding 1990 that would justify the retrenchment of respondent employees. In fact, petitioners, as directors and officers of
Crispa, Inc., already concede, albeit quite belatedly, in its Reply to Comment of Public Respondent,[19] the finding of public respondent NLRC
that petitioners utterly failed to establish the alleged financial losses borne by Crispa, Inc.,[20] thus making the company guilty of illegal
dismissal against the private respondents. According to petitioners, what they are actually assailing is the decision of the NLRC holding them
solidarily liable with the company for the payment of separation pay and backwages to the private respondents. It is the contention of the
petitioners that the award of backwages and separation pay is a corporate obligation and must therefore be assumed by Crispa, Inc. alone.

We do not agree. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. The general rule is that obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities. [21] There are times, however, when solidary liabilities may be incurred but only when
exceptional circumstances warrant such as in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful
acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict
of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the
corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. [22]

In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment of
corporate employees done with malice or in bad faith.[23]In this case, it is undisputed that petitioners have a direct hand in the illegal
dismissal of respondent employees. They were the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board
Resolution retrenching the private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and
unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever. This is indicative of bad faith on the part of
petitioners for which they can be held jointly and severally liable with Crispa, Inc. for all the money claims of the illegally terminated
respondent employees in this case.
 WHEREFORE, finding no grave abuse of discretion on the part of the public respondent NLRC, the instant petition is hereby
DISMISSED. Costs against petitioners. SO ORDERED.
 [G.R. No. 117593. July 10, 1998]

BRENT HOSPITAL INC. and MORLITO B. APUZEN, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and TERESITA M.
FERNANDEZ,respondents.

DECISION

ROMERO, J.:

On June 6, 1968, respondent Teresita M. Fernandez was employed by petitioner Zamboanga Brent Hospital (Brent) as a staff nurse and
thereafter discharged functions[1] in different capacities until she was promoted as acting clinic coordinator.

It appears that sometime in August 1990, the principal and a number of faculty members of Brents School of Midwifery (BSM) resigned
and sought lucrative jobs abroad, thus, crippling its operations. Consequently, respondent was offered the position of principal which
proposal, however, she initially rejected. After continuous prodding and with the assurance that she could return, should she desire, to her
former position as clinic coordinator after a year of serving as principal, she was finally prevailed upon to accept the offer.

The record shows that BSM handles the review of its midwifery graduates by sending them to Manila one (1) month prior to the board
examinations. In pursuing this task, BSM enjoins each reviewee to pay the sum of P350.00 to defray the necessary coordinators expenses
that may be incurred in the performance of the latters duties. When BSMs Board of Directors (Board) scrapped the coordinators fee in May
1993, the reviewees requested respondent and Mrs. Norma Pada, an instructor at BSM, to accompany them to Manila, as previous reviewees
have been accustomed to, and expressed their willingness to voluntarily shoulder the said fees. For lack of time, the collection of the same
was neither communicated to the Board nor to the parents of the reviewees. The collection effected in Manila was allegedly discovered by
petitioner through its Hospital Administrator Morlito Apuzen who declared that, while in Manila, a reviewee confided to him that respondent
demanded, as coordinators fee, the sum of P350.00 from each of them. Forthwith, Apuzen reported the matter to the Board who immediately
convened the protesting parents, assuring the latter that respondent would be confronted with the same.

Upon her return from Manila, respondent, without being required to, presented to the Board a report of her expenses which were
charged against the voluntary contributions of the reviewees.For allegedly violating the policy laid down by petitioner regarding the imposition
and collection of coordinators fee of P350.00, respondent and Mrs. Pada were terminated from their respective employments. While the latter
sought reconsideration from the Boards decision, respondent filed a case for illegal dismissal and damages against Brent. Labor Arbiter
Reynaldo S. Villena rendered a decision dated August 16, 1993, the decretal portion of which reads thus:

WHEREFORE, on the basis of the foregoing, judgment is hereby rendered declaring the dismissal of complainant as illegal. Respondent is
hereby ordered to pay complainant her separation pay in the amount ofP125,000.00 and backwages in the sum of P15,000.00; P100,000.00
for moral damages and P100,000.00 for exemplary damages.

Respondent is also ordered to pay ten (10%) percent of the total award to the complainant as attorneys fees.

All other claims are dismissed for lack of merit and insufficiency of evidence.

SO ORDERED.[2]

On appeal, the above decision was affirmed by the National Labor Relations Commission (NLRC) in a resolution dated June 29,
1994. Brents motion for reconsideration having been denied on September 29, 1994, petitioner filed the instant petition
for certiorari. Respondent, on the other hand, partially appealed the same on the ground that the Labor Arbiter erred in limiting the award of
backwages to P15,000.00, arguing that its computation should be reckoned from the time of dismissal up to the date the decision becomes
final and executory. The claim, however, was rejected by the NLRC on the basis that the same was filed out of time.

Petitioner proffered the following grounds on appeal:

I. THE AUGUST 16, 1993 DE CISION OF THE LABOR ARBITER WHICH WAS AFFIRMED BY THE PUBLIC RESPONDENT NLRC IS
CONTRARY TO THE EVIDENCE AND RECORDS OF THE CASE INSOFAR AS IT HELD THAT THE PRIVATE RESPONDENT WAS
DISMISSED WITHOUT JUST OR AUTHORIZED CAUSE AND WAS DENIED DUE PROCESS;

II. THE AWARD OF DAMAGES MORAL AND EXEMPLARY TO PRIVATE RESPONDENTS (sic) IS WITHOUT LEGAL OR FACTUAL BASIS;

III. EVIDENCE AND RECORDS OF THE CASE SHOW NO CAUSE OF ACTION EXISTS AGAINST PETITIONER MORLITO B. APUZEN
NOT BEING THE REAL PARTY IN INTEREST AND NOT THE ONE WHO TERMINATED OR EVEN RESPONSIBLE FOR PRIVATE
RESPONDENTS DISMISSAL. AS SUCH, HE SHOULD NOT BE MADE LIABLE TO THE PRIVATE RESPONDENT.[3]

Petitioner Brent maintains that respondent was validly terminated for loss of trust and confidence when, without the authority and
consent of the Board, she exacted the amount of P350.00 from each reviewee as coordinators fee. It further argued that respondent, being a
managerial employee, the rules on termination of employment and penalties for infractions are not necessarily the same as those applicable
to termination of employment of ordinary employees.[4] We do not agree.

A cursory reading of the first issue reveals that it is factual in nature, involving as it does the appreciation of evidence adduced before
the NLRC. This Court cites the settled principle that factual findings of quasi-judicial agencies like the NLRC are generally accorded, not only
respect but, at times, finality if such are supported by substantial evidence. [5] The matter, being factual, is beyond the authority of this Court
to review.[6]

At the outset, we are of the opinion that respondent did not infringe the policy of petitioner regarding the collection of coordinators
fee. This finding is buttressed by the fact that it was the reviewees themselves who sought respondent and Mrs. Pada to accompany them to
Manila, as evidenced by their letter-request[7] dated February 23, 1993. Ninety-five (95) of the reviewees agreed to voluntarily shoulder the
expenses that may be incurred thereat which amount was pegged at P350.00 per reviewee. Due to time constraints, respondent advised the
reviewees to forthwith discuss with their parents the arrangements they made with her.

When she returned from Manila, the Board convened a meeting on May 10, 1993 with parents of the reviewees in attendance, whereby
respondent and Mrs. Pada were made to explain their actions and why no disciplinary action should be taken against them. On the ground of
loss of trust and confidence, the Board voted to terminate them from their respective employments in a decision handed down immediately
after the hearing.

To be a valid ground for dismissal, loss of trust and confidence must be based on a willful breach of trust and founded on clearly
established facts sufficient to warrant the employees separation from work.[8] The loss of confidence must rest on an actual breach of duty
committed by the employee and not on the employers caprices.[9] Such ground of dismissal has never been intended to afford an occasion for
abuse because of its subjective nature.[10]

In the instant case, the allegations that respondent did not only violate the standing policy of petitioner but also took advantage of her
position in corrupting the unsuspecting reviewees, have not been established by the petitioner. As aptly held by Solicitor General in his
Comment, the voluntariness of the payments given to private respondent negates any finding of impropriety, much less of a serious
misconduct.[11]
 Petitioners argument that the rules on termination applicable to respondent, being a managerial employee, are different from that
applied to rank and file workers must likewise fail. This issue was squarely addressed in Midas Touch Food Corp. v. NLRC,[12] wherein the
Court ruled that:

(t)he right of security of tenure cannot be eroded, let alone forfeited except upon a clear and convincing showing of a just and lawful
cause. No less than the Constitution itself has guaranteed the states protection to labor and its assurance to workers of security of tenure in
their employment. The application of this rule encompasses both the rank and file as well as managerial employees. (Underscoring supplied)

On the issue as to the award of moral and exemplary damages, we find that the same must be deleted for want of factual basis.

Moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud, or constituted an act
oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. [13] Exemplary damages, on the other hand,
may be awarded if the dismissal constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public
policy.[14]

None of the circumstances, however, obtains in the instant case. It must be noted that on May 10, 1993, the Board of Directors of BSM
conducted an inquiry wherein respondent was duly notified of the charges imputed against her. In the course of the investigation, respondent
explained that upon the request of the reviewees, she agreed to accompany them to Manila as coordinator, with the latter assuring her of the
funds essential for their continued stay thereat until the duration of the Board exams. She also presented before the Board an itemized
account of the expenses incurred. The minutes of the meeting reveal that the sentiments of the parents in attendance were divided. Some of
the parents suspected that respondent may have pocketed the money collected while the others were even grateful for what she had
done. After hearing the two sides of the controversy, respondent was ordered relieved of her post as principal. In view of the factual milieu of
this case, we find respondent to have been afforded her statutory rights to notice and hearing, the dismissal being premised on the honest
belief that she violated the policy of petitioner Brent regarding the collection of coordinators fees. Thus, her dismissal could not be
characterized as having been effected in a wanton, oppressive or malevolent manner.

The third issue raised by petitioner is likewise meritorious. Co-petitioner Morlito Apuzen cannot be held liable for any judgment rendered
against petitioner Brent. In MAM Realty Development Corporation v. NLRC,[15] the Court declared:

A corporation, being a juridical entity, may act only through its directors, officers and employees and obligations incurred by them, acting as
corporate agents, are not theirs but the direct accountabilities of the corporation they represent.

The award of attorneys fees must likewise fail. The reason for the award thereof must be stated in the text of the courts decision and
not in the dispositive portion only.[16]

WHEREFORE, in view of the foregoing, the petition is DISMISSED for lack of merit and the assailed resolution is AFFIRMED subject to
the following MODIFICATIONS:

1. DECLARING the deletion of the award of moral and exemplary damages and attorneys fees for want of factual basis;

2. REVERSING the order of the National Labor Relations Commission finding Morlito Apuzen jointly and severally liable with Brent Hospital,
Inc. Costs against petitioner. SO ORDERED.
 [G.R. No. 125340. September 17, 1998]

EMELITA NICARIO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, MANCAO SUPERMARKET INC., AND/OR
MANAGER, ANTONIO MANCAO, respondents.

DECISION

ROMERO, J.:

For resolution before this Court is a special civil action for certiorari under Ruled 65 of the Rules of Court which seeks to set aside the
resolution of the National Labor Relations Commission (Fifth Division, Cagayan de Oro City) dated December 21, 1995 in NLRC CA No. M-
002047-94 entitled Emelita Nicario v. Mancao Supermarket Inc. and/or Manager which ruled that petitioner, Emelita Nicario, is not entitled to
overtime pay.Nor is private respondent, Antonio Mancao jointly and severally liable with the respondent company for thirteenth month pay,
service incentive leave pay, and rest day pay.[1]

Petitioner, Emelita Nicario, was employed with respondent company Mancao Supermarket, on June 6, 1986 as a salesgirl and was later
on promoted as sales supervisor. However, private respondent terminated her services on February 7, 1989.

A complaint for illegal dismissal with prayer for backwages, wage differential, service incentive leave pay, overtime pay, 13 th month pay
and unpaid wages was filed by petitioner before the National Labor Relations Commission, Sub-Regional Arbitration Branch X in Butuan City.

On July 25, 1989, Labor Arbiter Amado M. Solamo dismissed the complaint for lack of merit. Petitioner appealed to the National Labor
Relations Commission (NLRC), Fifth Division, Cagayan de Oro City. In a resolution dated July 25, 1989, the NLRC set aside the labor arbiters
decision for lack of due process. It ruled that since petitioner assailed her supposed signatures appearing on the payrolls presented by the
company as a forgery, the labor arbiter should not have merely depended on the xerox copies of the payrolls, as submitted in evidence by the
private respondent but ordered a formal hearing on the issue. Thus, the Commission ordered the case remanded to the arbitration branch for
appropriate proceedings. The case was assigned to Labor Arbiter Marissa Macaraig-Guillen.[2]

In a decision dated May 23, 1994, Labor Arbiter Macaraig-Guillen awarded petitioners claims for unpaid service incentive leave pay,
13th month pay, overtime pay and rest day pay for the entire period of her employment, but dismissed her claims for holiday premium pay
and unpaid salaries from February 3 to 5, 1989. The dispositive portion of the decision read as follows:

WHEREFORE, in view of the foregoing, judgment is rendered directing respondent Mancao Supermarket, Inc., and/or Mr. Antonio
Mancao to pay complainant Emelita Nicario the sum of forty thousand three hundred ninety pesos and fifteen
centavos (P40,393.15) representing unpaid services incentive leave pay, thirteenth month pay, overtime pay, and rest day for the
entire period of employment.

All other claims are dismissed for lack of merit.

SO ORDERED.[3]

Not satisfied with the decision, private respondent appealed to the NLRC, and in a resolution dated August 16, 1995, [4] the Commission
affirmed in toto Labor Arbiter Macaraig-Guillens decision. Private respondent then filed a motion for reconsideration. In a resolution dated
December 21, 1995, public respondent NLRC modified its earlier resolution by deleting the award for overtime pay and ruling that private
respondent Antonio Mancao is not jointly and severally liable with Mancao Supermarket to pay petitioner the monetary award adjudged.

Petitioner now comes before this Court alleging grave abuse of discretion on the part of the public respondent NLRC in ruling that (a)
she is not entitled to overtime pay and (b) private respondent, Antonio Mancao cannot be held jointly and severally liable with respondent
supermarket as to the monetary award.

The Solicitor General, in a manifestation and motion in lieu of comment [5] stated that public respondent NLRC acted with grave abuse of
discretion in modifying its earlier resolution (dated August 16, 1995) and thus recommends that the December 21, 1995 resolution be set
aside, and its August 16, 1995 resolution be reinstated.

Public respondent NLRC, on the other hand, filed its own comment[6] praying for the dismissal of the petition and for the December 21,
1995 resolution to be affirmed with finality.

The petition is partly impressed with merit.

In her claim for payment of overtime pay, petitioner alleged that during her period of employment, she worked twelve (12) hours a day
from 7:30 a.m. to 7:30 p.m., thus rendering overtime work for four hours each day. Labor Arbiter Macaraig-Guillen, in her decision dated May
23, 1994, awarded overtime pay to petitioner by taking judicial notice of the fact that all Mancao establishments open at 8:00 a.m. and close
at 8:00 p.m..Upon appeal, this particular finding was affirmed by the Commission. However, when private respondent filed a motion for
reconsideration from the resolution dated August 16, 1995, the NLRC modified its earlier ruling and deleted the award for overtime
pay. Public respondent NLRC instead gave credence to the daily time records (DTRs) presented by respondent corporation showing that
petitioner throughout her employment from June 6, 1986 to February 1989, worked only for eight hours a day from 9:00 a.m. to 12:00 p.m.
and 2:00 p.m. to 7:00 p.m., and did not render work on her rest days.

Public respondents reliance on the daily time records submitted by private respondent is misplaced. As aptly stated by the Solicitor
General in lieu of comment, the DTRs presented by respondent company are unreliable based on the following observations:

a) the originals thereof were not presented in evidence; petitioners allegation of forgery should have prompted respondent to
submit the same for inspection; evidence wilfully suppressed would be adverse if produced (Sec. 3(e), Rule 131, Rules
of Court)

xxx xxx xxx

e) they would make it appear that petitioner has a two-hour rest period from 12:00 to 2:00 p.m., this is highly unusual for a
store establishment because employees should attend to customers almost every minute as well as contrary to the
judicial notice that no noon break is observed.

f) petitioner never reported earlier or later than 9:00 a.m., likewise she never went home earlier or later than 8:00 pm; all
entries are suspiciously consistent.[7]

Labor Arbiter Macaraig-Guillen, in taking judicial cognizance of the fact that private respondent company opens twelve (12) hours a day,
the same number of hours worked by petitioner everyday, applied Rule 129, Section 2 of the Rules of Court which provides that a court may
take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration, or ought to be known because
of their judicial functions. In awarding overtime pay to petitioner, the labor arbiter ruled:

However, it is of judicial notice that all Mancao establishments open at eight a.m. and close at eight p.m. with no noon break, so it
is believable that employees rendered 4-1/2 hours of overtime everyday, 7 days a week.[8]

Generally, findings of facts of quasi-judicial agencies like the NLRC are accorded great respect and at times even finality if supported by
substantial evidence.[9] Substantial evidence is such amount of relevant evidence which a reasonable mind might accept as adequate to justify
a conclusion. However in cases where there is a conflict between the factual findings of the NLRC and the labor arbiter, a review of such
factual findings is necessitated.[10]
 While private respondent company submitted the daily time records of the petitioner to show that she rendered work for only eight (8)
hours a day, it did not refute nor seek to disprove the judicial notice taken by Labor Arbiter Macaraig-Guillen that Mancao establishments,
including the establishment where petitioner worked, opens twelve hours a day, opening at 8:00 a.m. and closing at 8:00 p.m.

This Court, in previously evaluating the evidentiary value of daily time records, especially those which show uniform entries with regard
to the hours of work rendered by an employee, has ruled that such unvarying recording of a daily time record is improbable and contrary to
human experience. It is impossible for an employee to arrive at the workplace and leave at exactly the same time, day in day out. The
uniformity and regularity of the entries are badges of untruthfulness and as such indices of dubiety.[11] The observations made by the Solicitor
General regarding the unreliability of the daily time records would therefore seem more convincing. On the other hand, respondent company
failed to present substantial evidence, other than the disputed DTRs, to prove that petitioner indeed worked for only eight hours a day.

It is a well-settled doctrine, that if doubts exist between the evidence presented by the employer and the employee, the scales of justice
must be tilted in favor of the latter. It is a time-honored rule that in controversies between a laborer and his master, doubts reasonably
arising from the evidence, or in the interpretation of agreements and writing should be resolved in the formers favor. [12] The policy is to
extend the doctrine to a greater number of employees who can avail of the benefits under the law, which is in consonance with the avowed
policy of the State to give maximum aid and protection of labor.[13] This rule should be applied in the case at bar, especially since the
evidence presented by the private respondent company is not convincing. Accordingly, we uphold the finding that petitioner rendered
overtime work, entitling her to overtime pay.

As to the liability of private respondent Antonio Mancao, petitioner contends that as manager of Mancao establishment, he should be
jointly and severally liable with respondent corporation as to the monetary award adjudged.

The general rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded
their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be
disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.[14]

In this case, there is no showing that Antonio Mancao, as manager of respondent company, deliberately and maliciously evaded the
respondent's company financial obligation to the petitioner. Hence, there appearing to be no evidence on record that Antonio Mancao acted
maliciously or deliberately in the non-payment of benefits to petitioner, he cannot be held jointly and severally liable with Mancao
supermarket.

WHEREFORE, in view of the foregoing, the instant petition is hereby PARTIALLY GRANTED. Accordingly, the resolution of the NLRC
dated December 21, 1995 in NLRC NCR CA No. M-002047-94 is hereby MODIFIED by awarding petitioner, Emelita Nicario her overtime pay
and relieving private respondent, Antonio Mancao, of any liability as manager of Mancao Supermarket and further holding Mancao
Supermarket solely liable. No costs. SO ORDERED.
 [G.R. No. 119085. September 9, 1999]

RESTAURANTE LAS CONCHAS and/or DAVID GONZALES, petitioners, vs. LYDIA LLEGO, SERGIO DANO, EDWARD ARDIANTE,
FEDERICO DE LA CRUZ, SHERILITA ANIEL, LORNA AZUELA, ZENAIDA HERMOCILLA, FELICIDAD ROLDAN, HELEN
MANALAYSAY, LUZ BALDELAMAR, FELICIDAD MENDOZA, DOLORES BAQUIZO, RODOLFO BAS, CIRIACO BATITES, and
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION, respondents.

DECISION

KAPUNAN, J.:

The Petition for Certiorari before us seeks the reversal of the Decision of the National Labor Relations Commission (NLRC) in favor of
private respondents and its resolution denying petitioners motion for reconsideration of said decision.

The facts which gave rise to this petition are as follows:

Private respondents were employees of petitioner Restaurante Las Conchas which was allegedly operated by the Restaurant Services
Corporation and by petitioners David Gonzales and Elizabeth Anne Gonzales who are members of the board of directors and officers of the
corporation.

While private respondents were being employed by petitioners, the Restaurant Services Corporation got involved in a legal battle with
the Ayala Land, Inc. over the land allegedly being occupied by petitioners for their restaurant.

Ayala Land, Inc. obtained a favorable judgment in the case filed against Restaurant Services Corporation for unlawful detainer and the
latter were ordered to vacate the premises. The case was appealed to the Court of Appeals and ultimately to this Court which affirmed the
decision of the trial court.[1]

Petitioners attempted to look for a suitable place for their restaurant business at the Ortigas Center but to no avail, thus, on February
28, 1994, they shut down their business. This resulted in the termination of employment of private respondents.

Private respondents filed a complaint with the Labor Arbiter for payment of separation pay and 13th month pay. This was, however,
dismissed by the Labor Arbiter prompting the private respondents to appeal the case to the respondent NLRC. On November 29, 1994, the
NLRC rendered a Decision favorable to private respondents, the dispositive portion of which reads:

WHEREFORE, the Decision of the Labor Arbiter a quo is hereby Set Aside and that respondents are ordered to pay the separation benefits of
the following complainants, namely:

1. Lydia Llego - P 46,426.25

2. Carlos Sangco - 29,026.40

3. Sergio Dano - 27,545.00

4. Sherlita Aniel - 52,000.00

5. Eduardo Ardiente - 30,906.85

6. Luz Baldelemar - - 40,855.10

7. Lorna Azuela - 34,468.85

8. Felicidad Roldan - 34,468.85

9. Zenaida Hermocilla - 34,468.85

10. Felicidad Mendoza - 27,212.25

11. Dolores Requizo - 40,855.10

12. Rodolfo Bas - 51,997.40

13. Ciriaco Batites - 22,105.20

__________

Total - P472,336.10

SO ORDERED.[2]

A motion for reconsideration was filed by petitioners but this was denied by the respondent NLRC in its Resolution dated January 25,
1995.

Hence, this petition with petitioner raising the following issues, to wit:

1. WHETHER OR NOT PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN REVERSING THE DECISION OF THE LABOR ARBITER A QUO.

2. WHETHER OR NOT PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN NOT GIVING CONSIDERATION TO THE EVIDENCE PRESENTED BY HEREIN PETITIONERS IN SUPPORT OF
THEIR DEFENSE.[3]

The petition is bereft of merit.

Petitioners claim that the private respondents were not entitled to separation pay because under the law, the payment of separation
benefits is mandated only when the closure of business or cessation of its operations was not due to serious business losses or reverses. [4] In
this case, they contend that the restaurant was encountering serious business losses, thus, private respondents were not entitled to the
separation benefits provided for under Art. 283 of the Labor Code.

We are not persuaded.

Art.283 of the Labor Code provides:

Art. 283. Closure of establishment and reduction of personnel. -- The employer may also terminate the employment of any employee due to
the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title by serving a written notice on
the workers and the Ministry of Labor and Employment (now Secretary of Labor and Employment) at least one (1) month before the intended
date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled
to a separation pay equivalent to at least his one (1) month pay or at least one (1) month pay for every year of service, whichever is
higher. In case of retrenchment to prevent losses and in cases of closure or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month
pay for every year of service, whichever is higher, a fraction of at least six (6) months shall be considered one (1) whole year. (Underscoring
supplied).

While it is true that the law does not obligate an employer to pay separation benefits when the closure is due to losses,[5] petitioners
have the burden to prove that such losses actually exists.[6]

In the present case, petitioners mentioned for the first time that they were suffering serious business losses when they filed their appeal
with the NLRC. Such issue was never raised during the hearing with the Labor Arbiter. This belated act of petitioners clearly shows that the
main reason for closing the restaurant was not due to losses. The allegation of business losses was a mere afterthought and a last ditch effort
to evade their obligation under the law.

Moreover, the evidence presented by petitioners to prove that they are suffering business losses consists merely of statements of the
corporations assets and liabilities which were not even certified by a certified public accountant or an accounting firm. Neither were the
corporations Income Tax Return (ITR) which they submitted in evidence duly certified by the Bureau of Internal Revenue (BIR) as true copies
of the original. They were mere self-serving declarations[7] which under the law are inadmissible as evidence.[8]

While it may be true that the rules of evidence prevailing in courts of law or equity are not controlling in proceedings before the NLRC,
still, we cannot admit the self-serving evidence presented by petitioners since there is no way of ascertaining the truth of their contents. To
admit them would open the floodgates to violations of employers of the provisions of the Labor Code to the detriment of labor which, under
the Constitution is to be protected.

In Uichico vs. National Labor Relations Commission,[9] we ruled that:

xxx. It is true that administrative and quasi-judicial bodies like the NLRC are not bound by the technical rules of procedure in the adjudication
of cases. However, this procedural rule should not be construed as a license to disregard certain fundamental evidentiary rules. While the
rules of evidence prevailing in the courts of law or equity are not controlling in proceedings before the NLRC, the evidence presented before it
must at least have a modicum of admissibility for it to be given some probative value. The Statement of Profit and Losses submitted by
Crispa, Inc. to prove its alleged losses, without the accompanying signature of a certified public accountant or audited by an independent
auditor, are nothing but self-serving documents which ought to be treated as a mere scrap of paper devoid of any probative value. xxx
(Underscoring supplied).

Petitioners also posit that since private respondents failed to refute the aforesaid financial statements and income tax returns, they are
deemed to have waived their right to object to the admissibility thereof.[10]

We disagree.

Well-settled is the rule that while lack of objection to a hearsay testimony or evidence results in the admittance thereof as evidence,
said evidence cannot be given any credence and probative values unless it is shown that it falls within the exceptions to the hearsay
rule.[11] In the present case, petitioners failed miserably to show that the financial statements and income tax returns are exceptions to the
hearsay rule, thus, their contents have no probative value whatsoever.

Going now to the issue of the personal liability of petitioners David Gonzales and Elizabeth Ann Gonzales, it is argued that they were
mere officers and members of the board of directors of petitioner corporation which has a separate and distinct personality from those of its
members and officers, hence, the Gonzales couple cannot be held to answer for the corporations liabilities. They insist that personally, they
had nothing to do with the separation of herein private respondents from petitioner corporation and therefore, should not be made personally
liable for their alleged separation pay.[12]

We are not persuaded.

Records reveal that the Restaurant Services Corporation was not a party respondent in the complaint filed before the Labor Arbiter. The
complaint was filed only against the Restaurante Las Conchas and the spouses David Gonzales and Elizabeth Anne Gonzales as owner,
manager and president.[13] The Restaurant Services Corporation was mentioned for the first time in the Motion to Dismiss filed by petitioners
David Gonzales and Elizabeth Anne Gonzales[14]who did not even bother to adduce any evidence to show that the Restaurant Services
Corporation was really the owner of the Restaurante Las Conchas. On the other hand, if indeed, the Restaurant Services Corporation was the
owner of the Restaurante Las Conchas and the employer of the private respondents, it should have filed a motion to intervene [15] in the
case. The records, however, show that no such motion to intervene was ever filed by the said corporation. The only conclusion that can be
derived is that the Restaurant Services Corporation, if it still exists, has no legal interest in the controversy. Notably, the corporation was only
included in the decision of the Labor Arbiter and the NLRC as respondent because of the mere allegation of petitioners David Gonzales and
Elizabeth Gonzales, albeit without proof, that it is the owner of the Restaurante Las Conchas. Thus, petitioners David Gonzales and Elizabeth
Anne Gonzales cannot rightfully claim that it is the corporation which should be made liable for the claims of private respondents.

Assuming that indeed, the Restaurant Services Corporation was the owner of the Restaurante Las Conchas and the employer of private
respondents, this will not absolve petitioners David Gonzales and Elizabeth Anne Gonzales from their liability as corporate officers. Although
as a rule, the officers and members of a corporation are not personally liable for acts done in the performance of their duties, this rule admits
of exceptions, one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the
employee, the officers should be held liable for acting on behalf of the corporation. Here, the corporation does not appear to exist anymore.

In A.C. Ransom Labor Union CCLU vs. National Labor Relations Commission,[16] this Court declared that:

x x x. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the
interest of (the) employer RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back
wages. This is the policy of the law. x x x.

xxx

(c) If the policy of the law were otherwise, the corporation employer can have devious ways of evading payment of backwages. In the instant
case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized
ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations
on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.

In Gudez vs. National Labor Relations Commission,[17] the Court ruled in this wise:

There is no dispute herein that respondent Crisologo is in fact the president of respondent corporation, RAPSA. Neither is there any doubt that
respondent RAPSA had closed its business upon the order of the Philippine Constabulary and that as a consequence thereof the services of
petitioner employees were terminated without awarding them separation pay as required under the Labor Code. It is significant to note that
the respondent corporation had ceased to exist when the Labor Arbiter rendered its decision holding respondent Crisologo jointly and
severally liable with respondent corporation for the money claims of its employees. Moreover, records show that on September 25, 1987,
which is the same day when the Labor Arbiters decision was promulgated, RAPSA filed a petition for voluntary insolvency with the Regional
Trial Court of Makati. The foregoing circumstances make it more necessary to hold respondent Crisologo liable for the claims due to
petitioners; otherwise, any decision that would be rendered in favor of the latter would be useless and ineffective for there would be no one
against whom it can be enforced. Thus, where the employer corporation is no longer existing and unable to satisfy the judgment in favor of
the employee, the officers should be held liable for acting on behalf of the corporation. (see Lim v. NLRC, G.R. 79907 and Sweet Lines, inc. v.
NLRC, G.R. 79975, March 16, 1989). (Underscoring supplied.)

Similarly, in Carmelcraft Corporation vs. National Labor Relations Commission,[18] we ruled as follows:

We find also untenable the contention of Carmen Yulo that she is not liable for the acts of the petitioner company, assuming it had acted
illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality of its own. Yulo claims she is only an
agent of the company carrying out the decisions of its board of directors. We do not agree. Our finding is that she is in fact and legal effect
the corporation, being not only its president and general manager but also its owner.

In Valderrama vs. National Labor Relations Commission,[19] it was held that:

A corporation can only act through its officers and agents. That is why the cease and desist order was directed to the officers and agents of
A.C. Ransom, which was actually found guilty of unfair labor practice. But that case clearly also holds that any decision against the company
can be enforced against the officers in their personal capacities should the corporation fail to satisfy the judgment against it. The quoted
portion of that decision explaining the basis for such ruling makes that clear. Agreeably with the ruling in A.C. Ransom Labor Union CCLU it
was held in another case that where the employer corporation is no longer existing and [is] unable to satisfy the judgment in favor of the
employee, the officer should be held liable for acting on behalf of the corporation. (Underscoring supplied.)

In the present case, the employees can no longer claim their separation benefits and 13th month pay from the corporation because it
has already ceased operation. To require them to do so would render illusory the separation and 13th month pay awarded to them by the
NLRC. Their only recourse is to satisfy their claim from the officers of the corporation who were, in effect, acting in behalf of the
corporation. It would appear that, originally, Restaurante Las Conchas was a single proprietorship put up by the parents of Elizabeth Anne
Gonzales, who together with her husband, petitioner David Gonzales, later took over its management. Private respondents claim, and rightly
so, that the former were the real owners of the restaurant. The conclusion is bolstered by the fact that petitioners never revealed who were
the other officers of the Restaurant Services Corporation, if only to pinpoint responsibility in the closure of the restaurant that resulted in the
dismissal of private respondents from employment. Petitioners David Gonzales and Elizabeth Anne Gonzales are, therefore, personally liable
for the payment of the separation and 13th month pay due to their former employees.

WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the respondent National Labor Relations
Commission is AFFIRMED in toto. SO ORDERED.
G.R. No. 90634-35 June 6, 1990

CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, President and General Manager, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT EMPLOYEES UNION, PROGRESSIVE FEDERATION OF LABOR,
represented by its Local President GEORGE OBANA, respondents.

Tee, Tomas & Associates for petitioners.

Raul E. Espinosa for private respondents.

CRUZ, J.:

The Court is appalled by the degree of bad faith that has characterized the petitioners' treatment of their employees. It borders on
puredisdain. And on top of this, they now have the temerity to seek from us a relief to which they are clearly not entitled. The petition must
be dismissed.

The record shows that after its registration as a labor union, the Camelcraft Employees Union sought but did not get recognition from the
petitioners. Consequently, it filed a petition for certification election in June 1987. On July 13, 1987, Camelcraft Corporation, through its
president and general manager, Carmen Yulo, announced in a meeting with the employees that it would cease operations on August 13,
1987, due to serious financial losses. Operations did cease as announced. On August 17, 1987, the union filed a complaint with the
Department of Labor against the petitioners for illegal lockout, unfair labor practice and damages, followed the next day with another
complaint for payment of unpaid wages, emergency cost of living allowances, holiday pay, and other benefits. On November 29, 1988, the
Labor Arbiter declared the shutdown illegal and violative of the employees' right to self-organization. The claim for unpaid benefits was also
granted. 1 After reviewing the decision on appeal, the respondent NLRC declared:

WHEREFORE, premises considered, the appealed decision is modified. In addition to the underpayment in their wages,
emergency living allowance, 13th month pay, legal holiday pay and premium pay for holidays for a period of three years,
the respondents are ordered to pay complainants their separation pay equivalent to one-month pay for every year of
service, a fraction of six months or more shall be considered as one (1) whole year.

The rest of the disposition stand. 2

We do not find that the above decision is tainted with grave abuse of discretion. On the contrary, it is comformable to the pertinent laws and
the facts clearly established at the hearing.

The reason invoked by the petitioner company to justify the cessation of its operations is hardly credible; in fact, it is preposterous when
viewed in the light of the other relevent circumstances. Its justification is that it sustained losses in the amount of P 1,603.88 as of December
31, 1986 . 3 There is no report, however, of its operations during the period after that date, that is, during the succeeding seven and a half
months before it decided to close its business. Significantly, the company is capitalized at P 3 million . 4 Considering such a substantial
investment, we hardly think that a loss of the paltry sum of less than P 2,000.00 could be considered serious enough to call for the closure of
the company.

We agree with the public respondent that the real reason for the decision of the petitioners to cease operations was the establishment of
respondent Carmelcraft Employees Union. It was apparently unwelcome to the corporation, which would rather shut down than deal with the
union. There is the allegation from the private respondent that the company had suggested that it might decide not to close the business if
the employees were to affiliate with another union which the management preferred. 5 This allegation has not been satisfactorily disproved.
At any rate, the finding of the NLRC is more believable than the ground invoked by the petitioners. Notably, this justification was made only
eight months after the alleged year-end loss and shortly after the respondent union filed a petition for certification election.

The act of the petitioners was an unfair labor practice prohibited by Article 248 of the Labor Code, to wit:

ART. 248. Unfair labor practices of employers.-It shall be unlawful for an employer to commit any of the following unfair
labor practice:

(a) To interfere with, restrain or coerce employees in the exercise of their right to self-organization;

More importantly, it was a defiance of the constitutional provision guaranteeing to workers the right to self-organization and to enter into
collective bargaining with management through the labor union of their own choice and confidence. 6

The determination to cease operations is a prerogative of management that is usually not interfered with by the State as no business can be
required to continue operating at a loss simply to maintain the workers in employment. 7 That would be a taking of property without due
process of law which the employer has a right to resist. But where it is manifest that the closure is motivated not by a desire to avoid further
losses but to discourage the workers from organizing themselves into a union for more effective negotiations with the management, the State
is bound to intervene.

And, indeed, even without such motivation, the closure cannot be justified because the claimed losses are obviously not serious. In this
situation, the employees are entitled to separation pay at the rate of one-half month for every year of service under Art. 283 of the Labor
Code.

The contention of the petitioners that the employees are estopped from claiming the alleged unpaid wages and other compensation must also
be rejected. This claim is based on the waivers supposedly made by the complainants on the understanding that "the management will
implement prospectively all benefits under existing labor standard laws." The petitioners argue that this assurance provided the consideration
that made the quitclaims executed by the employees valid. They add that the waivers were made voluntarily and contend that the contract
should be respected as the law between the parties.

Even if voluntarily executed, agreements are invalid if they are contrary to public policy. This is elementary. The protection of labor is one of
the policies laid down by the Constitution not only by specific provision but also as part of social justice. The Civil Code itself provides:

ART. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a third person with a right recognized by law.

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
The subordinate position of the individual employee vis-a-vis management renders him especially vulnerable to its blandishments and
importunings, and even intimidations, that may result in his improvidently if reluctantly signing over benefits to which he is clearly entitled.
Recognizing this danger, we have consistently held that quitclaims of the workers' benefits win not estop them from asserting them just the
same on the ground that public policy prohibits such waivers.

That the employee has signed a satisfaction receipt does not result in a waiver; the law does not consider as valid any
agreement to receive less compensation than what a worker is entitled to recover. A deed of release or quitclaim cannot
bar an employee from demanding benefits to which he is legally entitled. 8

Release and quitclaim is inequitable and incongruous to the declared public policy of the State to afford protection to labor
and to assure the rights of workers to security of tenure. 9

We find also untenable the contention of Carmen Yulo that she is not liable for the acts of the petitioner company, assuming it had acted
illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality of its own. Yulo claims she is only an
agent of the company carrying out the decisions of its board of directors. We do not agree. Our finding is that she is in fact and legal effect
the corporation, being not only its president and general manager but also its owner. 10

Moreover, and this is a no less important consideration, she is raising this issue only at this tardy hour, when she should have invoked this
argument earlier, when the case was being heard before the labor arbiter and later m the NLRC. It is too late now to shunt these
responsibilities to the company after she herself had been found liable.

All told, the conduct of the petitioners toward the employees has been less than commendable. Indeed, it is reprehensible. First, the company
inveigled them to waive their claims to compensation due them on the promise that future benefits would be paid (and to make matters
worse, there is no showing that they were indeed paid). Second, it refused to recognize the respondent union, suggesting to the employees
that they join another union acceptable to management. Third, it threatened the employees with the closure of the company and then
actually did so when the employees insisted on their demands. All these acts reflect on the bona fides of the petitioners and unmistakably
indicate their ill will toward the employees.

The petitioners obviously regard the private respondents as mere servants simply because they are paid employees. That is a mistake.
Laborers are not just hired help to be exploited, without the right to defend and improve their interest . The working class is an equal partner
of management and should always be treated as such.

The more labor is prevented from pursuing its legitimate demands for its protection and enhancement, the more it is likely to lose faith in our
free institutions and to incline toward Ideologies offering a more if deceptive regime. One way of disabusing our working men and women of
this delusion is to assure them that under our form of government, the interests of labor deserve and will get proper recognition from an
enlightened and compassionate management, no less than the total sympathy of a solicitous State.

WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs against the petitioner. It is so ordered.
 [G.R. No. 98239. April 25, 1996]

CONSUELO VALDERRAMA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, FIRST DIVISION AND MARIA ANDREA
SAAVEDRA,respondents.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; RULE ON FINALITY OF JUDGMENTS; EXCEPTIONS; WHERE CIRCUMSTANCES RENDER ITS
EXECUTION IMPOSSIBLE. - The rule that once a judgment becomes final it can no longer be disturbed, altered, or modified is not an
inflexible one. It admits of exceptions, as where facts and circumstances transpire after a judgment has become final and executory
which render its execution impossible or unjust. In such a case the modification of the decision may be sought by the interested party
and the court will modify and alter the judgment to harmonize it with justice and the facts.

2. ID.; ID.; ID.; ID.; MODIFICATION OF JUDGMENT IN LABOR CASE APPROPRIATE AS WHERE CLAIM IN COMPANY NO LONGER
FEASIBLE, EMPLOYEE CAN GO AFTER ITS OFFICERS. - Modification of the judgment is appropriate considering that the company is
no longer in operation and there is no showing that it has filed bankruptcy proceedings in which private respondent might file a claim
and pursue her remedy under Article 110 of the Labor Code. Holding petitioner officer personally liable for the judgment in this case is
eminently just and proper considering that, although the dispositive portion of the decision mentions only the respondent company, the
text repeatedly mentions respondents in assessing liability for the illegal dismissal of private respondent. There can be no doubt of their
personal liability. The mere happenstance that only the company is mentioned should not, therefore, be allowed to obscure the fact that
in the text of the decision petitioner and her corespondents below were found guilty of having illegally dismissed private respondent and
of claiming that private respondents employment was terminated because of retrenchment, when the truth was that she was dismissed
for pregnancy. Hence they should be held personally liable for private respondents reinstatement with backwages. Indeed it is well said
that to get the true intent and meaning of a decision, no specific portion thereof should be resorted to but same must be considered in
its entirety.

3. LABOR LAW AND SOCIAL LEGISLATION; EMPLOYER CORPORATION AND ITS OFFICERS; LIABILITY. - Under the Labor Code,
petitioner officer is herself considered an employer.In A. C. Ransom Labor Union-CCLU v. NLRC, we held: Employer includes any person
acting in the interest of an employer, directly or indirectly. Since RANSOM is an artificial person, it must have an officer who can be
presumed to be the employer, being the person acting in the interest of (the) employer. The corporation, only in the technical sense, is
the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for the non-
payment of backwages. A corporation can only act through its officers and agents. Any decision against the company can be enforced
against the officers in their personal capacities should the corporation fail to satisfy the judgment against it. Where the employer
corporation is no longer existing and [is] unable to satisfy the judgment in favor of the employee, the officer should be held liable for
acting on behalf of the corporation. In this case, documents show that petitioner controlled the company owning 1,993 of its 2,000
shares.

4. ID.; TECHNICAL RULES OF PROCEDURE MAY BE DISREGARDED FOR THE PROTECTION OF LABOR. - There was really no
amendment of the decision but only a clarification. But even if appeal was required in order to correct the error, in the interest of
substantial justice, especially in cases involving rights of workers, the procedural lapse in this case may be disregarded.

APPEARANCES OF COUNSEL

Chaves Hechanova Lim Law Offices for petitioner.

Ramon A. Gonzales for private respondent.

DECISION

MENDOZA, J.:

On October 27, 1983, Maria Andrea Saavedra, herein private respondent, filed a complaint against the COMMODEX (Phils.), Inc.,
petitioner Consuelo Valderrama as owner, Tranquilino Valderrama as executive vice president and Jose Ma. Togle as vice president and
general manager, for reinstatement and backwages.[1] On December 2, 1986, the Labor Arbiter rendered a decision, finding private
respondent to have been illegally dismissed and holding the respondent COMMODEX liable. It was shown that private respondent had been
dismissed from her employment due to her pregnancy, contrary to allegations of petitioner and her corespondents therein that the
termination of her employment was due to redundancy and retrenchment.[2] The dispositive portion of the Labor Arbiters decision reads:

WHEREFORE, judgment is hereby rendered ordering respondent company:

1. to reinstate complainant to her former position with full backwages at the rate of P1,474.00 per month from the date she was illegally
dismissed on 16 March 1983 until actually reinstated without loss of seniority right and other benefits which she could have earned were it not
for her illegal dismissal;

2. to pay complainant moral and exemplary damages in the amount of P20,000.00 and P5,000.00, respectively; and,

3. to pay complainant attorneys fees equivalent to ten (10%) percent of the total award.

A writ of execution was granted, but it was returned unsatisfied.[3] The sheriff reported that COMMODEX had ceased operation, while the
individual officers, who were corespondents in the case, took the position that the writ could not be enforced against them on the ground that
the dispositive portion of the decision mentioned only COMMODEX.

Private respondent filed a Motion for Clarification in which she prayed:

WHEREFORE, it is most respectfully prayed that the dispositive part of the decision be clarified to read as follows:

WHEREFORE, judgment is hereby rendered ordering respondents jointly and severally:

1. to reinstate complainant to her former position with full backwages at the rate of P 1,474.00 per month from the date she was illegally
dismissed on 16 March 1983 until actually reinstated without loss of seniority right and other benefits which she could have earned were it not
for her illegal dismissal;

2. to pay complainant moral and exemplary damages in the amount of P20,000.00 and P5,000.00, respectively; and

3. to pay complainant attorneys fee equivalent to ten (10%) percent of the total award.

Private respondent contended that the body of the decision clearly held the petitioner and her corespondents therein to be liable and
that
[t]herefore, this Office is not precluded from correcting the inadvertence by clarifying the words respondent company which ought to have
been respondents jointly and severally in order to make the fallo or dispositive part correspond or correlate with the body of the final decision,
considering that the unjust dismissal of the complainant constitutes tort or quasidelict. (Article 2176, New Civil Code).

Petitioner and her corespondents therein filed an opposition to the motion for clarification. They contended that the decision of the Labor
Arbiter had become final and executory and could no longer be amended.[4]

In reply private respondent argued that no amendment of a final decision was being sought but only the correction of a mistake or a
clarification of an ambiguity because the exclusion [of the other respondents] in the dispositive part of the decision is merely a clerical error
or mistake, since in the body of the decision they [petitioner and corespondents therein] were included, hence said error or mistake can yet
be corrected even if the decision is already final.[5]

On April 12, 1988, the Labor Arbiter, citing our ruling in A. C. Ransom Labor Union-CCLU v. NLRC,[6] which held the president of a
corporation responsible and personally liable for payment of backwages, granted the private respondents motion and set it for hearing for
reception of evidence of the relationship of the petitioner and her corespondents therein to COMMODEX. Private respondent then presented
the Articles of Incorporation, List of Stockholders and the General Information Sheet of COMMODEX, [7] which showed that of the 2,000 shares
of stocks of the corporation, Consuelo Valderrama owned 1,993[8] and that she was chairman of the board and president of respondent
company.[9]

On July 25, 1988, the Labor Arbiter declared petitioner Consuelo Valderrama liable for the payment of the monetary awards contained in
the dispositive portion of the decision dated December 2, 1986,[10] thus:

WHEREFORE, respondent Consuelo Valderrama, as Chairman of the Board and President of respondent COMMODEX (Phils.), Inc. who is
originally impleaded is hereby deemed included as party respondent and she should, as she is hereby held liable for the awards to
complainant Maria Andrea L. Saavedra.

To obviate the further issuance of a Writ of Execution against her, she should, as she is hereby ordered to pay aforenamed complainant the
monetary awards ordained in the Decision herein.

SO ORDERED.

Petitioner appealed to the NLRC. In a resolution dated February 26, 1991, the First Division of the NLRC affirmed the Labor Arbiters
order and dismissed the appeal for lack of merit.[11]Hence, this petition. Petitioner alleges that:

1. The Decision dated 02 December 1986 has become final and executory, and, hence, can no longer be substantially amended as to include
liability on the part of herein Petitioner, who was originally not named as liable in the dispositive portion of the said Decision; and

2. Petitioner cannot and should not be held personally liable jointly and severally with Commodex (Phils.), Inc. for the awards adjudged in
favor of herein Private Respondent Saavedra.

We find these contentions to be without merit.

First. The rule that once a judgment becomes final it can no longer be disturbed, altered, or modified is not an inflexible one. It admits
of exceptions, as where facts and circumstances transpire after a judgment has become final and executory which render its execution
impossible or unjust. In such a case the modification of the decision may be sought by the interested party and the court will modify and alter
the judgment to harmonize it with justice and the facts.[12]

In the case at bar, modification of the judgment is appropriate considering that the company is no longer in operation and there is no
showing that it has filed bankruptcy proceedings in which private respondent might file a claim and pursue her remedy under Article 110 of
the Labor Code. Holding petitioner personally liable for the judgment in this case is eminently just and proper considering that, although the
dispositive portion of the decision mentions only the respondent company, the text repeatedly mentions respondents in assessing liability for
the illegal dismissal of private respondent. For indeed petitioner and others were respondents below and there can be no doubt of their
personal liability. The mere happenstance that only the company is mentioned should not, therefore, be allowed to obscure the fact that in
the text of the decision petitioner and her corespondents below were found guilty of having illegally dismissed private respondent and of
claiming that private respondents employment was terminated because of retrenchment, when the truth was that she was dismissed for
pregnancy. Hence they should be held personally liable for private respondents reinstatement with backwages. [13]

Indeed it is well said that to get the true intent and meaning of a decision, no specific portion thereof should be resorted to but same
must be considered in its entirety (Escarella vs. Director of Lands, 83 Phil. 491; 46 Off. Gaz. No. 11 p. 5487; I Morans Comments on the
Rules of Court, 1957 ed., p. 478).[14]

Second. Not only is it clear by reference to the text of the decision of the Labor Arbiter that COMMODEX as well as its officers were
being held liable so that no substantial amendment of the decision was really made by the Labor Arbiter in ordering petitioner to comply with
that decision, but under the Labor Code, petitioner is herself considered an employer. In A. C. Ransom Labor Union-CCLU v. NLRC,[15] we
held:

(a) Article 265 of the Labor Code, in part, expressly provides:

Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full
backwages.

Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos
and/or imprisonment for not less than one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor
Code which provides:

(c) Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization
or any of its officers or agents except when acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have
an officer who can be presumed to be the employer, being the person acting in the interest of (the) employer RANSOM. The corporation, only
in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for the non-payment of back
wages. That is the policy of the law. In the Minimum Wage Law, Section 15 (b) provided:
 (b) If any violation of this Act is committed by a corporation, trust, partnership or association, the manager or in his default, the person
acting as such when the violation took place, shall be responsible. In the case of a government corporation, the managing head shall be made
responsible, except when shown that the violation was due to an act or commission of some other person, over whom he has no control, in
which case the latter shall be held responsible.

In P.D. 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty shall be imposed upon
the guilty officer or officers of the corporation.

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of backwages. In the
instant case, it would appear that RANSOM, in 1969, forseeing the possibility or probability of payment of backwages to the 22 strikers,
organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased
operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.

(d) The record does not clearly identify the officer or officers of RANSOM directly responsible for failure to pay the back wages of the 22
strikers: In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the
corporation who can be deemed the chief operation officer thereof. Thus, in R.A. 602, criminal responsibility is with the Manager or in his
default, the person acting as such. In RANSOM, the President appears to be the Manager.

(e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion that the
personal liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a continuing joint and several
personal liabilities of all who may have thereafter succeeded to the office of president; otherwise the 22 strikers may be deprived of their
rights by the election of a president without leviable assets.

Petitioner seeks to distinguish that case from the one at bar on the ground that the dispositive portion of the decision in that case
actually ordered the officers and agents of A. C. Ransom to cease and desist from committing further acts of certain labor practice thus:

IN VIEW OF ALL THE FOREGOING, . . . the A. C. Ransom Philippine Corporation is guilty of unfair labor practice of interference and
discrimination hereinabove held and specified, ordering its officers and agentsto cease and desist from committing the same, finding the
strike legal and justified; and to reinstate immediately . . . to their respective positions with backwages from July 25, 1969 until actually
reinstated, without loss of seniority rights and other privileges appurtenant to their employment. [16]

A corporation can only act through its officers and agents. That is why the cease and desist order was directed to the officers and agents
of A. C. Ransom, which was actually found guilty of unfair labor practice. But that case clearly also holds that any decision against the
company can be enforced against the officers in their personal capacities should the corporation fail to satisfy the judgment against it. The
quoted portion of that decision explaining the basis for such ruling makes that clear. Agreeably with the ruling in A. C. Ransom Labor Union-
CCLU it was held in another case that where the Employer corporation is no longer existing and [is] unable to satisfy the judgment in favor of
the employee, the officer should be held liable for acting on behalf of the corporation.[17]

Similarly it was held in Carmeicraft Corp. v. NLRC:[18]

We also find untenable the contention of Carmen Yulo that she is not liable for the acts of the petitioner company, assuming it had acted
illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality of its own. Yulo claims she is only an
agent of the company carrying out the decisions of its board of directors. We do not agree. Our finding is that she is in fact and legal effect
the corporation, being not only its president and general manager but also its owner.

In this case, the documents presented by the private respondent show that petitioner controlled the company owning 1,993 of its 2,000
shares, with the rest of the stockholders owning only nominal amounts.

Third. Petitioner says the failure of private respondent to make a timely appeal bars her from enforcing the decision in her favor against
her (petitioner) and the officers of the corporation because the decision of December 2, 1986 of the Labor Arbiter is now final and can no
longer be amended.

We have already explained that there was really no amendment of the decision but only a clarification. But even if appeal was required
in order to correct the error, in the interest of substantial justice, especially in cases involving rights of workers, the procedural lapse in this
case may be disregarded. As held in General Baptist Bible College v. NLRC:[19]

Technicalities have no room in labor cases, where the Rules of Court are applicable only in order to effectuate the objectives of the Labor
Code and not to defeat them. The pertinent provisions of the Revised Rules of Court of the Philippines and prevailing jurisprudence may be
applied by analogy or in a suppletory character to effect an expeditious resolution of labor controversies in a practical and convenient
manner. We are inclined to overlook a procedural defect if only to promote substantial justice.

General rules of procedure are merely suppletory in character vis-a-vis labor disputes which are primarily governed by labor
laws.[20] Furthermore, as provided in Art. 4 of the Labor Code, all doubts in the implementation and interpretation of this code, including its
implementing rules and regulations shall be rendered in favor of labor. [21] The rule that the NLRC may disregard technical rules of procedure
in order to give life to the constitutional mandate for the protection of labor is well settled. [22] WHEREFORE, the petition is DISMISSED for
lack of merit. SO ORDERED.