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Then came this portion of the appellant's brief: "On August 12, 1960, admitted, voluntarily submitted itself

itself to the jurisdiction of the lower

Prospero Sanidad instituted ancillary administration proceedings in court by entering its appearance through counsel on June 27, 1963,
the Court of First Instance of Manila; Lazaro A. Marquez was and filing a petition for relief from a previous order of March 15, 1963.
A. CORPORATION DEFINED. appointed ancillary administrator, and on January 22, 1963, he was
Thus did the lower court, in the order now on appeal, impart vitality
substituted by the appellee Renato D. Tayag. A dispute arose between
1. G.R. No. L-23145 November 29, 1968 and effectiveness to what was decreed. For without it, what it had been
the domiciary administrator in New York and the ancillary
decided would be set at naught and nullified. Unless such a blatant
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. administrator in the Philippines as to which of them was entitled to the
disregard by the domiciliary administrator, with residence abroad, of
RENATO D. TAYAG, ancillary administrator-appellee, possession of the stock certificates in question. On January 27, 1964,
what was previously ordained by a court order could be thus remedied,
vs. the Court of First Instance of Manila ordered the domiciliary
it would have entailed, insofar as this matter was concerned, not a
BENGUET CONSOLIDATED, INC., oppositor-appellant. administrator, County Trust Company, to "produce and deposit" them
partial but a well-nigh complete paralysis of judicial authority.
with the ancillary administrator or with the Clerk of Court. The
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. domiciliary administrator did not comply with the order, and on 1. Appellant Benguet Consolidated, Inc. did not dispute the power of
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant. February 11, 1964, the ancillary administrator petitioned the court to the appellee ancillary administrator to gain control and possession of
FERNANDO, J.: "issue an order declaring the certificate or certificates of stocks all assets of the decedent within the jurisdiction of the Philippines. Nor
covering the 33,002 shares issued in the name of Idonah Slade Perkins could it. Such a power is inherent in his duty to settle her estate and
Confronted by an obstinate and adamant refusal of the domiciliary by Benguet Consolidated, Inc., be declared [or] considered as lost." 3 satisfy the claims of local creditors.5 As Justice Tuason speaking for
administrator, the County Trust Company of New York, United States this Court made clear, it is a "general rule universally recognized" that
of America, of the estate of the deceased Idonah Slade Perkins, who It is to be noted further that appellant Benguet Consolidated, Inc.
administration, whether principal or ancillary, certainly "extends to
died in New York City on March 27, 1960, to surrender to the ancillary admits that "it is immaterial" as far as it is concerned as to "who is
the assets of a decedent found within the state or country where it was
administrator in the Philippines the stock certificates owned by her in entitled to the possession of the stock certificates in question;
granted," the corollary being "that an administrator appointed in one
a Philippine corporation, Benguet Consolidated, Inc., to satisfy the appellant opposed the petition of the ancillary administrator because
state or country has no power over property in another state or
legitimate claims of local creditors, the lower court, then presided by the said stock certificates are in existence, they are today in the
the Honorable Arsenio Santos, now retired, issued on May 18, 1964, possession of the domiciliary administrator, the County Trust
an order of this tenor: "After considering the motion of the ancillary Company, in New York, U.S.A...."4 It is to be noted that the scope of the power of the ancillary
administrator, dated February 11, 1964, as well as the opposition filed administrator was, in an earlier case, set forth by Justice Malcolm.
It is its view, therefore, that under the circumstances, the stock
by the Benguet Consolidated, Inc., the Court hereby (1) considers as Thus: "It is often necessary to have more than one administration of
certificates cannot be declared or considered as lost. Moreover, it
lost for all purposes in connection with the administration and an estate. When a person dies intestate owning property in the country
would allege that there was a failure to observe certain requirements
liquidation of the Philippine estate of Idonah Slade Perkins the stock of his domicile as well as in a foreign country, administration is had
of its by-laws before new stock certificates could be issued. Hence, its
certificates covering the 33,002 shares of stock standing in her name in both countries. That which is granted in the jurisdiction of
in the books of the Benguet Consolidated, Inc., (2) orders said decedent's last domicile is termed the principal administration, while
certificates cancelled, and (3) directs said corporation to issue new As was made clear at the outset of this opinion, the appeal lacks merit. any other administration is termed the ancillary administration. The
certificates in lieu thereof, the same to be delivered by said corporation The challenged order constitutes an emphatic affirmation of judicial reason for the latter is because a grant of administration does not ex
to either the incumbent ancillary administrator or to the Probate authority sought to be emasculated by the wilful conduct of the proprio vigore have any effect beyond the limits of the country in
Division of this Court."1 domiciliary administrator in refusing to accord obedience to a court which it is granted. Hence, an administrator appointed in a foreign
decree. How, then, can this order be stigmatized as illegal? state has no authority in the [Philippines]. The ancillary administration
From such an order, an appeal was taken to this Court not by the is proper, whenever a person dies, leaving in a country other than that
domiciliary administrator, the County Trust Company of New York, As is true of many problems confronting the judiciary, such a response
of his last domicile, property to be administered in the nature of assets
but by the Philippine corporation, the Benguet Consolidated, Inc. The was called for by the realities of the situation. What cannot be ignored
of the deceased liable for his individual debts or to be distributed
appeal cannot possibly prosper. The challenged order represents a is that conduct bordering on wilful defiance, if it had not actually
among his heirs."7
response and expresses a policy, to paraphrase Frankfurter, arising out reached it, cannot without undue loss of judicial prestige, be condoned
of a specific problem, addressed to the attainment of specific ends by or tolerated. For the law is not so lacking in flexibility and It would follow then that the authority of the probate court to require
the use of specific remedies, with full and ample support from legal resourcefulness as to preclude such a solution, the more so as deeper that ancillary administrator's right to "the stock certificates covering
doctrines of weight and significance. reflection would make clear its being buttressed by indisputable the 33,002 shares ... standing in her name in the books of [appellant]
principles and supported by the strongest policy considerations. Benguet Consolidated, Inc...." be respected is equally beyond
The facts will explain why. As set forth in the brief of appellant question. For appellant is a Philippine corporation owing full
Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March It can truly be said then that the result arrived at upheld and vindicated
allegiance and subject to the unrestricted jurisdiction of local courts.
27, 1960 in New York City, left among others, two stock certificates the honor of the judiciary no less than that of the country. Through this
Its shares of stock cannot therefore be considered in any wise as
covering 33,002 shares of appellant, the certificates being in the challenged order, there is thus dispelled the atmosphere of contingent
immune from lawful court orders.
possession of the County Trust Company of New York, which as frustration brought about by the persistence of the domiciliary
noted, is the domiciliary administrator of the estate of the deceased.2 administrator to hold on to the stock certificates after it had, as
Our holding in Wells Fargo Bank and Union v. Collector of Internal child, the constructive trust, all of flourishing vitality, to attest the 4. What is more the view adopted by appellant Benguet Consolidated,
Revenue8 finds application. "In the instant case, the actual situs of the empire of "as if" today."13 He likewise noted "a class of fictions of Inc. is fraught with implications at war with the basic postulates of
shares of stock is in the Philippines, the corporation being domiciled another order, the fiction which is a working tool of thought, but which corporate theory.
[here]." To the force of the above undeniable proposition, not even at times hides itself from view till reflection and analysis have brought
We start with the undeniable premise that, "a corporation is an
appellant is insensible. It does not dispute it. Nor could it successfully it to the light."14
artificial being created by operation of law...."16 It owes its life to the
do so even if it were so minded.
What cannot be disputed, therefore, is the at times indispensable role state, its birth being purely dependent on its will. As Berle so aptly
2. In the face of such incontrovertible doctrines that argue in a rather that fictions as such played in the law. There should be then on the stated: "Classically, a corporation was conceived as an artificial
conclusive fashion for the legality of the challenged order, how does part of the appellant a further refinement in the catholicity of its person, owing its existence through creation by a sovereign power." 17
appellant, Benguet Consolidated, Inc. propose to carry the extremely condemnation of such judicial technique. If ever an occasion did call As a matter of fact, the statutory language employed owes much to
heavy burden of persuasion of precisely demonstrating the contrary? for the employment of a legal fiction to put an end to the anomalous Chief Justice Marshall, who in the Dartmouth College decision
It would assign as the basic error allegedly committed by the lower situation of a valid judicial order being disregarded with apparent defined a corporation precisely as "an artificial being, invisible,
court its "considering as lost the stock certificates covering 33,002 impunity, this is it. What is thus most obvious is that this particular intangible, and existing only in contemplation of law."18
shares of Benguet belonging to the deceased Idonah Slade Perkins, alleged error does not carry persuasion.
The well-known authority Fletcher could summarize the matter thus:
..."9 More specifically, appellant would stress that the "lower court
3. Appellant Benguet Consolidated, Inc. would seek to bolster the "A corporation is not in fact and in reality a person, but the law treats
could not "consider as lost" the stock certificates in question when, as
above contention by its invoking one of the provisions of its by-laws it as though it were a person by process of fiction, or by regarding it
a matter of fact, his Honor the trial Judge knew, and does know, and
which would set forth the procedure to be followed in case of a lost, as an artificial person distinct and separate from its individual
it is admitted by the appellee, that the said stock certificates are in
stolen or destroyed stock certificate; it would stress that in the event stockholders.... It owes its existence to law. It is an artificial person
existence and are today in the possession of the domiciliary
of a contest or the pendency of an action regarding ownership of such created by law for certain specific purposes, the extent of whose
administrator in New York."10
certificate or certificates of stock allegedly lost, stolen or destroyed, existence, powers and liberties is fixed by its charter."19 Dean Pound's
There may be an element of fiction in the above view of the lower the issuance of a new certificate or certificates would await the "final terse summary, a juristic person, resulting from an association of
court. That certainly does not suffice to call for the reversal of the decision by [a] court regarding the ownership [thereof]."15 human beings granted legal personality by the state, puts the matter
appealed order. Since there is a refusal, persistently adhered to by the neatly.20
Such reliance is misplaced. In the first place, there is no such occasion
domiciliary administrator in New York, to deliver the shares of stocks
to apply such by-law. It is admitted that the foreign domiciliary There is thus a rejection of Gierke's genossenchaft theory, the basic
of appellant corporation owned by the decedent to the ancillary
administrator did not appeal from the order now in question. theme of which to quote from Friedmann, "is the reality of the group
administrator in the Philippines, there was nothing unreasonable or
Moreover, there is likewise the express admission of appellant that as as a social and legal entity, independent of state recognition and
arbitrary in considering them as lost and requiring the appellant to
far as it is concerned, "it is immaterial ... who is entitled to the concession."21 A corporation as known to Philippine jurisprudence is
issue new certificates in lieu thereof. Thereby, the task incumbent
possession of the stock certificates ..." Even if such were not the case, a creature without any existence until it has received the imprimatur
under the law on the ancillary administrator could be discharged and
it would be a legal absurdity to impart to such a provision of the state according to law. It is logically inconceivable therefore
his responsibility fulfilled.
conclusiveness and finality. Assuming that a contrariety exists that it will have rights and privileges of a higher priority than that of
Any other view would result in the compliance to a valid judicial order between the above by-law and the command of a court decree, the its creator. More than that, it cannot legitimately refuse to yield
being made to depend on the uncontrolled discretion of the party or latter is to be followed. obedience to acts of its state organs, certainly not excluding the
entity, in this case domiciled abroad, which thus far has shown the judiciary, whenever called upon to do so.
It is understandable, as Cardozo pointed out, that the Constitution
utmost persistence in refusing to yield obedience. Certainly, appellant
overrides a statute, to which, however, the judiciary must yield As a matter of fact, a corporation once it comes into being, following
would not be heard to contend in all seriousness that a judicial decree
deference, when appropriately invoked and deemed applicable. It American law still of persuasive authority in our jurisdiction, comes
could be treated as a mere scrap of paper, the court issuing it being
would be most highly unorthodox, however, if a corporate by-law more often within the ken of the judiciary than the other two
powerless to remedy its flagrant disregard.
would be accorded such a high estate in the jural order that a court coordinate branches. It institutes the appropriate court action to
It may be admitted of course that such alleged loss as found by the must not only take note of it but yield to its alleged controlling force. enforce its right. Correlatively, it is not immune from judicial control
lower court did not correspond exactly with the facts. To be more in those instances, where a duty under the law as ascertained in an
The fear of appellant of a contingent liability with which it could be
blunt, the quality of truth may be lacking in such a conclusion arrived appropriate legal proceeding is cast upon it.
saddled unless the appealed order be set aside for its inconsistency
at. It is to be remembered however, again to borrow from Frankfurter,
with one of its by-laws does not impress us. Its obedience to a lawful To assert that it can choose which court order to follow and which to
"that fictions which the law may rely upon in the pursuit of legitimate
court order certainly constitutes a valid defense, assuming that such disregard is to confer upon it not autonomy which may be conceded
ends have played an important part in its development."11
apprehension of a possible court action against it could possibly but license which cannot be tolerated. It is to argue that it may, when
Speaking of the common law in its earlier period, Cardozo could state materialize. Thus far, nothing in the circumstances as they have so minded, overrule the state, the source of its very existence; it is to
fictions "were devices to advance the ends of justice, [even if] clumsy developed gives substance to such a fear. Gossamer possibilities of a contend that what any of its governmental organs may lawfully require
and at times offensive."12 Some of them have persisted even to the future prejudice to appellant do not suffice to nullify the lawful could be ignored at will. So extravagant a claim cannot possibly merit
present, that eminent jurist, noting "the quasi contract, the adopted exercise of judicial authority. approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it That is all then that this case presents. It is obvious why the appeal Manuel A. Torres, Jr. 100,120
was shown that in a guardianship proceedings then pending in a lower cannot succeed. It is always easy to conjure extreme and even 57.21 Dir./Pres./Chair
court, the United States Veterans Administration filed a motion for the oppressive possibilities. That is not decisive. It does not settle the
Milagros P. Torres 33,430
refund of a certain sum of money paid to the minor under issue. What carries weight and conviction is the result arrived at, the
19.10 Dir./Treasurer
guardianship, alleging that the lower court had previously granted its just solution obtained, grounded in the soundest of legal doctrines and
petition to consider the deceased father as not entitled to guerilla distinguished by its correspondence with what a sense of realism Josefina P. Torres 8,290
benefits according to a determination arrived at by its main office in requires. For through the appealed order, the imperative requirement 4.73 Dir./Ass. Cor-Sec.
the United States. The motion was denied. In seeking a of justice according to law is satisfied and national dignity and honor
reconsideration of such order, the Administrator relied on an maintained. Ma. Cristina T. Carlos 8,290
American federal statute making his decisions "final and conclusive 4.73 Dir./Cor-Sec.
WHEREFORE, the appealed order of the Honorable Arsenio Santos,
on all questions of law or fact" precluding any other American official Antonio P. Torres, Jr. 8,290
to examine the matter anew, "except a judge or judges of the United the Judge of the Court of First Instance, dated May 18, 1964, is
4.73 Director
States court."23 Reconsideration was denied, and the Administrator affirmed. With costs against oppositor-appelant Benguet
appealed. Consolidated, Inc. Ma. Jacinta P. Torres 8,290
4.73 Director
In an opinion by Justice J.B.L. Reyes, we sustained the lower court.
Thus: "We are of the opinion that the appeal should be rejected. The Ma. Luisa T. Morales 7,790
2. MANUEL A. TORRES, JR., (Deceased), GRACIANO J. 4.45 Director
provisions of the U.S. Code, invoked by the appellant, make the
decisions of the U.S. Veterans' Administrator final and conclusive Dante D. Morales 500
when made on claims property submitted to him for resolution; but .28 Director i
EDGARDO D. PABALAN, petitioners, vs. COURT OF
they are not applicable to the present case, where the Administrator is
APPEALS, SECURITIES AND EXCHANGE COMMISSION, In 1984, Judge Torres, in order to make substantial savings in
not acting as a judge but as a litigant. There is a great difference
TORMIL REALTY & DEVELOPMENT CORPORATION, taxes, adopted an estate planning scheme under which he assigned to
between actions against the Administrator (which must be filed
ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. Tormil Realty & Development Corporation (Tormil for brevity)
strictly in accordance with the conditions that are imposed by the
LUISA T. MORALES, and DANTE D. MORALES, respondents. various real properties he owned and his shares of stock in other
Veterans' Act, including the exclusive review by United States courts),
and those actions where the Veterans' Administrator seeks a remedy DECISION corporations in exchange for 225,972 Tormil Realty shares. Hence, on
from our courts and submits to their jurisdiction by filing actions various dates in July and August of 1984, ten (10) deeds of assignment
therein. Our attention has not been called to any law or treaty that KAPUNAN, J.: were executed by the late Judge Torres:
would make the findings of the Veterans' Administrator, in actions In this petition for review on certiorari under Rule 45 of the ASSIGNMENT DATE PROPERTY ASSIGNED
where he is a party, conclusive on our courts. That, in effect, would Revised Rules of Court, petitioners seek to annul the decision of the LOCATION SHARES TO
deprive our tribunals of judicial discretion and render them mere Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and
subordinate instrumentalities of the Veterans' Administrator." its subsequent resolution dated 10 May 1995 denying petitioners
motion for reconsideration. BE ISSUED
It is bad enough as the Viloria decision made patent for our judiciary
to accept as final and conclusive, determinations made by foreign The present case involves two separate but interrelated conflicts. 1. July 13, 1984 TCT 81834
governmental agencies. It is infinitely worse if through the absence of The facts leading to the first controversy are as follows: Quezon City 13,252
any coercive power by our courts over juridical persons within our
The late Manuel A. Torres, Jr. (Judge Torres for TCT 144240
jurisdiction, the force and effectivity of their orders could be made to
brevity) was the majority stockholder of Tormil Realty & Quezon City
depend on the whim or caprice of alien entities. It is difficult to
imagine of a situation more offensive to the dignity of the bench or the Development Corporation while private respondents who 2. July 13, 1984 TCT 77008
honor of the country. are the children of Judge Torres deceased brother Antonio Manila
A. Torres, constituted the minority stockholders. In
Yet that would be the effect, even if unintended, of the proposition to particular, their respective shareholdings and positions in TCT 65689
which appellant Benguet Consolidated seems to be firmly committed the corporation were as follows: Manila 78,493
as shown by its failure to accept the validity of the order complained
of; it seeks its reversal. Certainly we must at all pains see to it that it Name of Stockholder Number TCT 109200
does not succeed. The deplorable consequences attendant on appellant of Percentage Position(s) Manila
prevailing attest to the necessity of negative response from us. That is Shares 3. July 13, 1984 TCT 374079
what appellant will get. Makati 8,307
4. July 24, 1984 TCT 41527 file a complaint with the Securities and Exchange Commission (SEC) scheduled. What transpired therein was ably narrated by Attys. Benito
Pasay docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Cataran and Bayani De los Reyes, the official representatives
Tormil Corporation the two (2) deeds of assignment covering the dispatched by the SEC to observe the proceedings (upon request of the
TCT 41528
aforementioned Makati and Pasay City properties which he had late Judge Torres) in their report dated 27 March 1987:
unilaterally revoked and to cause the registration of the corresponding
9,855 xxx.
titles in the name of Tormil. Private respondents alleged that following
TCT 41529 the disappearance of the properties from the corporations inventory of The undersigned arrived at 1:55 p.m. in the place of
Pasay assets, they found that on October 24, 1986, Judge Torres, together the meeting, a residential bungalow in Urdaneta Village,
with Edgardo Pabalan and Graciano Tobias, then General Manager Makati, Metro Manila. Upon arrival, Josefina Torres
5. Aug. 06, 1984 El Hogar Filipino Stocks and legal counsel, respectively, of Tormil, formed and organized a introduced us to the stockholders namely: Milagros Torres,
2,000 corporation named Torres-Pabalan Realty and Development Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina
6, Aug. 06, 1984 Manila Jockey Club Corporation and that as part of Judge Torres contribution to the new Carlos and Ma. Jacinta Torres. Antonio Torres, Jr.
Stocks 48,737 corporation, he executed in its favor a Deed of Assignment conveying questioned our authority and personality to appear in the
the same Makati and Pasay City properties he had earlier transferred meeting claiming subject corporation is a family and
7. Aug. 07, 1984 San Miguel Corp. Stocks to Tormil. private firm. We explained that our appearance there was
50,283 merely in response to the request of Manuel Torres, Jr. and
The second controversy--involving the same parties--concerned
8. Aug. 07, 1984 China Banking Corp. that SEC has jurisdiction over all registered corporations.
the election of the 1987 corporate board of directors.
Stocks 6,300 Manuel Torres, Jr., a septuagenarian, argued that as holder
The 1987 annual stockholders meeting and election of directors of the major and controlling shares, he approved of our
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468 of Tormil corporation was scheduled on 25 March 1987 in compliance attendance in the meeting.
10. Aug. 29, 1984 Ayala Fund with the provisions of its by-laws.
At about 2:30 p.m., a group composed of Edgardo
Stocks 1,322 Pursuant thereto, Judge Torres assigned from his own shares, Pabalan, Atty. Graciano Tobias, Atty. Rodolfo Jocson, Jr.,
one (1) share each to petitioners Tobias, Jocson, Jurisprudencia, Azura Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar
225,972 ii and Pabalan. These assigned shares were in the nature of qualifying Azura arrived. Atty. Azura told the body that they came as
shares, for the sole purpose of meeting the legal requirement to be able counsels of Manuel Torres, Jr. and as stockholders having
Consequently, the aforelisted properties were duly recorded in to elect them (Tobias and company) to the Board of Directors as assigned qualifying shares by Manuel Torres, Jr.
the inventory of assets of Tormil Realty and the revenues generated Torres nominees.
by the said properties were correspondingly entered in the The stockholders meeting started at 2:45 p.m. with
corporations books of account and financial records. The assigned shares were covered by corresponding Tormil Mr. Pabalan presiding after verbally authorized by Manuel
Stock Certificates Nos. 030, 029, 028, 027, 026 and at the back of each Torres, Jr., the President and Chairman of the Board. The
Likewise, all the assigned parcels of land were duly registered certificate the following inscription is found: secretary when asked about the quorum, said that there was
with the respective Register of Deeds in the name of Tormil Realty, more than a quorum. Mr. Pabalan distributed copies of the
except for the ones located in Makati and Pasay City. The present certificate and/or the one share it
presidents report and the financial statements. Antonio
represents, conformably to the purpose and intention of the
At the time of the assignments and exchange, however, only Torres, Jr. requested time to study the said reports and
Deed of Assignment dated March 6, 1987, is not held by
225,000 Tormil Realty shares remained unsubscribed, all of which brought out the question of auditing the finances of the
me under any claim of ownership and I acknowledge that
were duly issued to and received by Judge Torres (as evidenced by corporation which he claimed was approved previously by
I hold the same merely as trustee of Judge Manuel A.
stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).iii the board. Heated arguments ensued which also touched
Torres, Jr. and for the sole purpose of qualifying me as
on family matters. Antonio Torres, Jr. moved for the
Due to the insufficient number of shares of stock issued to Judge Director;
suspension of the meeting but Manuel Torres, Jr. voted for
Torres and the alleged refusal of private respondents to approve the (Signature of Assignee) v the continuation of the proceedings.
needed increase in the corporations authorized capital stock (to cover
the shortage of 972 shares due to Judge Torres under the estate The reason behind the aforestated action was to remedy the Mr. Pabalan suggested that the opinion of the SEC
planning scheme), on 11 September 1986, Judge Torres revoked the inequitable lopsided set-up obtaining in the corporation, where, representatives be asked on the propriety of suspending the
two (2) deeds of assignment covering the properties in Makati and notwithstanding his controlling interest in the corporation, the late meeting but Antonio Torres, Jr. objected reasoning out that
Pasay City.iv Judge held only a single seat in the nine-member Board of Directors we were just observers.
and was, therefore, at the mercy of the minority, a combination of any
Noting the disappearance of the Makati and Pasay City When the Chairman called for the election of
two (2) of whom would suffice to overrule the majority stockholder in
properties from the corporations inventory of assets and financial directors, the Secretary refused to write down the names of
the Boards decision making functions. vi
records private respondents, on 31 March 1987, were constrained to nominees prompting Atty. Azura to initiate the
On 25 March 1987, the annual stockholders meeting was held as appointment of Atty. Jocson, Jr. as Acting Secretary.
Antonio Torres, Jr. nominated the present members 1. Ordering and directing the respondents, Before the filing of these motions, the Commission
of the Board. At this juncture, Milagros Torres cried out particularly respondent Manuel A. Torres, Jr., to turn over and en banc had already completed all proceedings and had
and told the group of Manuel Torres, Jr. to leave the house. deliver to TORMIL through its Corporate Secretary, Ma. likewise ruled on the merits of the appealed cases. Viewed
Cristina T. Carlos: (a) the originals of the Deeds of Assignment in this light, we thus feel that there is nothing left to be
Manuel Torres, Jr., together with his lawyers-
dated July 13 and 24, 1984 together with the owners duplicates done except to deny these motions to suspend proceedings.
stockholders went to the residence of Ma. Jacinta Torres in x
of Transfer Certificates of Title Nos. 374079 of the Registry of
San Miguel Village, Makati, Metro Manila. The
Deeds for Makati, and 41527, 41528 and 41529 of the Registry
undersigned joined them since the group with Manuel On the same date, the SEC en banc rendered a decision, the
of Deeds for Pasay City and/or to cause the formal registration
Torres, Jr. the one who requested for S.E.C. observers, dispositive portion of which reads, thus:
and transfer of title in and over such real properties in favor of
represented the majority of the outstanding capital stock
TORMIL with the proper government agency; (b) all corporate WHEREFORE, premises considered, the appealed
and still constituted a quorum.
books of account, records and papers as may be necessary for the decision of the hearing panel is hereby affirmed and all
At the resumption of the meeting, the following were conduct of a comprehensive audit examination, and to allow the motions pending before us incident to this appealed case
nominated and elected as directors for the year 1987-1988: examination and inspection of such accounting books, papers are necessarily DISMISSED.
and records by any or all of the corporate directors, officers and
1.Manuel Torres, Jr. stockholders and/or their duly authorized representatives or SO ORDERED. xi
2.Ma. Jacinta Torres auditors; Undaunted, on 10 August 1993, petitioners proceeded to plead
2. Declaring as permanent and final the writ of its cause to the Court of Appeals by way of a petition for review
3.Edgardo Pabalan
preliminary injunction issued by the Hearing Panel on February (docketed as CA-G.R. SP No. 31748).
4.Graciano Tobias 13, 1989; On 23 May 1994, the Court of Appeals rendered a decision, the
5.Rodolfo Jocson, Jr. 3. Declaring as null and void the election and dispositive portion of which states:
6.Melvin Jurisprudencia appointment of respondents to the Board of Directors and WHEREFORE, the petition for review is
executive positions of TORMIL held on March 25, 1987, and all DISMISSED and the appealed decision is accordingly
7.Augustus Cesar Azura their acts and resolutions made for and in behalf of TORMIL by affirmed.
8.Josefina Torres authority of and pursuant to such invalid appointment & election
held on March 25, 1987; SO ORDERED. xii
9.Dante Morales From the said decision, petitioners filed a motion for
4. Ordering the respondents jointly and severally,
After the election, it was resolved that to pay the complainants the sum of ONE HUNDRED reconsideration which was denied in a resolution issued by the Court
after the meeting, the new board of directors THOUSAND PESOS (P100,000.00) and by way of attorneys of Appeals dated 10 May 1995. xiii
shall convene for the election of officers. fees. viii Insisting on their cause, petitioners filed the present petition for
xxx . vii
Petitioners promptly appealed to the SEC en banc (docketed as review alleging that the Court of Appeals committed the following
SEC-AC No. 339). Thereafter, on 3 April 1991, during the pendency errors in its decision:
Consequently, on 10 April 1987, private respondents instituted
of said appeal, petitioner Manuel A. Torres, Jr. died. However, notice (1)
a complaint with the SEC (SEC Case No. 3161) praying in the main,
thereof was brought to the attention of the SEC not by petitioners
that the election of petitioners to the Board of Directors be annulled. WHEN IT RENDERED THE MAY 23, 1994
counsel but by private respondents in a Manifestation dated 24 April
Private respondents alleged that the petitioners-nominees were 1991.ix DECISION, WHICH IS A FULL LENGTH DECISION,
not legitimate stockholders of Tormil because the assignment of WITHOUT THE EVIDENCE AND THE ORIGINAL
On 8 June 1993, petitioners filed a Motion to Suspend RECORD OF S.E.C. - AC NO. 339 BEING PROPERLY
shares to them violated the minority stockholders right of pre-emption
Proceedings on grounds that no administrator or legal representative BROUGHT BEFORE IT FOR REVIEW AND RE-
as provided in the corporations articles and by-laws.
of the late Judge Torres estate has yet been appointed by the Regional EXAMINATION, AN OMISSION RESULTING IN A
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 Trial Court of Makati where Sp. Proc. No. M-1768 (In Matter of the CLEAR TRANSGRESSION OR CURTAILMENT OF
were consolidated for joint hearing and adjudication. Issuance of the Last Will and Testament of Manuel A. Torres, Jr.) was THE RIGHTS OF THE HEREIN PETITIONERS TO
pending. Two similar motions for suspension were filed by petitioners PROCEDURAL DUE PROCESS;
On 6 March 1991, the Panel of Hearing Officers of the SEC on 28 June 1993 and 9 July 1993.
rendered a decision in favor of private respondents. The dispositive (2)
portion thereof states, thus: On 19 July 1993, the SEC en banc issued an Order denying
petitioners aforecited motions on the following ground: WHEN IT SANCTIONED THE JULY 19, 1993
WHEREFORE, premises considered, judgment is DECISION OF THE RESPONDENT S.E.C., WHICH IS
hereby rendered as follows: VOID FOR HAVING BEEN RENDERED WITHOUT
THE PROPER SUBSTITUTION OF THE DECEASED Petitioners anchor their argument on Secs. 8 and 11 of SC substitution of the deceased principal party in S.E C. -AC
PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. Circular 1-91 (dated 27 February 1991) which provides that: No. 339 and moreover, its theory of di minimis non curat
339 AND CONSEQUENTLY, FOR WANT OF lex (this, without first determining the true extent of and
JURISDICTION OVER THE SAID DECEASEDS the correct legal characterization of the so-called shortage
The Court of Appeals shall give due course to the petition
TESTATE ESTATE, AND MOREOVER, WHEN IT of Tormil shares; and, (dd) it expressly affirmed the
only when it shows prima facie that the court, commission,
SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY assailed decision of respondent S.E.C .xv
board, office or agency concerned has committed errors of
fact or law that would warrant reversal or modification of Petitioners contention is unmeritorious.
the order, ruling or decision sought to be reviewed. The
There is nothing on record to show that the Court of Appeals
(3) findings of fact of the court commission, board, office or
gave due course to the petition. The fact alone that the Court of
agency concerned when supported by substantial evidence
WHEN IT FAILED TO SEE, AS A Appeals issued a restraining order and a writ of preliminary injunction
shall be final.
CONSEQUENCE OF THE EVIDENCE AND THE and required the parties to submit their respective memoranda does
ORIGINAL RECORD OF S.E.C. -AC NO. 339 NOT xxx. not indicate that the petition was given due course. The office of an
HAVING ACTUALLY BEEN RE-EXAMINED, THAT injunction is merely to preserve the status quo pending the disposition
S.E.C. CASE NO. 3153 INVOLVED A SITUATION of the case. The court can require the submission of memoranda in
fifteen (15) days from notice that the petition has been
WHERE PERFORMANCE WAS IMPOSSIBLE (AS support of the respective claims and positions of the parties without
given due course, the court, commission, board, office or
CONTEMPLATED UNDER ARTICLE 1191 OF THE necessarily giving due course to the petition. The matter of whether or
agency concerned shall transmit to the Court of Appeals
CIVIL CODE) AND WAS NOT A MERE CASE OF not to give due course to a petition lies in the discretion of the court.
the original or a certified copy of the entire record of the
proceeding under review. The record to be transmitted may It is worthy to mention that SC Circular No. 1-91 has been
be abridged by agreement of all parties to the proceeding. replaced by Revised Administrative Circular No. 1-95 (which took
The Court of Appeals may require or permit subsequent effect on 1 June 1995) wherein the procedure for appeals from quasi-
correction or addition to the record. judicial agencies to the Court of Appeals was clarified thus:
Petitioners contend that the Court of Appeals had given due 10. Due course.-- If upon the filing of the comment
WHEN IT FAILED TO SEE, AS A course to their petition as allegedly indicated by the following acts: or such other pleadings or documents as may be required
CONSEQUENCE OF THE EVIDENCE AND THE or allowed by the Court of Appeals or upon the expiration
a) it granted the restraining order applied for by
ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT of the period for the filing thereof, and on the bases of the
the herein petitioners, and after hearing, also the writ of
HAVING ACTUALLY BEEN EXAMINED, THAT THE petition or the record the Court of Appeals finds prima
preliminary injunction sought by them; under the original
RECORDING BY THE LATE JUDGE MANUEL A. facie that the court or agency concerned has committed
SC Circular No. 1-91, a petition for review may be given
TORRES, JR. OF THE QUESTIONED ASSIGNMENT errors of fact or law that would warrant reversal or
due course at the onset (paragraph 8) upon a mere prima
OF QUALIFYING SHARES TO HIS NOMINEES, WAS modification of the award, judgment, final order or
facie finding of errors of fact or law having been
AFFIRMED IN THE STOCK AND TRANSFER BOOK resolution sought to be reviewed, it may give due course
committed, and such prima facie finding is but consistent
BY AN ACTING CORPORATE SECRETARY AND to the petition; otherwise, it shall dismiss the same. The
with the grant of the extra-ordinary writ of preliminary
MOREOVER, THAT ACTUAL NOTICE OF SAID findings of fact of the court or agency concerned, when
ASSIGNMENT WAS TIMELY MADE TO THE OTHER supported by substantial evidence, shall be binding on the
STOCKHOLDERS. xiv b) it required the parties to submit simultaneous Court of Appeals.
memoranda in its resolution dated October 15, 1993 (this
We shall resolve the issues in seriatim. 11. Transmittal of record.-- Within fifteen (15) days
is in addition to the comment required to be filed by the
from notice that the petition has been given due course, the
I respondents) and furthermore declared in the same
Court of Appeals may require the court or agency
resolution that the petition will be decided on the merits,
Petitioners insist that the failure to transmit the original records concerned to transmit the original or a legible certified true
instead of outrightly dismissing the same;
to the Court of Appeals deprived them of procedural due process. copy of the entire record of the proceeding under review.
Without the evidence and the original records of the proceedings c) it rendered a full length decision, wherein: The record to be transmitted may be abridged by
before the SEC, the Court of Appeals, petitioners adamantly state, (aa) it expressly declared the respondent S.E.C. as having agreement of all parties to the proceeding. The Court of
could not have possibly made a proper appreciation and correct erred in denying the pertinent motions to suspend Appeals may require or permit subsequent correction of or
determination of the issues, particularly the factual issues they had proceedings; (bb) it declared the supposed error as having addition to the record. (Underscoring ours.)
raised on appeal. Petitioners also assert that since the Court of Appeals become a non-issue when the respondent C.A. proceeded
The aforecited circular now formalizes the correct practice and
allegedly gave due course to their petition, the original records should to hear (the) appeal; (cc) it formulated and applied its own
clearly states that in resolving appeals from quasi judicial agencies, it
have been forwarded to said court. theory of negotiorum gestio in justifying the non-
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 persons of the legal representative or of the heirs upon effect upon any party, in representation of the deceased,
connection, petitioners claim that the Court of Appeals could not have whom the trial and the judgment are not binding. xvi without trenching upon the fundamental right to a day in
decided the case on the merits without the records being brought court which is the very essence of the constitutionally
As early as 8 April 1988, Judge Torres instituted Special
before it is patently lame. Indubitably, the Court of Appeals decided enshrined guarantee of due process.
Proceedings No. M-1768 before the Regional Trial Court of Makati
the case on the basis of the uncontroverted facts and admissions
for the ante-mortem probate of his holographic will which he had We are not unaware of several cases where we have
contained in the pleadings, that is, the petition, comment, reply,
executed on 31 October 1986. Testifying in the said proceedings, ruled that a party having died in an action that survives, the
rejoinder, memoranda, etc. filed by the parties.
Judge Torres confirmed his appointment of petitioner Edgardo D. trial held by the court without appearance of the deceaseds
II Pabalan as the sole executor of his will and administrator of his estate. legal representative or substitution of heirs and the
The proceedings, however, were opposed by the same parties, herein judgment rendered after such trial, are null and void
Petitioners contend that the decisions of the SEC and the Court
private respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and because the court acquired no jurisdiction over the persons
of Appeals are null and void for being rendered without the necessary
Ma. Cristina T. Carlos, xvii who are nephew and nieces of Judge Torres, of the legal representatives or of the heirs upon whom the
substitution of parties (for the deceased petitioner Manuel A. Torres,
being the children of his late brother Antonio A. Torres. trial and the judgment would be binding. This general rule
Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules of Court,
notwithstanding, in denying petitioners motion for
which provides as follows: It can readily be observed therefore that the parties involved in
reconsideration, the Court of Appeals correctly ruled that
the present controversy are virtually the same parties fighting over the
SEC. 17. Death of party.--After a party dies and the formal substitution of heirs is not necessary when the heirs
representation of the late Judge Torres estate. It should be recalled that
claim is not thereby extinguished, the court shall order, themselves voluntarily appeared, participated in the case
the purpose behind the rule on substitution of parties is the protection
upon proper notice, the legal representative of the deceased and presented evidence in defense of deceased defendant.
of the right of every party to due process. It is to ensure that the
to appear and to be substituted for the deceased, within a Attending the case at bench, after all, are these particular
deceased party would continue to be properly represented in the suit
period of thirty (30) days, or within such time as may be circumstances which negate petitioners belated and
through the duly appointed legal representative of his estate. In the
granted. If the legal representative fails to appear within seemingly ostensible claim of violation of her rights to due
present case, this purpose has been substantially fulfilled (despite the
said time, the court may order the opposing party to process. We should not lose sight of the principle
lack of formal substitution) in view of the peculiar fact that both
procure the appointment of a legal representative of the underlying the general rule that formal substitution of heirs
proceedings involve practically the same parties. Both parties have
deceased within a time to be specified by the court, and the must be effectuated for them to be bound by a subsequent
been fiercely fighting in the probate proceedings of Judge Torres
representative shall immediately appear for and on behalf judgment. Such had been the general rule established not
holographic will for appointment as legal representative of his estate.
of the interest of the deceased. The court charges involved because the rule on substitution of heirs and that on
Since both parties claim interests over the estate, the rights of the
in procuring such appointment, if defrayed by the appointment of a legal representative are jurisdictional
estate were expected to be fully protected in the proceedings before
opposing party, may be recovered as costs. The heirs of the requirements per se but because non-compliance therewith
the SEC en banc and the Court of Appeals. In either case, whoever
deceased may be allowed to be substituted for the results in the undeniable violation of the right to due
shall be appointed legal representative of Judge Torres estate
deceased, without requiring the appointment of an process of those who, though not duly notified of the
(petitioner Pabalan or private respondents) would no longer be a
executor or administrator and the court may appoint proceedings, are substantially affected by the decision
stranger to the present case, the said parties having voluntarily
guardian ad litem for the minor heirs. rendered therein. xxx.
submitted to the jurisdiction of the SEC and the Court of Appeals and
Petitioners insist that the SEC en banc should have granted the having thoroughly participated in the proceedings. It is appropriate to mention here that when Judge Torres died on
motions to suspend they filed based as they were on the ground that April 3, 1991, the SEC en banc had already fully heard the parties and
The foregoing rationale finds support in the recent case of Vda.
the Regional Trial Court of Makati, where the probate of the late Judge what remained was the evaluation of the evidence and rendition of the
de Salazar v. CA, xviii wherein the Court expounded thus:
Torres will was pending, had yet to appoint an administrator or legal judgment.
representative of his estate. The need for substitution of heirs is based on the
Further, petitioners filed their motions to suspend proceedings
right to due process accruing to every party in any
We are not unaware of the principle underlying the aforequoted only after more than two (2) years from the death of Judge Torres.
proceeding. The rationale underlying this requirement in
provision: Petitioners counsel was even remiss in his duty under Sec. 16, Rule 3
case a party dies during the pendency of proceedings of a
of the Revised Rules of Court.xix Instead, it was private respondents
It has been held that when a party dies in an action nature not extinguished by such death, is that xxx the
who informed the SEC of Judge Torres death through a manifestation
that survives, and no order is issued by the Court for the exercise of judicial power to hear and determine a cause
dated 24 April 1991.
appearance of the legal representative or of the heirs of the implicitly presupposes in the trial court, amongst other
deceased to be substituted for the deceased, and as a matter essentials, jurisdiction over the persons of the parties. That For the SEC en banc to have suspended the proceedings to await
of fact no such substitution has ever been effected, the trial jurisdiction was inevitably impaired upon the death of the the appointment of the legal representatives by the estate was
held by the court without such legal representative or heirs, protestee pending the proceedings below such that unless impractical and would have caused undue delay in the proceedings
and the judgment rendered after such trial, are null and and until a legal representative is for him duly named and and a denial of justice. There is no telling when the probate court will
void because the court acquired no jurisdiction over the within the jurisdiction of the trial court, no adjudication in decide the issue, which may still be appealed to the higher courts.
the cause could have been accorded any validity or binding
In any case, there has been no final disposition of the properties A comparison of the number of shares that respondent Torres TCT 102200
of the late Judge Torres before the SEC. On the contrary, the decision received from TORMIL by virtue of the deeds of assignment Manila)
of the SEC en banc as affirmed by the Court of Appeals served to and the stock certificates issued by the latter to the former
3. July 13, 1984 TCT 374079
protect and preserve his estate. Consequently, the rule that when a readily shows that TORMIL had substantially performed what
Makati 8,307 1st
party dies, he should be substituted by his legal representative to was expected of it. In fact, the first two issuances were in
protect the interest of his estate in observance of due process was not satisfaction to the properties being revoked by respondent 4. July 24, 1984 TCT 41527
violated in this case in view of its peculiar situation where the estate Torres. Hence, the shortage of 972 shares would never be a Pasay)
was fully protected by the presence of the parties who claim interest valid ground for the revocation of the deeds covering Pasay
thereto either as directors, stockholders or heirs. and Quezon City properties. TCT 41528
Pasay) 9,855 4th
Finally, we agree with petitioners contention that the principle In Universal Food Corp. vs. CA, the Supreme Court held:
of negotiorum gestio xx does not apply in the present case. Said TCT 41529
The general rule is that rescission of a contract will not be Pasay)
principle explicitly covers abandoned or neglected property or
permitted for a slight or carnal breach, but only for such
business. 5. August 6, 1984 El Hogar Filipino Stocks
substantial and fundamental breach as would defeat the very
III object of the parties in making the agreement. 2,000 7th

Petitioners find legal basis for Judge Torres act of revoking the The shortage of 972 shares definitely is not substantial and 6. August 6, 1984 Manila Jockey Club
assignment of his properties in Makati and Pasay City to Tormil fundamental breach as would defeat the very object of the Stocks 48,737 5th
corporation by relying on Art. 1191 of the Civil Code which provides parties in entering into contract. Art. 1355 of the Civil Code 7. August 7, 1984 San Miguel Corp. Stocks
that: also provides: Except in cases specified by law, lesion or 50,238 8th
inadequacy of cause shall not invalidate a contract, unless
ART. 1191. The power to rescind obligations is 8. August 7, 1984 China Banking Corp.
there has been fraud, mistake or undue influences. There
implied in reciprocal ones, in case one of the obligors Stocks 6,300 6th
being no fraud, mistake or undue influence exerted on
should not comply with what is incumbent upon him.
respondent Torres by TORMIL and the latter having 9. August 20, 1984 Ayala Corp. Stocks
The injured party may choose between the already issued to the former of its 225,000 unissued shares, 7,468.2) 9th
fulfillment and the rescission of the obligation, with the the most logical course of action is to declare as null and
payment of damages in either case. He may also seek void the deed of revocation executed by respondent Torres. 10. August 29, 1984 Ayala Fund Stocks
rescission, even after he has chosen fulfillment, if the latter (Rollo, pp. 45-46.) xxi 1,322.1)
should become impossible. TOTAL
The aforequoted Civil Code provision does not apply in this
The court shall decree the rescission claimed, unless particular situation for the obvious reason that a specific number of 225,972.3
there be just cause authorizing the fixing of a period. shares of stock (as evidenced by stock certificates) had already been * Order of stock certificate issuances by TORMIL to
issued to the late Judge Torres in exchange for his Makati and Pasay respondent Torres relative to the Deeds of Assignment he
This is understood to be without prejudice to the City properties. The records thus disclose:
rights of third persons who have acquired the thing, in executed sometime in July and August, 1984. xxii
accordance with articles 1385 and 1388 and the Mortgage DATE OF PROPERTY LOCATION (Emphasis ours.)
Law. NO. OF SHARES ORDER OF Moreover, we agree with the contention of the Solicitor General
Petitioners contentions cannot be sustained. We see no ASSIGNMENT ASSIGNED TO BE ISSUED that the shortage of shares should not have affected the assignment of
justifiable reason to disturb the findings of SEC, as affirmed by the COMPLIANCE the Makati and Pasay City properties which were executed in 13 and
Court of Appeals: 24 July 1984 and the consideration for which have been duly paid or
1. July 13, 1984 TCT 81834 Quezon City) fulfilled but should have been applied logically to the last assignment
We sustain the ruling of respondent SEC in the decision 13,252 3rd of property -- Judge Torres Ayala Fund shares--which was executed
appealed from (Rollo, pp. 45-46) that - on 29 August 1984.xxiii
TCT 144240
x x x the shortage of 972 shares would not be valid ground for Quezon City) IV
respondent Torres to unilaterally revoke the deeds of
2. July 13, 1984 TCT 77008 Manila) Petitioners insist that the assignment of qualifying shares to the
assignment he had executed on July 13, 1984 and July 24,
1984 wherein he voluntarily assigned to TORMIL real TCT 65689 nominees of the late Judge Torres (herein petitioners) does not partake
properties covered by TCT No. 374079 (Makati) and TCT No. Manila) 78,493 2nd of the real nature of a transfer or conveyance of shares of stock as
41527, 41528 and 41529 (Pasay) respectively. 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 regular secretary, who was then part of a group ranged provision, the stock and transfer book was not kept at the
requirement since said assignments were entered by the late Judge against him, to make the entries of the assignments in favor principal office of the corporation either but at the place of
Torres himself in the corporations stock and transfer book on 6 March of his nominees; xxiv respondent Torres.
1987, prior to the 25 March 1987 annual stockholders meeting and
Petitioners contentions lack merit. These being the obtaining circumstances, any entries made in
which entries were confirmed on 8 March 1987 by petitioner Azura
the stock and transfer book on March 8, 1987 by respondent
who was appointed Assistant Corporate Secretary by Judge Torres. It is precisely the brewing family discord between Judge Torres
Torres of an alleged transfer of nominal shares to Pabalan and
and private respondents--his nephew and nieces that should have
Petitioners further argue that: Co. cannot therefore be given any valid effect. Where the
placed Judge Torres on his guard. He should have been more careful
entries made are not valid, Pabalan and Co. cannot therefore
10.10. Certainly, there is no legal or just basis for the in ensuring that his actions (particularly the assignment of qualifying
be considered stockholders of record of TORMIL. Because
respondent S.E.C. to penalize the late Judge Torres by shares to his nominees) comply with the requirements of the law.
they are not stockholders, they cannot therefore be elected as
invalidating the questioned entries in the stock and transfer Petitioners cannot use the flimsy excuse that it would have been a vain
directors of TORMIL. To rule otherwise would not only
book, simply because he initially made those entries (they attempt to force the incumbent corporate secretary to register the
encourage violation of clear mandate of Sec. 74 of the
were later affirmed by an acting corporate secretary) and aforestated assignments in the stock and transfer book because the
Corporation Code that stock and transfer book shall be kept in
because the stock and transfer book was in his possession latter belonged to the opposite faction. It is the corporate secretarys
the principal office of the corporation but would likewise open
instead of the elected corporate secretary, if the duty and obligation to register valid transfers of stocks and if said
the flood gates of confusion in the corporation as to who has
background facts herein-before narrated and the serious corporate officer refuses to comply, the transferor-stockholder may
the proper custody of the stock and transfer book and who are
animosities that then reigned between the deceased Judge rightfully bring suit to compel performance.xxv In other words, there
the real stockholders of records of a certain corporation as any
and his relatives are to be taken into account; are remedies within the law that petitioners could have availed of,
holder of the stock and transfer book, though not the corporate
instead of taking the law in their own hands, as the cliche goes.
xxx. secretary, at pleasure would make entries therein.
Thus, we agree with the ruling of the SEC en banc as affirmed
10.12. Indeed it was a practice in the corporate The fact that respondent Torres holds 81.28% of the
by the Court of Appeals:
respondent, a family corporation with only a measly outstanding capital stock of TORMIL is of no moment and is
number of stockholders, for the late judge to have personal We likewise sustain respondent SEC when it ruled, not a license for him to arrogate unto himself a duty lodged to
custody of corporate records; as president, chairman and interpreting Section 74 of the Corporation Code, as (sic) the corporate secretary.
majority stockholder, he had the prerogative of designating follows (Rollo, p. 45):
All corporations, big or small, must abide by the provisions of
an acting corporate secretary or to himself make the
In the absence of (any) provision to the contrary, the corporate the Corporation Code. Being a simple family corporation is not an
needed entries, in instances where the regular secretary,
secretary is the custodian of corporate records. Corollarily, he exemption. Such corporations cannot have rules and practices other
who is a mere subordinate, is unavailable or intentionally
keeps the stock and transfer book and makes proper and than those established by law.
defaults, which was the situation that obtained
necessary entries therein.
immediately prior to the 1987 annual stockholders meeting WHEREFORE, premises considered, the petition for review on
of Tormil, as the late Judge Torres had so indicated in the Contrary to the generally accepted corporate practice, the certiorari is hereby DENIED.
stock and transfer book in the form of the entries now in stock and transfer book of TORMIL was not kept by Ms.
question; Maria Cristina T. Carlos, the corporate secretary but by
respondent Torres, the President and Chairman of the Board
10.13. Surely, it would have been futile nay foolish
of Directors of TORMIL. In contravention to the above cited
for him to have insisted under those circumstances, for the
The facts of the case are undisputed, and are hereby from PALI. Furthermore, the Ternate Development
restated in sum. Corporation owns only 1.20% of PALI. The Marcoses
responded that their claim is not confined to the
The Puerto Azul Land, Inc. (PALI), a domestic real
facilities forming part of the Puerto Azul Hotel and
estate corporation, had sought to offer its shares to the
Resort Complex, thereby implying that they are also
public in order to raise funds allegedly to develop its
asserting legal and beneficial ownership of other
properties and pay its loans with several banking
properties titled under the name of PALI.
institutions. In January, 1995, PALI was issued a
Permit to Sell its shares to the public by the Securities On February 20, 1996, the PSE wrote Chairman
and Exchange Commission (SEC). To facilitate the Magtanggol Gunigundo of the Presidential
3. PHILIPPINE STOCK EXCHANGE, INC., trading of its shares among investors, PALI sought to Commission on Good Government (PCGG) requesting
petitioner, vs. THE HONORABLE COURT course the trading of its shares through the Philippine for comments on the letter of the PALI and the
OF APPEALS, SECURITIES AND Stock Exchange, Inc. (PSE), for which purpose it filed Marcoses. On March 4, 1996, the PSE was informed
EXCHANGE COMMISSION and PUERTO with the said stock exchange an application to list its that the Marcoses received a Temporary Restraining
AZUL LAND, INC., respondents. shares, with supporting documents attached. Order on the same date, enjoining the Marcoses from,
among others, further impeding, obstructing, delaying
DECISION On February 8, 1996, the Listing Committee of the
or interfering in any manner by or any means with the
PSE, upon a perusal of PALIs application,
TORRES, JR., J.: consideration, processing and approval by the PSE of
recommended to the PSEs Board of Governors the
the initial public offering of PALI. The TRO was issued
The Securities and Exchange Commission is the approval of PALIs listing application.
by Judge Martin S. Villarama, Executive Judge of the
government agency, under the direct general On February 14, 1996, before it could act upon RTC of Pasig City in Civil Case No. 65561, pending in
supervision of the Office of the President,i with the PALIs application, the Board of Governors of PSE Branch 69 thereof.
immense task of enforcing the Revised Securities Act, received a letter from the heirs of Ferdinand E. Marcos,
and all other duties assigned to it by pertinent laws. In its regular meeting held on March 27, 1996, the
claiming that the late President Marcos was the legal
Among its inumerable functions, and one of the most Board of Governors of the PSE reached its decision to
and beneficial owner of certain properties forming part
important, is the supervision of all corporations, reject PALIs application, citing the existence of serious
of the Puerto Azul Beach Hotel and Resort Complex
partnerships or associations, who are grantees or claims, issues and circumstances surrounding PALIs
which PALI claims to be among its assets and that the
primary franchise and/or a license or permit issued by ownership over its assets that adversely affect the
Ternate Development Corporation, which is among the
the government to operate in the Philippines.i Just how stockholders of PALI, likewise appears to have been suitability of listing PALIs shares in the stock
far this regulatory authority extends, particularly, with exchange.
held and continue to be held in trust by one Rebecco
regard to the Petitioner Philippine Stock Exchange, Inc. Panlilio for then President Marcos and now, effectively On April 11, 1996, PALI wrote a letter to the SEC
is the issue in the case at bar. for his estate, and requested PALIs application to be addressed to the then Acting Chairman, Perfecto R.
In this Petition for Review of Certiorari, petitioner deferred. PALI was requested to comment upon the Yasay, Jr., bringing to the SECs attention the action
assails the resolution of the respondent Court of said letter. taken by the PSE in the application of PALI for the
Appeals, dated June 27, 1996, which affirmed the PALIs answer stated that the properties forming listing of its shares with the PSE, and requesting that
decision of the Securities and Exchange Commission the SEC, in the exercise of its supervisory and
part of Puerto Azul Beach Hotel and Resort Complex
ordering the petitioner Philippine Stock Exchange, Inc. regulatory powers over stock exchanges under Section
were not claimed by PALI as its assets. On the contrary,
to allow the private respondent Puerto Azul Land, Inc. 6(j) of P.D. No. 902-A, review the PSEs action on
the resort is actually owned by Fantasia Filipina Resort,
to be listed in its stock market, thus paving the way for PALIs listing application and institute such measures as
Inc. and the Puerto Azul Country Club, entities distinct
the public offering of PALIs shares.
adverse claim against the PALI properties, IV. THE FULL DISCLOSURE OF THE SEC
are just and proper and under the circumstances. PSE should require PALI to submit full WAS NOT PROPERLY PROMULGATED
On the same date, or on April 11, 1996, the SEC disclosure of material facts and information to AND ITS IMPLEMENTATION AND
wrote to the PSE, attaching thereto the letter of PALI protect the investing public. In this regard, APPLICATION IN THIS CASE VIOLATES
and directing the PSE to file its comments thereto PALI is hereby ordered to amend its THE DUE PROCESS CLAUSE OF THE
within five days from its receipt and for its authorized registration statements filed with the CONSTITUTION.
representative to appear for an inquiry on the matter. Commission to incorporate the full disclosure
On April 22, 1996, the PSE submitted a letter to the of these material facts and information.
On June 4, 1996, PALI filed its Comment to the
SEC containing its comments to the April 11, 1996 Dissatisfied with this ruling, the PSE filed with the Petition for Review and subsequently, a Comment and
letter of PALI. Court of Appeals on May 17, 1996 a Petition for Motion to Dismiss. On June 10, 1996, PSE filed its
On April 24, 1996, the SEC rendered its Order, Review (with application for Writ of Preliminary Reply to Comment and Opposition to Motion to
reversing the PSEs decision. The dispositive portion of Injunction and Temporary Restraining Order), assailing Dismiss.
the said order reads: the above mentioned orders of the SEC, submitting the
following as errors of the SEC: On June 27, 1996, the Court of Appeals
WHEREFORE, premises considered, and promulgated its Resolution dismissing the PSEs
invoking the Commissioners authority and I. SEC COMMITTED SERIOUS ERROR Petition for Review. Hence, this Petition by the PSE.
jurisdiction under Section 3 of the Revised AND GRAVE ABUSE OF DISCRETION IN
ISSUING THE ASSAILED ORDERS The appellate court had ruled that the SEC had both
Securities Act, in conjunction with Section 3,
WITHOUT POWER, JURISDICTION, OR jurisdiction and authority to look into the decision of
6(j) and 6(m) of the Presidential Decree No.
AUTHORITY; SEC HAS NO POWER TO the petitioner PSE, pursuant to Section 3i of the Revised
902-A, the decision of the Board of Governors
ORDER THE LISTING AND SALE OF Securities Act in relation to Section 6(j) and 6(m)i of
of the Philippine Stock Exchange denying the
SHARES OF PALI WHOSE ASSETS ARE P.D. No. 902-A, and Section 38(b)i of the Revised
listing of shares of Puerto Azul Land, Inc., is
SEQUESTERED AND TO REVIEW AND Securities Act, and for the purpose of ensuring fair
hereby set aside, and the PSE is hereby
SUBSTITUTE DECISIONS OF PSE ON administration of the exchange. Both as a corporation
ordered to immediately cause the listing of the
LISTING APPLICATIONS; and as a stock exchange, the petitioner is subject to
PALI shares in the Exchange, without
public respondents jurisdiction, regulation and control.
prejudice to its authority to require PALI to II. SEC COMMITTED SERIOUS ERROR Accepting the argument that the public respondent has
disclose such other material information it AND GRAVE ABUSE OF DISCRETION IN the authority merely to supervise or regulate, would
deems necessary for the protection of the FINDING THAT PSE ACTED IN AN amount to serious consequences, considering that the
investing public. ARBITRARY AND ABUSIVE MANNER IN petitioner is a stock exchange whose business is
This Order shall take effect immediately. DISAPPROVING PALIS LISTING impressed with public interest. Abuse is not remote if
SO ORDERED. the public respondent is left without any system of
III. THE ASSAILED ORDERS OF SEC ARE control. If the securities act vested the public
PSE filed a motion for reconsideration of the said ILLEGAL AND VOID FOR ALLOWING respondent with jurisdiction and control over all
order on April 29, 1996, which was, however denied by FURTHER DISPOSITION OF PROPERTIES corporations; the power to authorize the establishment
the Commission in its May 9, 1996 Order which states: IN CUSTODIA LEGIS AND WHICH FORM of stock exchanges; the right to supervise and regulate
WHEREFORE, premises considered, the PART OF NAVAL/MILITARY the same; and the power to alter and supplement rules
Commission finds no compelling reason to RESERVATION; AND of the exchange in the listing or delisting of securities,
consider its order dated April 24, 1996, and in then the law certainly granted to the public respondent
the light of recent developments on the
legality of its ownership on these properties (December 26, 1996). On may 16, 1997, PALI filed its
the plenary authority over the petitioner; and the power before its shares can be listed. Rejoinder to the said consolidated reply of PSE.
of review necessarily comes within its authority.
PSE submits that the Court of Appeals erred in
All in all, the court held that PALI complied with ruling that the SEC had authority to order the PSE to
In addition, the argument that the PALI properties
all the requirements for public listing, affirming the list the shares of PALI in the stock exchange. Under
belong to the Military/Naval Reservation does not
SECs ruling to the effect that: presidential decree No. 902-A, the powers of the SEC
inspire belief. The point is, the PALI properties are now
x x x the Philippine Stock Exchange has acted in over stock exchanges are more limited as compared to
titled. A property losses its public character the moment
an arbitrary and abusive manner in disapproving its authority over ordinary corporations. In connection
it is covered by a title. As a matter of fact, the titles have
the application of PALI for listing of its shares in with this, the powers of the SEC over stock exchanges
long been settled by a final judgment; and the final
the face of the following considerations: under the Revised Securities Act are specifically
decree having been registered, they can no longer be re-
enumerated, and these do not include the power to
1. PALI has clearly and admittedly complied opened considering that the one year period has already
reverse the decisions of the stock exchange. Authorities
with the Listing Rules and full disclosure passed. Lastly, the determination of what standard to
are in abundance even in the United States, from which
requirements of the Exchange; apply in allowing PALIs application for listing,
the countrys security policies are patterned, to the effect
whether the discretion method or the system of public
2. In applying its clear and reasonable standards of giving the Securities Commission less control over
disclosure adhered to by the SEC, should be addressed
on the suitability for listing of shares, PSE has stock exchanges, which in turn are given more lee-way
to the Securities Commission, it being the government
failed to justify why it acted differently on the in making the decision whether or not to allow
agency that exercises both supervisory and regulatory
application of PALI, as compared to the IPOs of corporations to offer their stock to the public through
authority over all corporations.
other companies similarly that were allowed the stock exchange. This is in accord with the business
listing in the Exchange; On August 15, 1996, the PSE, after it was granted judgment rule whereby the SEC and the courts are
an extension, filed an instant Petition for Review on barred from intruding into business judgments of
3. It appears that the claims and issues on the Certiorari, taking exception to the rulings of the SEC corporations, when the same are made in good faith.
title to PALIs properties were even less serious and the Court of Appeals. Respondent PALI filed its The said rule precludes the reversal of the decision of
than the claims against the assets of the other Comment to the petition on October 17, 1996. On the the PSE to deny PALIs listing application, absent a
companies in that, the assertions of the Marcoses same date, the PCGG filed a Motion for Leave to file a showing a bad faith on the part of the PSE. Under the
that they are owners of the disputed properties Petition for Intervention. This was followed up by the listing rule of the PSE, to which PALI had previously
were not substantiated enough to overcome the PCGGs Petition for Intervention on October 21, 1996. agreed to comply, the PSE retains the discretion to
strength of a title to properties issued under the A supplemental Comment was filed by PALI on accept or reject applications for listing. Thus, even if an
Torrens System as evidence of ownership October 25, 1997. The Office of the Solicitor General, issuer has complied with the PSE listing rules and
thereof; representing the SEC and the Court of Appeals, requirements, PSE retains the discretion to accept or
4. No action has been filed in any court of likewise filed its Comment on December 26, 1996. In reject the issuers listing application if the PSE
competent jurisdiction seeking to nullify PALIs answer to the PCGGs motion for leave to file petition determines that the listing shall not serve the interests
ownership over the disputed properties, neither for intervention, PALI filed its Comment thereto on of the investing public.
has the government instituted recovery January 17, 1997, whereas the PSE filed its own
Moreover, PSE argues that the SEC has no
proceedings against these properties. Yet the Comment on January 20, 1997.
jurisdiction over sequestered corporations, nor with
import of PSEs decision in denying PALIs On February 25, 1996, the PSE filed its corporations whose properties are under sequestration.
application is that it would be PALI, not the Consolidated Reply to the comments of respondent A reading of Republic of the Philippines vs.
Marcoses, that must go to court to prove the PALI (October 17, 1996) and the Solicitor General Sandiganbayan, G.R. No. 105205, 240 SCRA 376,
the marking of a corporate entity, its functions as the the PSE, therefore, may be implied from or be
would reveal that the properties of PALI, which were primary channel through which the vessels of capital considered as necessary or incidental to the carrying out
derived from the Ternate Development Corporation trade ply. The PSEs relevance to the continued of the SECs express power to insure fair dealing in
(TDC) and the Monte del Sol Development operation and filtration of the securities transactions in securities traded upon a stock exchange or to ensure the
Corporation (MSDC), are under sequestration by the the country gives it a distinct color of importance such fair administration of such exchange.i It is, likewise,
PCGG, and the subject of forfeiture proceedings in the that government intervention in its affairs becomes observed that the principal function of the SEC is the
Sandiganbayan. This ruling of the Court is the law of justified, if not necessary. Indeed, as the only supervision and control over corporations, partnerships
the case between the Republic and the TDC and MSDC. operational stock exchange in the country today, the and associations with the end in view that investment in
It categorically declares that the assets of these PSE enjoys a monopoly of securities transactions, and these entities may be encouraged and protected, and
corporations were sequestered by the PCGG on March as such, it yields an immense influence upon the their activities pursued for the promotion of economic
10, 1986 and April 4, 1988. countrys economy. development.i
It is, likewise, intimidated that the Court of Due to this special nature of stock exchanges, the Thus, it was in the alleged exercise of this authority
Appeals sanction that PALIs ownership over its countrys lawmakers has seen it wise to give special that the SEC reversed the decision of the PSE to deny
properties can no longer be questioned, since treatment to the administration and regulation of stock the application for listing in the stock exchange of the
certificates of title have been issued to PALI and more exchanges.i private respondent PALI. The SECs action was
than one year has since lapsed, is erroneous and ignores affirmed by the Court of Appeals.
These provisions, read together with the general
well settled jurisprudence on land titles. That a
grant of jurisdiction, and right of supervision and We affirm that the SEC is the entity with the
certificate of title issued under the Torrens System is a
control over all corporations under Sec. 3 of P.D. 902- primary say as to whether or not securities, including
conclusive evidence of ownership is not an absolute
A, give the SEC the special mandate to be vigilant in shares of stock of a corporation, may be traded or not
rule and admits certain exceptions. It is fundamental
the supervision of the affairs of stock exchanges so that in the stock exchange. This is in line with the SECs
that forest lands or military reservations are non-
the interests of the investing public may be fully mission to ensure proper compliance with the laws,
alienable. Thus, when a title covers a forest reserve or
safeguarded. such as the Revised Securities Act and to regulate the
a government reservation, such title is void.
sale and disposition of securities in the country.i As the
Section 3 of Presidential Decree 902-A, standing
PSE, likewise, assails the SECs and the Court of appellate court explains:
alone, is enough authority to uphold the SECs
Appeals reliance on the alleged policy of full disclosure
challenged control authority over the petitioner PSE Paramount policy also supports the authority of the
to uphold the listing of the PALIs shares with the PSE,
even as it provides that the Commission shall have public respondent to review petitioners denial of
in the absence of a clear mandate for the effectivity of
absolute jurisdiction, supervision, and control over all the listing. Being a stock exchange, the petitioner
such policy. As it is, the case records reveal the truth
corporations, partnerships or associations, who are the performs a function that is vital to the national
that PALI did not comply with the listing rules and
grantees of primary franchises and/or a license or economy, as the business is affected with public
disclosure requirements. In fact, PALIs documents
permit issued by the government to operate in the interest. As a matter of fact, it has often been said
supporting its application contained misrepresentations
Philippines The SECs regulatory authority over private that the economy moves on the basis of the rise and
and misleading statements, and concealed material
corporations encompasses a wide margin of areas, fall of stocks being traded. By its economic power,
information. The matter of sequestration of PALIs
touching nearly all of a corporations concerns. This the petitioner certainly can dictate which and how
properties and the fact that the same form part of
authority springs from the fact that a corporation owes many users are allowed to sell securities thru the
military/naval/forest reservations were not reflected in
its existence to the concession of its corporate franchise facilities of a stock exchange, if allowed to
PALIs application.
from the state. interpret its own rules liberally as it may please.
It is undeniable that the petitioner PSE is not an Petitioner can either allow or deny the entry to the
The SECs power to look into the subject ruling of
ordinary corporation, in that although it is clothed with
Thus, notwithstanding the regulatory power of the emphasized its avowed protection to acts detrimental to
market of securities. To repeat, the monopoly, SEC over the PSE, and the resultant authority to reverse legitimate business, thus:
unless accompanied by control, becomes subject to the PSEs decision in matters of application for listing in The Securities Act, often referred to as the
abuse; hence, considering public interest, then it the market, the SEC may exercise such power only if truth in securities Act, was designed not only to
should be subject to government regulation. the PSEs judgment is attended by bad faith. In board of provide investors with adequate information
The role of the SEC in our national economy Liquidators vs. Kalaw,i it was held that bad faith does upon which to base their decisions to buy and sell
cannot be minimized. The legislature, through the not simply connote bad judgment or negligence. It securities, but also to protect legitimate business
Revised Securities Act, Presidential Decree No. 902-A, imports a dishonest purpose or some moral obliquity seeking to obtain capital through honest
and other pertinent laws, has entrusted to it the serious and conscious doing of wrong. It means a breach of a presentation against competition form crooked
responsibility of enforcing all laws affecting known duty through some motive or interest of ill will, promoters and to prevent fraud in the sale of
corporations and other forms of associations not partaking of the nature of fraud.
securities. (Tenth Annual Report, U.S. Securities
otherwise vested in some other government office.i In reaching its decision to deny the application for and Exchange Commission, p. 14).
This is not to say, however, that the PSEs listing of PALI, the PSE considered important facts, As has been pointed out, the effects of such
management prerogatives are under the absolute which in the general scheme, brings to serious question an act are chiefly (1) prevention of excesses and
control of the SEC. The PSE is, after all, a corporation the qualification of PALI to sell its shares to the public fraudulent transactions, merely by requirement of
authorized by its corporate franchise to engage in its through the stock exchange. During the time for that details be revealed; (2) placing the market
proposed and duly approved business. One of the PSEs receiving objections to the application, the PSE heard during the early stages of the offering of a
main concerns, as such, is still the generation of profit from the representative of the late President Ferdinand security a body of information, which operating
for its stockholders. Moreover, the PSE has all the E. Marcos and his family who claim the properties of indirectly through investment services and expert
rights pertaining to corporations, including the right to the private respondent to be part of the Marcos estate.
investors, will tend to produce a more accurate
sue and be sued, to hold property in its own name, to In time, the PCGG confirmed this claim. In fact, an appraisal of a security. x x x. Thus, the
enter (or not to enter) into contracts with third persons, order of sequestration has been issued covering the Commission may refuse to permit a registration
and to perform all other legal acts within its allocated properties of PALI, and suit for reconveyance to the statement to become effective if it appears on its
express or implied powers. state has been filed in the Sandiganbayan Court. How face to be incomplete or inaccurate in any
the properties were effectively transferred, despite the
A corporation is but an association of individuals, material respect, and empower the Commission
sequestration order, from the TDC and MSDC to
allowed to transact under an assumed corporate name, to issue a stop order suspending the effectiveness
Rebecco Panlilio, and to the private respondent PALI,
and with a distinct legal personality. In organizing itself of any registration statement which is found to
in only a short span of time, are not yet explained to the
as a collective body, it waives no constitutional include any untrue statement of a material fact or
Court, but it is clear that such circumstances give rise
immunities and perquisites appropriate to such body.i to omit to state any material fact required to be
to serious doubt as to the integrity of PALI as a stock
As to its corporate and management decisions, stated therein or necessary to make the statements
issuer. The petitioner was in the right when it refused
therefore, the state will generally not interfere with the therein not misleading. (Idem).
application of PALI, for a contrary ruling was not to the
same. Questions of policy and of management are left best interest of the general public. The purpose of the Also, as the primary market for securities, the PSE
to the honest decision of the officers and directors of a Revised Securities Act, after all, is to give adequate and has established its name and goodwill, and it has the
corporation, and the courts are without authority to effective protection to the investing public against right to protect such goodwill by maintaining a
substitute their judgment for the judgment of the board fraudulent representations, or false promises, and the reasonable standard of propriety in the entities who
of directors. The board is the business manager of the imposition of worthless ventures.i choose to transact through its facilities. It was
corporation, and so long as it acts in good faith, its reasonable for PSE, therefore, to exercise its judgment
orders are not reviewable by the courts.i It is to be observed that the U.S. Securities Act
respondent PALI, since this is a matter addressed to the nonetheless, the Revised Securities Act sets substantial
in the manner it deems appropriate for its business sound discretion of the PSE, a corporate entity, whose and procedural standards which a proposed issuer of
identity, as long as no rights are trampled upon, and business judgments are respected in the absence of bad securities must satisfy.i Pertinently, Section 9 of the
public welfare is safeguarded. faith. Revised Securities Act sets forth the possible Grounds
In this connection, it is proper to observe that the for the Rejection of the registration of a security:
The question as to what policy is, or should be
concept of government absolutism in a thing of the past, relied upon in approving the registration and sale of - - The Commission may reject a registration
and should remain so. securities in the SEC is not for the Court to determine, statement and refuse to issue a permit to sell the
The observation that the title of PALI over its but is left to the sound discretion of the Securities and securities included in such registration statement
properties is absolute and can no longer be assailed is Exchange Commission. In mandating the SEC to if it finds that - -
of no moment. At this juncture, there is the claim that administer the Revised Securities Act, and in (1) The registration statement is on its
the properties were owned by the TDC and MSDC and performing its other functions under pertinent laws, the face incomplete or inaccurate in any material
were transferred in violation of sequestration orders, to Revised Securities Act, under Section 3 thereof, gives respect or includes any untrue statement of a
Rebecco Panlilio and later on to PALI, besides the the SEC the power to promulgate such rules and material fact or omits to state a material facts
claim of the Marcoses that such properties belong to regulations as it may consider appropriate in the public required to be stated therein or necessary to
Marcos estate, and were held only in trust by Rebecco interest for the enforcement of the said laws. The make the statements therein not misleading; or
Panlilio. It is also alleged by the petitioner that these second paragraph of Section 4 of the said law, on the
other hand, provides that no security, unless exempt by (2) The issuer or registrant - -
properties belong to naval and forest reserves, and
therefore beyond private dominion. If any of these law, shall be issued, endorsed, sold, transferred or in (i) is not solvent or not is sound
claims is established to be true, the certificates of title any other manner conveyed to the public, unless financial condition;
over the subject properties now held by PALI may be registered in accordance with the rules and regulations
that shall be promulgated in the public interest and for (ii) has violated or has not complied
disregarded, as it is an established rule that a with the provisions of this Act, or the rules
registration of a certificate of title does not confer the protection of investors by the Commission.
Presidential Decree No. 902-A, on the other hand, promulgated pursuant thereto, or any order of
ownership over the properties described therein to the the Commission;
person named as owner. The inscription in the registry, provides that the SEC, as regulatory agency, has
to be effective, must be made in good faith. The defense supervision and control over all corporations and over (iii) has failed to comply with any of the
of indefeasibility of a Torrens Title does not extend to the securities market as a whole, and as such, is given applicable requirements and conditions that
a transferee who takes the certificate of title with notice ample authority in determining appropriate policies. the Commission may, in the public interest
of a flaw. Pursuant to this regulatory authority, the SEC has and for the protection of investors, impose
manifested that it has adopted the policy of full material before the security can be registered;
In any case, for the purpose of determining whether disclosure where all companies, listed or applying for
PSE acted correctly in refusing the application of PALI, listing, are required to divulge truthfully and accurately, (iv) had been engaged or is engaged or
the true ownership of the properties of PALI need not all material information about themselves and the is about to engaged in fraudulent transactions;
be determined as an absolute fact. What is material is securities they sell, for the protection of the investing (v) is in any was dishonest of is not of
that the uncertainty of the properties ownership and public, and under pain of administrative, criminal and good repute; or
alienability exists, and this puts to question the civil sanctions. In connection with this, a fact is deemed
qualification of PALIs public offering. In sum, the (vi) does not conduct its business in
material if it tends to induce or otherwise effect the sale
Court finds that the SEC had acted arbitrarily in accordance with law or is engaged in a
or purchase of its securities.i While the employment of
arrogating unto itself the discretion of approving the business that is illegal or contrary or
this policy is recognized and sanctioned by laws,
application for listing in the PSE of the private government rules and regulations.
administrative issuance. denying the Motion for Reconsideration. The COA
(3) The enterprise or the business of the denied petitioner Ranulfo C. Felicianos request for
In resum, the Court finds that the PSE has acted
issuer is not shown to be sound or to be based COA to cease all audit services, and to stop charging
with justified circumspection, discounting, therefore,
on sound business principles; auditing fees, to Leyte Metropolitan Water District
any imputation of arbitrariness and whimsical
(4) An officer, member of the board of (LMWD). The COA also denied petitioners request for
animation on its part. Its action in refusing to allow the
directors, or principal stockholder of the issuer COA to refund all auditing fees previously paid by
listing of PALI in the stock exchange is justified by the
is disqualified to such officer, director or LMWD.
law and by the circumstances attendant to this case.
principal stockholder; or Antecedent Facts
ACCORDINGLY, in view of the foregoing
(5) The issuer or registrant has not considerations, the Court hereby GRANTS the Petition A Special Audit Team from COA Regional Office
shown to the satisfaction of the Commission for Review on Certiorari. The decisions of the Court of No. VIII audited the accounts of LMWD.
that the sale of its security would not work to Appeals and the Securities and Exchage Commission Subsequently, LMWD received a letter from COA
the prejudice to the public interest or as a fraud dated July 27, 1996 and April 24, 1996, respectively, dated 19 July 1999 requesting payment of auditing fees.
upon the purchaser or investors. (Emphasis are hereby REVERSED and SET ASIDE, and a new As General Manager of LMWD, petitioner sent a reply
Ours) Judgment is hereby ENTERED, affirming the decision dated 12 October 1999 informing COAs Regional
A reading of the foregoing grounds reveals the of the Philippine Stock Exchange to deny the Director that the water district could not pay the
intention of the lawmakers to make the registration and application for listing of the private respondent Puerto auditing fees. Petitioner cited as basis for his action
issuance of securities dependent, to a certain extent, on Azul Land, Inc. Sections 6 and 20 of Presidential Decree 198 (PD 198)i,
the merits of the securities themselves, and of the as well as Section 18 of Republic Act No. 6758 (RA
issuer, to be determined by the Securities and Exchange 6758). The Regional Director referred petitioners reply
Commission. This measure was meant to protect the to the COA Chairman on 18 October 1999.
interest of the investing public against fraudulent and I. Art. XII Section 16, Consti On 19 October 1999, petitioner wrote COA
worthless securities, and the SEC is mandated by law through the Regional Director asking for refund of all
to safeguard these interests, following the policies and ENGR. RANULFO C. FELICIANO, in his capacity auditing fees LMWD previously paid to COA.
rules therefore provided. The absolute reliance on the as General Manager of the Leyte Metropolitan On 16 March 2000, petitioner received COA
full disclosure method in the registration of securities Water District (LMWD), Tacloban City, petitioner, Chairman Celso D. Gangans Resolution dated 3
is, therefore, untenable. At it is, the Court finds that the vs. COMMISSION ON AUDIT, Chairman CELSO January 2000 denying his requests. Petitioner filed a
private respondent PALI, on at least two points (nos. 1 D. GANGAN, Commissioners RAUL C. FLORES motion for reconsideration on 31 March 2000, which
and 5) has failed to support the propriety of the issue of and EMMANUEL M. DALMAN, and Regional COA denied on 30 January 2001.
its shares with unfailing clarity, thereby lending support Director of COA Region VIII, respondents.
to the conclusion that the PSE acted correctly in On 13 March 2001, petitioner filed this instant
refusing the listing of PALI in its stock exchange. This DECISION petition. Attached to the petition were resolutions of the
does not discount the effectivity of whatever method CARPIO, J.: Visayas Association of Water Districts (VAWD) and
the SEC, in the exercise of its vested authority, chooses the Philippine Association of Water Districts (PAWD)
in setting the standard for public offerings of The Case supporting the petition.
corporations wishing to do so. However, the SEC must This is a petition for certiorarii to annul the The Ruling of the Commission on Audit
recognize and implement the mandate of the law, Commission on Audits (COA) Resolution dated 3
particularly the Revised Securities Act, the provisions January 2000 and the Decision dated 30 January 2001 The COA ruled that this Court has already settled
of which cannot be amended or supplanted my mere COAs audit jurisdiction over local water districts in
subject to the audit jurisdiction of COA; the internal control system of the audited
Davao City Water District v. Civil Service Commission agencies is inadequate, the Commission may
2. Whether Section 20 of PD 198, as amended,
and Commission on Audit,i as follows: adopt such measures, including temporary or
prohibits COAs certified public accountants
The above-quoted provision [referring to special pre-audit, as are necessary and
from auditing local water districts; and
Section 3(b) PD 198] definitely sets to naught appropriate to correct the deficiencies. It shall
3. Whether Section 18 of RA 6758 prohibits the keep the general accounts of the Government
petitioners contention that they are private
COA from charging government-owned and and, for such period as may be provided by law,
corporations. It is clear therefrom that the power
controlled corporations auditing fees. preserve the vouchers and other supporting
to appoint the members who will comprise the
members of the Board of Directors belong to the The Ruling of the Court papers pertaining thereto. (Emphasis supplied)
local executives of the local subdivision unit The petition lacks merit. The COAs audit jurisdiction extends not only to
where such districts are located. In contrast, the government agencies or instrumentalities, but also to
members of the Board of Directors or the trustees The Constitution and existing lawsi mandate COA government-owned and controlled corporations with
of a private corporation are elected from among to audit all government agencies, including original charters as well as other government-owned or
members or stockholders thereof. It would not be government-owned and controlled corporations controlled corporations without original charters.
amiss at this point to emphasize that a private (GOCCs) with original charters. An LWD is a GOCC
with an original charter. Section 2(1), Article IX-D of Whether LWDs are Private or Government-Owned
corporation is created for the private purpose,
benefit, aim and end of its members or the Constitution provides for COAs audit jurisdiction, and Controlled Corporations with Original
stockholders. Necessarily, said members or as follows: Charters
stockholders should be given a free hand to SECTION 2. (1) The Commission on Petitioner seeks to revive a well-settled issue.
choose who will compose the governing body of Audit shall have the power, authority and duty to Petitioner asks for a re-examination of a doctrine
their corporation. But this is not the case here and examine, audit, and settle all accounts pertaining backed by a long line of cases culminating in Davao
this clearly indicates that petitioners are not to the revenue and receipts of, and expenditures City Water District v. Civil Service Commissioni and
private corporations. or uses of funds and property, owned or held in just recently reiterated in De Jesus v. Commission on
The COA also denied petitioners request for COA to trust by, or pertaining to, the Government, or any Audit.i Petitioner maintains that LWDs are not
stop charging auditing fees as well as petitioners of its subdivisions, agencies, or instrumentalities, government-owned and controlled corporations with
request for COA to refund all auditing fees already including government-owned and controlled original charters. Petitioner even argues that LWDs are
paid. corporations with original charters, and on a private corporations. Petitioner asks the Court to
post-audit basis: (a) constitutional bodies, consider certain interpretations of the applicable laws,
commissions and offices that have been granted which would give a new perspective to the issue of the
The Issues fiscal autonomy under this Constitution; (b) true character of water districts.i
autonomous state colleges and universities; (c)
Petitioner contends that COA committed grave Petitioner theorizes that what PD 198 created was
other government-owned or controlled
abuse of discretion amounting to lack or excess of the Local Waters Utilities Administration (LWUA) and
corporations and their subsidiaries; and (d) such
jurisdiction by auditing LMWD and requiring it to pay not the LWDs. Petitioner claims that LWDs are created
non-governmental entities receiving subsidy or
auditing fees. Petitioner raises the following issues for pursuant to and not created directly by PD 198. Thus,
equity, directly or indirectly, from or through the
resolution: petitioner concludes that PD 198 is not an original
government, which are required by law or the
1. Whether a Local Water District (LWD) charter that would place LWDs within the audit
granting institution to submit to such audit as a
created under PD 198, as amended, is a jurisdiction of COA as defined in Section 2(1), Article
condition of subsidy or equity. However, where
government-owned or controlled corporation
created under a general law can qualify as private special charter. Since under the Constitution only
IX-D of the Constitution. Petitioner elaborates that PD corporations. Under existing laws, that general law is government-owned or controlled corporations may
198 does not create LWDs since it does not expressly the Corporation Code,i except that the Cooperative have special charters, LWDs can validly exist only if
direct the creation of such entities, but only provides for Code governs the incorporation of cooperatives.i they are government-owned or controlled. To claim that
their formation on an optional or voluntary basis.i LWDs are private corporations with a special charter is
The Constitution authorizes Congress to create
Petitioner adds that the operative act that creates an to admit that their existence is constitutionally infirm.
government-owned or controlled corporations through
LWD is the approval of the Sanggunian Resolution as
special charters. Since private corporations cannot have Unlike private corporations, which derive their
specified in PD 198.
special charters, it follows that Congress can create legal existence and power from the Corporation Code,
Petitioners contention deserves scant corporations with special charters only if such LWDs derive their legal existence and power from PD
consideration. corporations are government-owned or controlled. 198. Sections 6 and 25 of PD 198i provide:
We begin by explaining the general framework Obviously, LWDs are not private corporations Section 6. Formation of District. This
under the fundamental law. The Constitution because they are not created under the Corporation Act is the source of authorization and power
recognizes two classes of corporations. The first refers Code. LWDs are not registered with the Securities and to form and maintain a district. For purposes
to private corporations created under a general law. The Exchange Commission. Section 14 of the Corporation of this Act, a district shall be considered as a
second refers to government-owned or controlled Code states that [A]ll corporations organized under this quasi-public corporation performing public
corporations created by special charters. Section 16, code shall file with the Securities and Exchange service and supplying public wants. As such, a
Article XII of the Constitution provides: Commission articles of incorporation x x x. LWDs have district shall exercise the powers, rights and
Sec. 16. The Congress shall not, except by no articles of incorporation, no incorporators and no privileges given to private corporations under
general law, provide for the formation, stockholders or members. There are no stockholders or existing laws, in addition to the powers
organization, or regulation of private members to elect the board directors of LWDs as in the granted in, and subject to such restrictions
corporations. Government-owned or controlled case of all corporations registered with the Securities imposed, under this Act.
corporations may be created or established by and Exchange Commission. The local mayor or the (a) The name of the local water district, which
special charters in the interest of the common provincial governor appoints the directors of LWDs for shall include the name of the city, municipality,
good and subject to the test of economic viability. a fixed term of office. This Court has ruled that LWDs or province, or region thereof, served by said
are not created under the Corporation Code, thus:
The Constitution emphatically prohibits the creation of system, followed by the words Water District.
private corporations except by a general law applicable From the foregoing pronouncement, it is (b) A description of the boundary of the district.
to all citizens.i The purpose of this constitutional clear that what has been excluded from the In the case of a city or municipality, such
provision is to ban private corporations created by coverage of the CSC are those corporations boundary may include all lands within the city or
special charters, which historically gave certain created pursuant to the Corporation Code. municipality. A district may include one or more
individuals, families or groups special privileges denied Significantly, petitioners are not created municipalities, cities or provinces, or portions
to other citizens.i under the said code, but on the contrary, they thereof.
were created pursuant to a special law and are
In short, Congress cannot enact a law creating a governed primarily by its provision.i (c) A statement completely transferring
private corporation with a special charter. Such (Emphasis supplied) any and all waterworks and/or sewerage facilities
legislation would be unconstitutional. Private managed, operated by or under the control of
corporations may exist only under a general law. If the such city, municipality or province to such
corporation is private, it must necessarily exist under a LWDs exist by virtue of PD 198, which constitutes their district upon the filing of resolution forming the
general law. Stated differently, only corporations
provides that LWDs shall exercise the powers, Presiding Officer. By the term original
district. rights and privileges given to private corporations charters, what exactly do we mean?
(d) A statement identifying the purpose for under existing laws. Without PD 198, LWDs
MR. ROMULO. We mean that they
which the district is formed, which shall include would have no corporate powers. Thus, PD 198
were created by law, by an act of Congress,
those purposes outlined in Section 5 above. constitutes the special enabling charter of LWDs. or by special law.
The ineluctable conclusion is that LWDs are
(e) The names of the initial directors of the government-owned and controlled corporations MR. FOZ. And not under the general
district with the date of expiration of term of with a special charter. corporation law.
office for each.
The phrase government-owned and MR. ROMULO. That is correct. Mr.
(f) A statement that the district may only be controlled corporations with original charters Presiding Officer.
dissolved on the grounds and under the means GOCCs created under special laws and not MR. FOZ. With that understanding and
conditions set forth in Section 44 of this Title. under the general incorporation law. There is no clarification, the Committee accepts the
(g) A statement acknowledging the powers, difference between the term original charters and amendment.
rights and obligations as set forth in Section 36 of special charters. The Court clarified this in
National Service Corporation v. NLRCi by MR. NATIVIDAD. Mr. Presiding
this Title.
citing the deliberations in the Constitutional Officer, so those created by the general
Nothing in the resolution of formation shall state Commission, as follows: corporation law are out.
or infer that the local legislative body has the
power to dissolve, alter or affect the district
Trenas). The session is resumed. (Emphasis supplied)
beyond that specifically provided for in this Act.
Commissioner Romulo is recognized. Again, in Davao City Water District v. Civil
If two or more cities, municipalities or provinces,
Service Commission,i the Court reiterated the meaning
or any combination thereof, desire to form a MR. ROMULO. Mr. Presiding of the phrase government-owned and controlled
single district, a similar resolution shall be Officer, I am amending my original proposed corporations with original charters in this wise:
adopted in each city, municipality and province. amendment to now read as follows: including
government-owned or controlled corporations By government-owned or controlled
WITH ORIGINAL CHARTERS. The purpose corporation with original charter, We mean
Sec. 25. Authorization. The district may of this amendment is to indicate that government owned or controlled corporation
exercise all the powers which are expressly government corporations such as the GSIS and created by a special law and not under the
granted by this Title or which are necessarily SSS, which have original charters, fall within Corporation Code of the Philippines. Thus, in
implied from or incidental to the powers and the ambit of the civil service. However, the case of Lumanta v. NLRC (G.R. No. 82819,
purposes herein stated. For the purpose of corporations which are subsidiaries of these February 8, 1989, 170 SCRA 79, 82), We held:
carrying out the objectives of this Act, a district chartered agencies such as the Philippine The Court, in National Service
is hereby granted the power of eminent domain, Airlines, Manila Hotel and Hyatt are excluded Corporation (NASECO) v. National Labor
the exercise thereof shall, however, be subject to from the coverage of the civil service. Relations Commission, G.R. No. 69870,
review by the Administration. (Emphasis
THE PRESIDING OFFICER (Mr. promulgated on 29 November 1988,
Trenas). What does the Committee say? quoting extensively from the deliberations
Clearly, LWDs exist as corporations only by of the 1986 Constitutional Commission in
virtue of PD 198, which expressly confers on MR. FOZ. Just one question, Mr. respect of the intent and meaning of the new
LWDs corporate powers. Section 6 of PD 198
xxx sanggunian is still necessary for the final
phrase with original charter, in effect held creation of a district, this Court is of the
(vii) Subject to existing laws, provide
that government-owned and controlled opinion that said resolution cannot be
for the establishment, operation, maintenance,
corporations with original charter refer to considered as its charter, the same being
and repair of an efficient waterworks system
corporations chartered by special law as intended only to implement the provisions of
to supply water for the inhabitants; regulate
distinguished from corporations organized said decree.
the construction, maintenance, repair and use
under our general incorporation statute the
of hydrants, pumps, cisterns and reservoirs; Petitioner further contends that a law must create
Corporation Code. In NASECO, the
protect the purity and quantity of the water directly and explicitly a GOCC in order that it may have
company involved had been organized under
supply of the municipality and, for this an original charter. In short, petitioner argues that one
the general incorporation statute and was a
purpose, extend the coverage of appropriate special law cannot serve as enabling law for several
subsidiary of the National Investment
ordinances over all territory within the GOCCs but only for one GOCC. Section 16, Article XII
Development Corporation (NIDC) which in
drainage area of said water supply and within of the Constitution mandates that Congress shall not,
turn was a subsidiary of the Philippine
one hundred (100) meters of the reservoir, except by general law,i provide for the creation of
National Bank, a bank chartered by a special
conduit, canal, aqueduct, pumping station, or private corporations. Thus, the Constitution prohibits
statute. Thus, government-owned or
watershed used in connection with the water one special law to create one private corporation,
controlled corporations like NASECO are
service; and regulate the consumption, use or requiring instead a general law to create private
effectively, excluded from the scope of the
wastage of water; corporations. In contrast, the same Section 16 states that
Civil Service. (Emphasis supplied)
Government-owned or controlled corporations may be
x x x. (Emphasis supplied)
Petitioners contention that the Sangguniang Bayan created or established by special charters. Thus, the
resolution creates the LWDs assumes that the The Sangguniang Bayan may establish a Constitution permits Congress to create a GOCC with
Sangguniang Bayan has the power to create waterworks system only in accordance with the a special charter. There is, however, no prohibition on
corporations. This is a patently baseless assumption. provisions of PD 198. The Sangguniang Bayan has no Congress to create several GOCCs of the same class
The Local Government Codei does not vest in the power to create a corporate entity that will operate its under one special enabling charter.
Sangguniang Bayan the power to create corporations.i waterworks system. However, the Sangguniang Bayan
The rationale behind the prohibition on private
What the Local Government Code empowers the may avail of existing enabling laws, like PD 198, to
corporations having special charters does not apply to
Sangguniang Bayan to do is to provide for the form and incorporate a water district. Besides, even
GOCCs. There is no danger of creating special
establishment of a waterworks system subject to assuming for the sake of argument that the Sangguniang
privileges to certain individuals, families or groups if
existing laws. Thus, Section 447(5)(vii) of the Local Bayan has the power to create corporations, the LWDs
there is one special law creating each GOCC. Certainly,
Government Code provides: would remain government-owned or controlled
such danger will not exist whether one special law
corporations subject to COAs audit jurisdiction. The
SECTION 447. Powers, Duties, creates one GOCC, or one special enabling law creates
resolution of the Sangguniang Bayan would constitute
Functions and Compensation. (a) The several GOCCs. Thus, Congress may create GOCCs
an LWDs special charter, making the LWD a
sangguniang bayan, as the legislative body of the either by special charters specific to each GOCC, or by
government-owned and controlled corporation with an
municipality, shall enact ordinances, approve one special enabling charter applicable to a class of
original charter. In any event, the Court has already
resolutions and appropriate funds for the general GOCCs, like PD 198 which applies only to LWDs.
ruled in Baguio Water District v. Trajanoi that the
welfare of the municipality and its inhabitants
Sangguniang Bayan resolution is not the special charter Petitioner also contends that LWDs are private
pursuant to Section 16 of this Code and in the
of LWDs, thus: corporations because Section 6 of PD 198i declares that
proper exercise of the corporate powers of the
LWDs shall be considered quasi-public in nature.
municipality as provided for under Section 22 of While it is true that a resolution of a local
this Code, and shall:
government-owned or controlled corporations If LWDs are neither GOCCs with original charters
Petitioners rationale is that only private corporations with original charters. As the Bank is not nor GOCCs without original charters, then they would
may be deemed quasi-public and not public owned or controlled by the Government fall under the term agencies or instrumentalities of the
corporations. Put differently, petitioner rationalizes that although it does have an original charter in government and thus still subject to COAs audit
a public corporation cannot be deemed quasi-public the form of R.A. No. 3518,i it clearly does jurisdiction. However, the stark and undeniable fact is
because such corporation is already public. Petitioner not fall under the Civil Service and should that the government owns LWDs. Section 45i of PD
concludes that the term quasi-public can only apply to be regarded as an ordinary commercial 198 recognizes government ownership of LWDs when
private corporations. Petitioners argument is corporation. Section 28 of the said law so Section 45 states that the board of directors may
inconsequential. provides. The consequence is that the relations dissolve an LWD only on the condition that another
Petitioner forgets that the constitutional criterion of the Bank with its employees should be public entity has acquired the assets of the district and
on the exercise of COAs audit jurisdiction depends on governed by the labor laws, under which in has assumed all obligations and liabilities attached
the governments ownership or control of a corporation. fact they have already been paid some of their thereto. The implication is clear that an LWD is a public
The nature of the corporation, whether it is private, claims. (Emphasis supplied) and not a private entity.
quasi-public, or public is immaterial. Certainly, the government owns and controls Petitioner does not allege that some entity other
The Constitution vests in the COA audit LWDs. The government organizes LWDs in than the government owns or controls LWDs. Instead,
jurisdiction over government-owned and controlled accordance with a specific law, PD 198. There is no petitioner advances the theory that the Water Districts
corporations with original charters, as well as private party involved as co-owner in the creation of an owner is the District itself.i Assuming for the sake of
government-owned or controlled corporations without LWD. Just prior to the creation of LWDs, the national argument that an LWD is self-owned,i as petitioner
original charters. GOCCs with original charters are or local government owns and controls all their assets. describes an LWD, the government in any event
subject to COA pre-audit, while GOCCs without The government controls LWDs because under PD 198 controls all LWDs. First, government officials appoint
original charters are subject to COA post-audit. GOCCs the municipal or city mayor, or the provincial governor, all LWD directors to a fixed term of office. Second, any
without original charters refer to corporations created appoints all the board directors of an LWD for a fixed per diem of LWD directors in excess of P50 is subject
under the Corporation Code but are owned or controlled term of six years.i The board directors of LWDs are not to the approval of the Local Water Utilities
by the government. The nature or purpose of the co-owners of the LWDs. LWDs have no private Administration, and directors can receive no other
corporation is not material in determining COAs audit stockholders or members. The board directors and other compensation for their services to the LWD.i Third, the
jurisdiction. Neither is the manner of creation of a personnel of LWDs are government employees subject Local Water Utilities Administration can require
corporation, whether under a general or special law. to civil service lawsi and anti-graft laws.i LWDs to merge or consolidate their facilities or
operations.i This element of government control
The determining factor of COAs audit jurisdiction While Section 8 of PD 198 states that [N]o public
subjects LWDs to COAs audit jurisdiction.
is government ownership or control of the official shall serve as director of an LWD, it only means
corporation. In Philippine Veterans Bank Employees that the appointees to the board of directors of LWDs Petitioner argues that upon the enactment of PD
Union-NUBE v. Philippine Veterans Bank,i the Court shall come from the private sector. Once such private 198, LWDs became private entities through the transfer
even ruled that the criterion of ownership and control is sector representatives assume office as directors, they of ownership of water facilities from local government
more important than the issue of original charter, thus: become public officials governed by the civil service units to their respective water districts as mandated by
law and anti-graft laws. Otherwise, Section 8 of PD 198 PD 198. Petitioner is grasping at straws. Privatization
This point is important because the would contravene Section 2(1), Article IX-B of the involves the transfer of government assets to a private
Constitution provides in its Article IX-B, Constitution declaring that the civil service includes entity. Petitioner concedes that the owner of the assets
Section 2(1) that the Civil Service embraces government-owned or controlled corporations with transferred under Section 6 (c) of PD 198 is no other
all branches, subdivisions, instrumentalities, original charters. than the LWD itself.i The transfer of assets mandated
and agencies of the Government, including
IX-C of the Constitution outlaws any scheme or devise quantity but underneath that shell there were
by PD 198 is a transfer of the water systems facilities to escape COAs audit jurisdiction, thus: billions of pesos in a multiplicity of
managed, operated by or under the control of such city, companies. The PNOC the empty shell under
Sec. 3. No law shall be passed
municipality or province to such (water) district.i In a presidential decree was covered by the
exempting any entity of the Government or its
short, the transfer is from one government entity to jurisdiction of the Commission on Audit, but
subsidiary in any guise whatever, or any
another government entity. PD 198 is bereft of any the billions of pesos invested in different
investment of public funds, from the
indication that the transfer is to privatize the operation corporations underneath it were exempted
jurisdiction of the Commission on Audit.
and control of water systems. from the coverage of the Commission on
(Emphasis supplied)
Finally, petitioner claims that even on the Audit.
The framers of the Constitution added Section 3,
assumption that the government owns and controls Another example is the United Coconut
Article IX-D of the Constitution precisely to annul
LWDs, Section 20 of PD 198 prevents COA from Planters Bank. The Commission on Audit has
provisions of Presidential Decrees, like that of Section
auditing LWDs. i Section 20 of PD 198 provides: determined that the coconut levy is a form of
20 of PD 198, that exempt GOCCs from COA audit.
Sec. 20. System of Business taxation; and that, therefore, these funds
The following exchange in the deliberations of the
Administration. The Board shall, as soon as attributed to the shares of 1,400,000 coconut
Constitutional Commission elucidates this intent of the
practicable, prescribe and define by resolution farmers are, in effect, public funds. And that
a system of business administration and was, I think, the basis of the PCGG in
MR. OPLE: I propose to add a new undertaking that last major sequestration of up
accounting for the district, which shall be
section on line 9, page 2 of the amended to 94 percent of all the shares in the United
patterned upon and conform to the standards
committee report which reads: NO LAW Coconut Planters Bank. The charter of the
established by the Administration. Auditing
SHALL BE PASSED EXEMPTING ANY UCPB, through a presidential decree,
shall be performed by a certified public
ENTITY OF THE GOVERNMENT OR ITS exempted it from the jurisdiction of the
accountant not in the government service.
SUBSIDIARY IN ANY GUISE Commission on Audit, it being a private
The Administration may, however, conduct
annual audits of the fiscal operations of the
district to be performed by an auditor retained So these are the fetuses of future abuse
by the Administration. Expenses incurred in that we are slaying right here with this
connection therewith shall be borne equally by additional section.
the water district concerned and the May I explain my reasons on record.
May I repeat the amendment, Madam
Administration.i (Emphasis supplied) We know that a number of entities of President: NO LAW SHALL BE PASSED
Petitioner argues that PD 198 expressly prohibits COA the government took advantage of the EXEMPTING ANY ENTITY OF THE
auditors, or any government auditor for that matter, absence of a legislature in the past to obtain GOVERNMENT OR ITS SUBSIDIARY IN
from auditing LWDs. Petitioner asserts that this is the presidential decrees exempting themselves ANY GUISE WHATEVER, OR ANY
import of the second sentence of Section 20 of PD 198 from the jurisdiction of the Commission on INVESTMENTS OF PUBLIC FUNDS,
when it states that [A]uditing shall be performed by a Audit, one notable example of which is the FROM THE JURISDICTION OF THE
certified public accountant not in the government Philippine National Oil Company which is COMMISSION ON AUDIT.
service.i really an empty shell. It is a holding
THE PRESIDENT: May we know the
corporation by itself, and strictly on its own
PD 198 cannot prevail over the Constitution. No position of the Committee on the proposed
account. Its funds were not very impressive in
amount of clever legislation can exclude GOCCs like amendment of Commissioner Ople?
LWDs from COAs audit jurisdiction. Section 3, Article
of the Commission on Audit so that this by its officials and employees as part of their
MR. JAMIR: If the honorable problem will never arise in the future.i regular functions for purposes of paying
Commissioner will change the number of the additional compensation to said officials and
There is an irreconcilable conflict between the
section to 4, we will accept the amendment. employees. (Emphasis supplied)
second sentence of Section 20 of PD 198 prohibiting
MR. OPLE: Gladly, Madam President. COA auditors from auditing LWDs and Sections 2(1) Claiming that Section 18 is absolute and leaves no
Thank you. and 3, Article IX-D of the Constitution vesting in COA doubt,i petitioner asks COA to discontinue its practice
MR. DE CASTRO: Madam President, the power to audit all GOCCs. We rule that the second of charging auditing fees to LWDs since such practice
point of inquiry on the new amendment. sentence of Section 20 of PD 198 is unconstitutional allegedly violates the law.
since it violates Sections 2(1) and 3, Article IX-D of the
THE PRESIDENT: Commissioner de Petitioners claim has no basis.
Castro is recognized. Section 18 of RA 6758 prohibits COA personnel
On the Legality of COAs from receiving any kind of compensation from any
MR. DE CASTRO: Thank you. May I
just ask a few questions of Commissioner Practice of Charging Auditing Fees government entity except compensation paid directly
Ople. Petitioner claims that the auditing fees COA by COA out of its appropriations and contributions.
Thus, RA 6758 itself recognizes an exception to the
Is that not included in Section 2 (1) where charges LWDs for audit services violate the prohibition
statutory ban on COA personnel receiving
it states: (c) government-owned or controlled in Section 18 of RA 6758,i which states:
compensation from GOCCs. In Tejada v. Domingo,i
corporations and their subsidiaries? So that if Sec. 18. Additional Compensation of the Court declared:
these government-owned and controlled Commission on Audit Personnel and of other
corporations and their subsidiaries are There can be no question that Section 18 of
Agencies. In order to preserve the
subjected to the audit of the COA, any law Republic Act No. 6758 is designed to
independence and integrity of the Commission
exempting certain government corporations or strengthen further the policy x x x to preserve
on Audit (COA), its officials and employees
subsidiaries will be already unconstitutional. the independence and integrity of the COA, by
are prohibited from receiving salaries,
explicitly PROHIBITING: (1) COA officials
So I believe, Madam President, that the honoraria, bonuses, allowances or other
and employees from receiving salaries,
proposed amendment is unnecessary. emoluments from any government entity,
honoraria, bonuses, allowances or other
local government unit, government-owned or
MR. MONSOD: Madam President, emoluments from any government entity,
controlled corporations, and government
since this has been accepted, we would like to local government unit, GOCCs and
financial institutions, except those
reply to the point raised by Commissioner de government financial institutions, except such
compensation paid directly by COA out of
Castro. its appropriations and contributions. compensation paid directly by the COA out
of its appropriations and contributions, and
THE PRESIDENT: Commissioner Government entities, including (2) government entities, including GOCCs,
Monsod will please proceed. government-owned or controlled corporations government financial institutions and local
MR. MONSOD: I think the including financial institutions and local government units from assessing or billing
Commissioner is trying to avoid the situation government units are hereby prohibited from other government entities, GOCCs,
that happened in the past, because the same assessing or billing other government entities, government financial institutions or local
provision was in the 1973 Constitution and yet including government-owned or controlled government units for services rendered by the
somehow a law or a decree was passed where corporations including financial institutions or latters officials and employees as part of their
certain institutions were exempted from audit. local government units for services rendered regular functions for purposes of paying
We are just reaffirming, emphasizing, the role
granted by the GOCCs to the COA personnel
additional compensation to said officials and assigned to the formers auditing units, the
employees. same shall be directly defrayed by COA from
xxx its own appropriations x x x. i
COA may charge GOCCs actual audit cost but GOCCs CORPORATIONS CREATED BY SPECIAL
The first aspect of the strategy is directed to LAWS
the COA itself, while the second aspect is must pay the same directly to COA and not to COA
addressed directly against the GOCCs and auditors. Petitioner has not alleged that COA charges NATIONAL COAL COMPANY, plaintiff-appellee,
government financial institutions. Under the LWDs auditing fees in excess of COAs actual audit vs.
first, COA personnel assigned to auditing cost. Neither has petitioner alleged that the auditing THE COLLECTOR OF INTERNAL REVENUE,
units of GOCCs or government financial fees are paid by LWDs directly to individual COA defendant-appellant.
institutions can receive only such salaries, auditors. Thus, petitioners contention must fail. Attorney-General Villa-Real for appellant.
allowances or fringe benefits paid directly WHEREFORE, the Resolution of the Perfecto J. Salas Rodriguez for appellee.
by the COA out of its appropriations and Commission on Audit dated 3 January 2000 and the
contributions. The contributions referred Decision dated 30 January 2001 denying petitioners
to are the cost of audit services earlier Motion for Reconsideration are AFFIRMED. The JOHNSON, J.:
mentioned which cannot include the extra second sentence of Section 20 of Presidential Decree This action was brought in the Court of First Instance
emoluments or benefits now claimed by No. 198 is declared VOID for being inconsistent with of the City of Manila on the 17th day of July, 1923, for
petitioners. The COA is further barred from Sections 2 (1) and 3, Article IX-D of the Constitution. the purpose of recovering the sum of P12,044.68,
assessing or billing GOCCs and government No costs. alleged to have been paid under protest by the plaintiff
financial institutions for services rendered by company to the defendant, as specific tax on 24,089.3
its personnel as part of their regular audit tons of coal. Said company is a corporation created by
functions for purposes of paying additional Act No. 2705 of the Philippine Legislature for the
compensation to such personnel. x x x. purpose of developing the coal industry in the
(Emphasis supplied) Philippine Islands and is actually engaged in coal
In Tejada, the Court explained the meaning of the mining on reserved lands belonging to the Government.
word contributions in Section 18 of RA 6758, which It claimed exemption from taxes under the provision of
allows COA to charge GOCCs the cost of its audit sections 14 and 15 of Act No. 2719, and prayed for a
services: judgment ordering the defendant to refund to the
plaintiff said sum of P12,044.68, with legal interest
x x x the contributions from the GOCCs
from the date of the presentation of the complaint, and
are limited to the cost of audit services which
costs against the defendant.
are based on the actual cost of the audit
function in the corporation concerned plus a The defendant answered denying generally and
reasonable rate to cover overhead expenses. specifically all the material allegations of the
The actual audit cost shall include personnel complaint, except the legal existence and personality of
services, maintenance and other operating the plaintiff. As a special defense, the defendant alleged
expenses, depreciation on capital and (a) that the sum of P12,044.68 was paid by the plaintiff
equipment and out-of-pocket expenses. In without protests, and (b) that said sum was due and
respect to the allowances and fringe benefits
developing the coal industry in the Philippine Island, in it has mined the coal in question and is therefore subject
owing from the plaintiff to the Government of the harmony with the general plan of the Government to to the provisions of section 15 of Act No. 2719 and not
Philippine Islands under the provisions of section 1496 encourage the development of the natural resources of to the provisions of the section 1496 of the
of the Administrative Code and prayed that the the country, and to provided facilities therefor. By said Administrative Code. That contention of the plaintiff
complaint be dismissed, with costs against the plaintiff. Act, the company was granted the general powers of a leads us to an examination of the evidence upon the
Upon the issue thus presented, the case was brought on corporation "and such other powers as may be question of the ownership of the land from which the
for trial. After a consideration of the evidence adduced necessary to enable it to prosecute the business of coal in question was mined. Was the plaintiff the owner
by both parties, the Honorable Pedro Conception, developing coal deposits in the Philippine Island and of of the land from which the coal in question was mined?
judge, held that the words "lands owned by any person, mining, extracting, transporting and selling the coal If the evidence shows the affirmative, then the
etc.," in section 15 of Act No. 2719 should be contained in said deposits." (Sec. 2, Act No. 2705.) By judgment should be affirmed. If the evidence shows
understood to mean "lands held in lease or usufruct," in the same law (Act No. 2705) the Government of the that the land does not belong to the plaintiff, then the
harmony with the other provision of said Act; that the Philippine Islands is made the majority stockholder, judgment should be reversed, unless the plaintiff's
coal lands possessed by the plaintiff, belonging to the evidently in order to insure proper government rights fall under section 3 of said Act.
Government, fell within the provisions of section 15 of supervision and control, and thus to place the The only witness presented by the plaintiff upon the
Act No. 2719; and that a tax of P0.04 per ton of 1,016 Government in a position to render all possible question of the ownership of the land in question was
kilos on each ton of coal extracted therefrom, as encouragement, assistance and help in the prosecution Mr. Dalmacio Costas, who stated that he was a member
provided in said section, was the only tax which should and furtherance of the company's business. of the board of directors of the plaintiff corporation;
be collected from the plaintiff; and sentenced the On May 14, 1917, two months after the passage of Act that the plaintiff corporation took possession of the land
defendant to refund to the plaintiff the sum of No. 2705, creating the National Coal Company, the in question by virtue of the proclamation of the
P11,081.11 which is the difference between the amount Philippine Legislature passed Act No. 2719 "to provide Governor-General, known as Proclamation No. 39 of
collected under section 1496 of the Administrative for the leasing and development of coal lands in the the year 1917; that no document had been issued in
Code and the amount which should have been collected Philippine Islands." On October 18, 1917, upon petition favor of the plaintiff corporation; that said corporation
under the provisions of said section 15 of Act No. 2719. of the National Coal Company, the Governor-General, had received no permission from the Secretary of
From that sentence the defendant appealed, and now by Proclamation No. 39, withdrew "from settlement, Agriculture and Natural Resources; that it took
makes the following assignments of error: entry, sale or other disposition, all coal-bearing public possession of said lands covering an area of about 400
I. The court below erred in holding that section 15 of lands within the Province of Zamboanga, Department hectares, from which the coal in question was mined,
Act No. 2719 does not refer to coal lands owned by of Mindanao and Sulu, and the Island of Polillo, solely, by virtue of said proclamation (Exhibit B, No.
persons and corporations. Province of Tayabas." Almost immediately after the 39).
issuance of said proclamation the National Coal
II. The court below erred in holding that the plaintiff Said proclamation (Exhibit B) was issued by Francis
Company took possession of the coal lands within the
was not subject to the tax prescribed in section 1496 of Burton Harrison, then Governor-General, on the 18th
said reservation, with an area of about 400 hectares,
the Administrative Code. day of October, 1917, and provided: "Pursuant to the
without any further formality, contract or lease. Of the provision of section 71 of Act No. 926, I hereby
The question confronting us in this appeal is whether 30,000 shares of stock issued by the company, the withdraw from settlement, entry, sale, or other
the plaintiff is subject to the taxes under section 15 of Government of the Philippine Islands is the owner of disposition, all coal-bearing public lands within the
Act No. 2719, or to the specific taxes under section 29,809 shares, that is, of 99 1/3 per centum of the whole Province of Zamboanga, Department of Mindanao and
1496 of the Administrative Code. capital stock. Sulu, and the Island of Polillo, Province of Tayabas." It
The plaintiff corporation was created on the 10th day of If we understand the theory of the plaintiff-appellee, it will be noted that said proclamation only provided that
March, 1917, by Act No. 2705, for the purpose of is, that it claims to be the owner of the land from which all coal-bearing public lands within said province and
indication that no "coal-bearing lands of the public (6) That the National Coal Company entered upon said
island should be withdrawn from settlement, entry, domain" had been disposed of by virtue of said land and mined said coal, so far as the record shows,
sale, or other disposition. There is nothing in said proclamation. without any lease or other authority from either the
proclamation which authorizes the plaintiff or any other Secretary of Agriculture and Natural Resources or any
Neither is there any provision in Act No. 2705 creating
person to enter upon said reversations and to mine coal, person having the power to grant a leave or authority.
the National Coal Company, nor in the amendments
and no provision of law has been called to our attention,
thereof found in Act No. 2822, which authorizes the From all of the foregoing facts we find that the issue is
by virtue of which the plaintiff was entitled to enter
National Coal Company to enter upon any of the well defined between the plaintiff and the defendant.
upon any of the lands so reserved by said proclamation
reserved coal lands without first having obtained The plaintiff contends that it was liable only to pay the
without first obtaining permission therefor.
permission from the Secretary of Agriculture and internal revenue and other fees and taxes provided for
The plaintiff is a private corporation. The mere fact that Natural under section 15 of Act No. 2719; while the defendant
the Government happens to the majority stockholder contends, under the facts of record, the plaintiff is
The following propositions are fully sustained by the
does not make it a public corporation. Act No. 2705, as obliged to pay the internal revenue duty provided for in
facts and the law:
amended by Act No. 2822, makes it subject to all of the section 1496 of the Administrative Code. That being
provisions of the Corporation Law, in so far as they are (1) The National Coal Company is an ordinary private the issue, an examination of the provisions of Act No.
not inconsistent with said Act (No. 2705). No corporation organized under Act No. 2705, and has no 2719 becomes necessary.
provisions of Act No. 2705 are found to be inconsistent greater powers nor privileges than the ordinary private
An examination of said Act (No. 2719) discloses the
with the provisions of the Corporation Law. As a corporation, except those mentioned, perhaps, in
following facts important for consideration here:
private corporation, it has no greater rights, powers or section 10 of Act No. 2719, and they do not change the
privileges than any other corporation which might be situation here. First. All "coal-bearing lands of the public domain in
organized for the same purpose under the Corporation the Philippine Islands shall not be disposed of in any
(2) It mined on public lands between the month of July,
Law, and certainly it was not the intention of the manner except as provided in this Act." Second.
1920, and the months of March, 1922, 24,089.3 tons of
Legislature to give it a preference or right or privilege Provisions for leasing by the Secretary of Agriculture
over other legitimate private corporations in the mining and Natural Resources of "unreserved, unappropriated
of coal. While it is true that said proclamation No. 39 (3) Upon demand of the Collector of Internal Revenue coal-bearing public lands," and the obligation to the
withdrew "from settlement, entry, sale, or other it paid a tax of P0.50 a ton, as taxes under the provisions Government which shall be imposed by said Secretary
disposition of coal-bearing public lands within the of article 1946 of the Administrative Code on the 15th upon the
Province of Zamboanga . . . and the Island of Polillo," day of December, 1922.
Third. The internal revenue duty and tax which must be
it made no provision for the occupation and operation (4) It is admitted that it is neither the owner nor the paid upon coal-bearing lands owned by any person,
by the plaintiff, to the exclusion of other persons or lessee of the lands upon which said coal was mined. firm, association or corporation.
corporations who might, under proper permission, enter
upon the operate coal mines. (5) The proclamation of Francis Burton Harrison, To repeat, it will be noted, first, that Act No. 2719
Governor-General, of the 18th day of October, 1917, by provides an internal revenue duty and tax upon
On the 14th day of May, 1917, and before the issuance authority of section 1 of Act No. 926, withdrawing from unreserved, unappropriated coal-bearing public lands
of said proclamation, the Legislature of the Philippine settlement, entry, sale, or other dispositon all coal- which may be leased by the Secretary of Agriculture
Island in "an Act for the leasing and development of bearing public lands within the Province of Zamboanga and Natural Resources; and, second, that said Act (No.
coal lands in the Philippine Islands" (Act No. 2719), and the Island of Polillo, was not a reservation for the 2719) provides an internal revenue duty and tax
made liberal provision. Section 1 of said Act provides: benefit of the National Coal Company, but for any imposed upon any person, firm, association or
"Coal-bearing lands of the public domain in the person or corporation of the Philippine Islands or of the corporation, who may be the owner of "coal-bearing
Philippine Island shall not be disposed of in any manner United States.
except as provided in this Act," thereby giving a clear
countries. It having been demonstrated that the plaintiff district organized and operating as a quasi-public
lands." A reading of said Act clearly shows that the tax has produced coal in the Philippine Islands and is not a corporation under the provisions of Presidential Decree
imposed thereby is imposed upon two classes of lessee or owner of the land from which the coal was No. 198, as amended;1 the Regional Trial Court, or the
persons only — lessees and owners. produced, we are clearly of the opinion, and so hold, Securities & Exchange Commission.
The lower court had some trouble in determining what that it is subject to pay the internal revenue tax under PD 198 authorizes the formation, lays down the powers
was the correct interpretation of section 15 of said Act, the provisions of section 1496 of the Administrative and functions, and governs the operation of water
by reason of what he believed to be some difference in Code, and is not subject to the payment of the internal districts throughout the country; it is "the source of
the interpretation of the language used in Spanish and revenue tax under section 15 of Act No. 2719, nor to authorization and power to form and maintain a (water)
English. While there is some ground for confusion in any other provisions of said Act. district." Once formed, it says, a district is subject to its
the use of the language in Spanish and English, we are Therefore, the judgment appealed from is hereby provisions and is not under the jurisdiction of any
persuaded, considering all the provisions of said Act, revoked, and the defendant is hereby relieved from all political subdivision.2
that said section 15 has reference only to persons, firms, responsibility under the complaint. And, without any Under PD 198, water districts may be created by the
associations or corporations which had already, prior to finding as to costs, it is so ordered. different local legislative bodies by the passage of a
the existence of said Act, become the owners of coal
. resolution to this effect, subject to the terms of the
lands. Section 15 cannot certainty refer to "holders or
decree. The primary function of these water districts is
lessees of coal lands' for the reason that practically all
to sell water to residents within their territory, under
of the other provisions of said Act has reference to
such schedules of rates and charges as may be
lessees or holders. If section 15 means that the persons,
determined by their boards.3 They shall manage,
firms, associations, or corporation mentioned therein
administer, operate and maintain all watersheds within
are holders or lessees of coal lands only, it is difficult
their territorial boundaries, safeguard and protect the
to understand why the internal revenue duty and tax in
use of the waters therein, supervise and control
said section was made different from the obligations G.R. No. 72807 September 9, 1991 structures within their service areas, and prohibit any
mentioned in section 3 of said Act, imposed upon
MARILAO WATER CONSUMERS person from selling or otherwise disposing of water for
lessees or holders.
ASSOCIATION, INC., petitioners, public purposes within their service areas where district
From all of the foregoing, it seems to be made plain that vs. facilities are available to provide such service.4
the plaintiff is neither a lessee nor an owner of coal- INTERMEDIATE APPELLATE COURT, The decree specifies the terms under which water
bearing lands, and is, therefore, not subject to any other MUNICIPALITY OF MARILAO, BULACAN, districts may be formed and operate. It prescribes,
provisions of Act No. 2719. But, is the plaintiff subject SANGGUNIANG BAYAN, MARILAO, particularly —
to the provisions of section 1496 of the Administrative BULACAN, and MARILAO WATER DISTRICT,
Code? respondents. a) the name by which a water district shad be known,
which shall be contained in the enabling resolution, and
Section 1496 of the Administrative Code provides that Magtanggol C. Gunigundo for petitioner. shall include the name of the city, municipality, or
"on all coal and coke there shall be collected, per metric
Prospero A. Crescini for Marilao Water District. province, or region thereof, served by said system,
ton, fifty centavos." Said section (1496) is a part of
followed by the words, 'Water District;'5
article, 6 which provides for specific taxes. Said article
provides for a specific internal revenue tax upon all b) the number and qualifications of the members of the
things manufactured or produced in the Philippine boards of directors, with the date of expiration of term
Islands for domestic sale or consumption, and upon Involved in this appeal is the determination of which of office for each;6 the manner of their selection and
things imported from the United States or foreign triburial has jurisdiction over the dissolution of a water
training, accounting and fiscal practices for 3) the Water District was being run with "negligence,
initial appointment by the head of the local political local water utilities; apathy, indifference and mismanagement," and was not
subdivision;7 their terms of office (which shall be in providing adequate and efficient service to the
(2) furnish technical assistance and personnel
staggered periods of two, four and six years);8 the community, but this notwithstanding, the consumers
training programs for local water utilities;
manner of filling up vacancies in the board;9 the were being billed in full and threatened with
compensation and liabilities of members of the board.10 (3) monitor and evaluate local water standards; disconnection for failure to pay bills on time; in fact,
The resolution shall contain a "statement that the and one of the consumers who complained had his water
district may only be dissolved on the grounds and under (4) effect systems integration, joint investment service cut off;
the conditions set forth in Section 44" of the law, but and operations, district annexation and 4) the consumers were consequently "forced to
nothing in the resolution of formation, the decree adds, deannexation whenever economically organize themselves into a corporation last October 3,
"shall state or infer that the local legislative body has warranted. 1983 ... for the purpose of demanding adequate and
the power to dissolve, alter or affect the district beyond
It was pursuant to the foregoing rules and norms that sufficient supply of water and efficient management of
that specifically provided for in this Act."11
the Marilao Water District was formed by Resolution the waterworks in Marilao, Bulacan.16
The juridical entities thus created and organized under of the Sangguniang Bayan of the Municipality of Acting on the complaint, particularly on the application
PD 198 are considered quasi-public corporations, Marilao dated September 18, 1982, which resolution for temporary restraining order and preliminary
performing public services and supplying public wants. was thereafter forwarded to the LWUA and "duly filed" injunction set out therein, the Trial Court issued an
They are authorized not only to "exercise all the powers by it on October 4, 1982 after ascertaining that it Order on December 22, 1983 setting the application for
which are expressly granted" by said decree, and those conformed to the requirements of the law.15 preliminary hearing, requiring the respondents to
"which are necessarily implied from or incidental to"
The claim was thereafter made that the creation of the answer the petition and restraining them until further
said powers, but also "the power of eminent domain,
Marilao Water District in the manner aforestated was orders from collecting any water bill, disconnecting any
the exercise .. (of which) shall however be subject to
defective and illegal. The claim was made by a non- water service, transferring any property of the
review by the Administration" (LWUA). In addition to
stock, non-profit corporation known as the Marilao waterworks, or disbursing any amount in favor of any
the powers granted in, and subject to such restrictions
Water Consumers Association, Inc., in a petition dated person. The order was modified on January 6, 1984 to
imposed under, the Act, they may also exercise the
December 12, 1983 filed with the Regional Trial Court allow the respondents to pay the district's outstanding
powers, rights and privileges given to private
at Malolos, Bulacan. Impleaded as respondents were obligations to Meralco, by way of exception to the
corporations under existing laws.12
the Marilao Water District, as well as the Municipality restraining order.
The decree also established a government corporation of Marilao, Bulacan; its Sangguniang Bayan; and On January 13, 1984 the Marilao Water District filed
attached to the Office of the President, known as the Mayor Nicanor V. GUILLERMO. The petition prayed its Answer with Compulsory Counterclaim, denying
Local Water Utilities Administration (LWUA)13 to for the dissolution of the water district on the basis the material allegations of the petition and asserting as
function primarily as "a specialized lending institution chiefly of the following allegations, to wit: affirmative defenses (a) the Court's lack of jurisdiction
for the promotion development and financing of local
1) there had been no real, but only a "farcical" public of the subject matter, and (b) the failure of the petition
water utilities." It has the following specific powers and
hearing prior to the creation of the Water District; to state a cause of action. The answer alleged that the
matter of the water district's dissolution fell under the
(1) prescribe minimum standards and 2) not only was the waterworks system turned over to original and exclusive jurisdiction of the Securities &
regulations in order to assure acceptable the Water District without compensation. but a subsidy Exchange Commission (SEC); and the matter of the
standards of construction materials and was illegally authorized for it; propriety of water rates, within the primary
supplies, maintenance, operation, personnel administrative jurisdiction of the LWUA and the quasi-
After a consideration of the arguments raised by b) Controversies arising out of intra-corporate or
judicial jurisdiction of the National Water Resources the herein parties, the Court is more inclined to partnership relations, between and among
Council. On the same date, Marilao Water District filed take the position of the respondents that the stockholders, members or associates; between
a motion for admission of its third-party complaint Securities and Exchange Commission has the any or all of them and the corporation,
against the officers and directors of the petitioner exclusive and original jurisdiction over this case. partnership or association of which they are
corporation, it being claimed that they had instigated stockholders, members or associates,
WHEREFORE, the instant petition, the third-
the filing of the petition simply because one of them respectively; and between such corporation,
party complaint, and the compulsory
was a political adversary of the respondent Mayor. partnership or association and the state insofar as
counterclaim filed herein are hereby
The other respondents also filed their answer through it concerns their individual franchise or right to
DISMISSED, for lack of jurisdiction.
the Provincial Fiscal of Bulacan, setting up the same exist as such entity ...
Its motion for reconsideration having been denied, by
affirmative defense of lack of jurisdiction on the part of The Appellate Court subsequently denied the
Order dated September 20, 1984, the Consumers
the Trial Court; and failure of the petition to state a petitioner's motion for reconsideration, by Resolution
Association filed with this Court a petition for review
cause of action since it admitted that it was by dated November 4, 1985. Hence, the petition for review
on certiorari, which was docketed as G.R. No. 68742.
resolution of the Marilao Sangguniang Bayan that the on certiorari at bar, in which reversal of the Appellate
The case was however referred to the Intermediate
Marilao Water District was constituted. Tribunal's decision is sought, the petitioner insisting
Appellate Court by this Court's Second Division, in a
The petitioner — the Marilao Consumers Association that the remedy resorted to by it was correct but
Resolution dated November 19, 1984, where it was
filed a reply, and an answer to the counterclaim, on misunderstood by the I.A.C. and that the law does
docketed as AC-G.R. S.P. No. 04862.
January 26, 1984. It averred that since the Marilao indeed vest exclusive jurisdiction over the subject
But there in the Intermediate Appellate Court, the matter of the case in the Regional Trial Court, not the
Water District had not been organized under the
Consumers Association's cause also met with failure. Securities and Exchange Commission.
Corporation Code, the SEC had no jurisdiction over a
The Appellate Court, in its Decision promulgated on
proceeding for its dissolution; and that under Section 45 Turning first to the adjective issue, it is quite evident
September 10, 1985, ruled that its cause could not
of PD 198, the proceeding to determine if the that the Order of the Trial Court of June 8, 1984,
prosper because —
dissolution of the water district is for the best interest of dismissing the action of the Consumers Association, is
the people, is within the competence of a regular court 1) it had availed of the wrong remedy, i.e., the special really a final order; it finally disposed of the proceeding
of justice, and neither the LWUA nor the National civil action of certiorari; the Order of June 8, 1984 and left nothing more to be done by the Court on the
Water Resources Council is competent to take being a final order in the sense that it "left nothing else merits. Now, the firmly settled principle is that the
cognizance of the matter of dissolution of the water to be done in the case the proper remedy was appeal remedy against such a final order is the ordinary
district and recovery of its waterworks system, or the under Rule 41 of the Rules of Court and not a certiorari remedy of an appeal, either solely on questions of law
exorbitant rates imposed by it. The Consumers suit under Rule 65; and — in which case the appeal may be taken only to the
Association also opposed admission of the third-party 2) even if the certiorari action be treated as an appeal, it Supreme Court — or questions of fact and law — in
complaint on the ground that its individual officers are was 14 unerringly clear that the controversy ... falls which event the appeal should be brought to the Court
not personally amenable to suit for acts of the within the competence of the SEC in virtue of P.D. 902- of Appeals. The extraordinary remedy of a special civil
corporation,17 which has a personality distinct from A18 Which provides that said agency "shall have action of certiorari or prohibition is not the appropriate
theirs. original and exclusive jurisdiction to hear and decide recourse because precisely, one of the conditions for
The Trial Court found for the respondents. It dismissed cases involving: availing of it is that there should be "no appeal, nor any
the Consumers Association's suit by Order handed plain, speedy and adequate remedy in the ordinary
a) xxx xxx xxx course of law.19 A resort to the latter instead of the
down on June 8, 1984 which pertinently reads as
follows: former would ordinarily be fatal, unless it should
which set forth the name of the water districts, the dissolution; and (3) a court of competent
appear in a given case that appeal would otherwise be number of their directors, the manner of their selection jurisdiction has found that said transfer and
an inefficacious or inadequate remedy.20 and replacement, their powers, etc. The SEC which is dissolution are in the best interest of the
In holding that Marilao Water District had resorted to charged with enforcement of the Corporation Code as public.
the wrong remedy against the Trial Court's order regards corporations, partnerships and associations
Under this provision, it is the LWUA which is the
dismissing its suit, i.e., the special civil action of formed or operating under its provisions, has no power
administrative body involved in the voluntary
certiorari, instead of an appeal, the Intermediate of supervision or control over the activities of water
dissolution of a water district; it is with it that the
Appellate Court quite overlooked the fact, not seriously districts. More particularly, the SEC has no power of
resolution of dissolution is filed, not the Securities
disputed by the Marilao Water District and its co- oversight over such activities of water districts as
and Exchange Commission. And this provision is
respondents, that the former had in fact availed of the selling water, fuling the rates and charges therefor22 or
evidently quite distinct and different from those on
remedy of appeal by certiorari under Rule 45 of the the management, administration, operation and
dissolution of corporations "formed or organized
Rules of Court, as required by paragraph 25 of the maintenance of watersheds within their territorial under the provisions of xx (the Corporation) Code"
Interim Rules & Guidelines of this Court, boundaries, or the safeguarding and protection of set out in Sections 117 to 121, inclusive, of said Code,
implementing Batas Pambansa Bilang 129; that before the use of the waters therein, or the supervision and under which dissolution may be voluntary (by vote
doing so, it had first asked for and been granted an control of structures within the service areas of the of the stockholders or members), generally effected
extension of thirty (30) days within which to file a district, and the prohibition of any person from by the filing of the corresponding resolution with the
petition for review on certiorari; but that subsequently, selling or otherwise disposing of water for public Securities and Exchange Commission, or
by Resolution of this Court's Second Division dated purposes within their service areas where district involuntary, commenced by the filing of a verified
November 19, 1984, the case was referred to the facilities are available to provide such service.23 complaint also with the SEC.
Intermediate Appellate Court, evidently because it was That function of supervision or control over water
districts is entrusted to the Local Water Utilities All these argue against conceding jurisdiction in the
felt that certain factual issues had yet to be determined.
Administration.24 Consequently, as regards the Securities and Exchange Commission over
In any case, all things considered, the Court is not
activities of water districts just mentioned, the SEC proceedings for the dissolution of water districts.
prepared to have the case at bar finally determined on
obviously can have no claim to any expertise. For although described as quasipublic corporations,
this procedural issue.
and granted the same powers as private
The juridical entities known as water districts created The "Provincial Water Utilities Act of 1973" has a corporations, water districts are not really
by PD 198, although considered as quasi-public specific provision governing dissolution of water corporations. They have no incorporators,
corporations and authorized to exercise the powers, districts created thereunder This is Section 45 of PD stockholders or members, who have the right to vote
rights and privileges given to private corporations 19825 reading as follows: for directors, or amend the articles of incorporation
under existing laws21 are entirely distinct from SEC. 45. Dissolution. — A district may be or by-laws, or pass resolutions, or otherwise
corporations organized under the Corporation Code, dissolved by resolution of its board of directors perform such other acts as are authorized to
PD 902-A, as amended. The Corporation Code has filed in the manner of filing the resolution stockholders or members of corporations by the
nothing whatever to do with their formation and forming the district: Provided, however, That Corporation Code. In a word, there can be no such
organization, all the terms and conditions for their prior to the adoption of any such resolution: thing as a relation of corporation and stockholders
organization and operation being particularly spelled (1) another public entity has acquired the or members in a water district for the simple reason
out in PD 198. The resolutions creating them, their assets of the district and has assumed all that in the latter there are no stockholders or
charters, in other words, are filed not with the Securities obligations and liabilities attached thereto; (2) members. Between the water district and those who
and Exchange Commission but with the LWUA. It is all bondholders and other creditors have been are recipients of its water services there exists not
these resolutions qua charters, and not articles of notified and they consent to said transfer and the relationship of corporation-and-stockholder,
incorporation drawn up under the Corporation Code,
water standards; and effect systems integration, indifference and mismanagement," and was not
but that of a service agency and users or customers. joint investment and operations, district annexation providing adequate and efficient service to the
There can therefore be no such thing in a water and deannexation whenever economically community.32
district as "intra-corporate or partnership 28
warranted. The LWUA has quasi-judicial power Now, as already above stated, the dissolution of a water
relations, between and among stockholders, only as regards rates or charges fixed by water district is governed by Section 45 of PD 198, as
members or associates (or) between any or all of districts, which it may review to establish amended, stating that it "may be dissolved by resolution
them and the corporation, partnership or compliance with the provisions of PD 198, without of its board of directors filed in the manner of filing the
association of which they are stockholders, members prejudice to appeal being taken therefrom by a resolution forming the district," subject to enumerated
or associates, respectively," within the water concessionaire to the National Water pre-requisites.33 The procedure for dissolution thus
contemplation of Section 5 of the Corporation Code Resources Council whose decision thereon shall be consists of the following steps:
so as to bring controversies involving them within appealable to the Office of the President.29 The rates
the competence and cognizance of the SEC. or charges established by respondent Marilao 1) the initiation by the board of directors of the
Water District do not appear to be at issue in the water district motu proprio or at the relation of an
There can be even less debate about the fact that the
controversy at bar. interested party, of proceedings for the dissolution
SEC has no jurisdiction over the co-respondents of
of the water district, including:
the Marilao Water District — the Municipality of The National Water Resources Council, on the other
Marilao, its Sangguniang Bayan and its Mayor — hand, is conferred "original jurisdiction over all a) the ascertainment by said board that —
who are accused of a "conspiracy" with the water disputes relating to appropriation, utilization, 1) another public entity has acquired the assets of
district in respect of the anomalies described in the exploitation, development, control, conservation the district and has assumed all obligations and
Consumer Associations' petition.26 and protection of waters within the meaning and liabilities attached thereto; and
The controversy, therefore, between the Consumers context of the provisions of ..." (the Code by which
said Council was created, Presidential Decree No. 2) all bondholders and other creditors have been
Association, on the one hand, and Marilao District notified and consent to said transfer and dissolution;
and its co-respondents, on the other, is not within 1067, otherwise known as the Water Code of the
the jurisdiction of the SEC. Philippines);30 and its decision on water rights b) the commencement by the water district in a
controversies may be appealed to the Court of First court of competent jurisdiction of a proceeding to
In their answer with counterclaim in the Instance of the province where the subject matter of obtain a declaration that "said transfer and
proceedings a quo, the respondents advocated the the controversy is situated.31 It also has authority to dissolution are in the best interest of the public;
theory that the case falls within the jurisdiction of review questions of annexations and deannexations
the LWUA and/or the National Water Resources (addition to or exclusion from the district of 2) after compliance with the foregoing requisites,
Council. territory). Again it does not appear that the case at the adoption by the board of directors of the water
bar is a water rights controversy or one involving district of a resolution dissolving the water district
The LWUA does not appear to have any and its submission to the Sangguniang Bayan
adjudicatory functions. It is, as already pointed out, annexation or deannexation.
concerned for approval;
"primarily a specialized lending institution for the What essentially is sought by the Consumers
promotion, development and financing of local Association is the dissolution of the Marilao Water 3) submission of the resolution of the Sangguniang
water utilities,27 with power to prescribe minimum District, on the ground that its formation was illegal Bayan dissolving the water district to the head of the
standards and regulations regarding maintenance, and invalid; the waterworks system had been turned local government concerned for approval, and
operation, personnel training, accounting and fiscal over to it without compensation and a subsidy ultimately to the LWUA for final approval and
practices for local water utilities, to furnish illegally authorized for it; and the Water District filing.
technical assistance and personnel training was being run with "negligence, apathy,
programs therefor; monitor and evaluate local
virtue of Presidential Decree No. 264 on 02 August
The Consumer Association's action therefore is, in 1973. He rose through the ranks, working his way up
fine, in the nature of a mandamus suit, seeking to from his initial designation as security guard, to settling
compel the board of directors of the Marilao Water clerk, bookkeeper, credit investigator, project analyst,
District, and its alleged co-conspirators, the appraiser/ inspector, and eventually, loans analyst.[3]
Sangguniang Bayan and the Mayor of Marilao to go
In February 1988, while still designated as
through the process above described for the
appraiser/investigator, Sawadjaan was assigned to
dissolution of the water district. In this sense, and
inspect the properties offered as collaterals by
indeed, taking account of the nature of the
Compressed Air Machineries and Equipment
proceedings for dissolution just described, it seems
Corporation (CAMEC) for a credit line of Five Million
plain that the case does not fall within the limited
Pesos (P5,000,000.00). The properties consisted of two
jurisdiction of the SEC., but within the general
CLASSIFICATION OF CORP. parcels of land covered by Transfer Certificates of Title
jurisdiction of Regional Trial Courts.
(TCTs) No. N-130671 and No. C-52576. On the basis
SAPPARI K. SAWADJAAN, petitioner, vs. THE
WHEREFORE, the Decision of the Intermediate of his Inspection and Appraisal Report,[4] the PAB
Appellate Court of September 10, 1985 — affirming granted the loan application. When the loan matured on
that of the Regional Trial Court of June 8, 1984 — 17 May 1989, CAMEC requested an extension of 180
is REVERSED and SET ASIDE, and the case is days, but was granted only 120 days to repay the loan.[5]
PHILIPPINES, respondents.
remanded to the Regional Trial Court for further
In the meantime, Sawadjaan was promoted to
proceedings and adjudication in accordance with DECISION
Loans Analyst I on 01 July 1989.[6]
law. No costs. CHICO-NAZARIO, J.:
In January 1990, Congress passed Republic Act
SO ORDERED. This is a petition for certiorari under Rule 65 of the 6848 creating the AIIBP and repealing P.D. No. 264
Rules of Court of the Decision[1] of the Court of (which created the PAB). All assets, liabilities and
Appeals of 30 March 1999 affirming Resolutions No. capital accounts of the PAB were transferred to the
94-4483 and No. 95-2754 of the Civil Service AIIBP,[7] and the existing personnel of the PAB were to
Commission (CSC) dated 11 August 1994 and 11 April continue to discharge their functions unless
1995, respectively, which in turn affirmed Resolution discharged.[8] In the ensuing reorganization, Sawadjaan
No. 2309 of the Board of Directors of the Al-Amanah was among the personnel retained by the AIIBP.
Islamic Investment Bank of the Philippines (AIIBP)
When CAMEC failed to pay despite the given
dated 13 December 1993, finding petitioner guilty of
extension, the bank, now referred to as the AIIBP,
Dishonesty in the Performance of Official Duties
discovered that TCT No. N-130671 was spurious, the
and/or Conduct Prejudicial to the Best Interest of the
property described therein non-existent, and that the
Service and dismissing him from the service, and its
property covered by TCT No. C-52576 had a prior
Resolution[2] of 15 December 1999 dismissing
existing mortgage in favor of one Divina Pablico.
petitioners Motion for Reconsideration.
On 08 June 1993, the Board of Directors of the
The records show that petitioner Sappari K.
AIIBP created an Investigating Committee to look into
Sawadjaan was among the first employees of the
the CAMEC transaction, which had cost the bank Six
Philippine Amanah Bank (PAB) when it was created by
performance of his duties. The record is bereft On 11 August 1994, the CSC adopted
Million Pesos (P6,000,000.00) in losses. The of any evidence which would show that he Resolution No. 94-4483 dismissing the appeal
subsequent events, as found and decided upon by the received any amount in consideration for his for lack of merit and affirming Resolution No.
Court of Appeals,[10] are as follows: non-performance of his official duties. 2309 dated 13 December 1993 of the Board of
On 18 June 1993, petitioner received a Directors of Islamic Bank.
This notwithstanding, respondent cannot
memorandum from Islamic Bank [AIIBP] escape liability. As adverted to earlier, his On 11 April 1995, the CSC adopted
Chairman Roberto F. De Ocampo charging him failure to perform his official duties resulted to Resolution No. 95-2574 denying petitioners
with Dishonesty in the Performance of Official the prejudice and substantial damage to the Motion for Reconsideration.
Duties and/or Conduct Prejudicial to the Best Islamic Bank for which he should be held On 16 June 1995, the instant petition was
Interest of the Service and preventively liable for the administrative offense of filed with the Honorable Supreme Court on
suspending him. CONDUCT PREJUDICIAL TO THE BEST the following assignment of errors:
In his memorandum dated 8 September INTEREST OF THE SERVICE.
I. Public respondent Al-
1993, petitioner informed the Investigating Premises considered, the Investigating Amanah Islamic Investment Bank of
Committee that he could not submit himself to Committee recommends that respondent the Philippines has committed a
the jurisdiction of the Committee because of its SAPPARI SAWADJAAN be meted the grave abuse of discretion amounting
alleged partiality. For his failure to appear penalty of SIX (6) MONTHS and ONE (1) to excess or lack of jurisdiction when
before the hearing set on 17 September 1993, DAY SUSPENSION from office in it initiated and conducted
after the hearing of 13 September 1993 was accordance with the Civil Service administrative investigation without
postponed due to the Manifestation of even date Commissions Memorandum Circular No. 30, a validly promulgated rules of
filed by petitioner, the Investigating Committee Series of 1989. procedure in the adjudication of
declared petitioner in default and the
On 13 December 1993, the Board of administrative cases at the Islamic
prosecution was allowed to present its evidence
Directors of the Islamic Bank [AIIBP] adopted Bank.
ex parte.
Resolution No. 2309 finding petitioner guilty II. Public respondent Civil
On 08 December 1993, the Investigating of Dishonesty in the Performance of Official Service Commission has committed
Committee rendered a decision, the pertinent Duties and/or Conduct Prejudicial to the Best a grave abuse of discretion
portions of which reads as follows: Interest of the Service and imposing the amounting to lack of jurisdiction
In view of respondent SAWADJAANS penalty of Dismissal from the Service. when it prematurely and falsely
abject failure to perform his duties and On reconsideration, the Board of assumed jurisdiction of the case not
assigned tasks as appraiser/inspector, which Directors of the Islamic Bank [AIIBP] adopted appealed to it, but to the Merit
resulted to the prejudice and substantial the Resolution No. 2332 on 20 February 1994 System Protection Board.
damage to the Bank, respondent should be reducing the penalty imposed on petitioner III. Both the Islamic Bank and
held liable therefore. At this juncture, from dismissal to suspension for a period of the Civil Service Commission erred
however, the Investigating Committee is of six (6) months and one (1) day. in finding petitioner Sawadjaan of
the considered opinion that he could not be
On 29 March 1994, petitioner filed a having deliberately reporting false
held liable for the administrative offense of
notice of appeal to the Merit System information and therefore guilty of
dishonesty considering the fact that no
Protection Board (MSPB). Dishonesty and Conduct Prejudicial
evidence was adduced to show that he profited
or benefited from being remiss in the
functions and salary administration. affirmative relief cannot later on impugn the
to the Best Interest of the Service and (Italics ours) action of the tribunal as without jurisdiction
penalized with dismissal from the after an adverse result was meted to him.
On the other hand, Item No. 2 of
service. Although jurisdiction over the subject matter
Executive Order No. 26 (1992) entitled
On 04 July 1995, the Honorable Supreme of a case may be objected to at any stage of the
Prescribing Procedure and Sanctions to
Court En Banc referred this petition to this proceedings even on appeal, this particular
Ensure Speedy Disposition of Administrative
Honorable Court pursuant to Revised rule, however, means that jurisdictional issues
Cases directs, all administrative agencies to
Administrative Circular No. 1-95, which took in a case can be raised only during the
adopt and include in their respective Rules of
effect on 01 June 1995. proceedings in said case and during the appeal
Procedure provisions designed to abbreviate
of said case (Aragon v. Court of Appeals, 270
We do not find merit [in] the petition. administrative proceedings.
SCRA 603). The case at bar is a petition [for]
Anent the first assignment of error, a The above two (2) provisions relied upon certiorari and not an appeal.
reading of the records would reveal that by petitioner does not require the Islamic Bank
But even on the merits the argument must
petitioner raises for the first time the alleged [AIIBP] to promulgate rules of procedure
falter. Item No. 1 of CSC Resolution No. 93-
failure of the Islamic Bank [AIIBP] to before administrative discipline may be
2387 dated 29 June 1993, provides:
promulgate rules of procedure governing the imposed upon its employees. The internal
adjudication and disposition of administrative rules of procedures ordained to be adopted by Decisions in administrative
cases involving its personnel. It is a rule that the Board refers to that necessary for the cases involving officials and
issues not properly brought and ventilated conduct of its Islamic banking business and all employees of the civil service
below may not be raised for the first time on matters related to personnel organization, appealable to the Commission
appeal, save in exceptional circumstances office functions and salary administration. On pursuant to Section 47 of Book V of
(Casolita, Sr. v. Court of Appeals, 275 SCRA the contrary, Section 26 of RA 6848 gives the the Code (i.e., Administrative Code
257) none of which, however, obtain in this Board of Directors of the Islamic Bank the of 1987) including personnel actions
case. Granting arguendo that the issue is of broadest powers to manage the Islamic Bank. such as contested appointments shall
such exceptional character that the Court may This grant of broad powers would be an idle now be appealed directly to the
take cognizance of the same, still, it must fail. ceremony if it would be powerless to Commission and not to the MSPB.
Section 26 of Republic Act No. 6848 (1990) discipline its employees. In Rubenecia v. Civil Service
provides: The second assignment of error must Commission, 244 SCRA 640, 651, it was
Section 26. Powers of the Board. likewise fail. The issue is raised for the first categorically held:
The Board of Directors shall have the time via this petition for certiorari. Petitioner . . . The functions of the MSPB
broadest powers to manage the submitted himself to the jurisdiction of the relating to the determination of
Islamic Bank, x x x The Board shall CSC. Although he could have raised the administrative disciplinary cases
adopt policy guidelines necessary to alleged lack of jurisdiction in his Motion for were, in other words, re-allocated to
carry out effectively the provisions of Reconsideration of Resolution No. 94-4483 of the Commission itself.
this Charter as well as internal rules the CSC, he did not do so. By filing the Motion
for Reconsideration, he is estopped from Be that as it may, (i)t is hornbook doctrine
and regulations necessary for the
denying the CSCs jurisdiction over him, as it that in order `(t)o ascertain whether a court (in
conduct of its Islamic banking
is settled rule that a party who asks for an this case, administrative agency) has
business and all matters related to
personnel organization, office
profit from his false report is of no moment. reconsideration.[15] This motion was denied by the court
jurisdiction or not, the provisions of the law Neither the fact that it was not deliberate or a quo in its Resolution of 15 December 1999.[16]
should be inquired into. Furthermore, `the willful, detracts from the nature of the act as Still disheartened, Sawadjaan filed the present
jurisdiction of the court must appear clearly dishonest. What is apparent is he stated petition for certiorari under Rule 65 of the Rules of
from the statute law or it will not be held to something to be a fact, when he really was not Court challenging the above Decision and Resolution
exist.(Azarcon v. Sandiganbayan, 268 SCRA sure that it was so. of the Court of Appeals on the ground that the court a
747, 757) From the provision of law
WHEREFORE, above premises quo erred: i) in ignoring the facts and evidences that the
abovecited, the Civil Service Commission
considered, the instant Petition is alleged Islamic Bank has no valid by-laws; ii) in
clearly has jurisdiction over the
DISMISSED, and the assailed Resolutions of ignoring the facts and evidences that the Islamic Bank
Administrative Case against petitioner.
the Civil Service Commission are hereby lost its juridical personality as a corporation on 16 April
Anent the third assignment of error, we AFFIRMED. 1990; iii) in ignoring the facts and evidences that the
likewise do not find merit in petitioners alleged Islamic Bank and its alleged Board of Directors
On 24 March 1999, Sawadjaans counsel notified
proposition that he should not be liable, as in have no jurisdiction to act in the manner they did in the
the court a quo of his change of address,[11] but
the first place, he was not qualified to perform absence of a valid by-laws; iv) in not correcting the acts
apparently neglected to notify his client of this fact.
the functions of appraiser/investigator because of the Civil Service Commission who erroneously
Thus, on 23 July 1999, Sawadjaan, by himself, filed a
he lacked the necessary training and expertise, rendered the assailed Resolutions No. 94-4483 and No.
Motion for New Trial[12] in the Court of Appeals based
and therefore, should not have been found 95-2754 as a result of fraud, falsification and/or
on the following grounds: fraud, accident, mistake or
dishonest by the Board of Directors of Islamic misrepresentations committed by Farouk A. Carpizo
excusable negligence and newly discovered evidence.
Bank [AIIBP] and the CSC. Petitioner himself and his group, including Roberto F. de Ocampo; v) in
He claimed that he had recently discovered that at the
admits that the position of appraiser/inspector affirming an unconscionably harsh and/or excessive
time his employment was terminated, the AIIBP had
is one of the most serious [and] sensitive job penalty; and vi) in failing to consider newly discovered
not yet adopted its corporate by-laws. He attached a
in the banking operations. He should have evidence and reverse its decision accordingly.
Certification[13] by the Securities and Exchange
been aware that accepting such a designation,
Commission (SEC) that it was only on 27 May 1992 Subsequently, petitioner Sawadjaan filed an Ex-
he is obliged to perform the task at hand by the
that the AIIBP submitted its draft by-laws to the SEC, parte Urgent Motion for Additional Extension of Time
exercise of more than ordinary prudence. As
and that its registration was being held in abeyance to File a Reply (to the Comments of Respondent Al-
appraiser/investigator, he is expected, among
pending certain corrections being made thereon. Amanah Investment Bank of the Philippines),[17] Reply
others, to check the authenticity of the
Sawadjaan argued that since the AIIBP failed to file its (to Respondents Consolidated Comment,)[18] and Reply
documents presented by the borrower by
by-laws within 60 days from the passage of Rep. Act (to the Alleged Comments of Respondent Al-Amanah
comparing them with the originals on file with
No. 6848, as required by Sec. 51 of the said law, the Islamic Bank of the Philippines).[19] On 13 October
the proper government office. He should have
bank and its stockholders had already forfeited its 2000, he informed this Court that he had terminated his
made it sure that the technical descriptions in
franchise or charter, including its license to exist and lawyers services, and, by himself, prepared and filed
the location plan on file with the Bureau of
operate as a corporation,[14] and thus no longer have the the following: 1) Motion for New Trial;[20] 2) Motion to
Lands of Marikina, jibe with that indicated in
legal standing and personality to initiate an Declare Respondents in Default and/or Having Waived
the TCT of the collateral offered by CAMEC,
administrative case. their Rights to Interpose Objection to Petitioners
and that the mortgage in favor of the Islamic
Motion for New Trial;[21] 3) Ex-Parte Urgent Motions
Bank was duly annotated at the back of the Sawadjaans counsel subsequently adopted his
to Punish Attorneys Amado D. Valdez, Elpidio J. Vega,
copy of the TCT kept by the Register of Deeds motion, but requested that it be treated as a motion for
Alda G. Reyes, Dominador R. Isidoro, Jr., and Odilon
of Marikina. This, petitioner failed to do, for
A. Diaz for Being in Contempt of Court& to Inhibit
which he must be held liable. That he did not
Petitioners efforts are unavailing, and we deny his . . . [H]ave no legal authority nor
them from Appearing in this Case Until they Can petition for its procedural and substantive flaws. jurisdiction to manage much less operate the
Present Valid Evidence of Legal Authority;[22] 4) Islamic Bank, file administrative charges and
The general rule is that the remedy to obtain
Opposition/Reply (to Respondent AIIBPs Alleged investigate petitioner in the manner they did
reversal or modification of the judgment on the merits
Comment);[23] 5) Ex-Parte Urgent Motion to Punish and allegedly passed Board Resolution No.
is appeal. This is true even if the error, or one of the
Atty. Reynaldo A. Pineda for Contempt of Court and 2309 on December 13, 1993 which is null and
errors, ascribed to the court rendering the judgment is
the Issuance of a Commitment Order/Warrant for His void for lack of an (sic) authorized and valid
its lack of jurisdiction over the subject matter, or the
Arrest;[24] 6) Reply/Opposition (To the Formal Notice by-laws. The CIVIL SERVICE
exercise of power in excess thereof, or grave abuse of
of Withdrawal of Undersigned Counsel as Legal COMMISSION was therefore affirming,
discretion in the findings of fact or of law set out in the
Counsel for the Respondent Islamic Bank with erroneously, a null and void Resolution No.
Opposition to Petitioners Motion to Punish 2309 dated December 13, 1993 of the Board
Undersigned Counsel for Contempt of Court for the The records show that petitioners counsel received of Directors of Al-Amanah Islamic
Issuance of a Warrant of Arrest);[25] 7) Memorandum the Resolution of the Court of Appeals denying his Investment Bank of the Philippines in CSC
for Petitioner;[26] 8) Opposition to SolGens Motion for motion for reconsideration on 27 December 1999. The Resolution No. 94-4483 dated August 11,
Clarification with Motion for Default and/or Waiver of fifteen day reglamentary period to appeal under Rule 45 1994. A motion for reconsideration thereof
Respondents to File their Memorandum;[27] 9) Motion of the Rules of Court therefore lapsed on 11 January was denied by the CSC in its Resolution No.
for Contempt of Court and Inhibition/Disqualification 2000. On 23 February 2000, over a month after receipt 95-2754 dated April 11, 1995. Both
with Opposition to OGCCs Motion for Extension of of the resolution denying his motion for acts/resolutions of the CSC are erroneous,
Time to File Memorandum;[28] 10) Motion for reconsideration, the petitioner filed his petition for resulting from fraud, falsifications and
Enforcement (In Defense of the Rule of Law);[29] 11) certiorari under Rule 65. misrepresentations of the alleged Chairman
Motion and Opposition (Motion to Punish OGCCs It is settled that a special civil action for certiorari and CEO Roberto F. de Ocampo and the
Attorneys Amado D. Valdez, Efren B. Gonzales, Alda will not lie as a substitute for the lost remedy of alleged Director Farouk A. Carpizo and his
G. Reyes, Odilon A. Diaz and Dominador R. Isidoro, appeal,[37] and though there are instances[38] where the group at the alleged Islamic Bank.[41]
Jr., for Contempt of Court and the Issuance of a Warrant extraordinary remedy of certiorari may be resorted to Nowhere in petitioners voluminous pleadings is
for their Arrest; and Opposition to their Alleged despite the availability of an appeal,[39] we find no there a showing that the court a quo committed grave
Manifestation and Motion Dated February 5, 2002);[30] special reasons for making out an exception in this case. abuse of discretion amounting to lack or excess of
12) Motion for Reconsideration of Item (a) of
Even if we were to overlook this fact in the broader jurisdiction reversible by a petition for certiorari.
Resolution dated 5 February 2002 with Supplemental
interests of justice and treat this as a special civil action Petitioner already raised the question of AIIBPs
Motion for Contempt of Court;[31] 13) Motion for
for certiorari under Rule 65,[40] the petition would corporate existence and lack of jurisdiction in his
Reconsideration of Portion of Resolution Dated 12
nevertheless be dismissed for failure of the petitioner to Motion for New Trial/Motion for Reconsideration of 27
March 2002;[32] 14) Ex-Parte Urgent Motion for
show grave abuse of discretion. Petitioners recurrent May 1997 and was denied by the Court of Appeals.
Extension of Time to File Reply Memorandum (To:
argument, tenuous at its very best, is premised on the Despite the volume of pleadings he has submitted thus
CSC and AIIBPs Memorandum);[33] 15) Reply
fact that since respondent AIIBP failed to file its by- far, he has added nothing substantial to his arguments.
Memorandum (To: CSCs Memorandum) With Ex-
Parte Urgent Motion for Additional Extension of time laws within the designated 60 days from the effectivity The AIIBP was created by Rep. Act No. 6848. It
to File Reply Memorandum (To: AIIBPs of Rep. Act No. 6848, all proceedings initiated by has a main office where it conducts business, has
Memorandum);[34] and 16) Reply Memorandum (To: AIIBP and all actions resulting therefrom are a patent shareholders, corporate officers, a board of directors,
OGCCs Memorandum for Respondent AIIBP).[35] nullity. Or, in his words, the AIIBP and its officers and assets, and personnel. It is, in fact, here represented by
Board of Directors, the Office of the Government Corporate Counsel, the
services. One who assumes an obligation to an On appeal to the CSC, the Commission found that
principal law office of government-owned ostensible corporation as such, cannot resist Sawadjaans failure to perform his official duties greatly
corporations, one of which is respondent bank.[42] At performance thereof on the ground that there was in fact prejudiced the AIIBP, for which he should be held
the very least, by its failure to submit its by-laws on no corporation.[48] accountable. It held that:
time, the AIIBP may be considered a de facto
Even if we were to consider the facts behind . . . (I)t is crystal clear that respondent
corporation[43] whose right to exercise corporate
petitioner Sawadjaans dismissal from service, we SAPPARI SAWADJAAN was remiss in the
powers may not be inquired into collaterally in any
would be hard pressed to find error in the decision of performance of his duties as
private suit to which such corporations may be a
the AIIBP. appraiser/inspector. Had respondent
performed his duties as appraiser/inspector, he
As appraiser/investigator, the petitioner was
Moreover, a corporation which has failed to file its could have easily noticed that the property
expected to conduct an ocular inspection of the
by-laws within the prescribed period does not ipso facto located at Balintawak, Caloocan City covered
properties offered by CAMEC as collaterals and check
lose its powers as such. The SEC Rules on by TCT No. C-52576 and which is one of the
the copies of the certificates of title against those on file
Suspension/Revocation of the Certificate of properties offered as collateral by CAMEC is
with the Registry of Deeds. Not only did he fail to
Registration of Corporations,[45] details the procedures encumbered to Divina Pablico. Had
conduct these routine checks, but he also deliberately
and remedies that may be availed of before an order of respondent reflected such fact in his
misrepresented in his appraisal report that after
revocation can be issued. There is no showing that such appraisal/inspection report on said property
reviewing the documents and conducting a site
a procedure has been initiated in this case. the ISLAMIC BANK would not have
inspection, he found the CAMEC loan application to be
In any case, petitioners argument is irrelevant approved CAMECs loan of P500,000.00 in
in order. Despite the number of pleadings he has filed,
because this case is not a corporate controversy, but a 1987 and CAMECs P5 Million loan in 1988,
he has failed to offer an alternative explanation for his
labor dispute; and it is an employers basic right to freely respondent knowing fully well the Banks
select or discharge its employees, if only as a measure policy of not accepting encumbered properties
When he was informed of the charges against him as collateral.
of self-protection against acts inimical to its interest.[46]
and directed to appear and present his side on the
Regardless of whether AIIBP is a corporation, a Respondent SAWADJAANs
matter, the petitioner sent instead a memorandum
partnership, a sole proprietorship, or a sari-sari store, it reprehensible act is further aggravated when
questioning the fairness and impartiality of the
is an undisputed fact that AIIBP is the petitioners he failed to check and verify from the Registry
members of the investigating committee and refusing to
employer. AIIBP chose to retain his services during its of Deeds of Marikina the authenticity of the
recognize their jurisdiction over him. Nevertheless, the
reorganization, controlled the means and methods by property located at Mayamot, Antipolo, Rizal
investigating committee rescheduled the hearing to
which his work was to be performed, paid his wages, covered by TCT No. N-130671 and which is
give the petitioner another chance, but he still refused
and, eventually, terminated his services.[47] one of the properties offered as collateral by
to appear before it.
And though he has had ample opportunity to do so, CAMEC for its P5 Million loan in 1988. If he
Thereafter, witnesses were presented, and a only visited and verified with the Register of
the petitioner has not alleged that he is anything other
decision was rendered finding him guilty of dishonesty Deeds of Marikina the authenticity of TCT
than an employee of AIIBP. He has neither claimed, nor
and dismissing him from service. He sought a No. N-130671 he could have easily discovered
shown, that he is a stockholder or an officer of the
reconsideration of this decision and the same that TCT No. N-130671 is fake and the
corporation. Having accepted employment from
committee whose impartiality he questioned reduced property described therein non-existent.
AIIBP, and rendered his services to the said bank,
their recommended penalty to suspension for six
received his salary, and accepted the promotion given ...
months and one day. The board of directors, however,
him, it is now too late in the day for petitioner to
opted to dismiss him from service.
question its existence and its power to terminate his
The Antecedents
This notwithstanding, respondent cannot
escape liability. As adverted to earlier, his
failure to perform his official duties resulted to The facts, according to petitioner Wilson P. Gamboa, a
the prejudice and substantial damage to the stockholder of Philippine Long Distance Telephone
ISLAMIC BANK for which he should be held Company (PLDT), are as follows:1
liable for the administrative offense of
INTEREST OF THE SERVICE.[49] On 28 November 1928, the Philippine Legislature
enacted Act No. 3436 which granted PLDT a franchise
From the foregoing, we find that the CSC and the and the right to engage in telecommunications business.
court a quo committed no grave abuse of discretion In 1969, General Telephone and Electronics
when they sustained Sawadjaans dismissal from Corporation (GTE), an American company and a major
service. Grave abuse of discretion implies such PLDT stockholder, sold 26 percent of the outstanding
capricious and whimsical exercise of judgment as common shares of PLDT to PTIC. In 1977, Prime
equivalent to lack of jurisdiction, or, in other words, Holdings, Inc. (PHI) was incorporated by several
where the power is exercised in an arbitrary or despotic persons, including Roland Gapud and Jose Campos, Jr.
manner by reason of passion or personal hostility, and Subsequently, PHI became the owner of 111,415 shares
it must be so patent and gross as to amount to an evasion of stock of PTIC by virtue of three Deeds of
of positive duty or to a virtual refusal to perform the Assignment executed by PTIC stockholders Ramon
duty enjoined or to act at all in contemplation of law.[50] Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
The records show that the respondents did none of shares of stock of PTIC held by PHI were sequestered
these; they acted in accordance with the law. by the Presidential Commission on Good Government
WHEREFORE, the petition is DISMISSED. The GRANDFATHER RULE (PCGG). The 111,415 PTIC shares, which represent
Decision of the Court of Appeals of 30 March 1999 about 46.125 percent of the outstanding capital stock of
GAMBOA VS TEVES PTIC, were later declared by this Court to be owned by
affirming Resolutions No. 94-4483 and No. 95-2754 of
the Civil Service Commission, and its Resolution of 15 the Republic of the Philippines.2
December 1999 are hereby AFFIRMED. Costs against The Case
the petitioner.
In 1999, First Pacific, a Bermuda-registered, Hong
SO ORDERED. Kong-based investment firm, acquired the remaining
This is an original petition for prohibition, injunction,
54 percent of the outstanding capital stock of PTIC. On
declaratory relief and declaration of nullity of the sale
20 November 2006, the Inter-Agency Privatization
of shares of stock of Philippine Telecommunications
Council (IPC) of the Philippine Government
Investment Corporation (PTIC) by the government of
announced that it would sell the 111,415 PTIC shares,
the Republic of the Philippines to Metro Pacific Assets
or 46.125 percent of the outstanding capital stock of
Holdings, Inc. (MPAH), an affiliate of First Pacific
PTIC, through a public bidding to be conducted on 4
Company Limited (First Pacific).
December 2006. Subsequently, the public bidding was
reset to 8 December 2006, and only two bidders,
with PTICs Articles of Incorporation. First Pacific
Parallax Venture Fund XXVII (Parallax) and Pan-Asia announced its intention to match Parallaxs bid.
On 9 November 1967, PTIC was incorporated and had
Presidio Capital, submitted their bids. Parallax won
since engaged in the business of investment holdings.
with a bid of P25.6 billion or US$510 million.
PTIC held 26,034,263 PLDT common shares, or
On 31 January 2007, the House of Representatives
13.847 percent of the total PLDT outstanding common (HR) Committee on Good Government conducted a
Thereafter, First Pacific announced that it would shares. PHI, on the other hand, was incorporated in public hearing on the particulars of the then impending
exercise its right of first refusal as a PTIC stockholder 1977, and became the owner of 111,415 PTIC shares or sale of the 111,415 PTIC shares. Respondents Teves
and buy the 111,415 PTIC shares by matching the bid 46.125 percent of the outstanding capital stock of PTIC and Sevilla were among those who attended the public
price of Parallax. However, First Pacific failed to do so by virtue of three Deeds of Assignment executed by hearing. The HR Committee Report No. 2270
by the 1 February 2007 deadline set by IPC and instead, Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the concluded that: (a) the auction of the governments
yielded its right to PTIC itself which was then given by 111,415 PTIC shares held by PHI were sequestered by 111,415 PTIC shares bore due diligence, transparency
IPC until 2 March 2007 to buy the PTIC shares. On 14 the PCGG, and subsequently declared by this Court as and conformity with existing legal procedures; and (b)
February 2007, First Pacific, through its subsidiary, part of the ill-gotten wealth of former President
First Pacifics intended acquisition of the
MPAH, entered into a Conditional Sale and Purchase Ferdinand Marcos. The sequestered PTIC shares were
governments 111,415 PTIC shares resulting in First
Agreement of the 111,415 PTIC shares, or 46.125 reconveyed to the Republic of the Philippines in
Pacifics 100% ownership of PTIC will not violate
percent of the outstanding capital stock of PTIC, with accordance with this Courts decision4 which became
the 40 percent constitutional limit on foreign
the Philippine Government for the price of final and executory on 8 August 2006.
ownership of a public utility since PTIC holds only
P25,217,556,000 or US$510,580,189. The sale was The Philippine Government decided to sell the 111,415 13.847 percent of the total outstanding common
completed on 28 February 2007. PTIC shares, which represent 6.4 percent of the shares of PLDT.5 On 28 February 2007, First Pacific
outstanding common shares of stock of PLDT, and completed the acquisition of the 111,415 shares of
designated the Inter-Agency Privatization Council stock of PTIC.
Since PTIC is a stockholder of PLDT, the sale by the (IPC), composed of the Department of Finance and the
Philippine Government of 46.125 percent of PTIC PCGG, as the disposing entity. An invitation to bid was
shares is actually an indirect sale of 12 million shares published in seven different newspapers from 13 to 24 Respondent Manuel V. Pangilinan admits the following
or about 6.3 percent of the outstanding common shares November 2006. On 20 November 2006, a pre-bid facts: (a) the IPC conducted a public bidding for the sale
of PLDT. With the sale, First Pacifics common conference was held, and the original deadline for of 111,415 PTIC shares or 46 percent of the outstanding
shareholdings in PLDT increased from 30.7 percent bidding scheduled on 4 December 2006 was reset to 8 capital stock of PTIC (the remaining 54 percent of
to 37 percent, thereby increasing the common December 2006. The extension was published in nine PTIC shares was already owned by First Pacific and its
shareholdings of foreigners in PLDT to about 81.47 different newspapers. affiliates); (b) Parallax offered the highest bid
percent. This violates Section 11, Article XII of the amounting to P25,217,556,000; (c) pursuant to the right
1987 Philippine Constitution which limits foreign of first refusal in favor of PTIC and its shareholders
ownership of the capital of a public utility to not more During the 8 December 2006 bidding, Parallax Capital granted in PTICs Articles of Incorporation, MPAH, a
than 40 percent.3 Management LP emerged as the highest bidder with a First Pacific affiliate, exercised its right of first refusal
bid of P25,217,556,000. The government notified First by matching the highest bid offered for PTIC shares on
Pacific, the majority owner of PTIC shares, of the 13 February 2007; and (d) on 28 February 2007, the
On the other hand, public respondents Finance bidding results and gave First Pacific until 1 February sale was consummated when MPAH paid IPC
Secretary Margarito B. Teves, Undersecretary John P. 2007 to exercise its right of first refusal in accordance P25,217,556,000 and the government delivered the
Sevilla, and PCGG Commissioner Ricardo Abcede certificates for the 111,415 PTIC shares. Respondent
allege the following relevant facts:
Pacific and several other foreign
Pangilinan denies the other allegations of facts of entities breached the
The Issue
petitioner. constitutional limit of 40 percent
ownership as early as 2003. x x
On 28 February 2007, petitioner filed the instant
petition for prohibition, injunction, declaratory relief, This Court is not a trier of facts. Factual questions such
and declaration of nullity of sale of the 111,415 PTIC Petitioner raises the following issues: (1) whether the as those raised by petitioner,9 which indisputably
shares. Petitioner claims, among others, that the sale of consummation of the then impending sale of 111,415 demand a thorough examination of the evidence of the
the 111,415 PTIC shares would result in an increase in PTIC shares to First Pacific violates the constitutional parties, are generally beyond this Courts jurisdiction.
First Pacifics common shareholdings in PLDT from limit on foreign ownership of a public utility; (2) Adhering to this well-settled principle, the Court shall
30.7 percent to 37 percent, and this, combined with whether public respondents committed grave abuse of confine the resolution of the instant controversy solely
Japanese NTT DoCoMos common shareholdings in discretion in allowing the sale of the 111,415 PTIC on the threshold and purely legal issue of whether the
PLDT, would result to a total foreign common shares to First Pacific; and (3) whether the sale of term capital in Section 11, Article XII of the
shareholdings in PLDT of 51.56 percent which is over common shares to foreigners in excess of 40 percent of Constitution refers to the total common shares only or
the 40 percent constitutional limit.6 Petitioner asserts: the entire subscribed common capital stock violates the to the total outstanding capital stock (combined total of
constitutional limit on foreign ownership of a public common and non-voting preferred shares) of PLDT, a
utility.8 public utility.
If and when the sale is completed, First Pacifics
equity in PLDT will go up from 30.7 percent to
37.0 percent of its common or voting- On 13 August 2007, Pablito V. Sanidad and Arno V. The Ruling of the Court
stockholdings, x x x. Hence, the consummation Sanidad filed a Motion for Leave to Intervene and
of the sale will put the two largest foreign Admit Attached Petition-in-Intervention. In the
investors in PLDT First Pacific and Japans NTT Resolution of 28 August 2007, the Court granted the The petition is partly meritorious.
DoCoMo, which is the worlds largest wireless motion and noted the Petition-in-Intervention.
telecommunications firm, owning 51.56 percent
of PLDT common equity. x x x With the Petition for declaratory relief treated as petition for
completion of the sale, data culled from the Petitioners-in-intervention join petitioner Wilson mandamus
official website of the New York Stock Gamboa x x x in seeking, among others, to enjoin
Exchange ( showed that those and/or nullify the sale by respondents of the 111,415
PTIC shares to First Pacific or assignee. Petitioners-in- At the outset, petitioner is faced with a procedural
foreign entities, which own at least five percent
intervention claim that, as PLDT subscribers, they have barrier. Among the remedies petitioner seeks, only the
of common equity, will collectively own 81.47
a stake in the outcome of the controversy x x x where petition for prohibition is within the original
percent of PLDTs common equity. x x x
the Philippine Government is completing the sale of jurisdiction of this court, which however is not
x x x as the annual disclosure exclusive but is concurrent with the Regional Trial
government owned assets in [PLDT], unquestionably a
reports, also referred to as Form Court and the Court of Appeals. The actions for
public utility, in violation of the nationality restrictions
20-K reports x x x which PLDT
of the Philippine Constitution. declaratory relief,10 injunction, and annulment of sale
submitted to the New York are not embraced within the original jurisdiction of the
Stock Exchange for the period
2003-2005, revealed that First
respondents Central Bank of the Philippines, the local that should be resolved, it may be treated as
Supreme Court. On this ground alone, the petition could bank, and the accused to comply with the writ of one for mandamus.15 (Emphasis supplied)
have been dismissed outright. execution issued in the civil case for damages and to
release the dollar deposit of the accused to satisfy the
While direct resort to this Court may be justified in a
In the present case, petitioner seeks primarily the
petition for prohibition,11 the Court shall nevertheless
interpretation of the term capital in Section 11, Article
refrain from discussing the grounds in support of the In Alliance of Government Workers v. Minister of XII of the Constitution. He prays that this Court declare
petition for prohibition since on 28 February 2007, the Labor,14 the Court similarly brushed aside the that the term capital refers to common shares only, and
questioned sale was consummated when MPAH paid procedural infirmity of the petition for declaratory that such shares constitute the sole basis in determining
IPC P25,217,556,000 and the government delivered the relief and treated the same as one for mandamus. In foreign equity in a public utility. Petitioner further asks
certificates for the 111,415 PTIC shares. Alliance, the issue was whether the government this Court to declare any ruling inconsistent with such
unlawfully excluded petitioners, who were government interpretation unconstitutional.
employees, from the enjoyment of rights to which they
However, since the threshold and purely legal issue on were entitled under the law. Specifically, the question
the definition of the term capital in Section 11, Article was: Are the branches, agencies, subdivisions, and The interpretation of the term capital in Section 11,
XII of the Constitution has far-reaching implications to instrumentalities of the Government, including Article XII of the Constitution has far-reaching
the national economy, the Court treats the petition for government owned or controlled corporations included implications to the national economy. In fact, a
declaratory relief as one for mandamus.12 among the four employers under Presidential Decree resolution of this issue will determine whether Filipinos
No. 851 which are required to pay their employees x x are masters, or second class citizens, in their own
x a thirteenth (13th) month pay x x x ? The country. What is at stake here is whether Filipinos or
In Salvacion v. Central Bank of the Philippines,13 the Constitutional principle involved therein affected all
Court treated the petition for declaratory relief as one foreigners will have effective control of the national
government employees, clearly justifying a relaxation economy. Indeed, if ever there is a legal issue that has
for mandamus considering the grave injustice that of the technical rules of procedure, and certainly
would result in the interpretation of a banking law. In far-reaching implications to the entire nation, and to
requiring the interpretation of the assailed presidential future generations of Filipinos, it is the threshhold legal
that case, which involved the crime of rape committed decree.
by a foreign tourist against a Filipino minor and the issue presented in this case.
execution of the final judgment in the civil case for
damages on the tourists dollar deposit with a local bank, In short, it is well-settled that this Court may treat a The Court first encountered the issue on the definition
the Court declared Section 113 of Central Bank petition for declaratory relief as one for mandamus if of the term capital in Section 11, Article XII of the
Circular No. 960, exempting foreign currency deposits the issue involved has far-reaching implications. As Constitution in the case of Fernandez v. Cojuangco,
from attachment, garnishment or any other order or this Court held in Salvacion: docketed as G.R. No. 157360.16 That case involved the
process of any court, inapplicable due to the peculiar
same public utility (PLDT) and substantially the same
circumstances of the case. The Court held that injustice
private respondents. Despite the importance and
would result especially to a citizen aggrieved by a The Court has no original and exclusive novelty of the constitutional issue raised therein and
foreign guest like accused x x x that would negate jurisdiction over a petition for declaratory relief. despite the fact that the petition involved a purely legal
Article 10 of the Civil Code which provides that in case However, exceptions to this rule have been question, the Court declined to resolve the case on the
of doubt in the interpretation or application of laws, it recognized. Thus, where the petition has far- merits, and instead denied the same for disregarding the
is presumed that the lawmaking body intended right and reaching implications and raises questions hierarchy of courts.17 There, petitioner Fernandez
justice to prevail. The Court therefore required
right to be informed on matters of public concern, a
assailed on a pure question of law the Regional Trial right then recognized in Section 6, Article IV of the
Courts Decision of 21 February 2003 via a petition for 1973 Constitution, in connection with the rule that laws
review under Rule 45. The Courts Resolution, denying Petitioner has locus standi in order to be valid and enforceable must be published
the petition, became final on 21 December 2004. in the Official Gazette or otherwise effectively
The instant petition therefore presents the Court with promulgated. In ruling for the petitioners legal
There is no dispute that petitioner is a stockholder of standing, the Court declared that the right they sought
another opportunity to finally settle this purely legal PLDT. As such, he has the right to question the subject
issue which is of transcendental importance to the to be enforced is a public right recognized by no less
sale, which he claims to violate the nationality than the fundamental law of the land.
national economy and a fundamental requirement to a requirement prescribed in Section 11, Article XII of the
faithful adherence to our Constitution. The Court must Constitution. If the sale indeed violates the Legaspi v. Civil Service Commission, while reiterating
forthwith seize such opportunity, not only for the Constitution, then there is a possibility that PLDTs Taada, further declared that when a mandamus
benefit of the litigants, but more significantly for the franchise could be revoked, a dire consequence directly proceeding involves the assertion of a public right,
benefit of the entire Filipino people, to ensure, in the affecting petitioners interest as a stockholder. the requirement of personal interest is satisfied by
words of the Constitution, a self-reliant and the mere fact that petitioner is a citizen and,
independent national economy effectively controlled therefore, part of the general public which possesses
by Filipinos.18 Besides, in the light of vague and More importantly, there is no question that the instant the right.
confusing positions taken by government agencies on petition raises matters of transcendental importance to Further, in Albano v. Reyes, we said that while
this purely legal issue, present and future foreign the public. The fundamental and threshold legal issue expenditure of public funds may not have been
investors in this country deserve, as a matter of basic in this case, involving the national economy and the involved under the questioned contract for the
fairness, a categorical ruling from this Court on the economic welfare of the Filipino people, far outweighs development, management and operation of the Manila
extent of their participation in the capital of public any perceived impediment in the legal personality of International Container Terminal, public interest
utilities and other nationalized businesses. the petitioner to bring this action. [was] definitely involved considering the important
role [of the subject contract] . . . in the economic
Despite its far-reaching implications to the national development of the country and the magnitude of
In Chavez v. PCGG,24 the Court upheld the right of a the financial consideration involved. We concluded
economy, this purely legal issue has remained citizen to bring a suit on matters of transcendental
unresolved for over 75 years since the 1935 that, as a consequence, the disclosure provision in the
importance to the public, thus: Constitution would constitute sufficient authority for
Constitution. There is no reason for this Court to evade
this ever recurring fundamental issue and delay again upholding the petitioners standing. (Emphasis
defining the term capital, which appears not only in supplied)
In Taada v. Tuvera, the Court asserted that when the
Section 11, Article XII of the Constitution, but also in issue concerns a public right and the object of
Section 2, Article XII on co-production and joint mandamus is to obtain the enforcement of a public Clearly, since the instant petition, brought by a citizen,
venture agreements for the development of our natural duty, the people are regarded as the real parties in involves matters of transcendental public importance,
resources,19 in Section 7, Article XII on ownership of interest; and because it is sufficient that petitioner is the petitioner has the requisite locus standi.
private lands,20 in Section 10, Article XII on the a citizen and as such is interested in the execution of
reservation of certain investments to Filipino citizens,21 the laws, he need not show that he has any legal or
in Section 4(2), Article XIV on the ownership of special interest in the result of the action. In the Definition of the Term Capital in
educational institutions,22 and in Section 11(2), Article aforesaid case, the petitioners sought to enforce their
XVI on the ownership of advertising companies.23 Section 11, Article XII of the 1987 Constitution
of a public utility shall be granted except to individual, firm, or corporation, except under
citizens of the Philippines or to corporations the condition that it shall be subject to
Section 11, Article XII (National Economy and or associations organized under the laws of amendment, alteration, or repeal by the
Patrimony) of the 1987 Constitution mandates the the Philippines at least sixty per centum of Congress when the public interest so requires.
Filipinization of public utilities, to wit: the capital of which is owned by such citizens, (Emphasis supplied)
nor shall such franchise, certificate, or
authorization be exclusive in character or for a
longer period than fifty years. Neither shall any
such franchise or right be granted except under Father Joaquin G. Bernas, S.J., a leading member of the
Section 11. No franchise, certificate, or any the condition that it shall be subject to
other form of authorization for the operation 1986 Constitutional Commission, reminds us that the
amendment, alteration, or repeal by the Filipinization provision in the 1987 Constitution is one
of a public utility shall be granted except to National Assembly when the public interest so
citizens of the Philippines or to corporations of the products of the spirit of nationalism which
requires. The State shall encourage equity gripped the 1935 Constitutional Convention.25 The
or associations organized under the laws of participation in public utilities by the general
the Philippines, at least sixty per centum of 1987 Constitution provides for the Filipinization of
public. The participation of foreign investors in public utilities by requiring that any form of
whose capital is owned by such citizens; nor the governing body of any public utility
shall such franchise, certificate, or authorization authorization for the operation of public utilities should
enterprise shall be limited to their proportionate be granted only to citizens of the Philippines or to
be exclusive in character or for a longer period share in the capital thereof. (Emphasis supplied)
than fifty years. Neither shall any such franchise corporations or associations organized under the laws
or right be granted except under the condition of the Philippines at least sixty per centum of whose
that it shall be subject to amendment, alteration, capital is owned by such citizens. The provision is [an
or repeal by the Congress when the common express] recognition of the sensitive and vital
good so requires. The State shall encourage position of public utilities both in the national
equity participation in public utilities by the The foregoing provision in the 1973 Constitution economy and for national security.26 The evident
general public. The participation of foreign purpose of the citizenship requirement is to prevent
reproduced Section 8, Article XIV of the 1935
investors in the governing body of any public aliens from assuming control of public utilities, which
Constitution, viz:
utility enterprise shall be limited to their may be inimical to the national interest.27 This specific
proportionate share in its capital, and all the provision explicitly reserves to Filipino citizens control
executive and managing officers of such Section 8. No franchise, certificate, or any of public utilities, pursuant to an overriding economic
corporation or association must be citizens of other form of authorization for the operation goal of the 1987 Constitution: to conserve and develop
the Philippines. (Emphasis supplied) of a public utility shall be granted except to our patrimony28 and ensure a self-reliant and
citizens of the Philippines or to corporations independent national economy effectively controlled
or other entities organized under the laws of by Filipinos.29
the Philippines sixty per centum of the
The above provision substantially reiterates Section 5, capital of which is owned by citizens of the
Any citizen or juridical entity desiring to operate a
Article XIV of the 1973 Constitution, thus: Philippines, nor shall such franchise,
public utility must therefore meet the minimum
certificate, or authorization be exclusive in
nationality requirement prescribed in Section 11,
character or for a longer period than fifty years.
Article XII of the Constitution. Hence, for a corporation
Section 5. No franchise, certificate, or any No franchise or right shall be granted to any
other form of authorization for the operation
limitation in public utilities prescribed by the constitutional limitation on foreign ownership in
to be granted authority to operate a public utility, at Constitution. public utilities.35
least 60 percent of its capital must be owned by Filipino
Respondents, on the other hand, do not offer any Similarly, respondent Manuel V. Pangilinan does not
definition of the term capital in Section 11, Article XII define the term capital in Section 11, Article XII of the
The crux of the controversy is the definition of the term of the Constitution. More importantly, private Constitution. Neither does he refute petitioners claim of
capital. Does the term capital in Section 11, Article XII respondents Nazareno and Pangilinan of PLDT do not foreigners holding more than 40 percent of PLDTs
of the Constitution refer to common shares or to the dispute that more than 40 percent of the common shares common shares. Instead, respondent Pangilinan focuses
total outstanding capital stock (combined total of of PLDT are held by foreigners. on the procedural flaws of the petition and the alleged
common and non-voting preferred shares)? violation of the due process rights of foreigners.
Respondent Pangilinan emphasizes in his
In particular, respondent Nazarenos Memorandum, Memorandum (1) the absence of this Courts
Petitioner submits that the 40 percent foreign equity consisting of 73 pages, harps mainly on the procedural jurisdiction over the petition; (2) petitioners lack of
limitation in domestic public utilities refers only to infirmities of the petition and the supposed violation of standing; (3) mootness of the petition; (4) non-
common shares because such shares are entitled to vote the due process rights of the affected foreign common availability of declaratory relief; and (5) the denial of
and it is through voting that control over a corporation shareholders. Respondent Nazareno does not deny due process rights. Moreover, respondent Pangilinan
is exercised. Petitioner posits that the term capital in petitioners allegation of foreigners dominating the alleges that the issue should be whether owners of
Section 11, Article XII of the Constitution refers to the common shareholdings of PLDT. Nazareno stressed shares in PLDT as well as owners of shares in
ownership of common capital stock subscribed and mainly that the petition seeks to divest foreign companies holding shares in PLDT may be required to
outstanding, which class of shares alone, under the common shareholders purportedly exceeding 40% relinquish their shares in PLDT and in those companies
corporate set-up of PLDT, can vote and elect members of the total common shareholdings in PLDT of their without any law requiring them to surrender their shares
of the board of directors. It is undisputed that PLDTs ownership over their shares. Thus, the foreign natural and also without notice and trial.
non-voting preferred shares are held mostly by Filipino and juridical PLDT shareholders must be impleaded in
citizens.30 This arose from Presidential Decree No. this suit so that they can be heard.34 Essentially,
217,31 issued on 16 June 1973 by then President Nazareno invokes denial of due process on behalf of the Respondent Pangilinan further asserts that Section 11,
Ferdinand Marcos, requiring every applicant of a PLDT foreign common shareholders. [Article XII of the Constitution] imposes no
telephone line to subscribe to non-voting preferred nationality requirement on the shareholders of the
shares to pay for the investment cost of installing the utility company as a condition for keeping their
telephone line.32 While Nazareno does not introduce any definition of shares in the utility company. According to him,
the term capital, he states that among the factual Section 11 does not authorize taking one persons
assertions that need to be established to counter property (the shareholders stock in the utility company)
Petitioners-in-intervention basically reiterate petitioners allegations is the uniform interpretation on the basis of another partys alleged failure to satisfy
petitioners arguments and adopt petitioners definition by government agencies (such as the SEC), a requirement that is a condition only for that other
of the term capital.33 Petitioners-in-intervention allege institutions and corporations (such as the Philippine partys retention of another piece of property (the utility
that the approximate foreign ownership of common National Oil Company-Energy Development company being at least 60% Filipino-owned to keep its
capital stock of PLDT x x x already amounts to at least Corporation or PNOC-EDC) of including both franchise).36
63.54% of the total outstanding common stock, which preferred shares and common shares in controlling
means that foreigners exercise significant control over interest in view of testing compliance with the 40%
PLDT, patently violating the 40 percent foreign equity
Constitution refers to ownership of shares of Clearly, therefore, the forty percent (40%)
The OSG, representing public respondents Secretary stock entitled to vote, i.e., common shares, foreign equity limitation in public utilities
Margarito Teves, Undersecretary John P. Sevilla, considering that it is through voting that control prescribed by the Constitution refers to
Commissioner Ricardo Abcede, and Chairman Fe is being exercised. x x x ownership of shares of stock entitled to vote,
Barin, is likewise silent on the definition of the term i.e., common shares. Furthermore, ownership of
capital. In its Memorandum37 dated 24 September record of shares will not suffice but it must be
2007, the OSG also limits its discussion on the Obviously, the intent of the framers of the shown that the legal and beneficial ownership
supposed procedural defects of the petition, i.e. lack of Constitution in imposing limitations and rests in the hands of Filipino citizens.
standing, lack of jurisdiction, non-inclusion of restrictions on fully nationalized and partially Consequently, in the case of petitioner PLDT,
interested parties, and lack of basis for injunction. The nationalized activities is for Filipino nationals since it is already admitted that the voting
OSG does not present any definition or interpretation of to be always in control of the corporation interests of foreigners which would gain entry
the term capital in Section 11, Article XII of the undertaking said activities. Otherwise, if the to petitioner PLDT by the acquisition of
Constitution. The OSG contends that the petition Trial Courts ruling upholding respondents SMART shares through the Questioned
actually partakes of a collateral attack on PLDTs arguments were to be given credence, it would Transactions is equivalent to 82.99%, and the
franchise as a public utility, which in effect requires a be possible for the ownership structure of a nominee arrangements between the foreign
full-blown trial where all the parties in interest are public utility corporation to be divided into one principals and the Filipino owners is likewise
given their day in court.38 percent (1%) common stocks and ninety-nine admitted, there is, therefore, a violation of
percent (99%) preferred stocks. Following the Section 11, Article XII of the Constitution.
Trial Courts ruling adopting respondents
Respondent Francisco Ed Lim, impleaded as President Parenthetically, the Opinions dated February
arguments, the common shares can be owned
and Chief Executive Officer of the Philippine Stock 15, 1988 and April 14, 1987 cited by the Trial
entirely by foreigners thus creating an absurd
Exchange (PSE), does not also define the term capital Court to support the proposition that the
situation wherein foreigners, who are supposed
and seeks the dismissal of the petition on the following meaning of the word capital as used in Section
to be minority shareholders, control the public
grounds: (1) failure to state a cause of action against 11, Article XII of the Constitution allegedly
utility corporation.
Lim; (2) the PSE allegedly implemented its rules and refers to the sum total of the shares subscribed
required all listed companies, including PLDT, to make and paid-in by the shareholder and it allegedly
proper and timely disclosures; and (3) the reliefs prayed xxxx is immaterial how the stock is classified,
for in the petition would adversely impact the stock whether as common or preferred, cannot stand
market. in the face of a clear legislative policy as stated
Thus, the 40% foreign ownership limitation in the FIA which took effect in 1991 or way
should be interpreted to apply to both the after said opinions were rendered, and as
In the earlier case of Fernandez v. Cojuangco, beneficial ownership and the controlling clarified by the above-quoted Amendments. In
petitioner Fernandez who claimed to be a stockholder interest. this regard, suffice it to state that as between the
of record of PLDT, contended that the term capital in law and an opinion rendered by an
the 1987 Constitution refers to shares entitled to vote or administrative agency, the law indubitably
the common shares. Fernandez explained thus: xxxx prevails. Moreover, said Opinions are merely
advisory and cannot prevail over the clear intent
of the framers of the Constitution.
The forty percent (40%) foreign equity
limitation in public utilities prescribed by the
shares, nor exclude either class of shares, in to vote in the election of directors, and thus in the
In the same vein, the SECs construction of determining the outstanding capital stock (the present case only to common shares,41 and not to the
Section 11, Article XII of the Constitution is at capital) of a corporation. Consequently, total outstanding capital stock comprising both
best merely advisory for it is the courts that petitioners suggestion to reckon PLDTs foreign common and non-voting preferred shares.
finally determine what a law means.39 equity only on the basis of PLDTs outstanding The Corporation Code of the Philippines42 classifies
common shares is without legal basis. The shares as common or preferred, thus:
language of the Constitution should be
understood in the sense it has in common use.
On the other hand, respondents therein, Antonio O. xxxx Sec. 6. Classification of shares. - The shares of
Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, stock of stock corporations may be divided into
Helen Y. Dee, Magdangal B. Elma, Mariles Cacho- classes or series of shares, or both, any of which
Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, 17. But even assuming that resort to the classes or series of shares may have such rights,
Napoleon L. Nazareno, Albert F. Del Rosario, and proceedings of the Constitutional Commission privileges or restrictions as may be stated in the
Orlando B. Vea, argued that the term capital in Section is necessary, there is nothing in the Record of articles of incorporation: Provided, That no
11, Article XII of the Constitution includes preferred the Constitutional Commission (Vol. III) which share may be deprived of voting rights except
shares since the Constitution does not distinguish petitioner misleadingly cited in the Petition x x those classified and issued as preferred or
among classes of stock, thus: x which supports petitioners view that only redeemable shares, unless otherwise
common shares should form the basis for provided in this Code: Provided, further, That
computing a public utilitys foreign equity. there shall always be a class or series of shares
16. The Constitution applies its foreign ownership which have complete voting rights. Any or all
limitation on the corporations capital, without xxxx
of the shares or series of shares may have a par
distinction as to classes of shares. x x x value or have no par value as may be provided
18. In addition, the SEC the government agency for in the articles of incorporation: Provided,
primarily responsible for implementing the however, That banks, trust companies,
In this connection, the Corporation Code which insurance companies, public utilities, and
was already in force at the time the present Corporation Code, and which also has the
responsibility of ensuring compliance with the building and loan associations shall not be
(1987) Constitution was drafted defined permitted to issue no-par value shares of stock.
outstanding capital stock as follows: Constitutions foreign equity restrictions as
regards nationalized activities x x x has Preferred shares of stock issued by any
categorically ruled that both common and corporation may be given preference in the
Section 137. Outstanding capital stock defined. preferred shares are properly considered in distribution of the assets of the corporation in
The term outstanding capital stock, as used in determining outstanding capital stock and the case of liquidation and in the distribution of
this Code, means the total shares of stock issued nationality composition thereof.40 dividends, or such other preferences as may be
under binding subscription agreements to stated in the articles of incorporation which are
subscribers or stockholders, whether or not fully not violative of the provisions of this Code:
or partially paid, except treasury shares. Provided, That preferred shares of stock may be
We agree with petitioner and petitioners-in- issued only with a stated par value. The Board
intervention. The term capital in Section 11, Article XII of Directors, where authorized in the articles of
Section 137 of the Corporation Code also does of the Constitution refers only to shares of stock entitled incorporation, may fix the terms and conditions
not distinguish between common and preferred
4. Incurring, creating or increasing incorporation restricting the right of common
of preferred shares of stock or any series bonded indebtedness; shareholders to vote is invalid.47
thereof: Provided, That such terms and
5. Increase or decrease of capital stock;
conditions shall be effective upon the filing of a
certificate thereof with the Securities and 6. Merger or consolidation of the Considering that common shares have voting rights
Exchange Commission. corporation with another corporation or which translate to control, as opposed to preferred
other corporations; shares which usually have no voting rights, the term
Shares of capital stock issued without par value
capital in Section 11, Article XII of the Constitution
shall be deemed fully paid and non-assessable 7. Investment of corporate funds in
refers only to common shares. However, if the preferred
and the holder of such shares shall not be liable another corporation or business in
shares also have the right to vote in the election of
to the corporation or to its creditors in respect accordance with this Code; and
directors, then the term capital shall include such
thereto: Provided; That shares without par value 8. Dissolution of the corporation. preferred shares because the right to participate in the
may not be issued for a consideration less than
Except as provided in the immediately control or management of the corporation is exercised
the value of five (P5.00) pesos per share:
preceding paragraph, the vote necessary to through the right to vote in the election of directors. In
Provided, further, That the entire consideration
approve a particular corporate act as provided in short, the term capital in Section 11, Article XII of
received by the corporation for its no-par value
this Code shall be deemed to refer only to stocks the Constitution refers only to shares of stock that
shares shall be treated as capital and shall not be
with voting rights. can vote in the election of directors.
available for distribution as dividends.
A corporation may, furthermore, classify its
shares for the purpose of insuring compliance This interpretation is consistent with the intent of the
with constitutional or legal requirements. framers of the Constitution to place in the hands of
Indisputably, one of the rights of a stockholder is the Filipino citizens the control and management of public
Except as otherwise provided in the articles of right to participate in the control or management of the utilities. As revealed in the deliberations of the
incorporation and stated in the certificate of corporation.43 This is exercised through his vote in the Constitutional Commission, capital refers to the voting
stock, each share shall be equal in all respects to election of directors because it is the board of directors stock or controlling interest of a corporation, to wit:
every other share. that controls or manages the corporation.44 In the
Where the articles of incorporation provide for absence of provisions in the articles of incorporation
non-voting shares in the cases allowed by this denying voting rights to preferred shares, preferred MR. NOLLEDO. In Sections 3, 9 and 15, the
Code, the holders of such shares shall shares have the same voting rights as common shares. Committee stated local or Filipino equity and
nevertheless be entitled to vote on the following However, preferred shareholders are often excluded foreign equity; namely, 60-40 in Section 3, 60-
matters: from any control, that is, deprived of the right to vote in 40 in Section 9 and 2/3-1/3 in Section 15.
the election of directors and on other matters, on the
1. Amendment of the articles of theory that the preferred shareholders are merely
incorporation; investors in the corporation for income in the same MR. VILLEGAS. That is right.
2. Adoption and amendment of by-laws; manner as bondholders.45 In fact, under the Corporation
Code only preferred or redeemable shares can be
3. Sale, lease, exchange, mortgage,
deprived of the right to vote.46 Common shares cannot MR. NOLLEDO. In teaching law, we are
pledge or other disposition of all or always faced with this question: Where do we
be deprived of the right to vote in any corporate
substantially all of the corporate base the equity requirement, is it on the
meeting, and any provision in the articles of
minority because they have the voting
authorized capital stock, on the subscribed capital. That is the anomaly that would result
capital stock, or on the paid-up capital stock of here.
a corporation? Will the Committee please
enlighten me on this? xxxx
MR. BENGZON. No, the reason we
MR. AZCUNA. May I be clarified as to that eliminated the word stock as stated in the
MR. VILLEGAS. We have just had a long portion that was accepted by the Committee. 1973 and 1935 Constitutions is that
discussion with the members of the team from according to Commissioner Rodrigo, there
the UP Law Center who provided us a draft. are associations that do not have stocks. That
The phrase that is contained here which we MR. VILLEGAS. The portion accepted by the is why we say CAPITAL.
adopted from the UP draft is 60 percent of Committee is the deletion of the phrase voting
voting stock. stock or controlling interest.
MR. AZCUNA. We should not eliminate the
phrase controlling interest.
MR. NOLLEDO. That must be based on the MR. AZCUNA. Hence, without the Davide
subscribed capital stock, because unless amendment, the committee report would read:
declared delinquent, unpaid capital stock shall corporations or associations at least sixty MR. BENGZON. In the case of stock
be entitled to vote. percent of whose CAPITAL is owned by such corporations, it is assumed.49 (Emphasis
citizens. supplied)

MR. VILLEGAS. That is right.

Thus, 60 percent of the capital assumes, or should result
MR. NOLLEDO. Thank you.
MR. AZCUNA. So if the Davide amendment is in, controlling interest in the corporation. Reinforcing
lost, we are stuck with 60 percent of the capital this interpretation of the term capital, as referring to
With respect to an investment by one to be owned by citizens. controlling interest or shares entitled to vote, is the
corporation in another corporation, say, a definition of a Philippine national in the Foreign
corporation with 60-40 percent equity invests in Investments Act of 1991,50 to wit:
another corporation which is permitted by the MR. VILLEGAS. That is right.
Corporation Code, does the Committee adopt
SEC. 3. Definitions. - As used in this Act:
the grandfather rule?
MR. AZCUNA. But the control can be with
the foreigners even if they are the minority.
Let us say 40 percent of the capital is owned a. The term Philippine national shall mean a
MR. VILLEGAS. Yes, that is the understanding
by them, but it is the voting capital, whereas, citizen of the Philippines; or a domestic
of the Committee.
the Filipinos own the nonvoting shares. So we partnership or association wholly owned by
can have a situation where the corporation is citizens of the Philippines; or a corporation
MR. NOLLEDO. Therefore, we need additional controlled by foreigners despite being the organized under the laws of the Philippines
Filipino capital?
outstanding and entitled to vote is owned and considered held by Philippine citizens or
of which at least sixty percent (60%) of the held by citizens of the Philippines; or a trustee Philippine nationals.
capital stock outstanding and entitled to vote of funds for pension or other employee
is owned and held by citizens of the retirement or separation benefits, where the
Philippines; or a corporation organized abroad trustee is a Philippine national and at least sixty Individuals or juridical entities not meeting
and registered as doing business in the percent [60%] of the fund will accrue to the the aforementioned qualifications are
Philippines under the Corporation Code of benefit of the Philippine nationals; Provided, considered as non-Philippine nationals.
which one hundred percent (100%) of the that where a corporation its non-Filipino (Emphasis supplied)
capital stock outstanding and entitled to vote is stockholders own stocks in a Securities and
wholly owned by Filipinos or a trustee of funds Exchange Commission [SEC] registered
for pension or other employee retirement or enterprise, at least sixty percent [60%] of the
separation benefits, where the trustee is a capital stock outstanding and entitled to vote of
Philippine national and at least sixty percent both corporations must be owned and held by
(60%) of the fund will accrue to the benefit of citizens of the Philippines and at least sixty
Philippine nationals: Provided, That where a percent [60%] of the members of the Board of
corporation and its non-Filipino stockholders Directors of each of both corporation must be
own stocks in a Securities and Exchange citizens of the Philippines, in order that the
Commission (SEC) registered enterprise, at corporation shall be considered a Philippine Mere legal title is insufficient to meet the 60 percent
least sixty percent (60%) of the capital stock national. The control test shall be applied for Filipino-owned capital required in the Constitution.
outstanding and entitled to vote of each of both this purpose. Full beneficial ownership of 60 percent of the
corporations must be owned and held by outstanding capital stock, coupled with 60 percent of
citizens of the Philippines and at least sixty the voting rights, is required. The legal and beneficial
percent (60%) of the members of the Board of Compliance with the required Filipino ownership of 60 percent of the outstanding capital stock
Directors of each of both corporations must be ownership of a corporation shall be must rest in the hands of Filipino nationals in
citizens of the Philippines, in order that the determined on the basis of outstanding accordance with the constitutional mandate. Otherwise,
corporation, shall be considered a Philippine capital stock whether fully paid or not, but the corporation is considered as non-Philippine
national. (Emphasis supplied) only such stocks which are generally entitled national[s].
to vote are considered.

In explaining the definition of a Philippine national, the Under Section 10, Article XII of the Constitution,
Implementing Rules and Regulations of the Foreign For stocks to be deemed owned and held by Congress may reserve to citizens of the Philippines or
Investments Act of 1991 provide: Philippine citizens or Philippine nationals, to corporations or associations at least sixty per centum
mere legal title is not enough to meet the of whose capital is owned by such citizens, or such
required Filipino equity. Full beneficial higher percentage as Congress may prescribe, certain
b. Philippine national shall mean a citizen of the ownership of the stocks, coupled with areas of investments. Thus, in numerous laws Congress
Philippines or a domestic partnership or appropriate voting rights is essential. Thus, has reserved certain areas of investments to Filipino
association wholly owned by the citizens of the stocks, the voting rights of which have been citizens or to corporations at least sixty percent of the
Philippines; or a corporation organized under assigned or transferred to aliens cannot be capital of which is owned by Filipino citizens. Some of
the laws of the Philippines of which at least these laws are: (1) Regulation of Award of Government
sixty percent [60%] of the capital stock
In the example given, only the foreigners holding the exclusive right to vote for the election of directors
Contracts or R.A. No. 5183; (2) Philippine Inventors common shares have voting rights in the election of and for all other purposes.53
Incentives Act or R.A. No. 3850; (3) Magna Carta for directors, even if they hold only 100 shares. The
Micro, Small and Medium Enterprises or R.A. No. foreigners, with a minuscule equity of less than 0.001
6977; (4) Philippine Overseas Shipping Development percent, exercise control over the public utility. On the In short, only holders of common shares can vote in the
Act or R.A. No. 7471; (5) Domestic Shipping other hand, the Filipinos, holding more than 99.999 election of directors, meaning only common
Development Act of 2004 or R.A. No. 9295; (6) percent of the equity, cannot vote in the election of shareholders exercise control over PLDT. Conversely,
Philippine Technology Transfer Act of 2009 or R.A. directors and hence, have no control over the public holders of preferred shares, who have no voting rights
No. 10055; and (7) Ship Mortgage Decree or P.D. No. utility. This starkly circumvents the intent of the in the election of directors, do not have any control over
1521. Hence, the term capital in Section 11, Article XII framers of the Constitution, as well as the clear PLDT. In fact, under PLDTs Articles of Incorporation,
of the Constitution is also used in the same context in language of the Constitution, to place the control of holders of common shares have voting rights for all
numerous laws reserving certain areas of investments public utilities in the hands of Filipinos. It also renders purposes, while holders of preferred shares have no
to Filipino citizens. illusory the State policy of an independent national voting right for any purpose whatsoever.
economy effectively controlled by Filipinos.

To construe broadly the term capital as the total It must be stressed, and respondents do not dispute,
outstanding capital stock, including both common and The example given is not theoretical but can be found that foreigners hold a majority of the common shares of
non-voting preferred shares, grossly contravenes the in the real world, and in fact exists in the present case. PLDT. In fact, based on PLDTs 2010 General
intent and letter of the Constitution that the State shall Information Sheet (GIS),54 which is a document
develop a self-reliant and independent national required to be submitted annually to the Securities and
economy effectively controlled by Filipinos. A broad Holders of PLDT preferred shares are explicitly denied Exchange Commission,55 foreigners hold 120,046,690
definition unjustifiably disregards who owns the all- of the right to vote in the election of directors. PLDTs common shares of PLDT whereas Filipinos hold only
important voting stock, which necessarily equates to Articles of Incorporation expressly state that the 66,750,622 common shares.56 In other words,
control of the public utility. holders of Serial Preferred Stock shall not be foreigners hold 64.27% of the total number of PLDTs
entitled to vote at any meeting of the stockholders common shares, while Filipinos hold only 35.73%.
for the election of directors or for any other purpose Since holding a majority of the common shares equates
We shall illustrate the glaring anomaly in giving a or otherwise participate in any action taken by the to control, it is clear that foreigners exercise control
broad definition to the term capital. Let us assume that corporation or its stockholders, or to receive notice of over PLDT. Such amount of control unmistakably
a corporation has 100 common shares owned by any meeting of stockholders.51 exceeds the allowable 40 percent limit on foreign
foreigners and 1,000,000 non-voting preferred shares ownership of public utilities expressly mandated in
owned by Filipinos, with both classes of share having a Section 11, Article XII of the Constitution.
par value of one peso (P1.00) per share. Under the On the other hand, holders of common shares are
broad definition of the term capital, such corporation granted the exclusive right to vote in the election of
would be considered compliant with the 40 percent directors. PLDTs Articles of Incorporation52 state that Moreover, the Dividend Declarations of PLDT for
constitutional limit on foreign equity of public utilities each holder of Common Capital Stock shall have one 2009,57 as submitted to the SEC, shows that per share
since the overwhelming majority, or more than 99.999 vote in respect of each share of such stock held by him the SIP58 preferred shares earn a pittance in dividends
percent, of the total outstanding capital stock is Filipino on all matters voted upon by the stockholders, and the compared to the common shares. PLDT declared
owned. This is obviously absurd. holders of Common Capital Stock shall have the dividends for the common shares at P70.00 per share,
while the declared dividends for the preferred shares
In short, Filipinos hold less than 60 percent of the Indisputably, construing the term capital in Section 11,
amounted to a measly P1.00 per share. So the voting stock, and earn less than 60 percent of the Article XII of the Constitution to include both voting
preferred shares not only cannot vote in the election of dividends, of PLDT. This directly contravenes the and non-voting shares will result in the abject surrender
directors, they also have very little and obviously express command in Section 11, Article XII of the of our telecommunications industry to foreigners,
negligible dividend earning capacity compared to Constitution that [n]o franchise, certificate, or any other amounting to a clear abdication of the States
common shares. form of authorization for the operation of a public constitutional duty to limit control of public utilities to
utility shall be granted except to x x x corporations x x Filipino citizens. Such an interpretation certainly runs
x organized under the laws of the Philippines, at least counter to the constitutional provision reserving certain
As shown in PLDTs 2010 GIS,60 as submitted to the sixty per centum of whose capital is owned by such areas of investment to Filipino citizens, such as the
SEC, the par value of PLDT common shares is P5.00 citizens x x x. exploitation of natural resources as well as the
per share, whereas the par value of preferred shares is ownership of land, educational institutions and
P10.00 per share. In other words, preferred shares have advertising businesses. The Court should never open to
twice the par value of common shares but cannot elect To repeat, (1) foreigners own 64.27% of the common foreign control what the Constitution has expressly
directors and have only 1/70 of the dividends of shares of PLDT, which class of shares exercises the sole reserved to Filipinos for that would be a betrayal of the
common shares. Moreover, 99.44% of the preferred right to vote in the election of directors, and thus Constitution and of the national interest. The Court
shares are owned by Filipinos while foreigners own exercise control over PLDT; (2) Filipinos own only must perform its solemn duty to defend and uphold the
only a minuscule 0.56% of the preferred shares.61 35.73% of PLDTs common shares, constituting a intent and letter of the Constitution to ensure, in the
Worse, preferred shares constitute 77.85% of the minority of the voting stock, and thus do not exercise words of the Constitution, a self-reliant and
authorized capital stock of PLDT while common shares control over PLDT; (3) preferred shares, 99.44% independent national economy effectively controlled by
constitute only 22.15%.62 This undeniably shows that owned by Filipinos, have no voting rights; (4) preferred Filipinos.
beneficial interest in PLDT is not with the non-voting shares earn only 1/70 of the dividends that common
preferred shares but with the common shares, blatantly shares earn;63 (5) preferred shares have twice the par
violating the constitutional requirement of 60 percent value of common shares; and (6) preferred shares Section 11, Article XII of the Constitution, like other
Filipino control and Filipino beneficial ownership in a constitute 77.85% of the authorized capital stock of provisions of the Constitution expressly reserving to
public utility. PLDT and common shares only 22.15%. This kind of Filipinos specific areas of investment, such as the
ownership and control of a public utility is a mockery development of natural resources and ownership of
of the Constitution. land, educational institutions and advertising business,
The legal and beneficial ownership of 60 percent of the is self-executing. There is no need for legislation to
outstanding capital stock must rest in the hands of implement these self-executing provisions of the
Filipinos in accordance with the constitutional Incidentally, the fact that PLDT common shares with a Constitution. The rationale why these constitutional
mandate. Full beneficial ownership of 60 percent of the par value of P5.00 have a current stock market value of provisions are self-executing was explained in Manila
outstanding capital stock, coupled with 60 percent of P2,328.00 per share,64 while PLDT preferred shares Prince Hotel v. GSIS,66 thus:
the voting rights, is constitutionally required for the with a par value of P10.00 per share have a current
States grant of authority to operate a public utility. The x x x Hence, unless it is expressly provided that
stock market value ranging from only P10.92 to P11.06
undisputed fact that the PLDT preferred shares, 99.44% per share,65 is a glaring confirmation by the market that a legislative act is necessary to enforce a
owned by Filipinos, are non-voting and earn only 1/70 constitutional mandate, the presumption now is
control and beneficial ownership of PLDT rest with the
of the dividends that PLDT common shares earn, that all provisions of the constitution are self-
common shares, not with the preferred shares.
grossly violates the constitutional requirement of 60 executing. If the constitutional provisions are
percent Filipino control and Filipino beneficial treated as requiring legislation instead of self-
ownership of a public utility.
executing, the mandate of the fundamental the alien have violated the law, none of them
executing, the legislature would have the power law ratified by the sovereign people can be should have a recourse against the other, and it
to ignore and practically nullify the mandate of easily ignored and nullified by Congress. should only be the State that should be allowed
the fundamental law. This can be cataclysmic. Suffused with wisdom of the ages is the to intervene and determine what is to be done
That is why the prevailing view is, as it has unyielding rule that legislative actions may with the property subject of the violation. We
always been, that give breath to constitutional rights but have said that what the State should do or could
congressional inaction should not suffocate do in such matters is a matter of public policy,
them. entirely beyond the scope of judicial authority.
. . . in case of doubt, the Constitution should be (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G.
considered self-executing rather than non-self- R. No. L-5996, June 27, 1956.) While the
executing. . . . Unless the contrary is clearly legislature has not definitely decided what
intended, the provisions of the Constitution policy should be followed in cases of
Thus, we have treated as self-executing the
should be considered self-executing, as a violations against the constitutional
provisions in the Bill of Rights on arrests,
contrary rule would give the legislature prohibition, courts of justice cannot go
searches and seizures, the rights of a person
discretion to determine when, or whether, beyond by declaring the disposition to be null
under custodial investigation, the rights of an
they shall be effective. These provisions would and void as violative of the Constitution. x x
accused, and the privilege against self-
be subordinated to the will of the lawmaking x (Emphasis supplied)
incrimination. It is recognized that legislation is
body, which could make them entirely
unnecessary to enable courts to effectuate
meaningless by simply refusing to pass the
constitutional provisions guaranteeing the
needed implementing statute. (Emphasis
fundamental rights of life, liberty and the
protection of property. The same treatment is To treat Section 11, Article XII of the Constitution as
accorded to constitutional provisions forbidding not self-executing would mean that since the 1935
the taking or damaging of property for public Constitution, or over the last 75 years, not one of the
use without just compensation. (Emphasis constitutional provisions expressly reserving specific
supplied) areas of investments to corporations, at least 60 percent
of the capital of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and
1987 Constitutions miserably failed to effectively
In Manila Prince Hotel, even the Dissenting Opinion of Thus, in numerous cases,67 this Court, even in the reserve to Filipinos specific areas of investment, like
then Associate Justice Reynato S. Puno, later Chief absence of implementing legislation, applied directly the operation by corporations of public utilities, the
Justice, agreed that constitutional provisions are the provisions of the 1935, 1973 and 1987 Constitutions exploitation by corporations of mineral resources, the
presumed to be self-executing. Justice Puno stated: limiting land ownership to Filipinos. In Soriano v. Ong ownership by corporations of real estate, and the
Hoo,68 this Court ruled: ownership of educational institutions. All the
legislatures that convened since 1935 also miserably
Courts as a rule consider the provisions of the failed to enact legislations to implement these vital
Constitution as self-executing, rather than as x x x As the Constitution is silent as to the constitutional provisions that determine who will
requiring future legislation for their effects or consequences of a sale by a citizen of effectively control the national economy, Filipinos or
enforcement. The reason is not difficult to his land to an alien, and as both the citizen and
discern. For if they are not treated as self-
power and function to investigate x x x the activities ERNESTO CEASE, CECILIA CEASE, MARION
foreigners. This Court cannot allow such an absurd of persons to ensure compliance with the laws and CEASE, TERESA CEASE-LACEBAL and the F.L.
interpretation of the Constitution. regulations that SEC administers or enforces. The GIS CEASE PLANTATION CO., INC. as Trustee of
that all corporations are required to submit to SEC properties of the defunct TIAONG MILLING &
annually should put the SEC on guard against violations PLANTATION CO., petitioners,
This Court has held that the SEC has both regulatory of the nationality requirement prescribed in the vs.
and adjudicative functions.69 Under its regulatory Constitution and existing laws. This Court can compel HONORABLE COURT OF APPEALS, (Special
functions, the SEC can be compelled by mandamus to the SEC, in a petition for declaratory relief that is Seventh Division), HON. MANOLO L. MADDELA,
perform its statutory duty when it unlawfully neglects treated as a petition for mandamus as in the present Presiding Judge, Court of First Instance of Quezon,
to perform the same. Under its adjudicative or quasi- case, to hear and decide a possible violation of Section BENJAMIN CEASE and FLORENCE CEASE,
judicial functions, the SEC can be also be compelled by 11, Article XII of the Constitution in view of the respondents.
mandamus to hear and decide a possible violation of ownership structure of PLDTs voting shares, as
any law it administers or enforces when it is mandated admitted by respondents and as stated in PLDTs 2010
by law to investigate such violation. GIS that PLDT submitted to SEC. GUERRERO, J:
Appeal by certiorari from the decision of the Court of
Under Section 17(4) of the Corporation Code, the Appeals in CA-G.R. No. 45474, entitled "Ernesto
SEC has the regulatory function to reject or disapprove Cease, et al. vs. Hon. Manolo L. Maddela, Judge of the
and rule that the term capital in Section 11, Article XII
the Articles of Incorporation of any corporation where Court of First Instance of Quezon, et al." 1 which
of the 1987 Constitution refers only to shares of stock
the required percentage of ownership of the capital dismissed the petition for certiorari, mandamus, and
entitled to vote in the election of directors, and thus in
stock to be owned by citizens of the Philippines has prohibition instituted by the petitioners against the
the present case only to common shares, and not to the
not been complied with as required by existing laws respondent judge and the private respondents.
total outstanding capital stock (common and non-
or the Constitution. Thus, the SEC is the government voting preferred shares). Respondent Chairperson of The antecedents of the case, as found by the appellate
agency tasked with the statutory duty to enforce the the Securities and Exchange Commission is court, are as follows:
nationality requirement prescribed in Section 11, DIRECTED to apply this definition of the term capital IT RESULTING: That the antecedents
Article XII of the Constitution on the ownership of in determining the extent of allowable foreign are not difficult to understand; sometime
public utilities. This Court, in a petition for declaratory ownership in respondent Philippine Long Distance in June 1908, one Forrest L. Cease
relief that is treated as a petition for mandamus as in the Telephone Company, and if there is a violation of common predecessor in interest of the
present case, can direct the SEC to perform its statutory Section 11, Article XII of the Constitution, to impose parties together with five (5) other
duty under the law, a duty that the SEC has apparently the appropriate sanctions under the law. American citizens organized the Tiaong
unlawfully neglected to do based on the 2010 GIS that
Milling and Plantation Company and in
respondent PLDT submitted to the SEC.
the course of its corporate existence the
Under Section 5(m) of the Securities Regulation SO ORDERED. company acquired various properties
Code,71 the SEC is vested with the power and function but at the same time all the other original
to suspend or revoke, after proper notice and incorporators were bought out by
hearing, the franchise or certificate of registration Forrest L. Cease together with his
of corporations, partnerships or associations, upon DOCTRINE OF SEPARATE JURIDICAL children namely Ernest, Cecilia,
any of the grounds provided by law. The SEC is PERSONALITY Teresita, Benjamin, Florence and one
mandated under Section 5(d) of the same Code with the
receivership, they were not able to against the defendants
Bonifacia Tirante also considered a succeed because defendants filed a bond declaring that:
member of the family; the charter of the to remain as they have remained in 1) The assets or
company lapsed in June 1958; but possession; after that and already, properties of the defunct
whether there were steps to liquidate it, during the pendency of Civil Case No. Tiaong Milling and
the record is silent; on 13 August 1959, 6326 specifically on 21 May, 1961 Plantation Company
Forrest L. Cease died and by apparently on the eve of the expiry of the now appearing under the
extrajudicial partition of his shares, three (3) year period provided by the law name of F.L. Cease
among the children, this was disposed of for the liquidation of corporations, the Plantation Company as
on 19 October 1959; it was here where board of liquidators of Tiaong Milling Trustee, is the estate also
the trouble among them came to arise executed an assignment and conveyance
of the deceased Forrest
because it would appear that Benjamin of properties and trust agreement in L. Cease and ordered
and Florence wanted an actual division favor of F.L. Cease Plantation Co. Inc. divided, share and share
while the other children wanted as trustee of the Tiaong Milling and alike, among his six
reincorporation; and proceeding on that, Plantation Co. so Chat upon motion of children the plaintiffs
these other children Ernesto, Teresita the plaintiffs trial Judge ordered that this and the defendants in
and Cecilia and aforementioned other alleged trustee be also included as party accordance with Rule 69,
stockholder Bonifacia Tirante defendant; now this being the situation, Rules of Court;
proceeded to incorporate themselves it will be remembered that there were
into the F.L. Cease Plantation Company thus two (2) proceedings pending in the 2) The Resolution to Sell
and registered it with the Securities and Court of First Instance of Quezon dated October 12, 1959
Exchange Commission on 9 December, namely Civil Case No. 6326 and Special and the Transfer and
1959; apparently in view of that, Proceeding No. 3893 but both of these Conveyance with Trust
Benjamin and Florence for their part were assigned to the Honorable Agreement is hereby set
initiated a Special Proceeding No. 3893 Respondent Judge Manolo L. Maddela aside as improper and
of the Court of First Instance of Tayabas p. 43 and the case was finally heard and illegal for the purposes
for the settlement of the estate of Forest submitted upon stipulation of facts pp, and effect that it was
L. Cease on 21 April, 1960 and one 34-110, rollo; and trial Judge by intended and, therefore,
month afterwards on 19 May 1960 they decision dated 27 December 1969 held null and void;
filed Civil Case No. 6326 against for the plaintiffs Benjamin and 3) That F.L. Cease
Ernesto, Teresita and Cecilia Cease Florence, the decision containing the Plantation Company is
together with Bonifacia Tirante asking following dispositive part: removed as 'Trustee for
that the Tiaong Milling and Plantation interest against the estate
Corporation be declared Identical to and essential to the
F.L. Cease and that its properties be protection of plaintiffs'
FOREGOING, judgment
divided among his children as his rights and is hereby
is hereby rendered in
intestate heirs; this Civil Case was ordered to deliver and
favor of plaintiffs and
resisted by aforestated defendants and convey all the properties
notwithstanding efforts of the plaintiffs
to have the properties placed under
IN VIEW OF THE December, 1969 as well as the order of
and assets of the defunct FOREGOING, the 27 April, 1970 suffered of certain fatal
Tiaong Milling now appeal interposed by defects, which respondents deny and on
under its name, custody plaintiffs is hereby their part raise the preliminary point that
and control to dismissed as premature this Court of Appeals has no authority to
whomsoever be and the Record on give relief to petitioners because not
appointed as Receiver - Appeal is necessarily in aid of its appellate jurisdiction,
disqualifying and of the disapproved as improper
parties herein - the latter at this stage of the and that the questions presented cannot
to act accordingly upon proceedings. be raised for the first time before this
proper assumption of Court of Appeals;
office; and Respondent Court of Appeals in its decision
Lucena City, April 27,
4) Special Proceedings promulgated December 9, 1970 dismissed the petition
No. 3893 for with costs against petitioners, hence the present petition
administration is and so it was said defendants brought to this Court on the following assignment of errors:
terminated and the matter first to the Supreme Court, on THE COURT OF APPEALS ERRED -
dismissed; the instant mandamus on 20 May, 1970 to compel
case to proceed but on the appeal and certiorari and prohibition I. IN SANCTIONING THE WRONGFUL EXERCISE
issues of damages only to annul the order of 27 April, 1970 on OF JURISDICTION BEYOND THE LIMITS OF
and for such action the ground that the decision was AUTHORITY CONFERRED BY LAW UPON THE
inherently essential for "patently erroneous" p. 16, rollo; but the LOWER COURT, WHEN IT PROCEEDED TO
partition. Supreme Court remanded the case to HEAR, ADJUDGE AND ADJUDICATE -
this Court of Appeals by resolution of 27 (a) Special Proceedings No. 3893 for the
May 1970, p. 173, and this Court of settlement of the Estate of Forrest L.
Lucena City, December Appeals on 1 July 1970 p. 175 dismissed Cease, simultaneously and concurrently
27, 1969., pp. 122-a-123, the petition so far as the mandamus was with -
rollo. concerned taking the view that the
decision sought to be appealed dated 27 (b) Civil Case No. 6326, wherein the
upon receipt of that, defendants there lower Court ordered Partition under
filled a notice of appeal p. 129, rollo December, 1969 was interlocutory and
not appealable but on motion for Rule 69, Rules of Court -
together with an appeal bond and a
record on appeal but the plaintiffs reconsideration of petitioners and since THE ISSUE OF LEGAL OWNERSHIP OF THE
moved to dismiss the appeal on the there was possible merit so far as its PROPERTIES COMMONLY INVOLVED IN BOTH
ground that the judgment was in fact prayer for certiorari and prohibition was ACTIONS HAVING BEEN RAISED AT THE
interlocutory and not appealable p. 168 concerned, by resolution of the Court on OUTSET BY THE TIAONG MILLING AND
rollo and this position of defendants was 19 August, 1970, p. 232, the petition PLANTATION COMPANY, AS THE REGISTERED
sustained by trial Judge, His Honor was permitted to go ahead in that OWNER OF SUCH PROPERTIES UNDER ACT 496.
ruling that capacity; and it is the position of
petitioners that the decision of 27 II. IN AFFIRMING - UNSUPPORTED BY ANY
receiver for the preservation of the properties as well as dated July 30, 1975 was presented to the Court on
ANY LAW TO JUSTIFY - THE UNWARRANTED for the protection of the interests of all parties in Civil August 6, 1976 for the signature of the parties, but
CONCLUSION THAT SUBJECT PROPERTIES, Case No. 6326; but at the same time, We expressed Our respondents "unceremoniously" repudiated the same by
FOUND BY THE LOWER COURT AND THE displeasure in the appointment of the branch clerk of leaving the courtroom without the permission of the
COURT OF APPEALS AS ACTUALLY court or any other court personnel for that matter as court (Court of First Instance of Quezon, Branch 11) as
REGISTERED IN THE NAME OF PETITIONER receiver. (p. 102, rollo). a result of which respondents and their counsel were
CORPORATION AND/OR ITS PREDECESSOR IN cited for contempt (p. 195, 197, rollo) that respondents'
2. Meanwhile, sensing that the appointed receiver was
INTEREST, THE TIAONG MILLING AND reason for the repudiation appears to be petitioners'
making some attempts to take possession of the
PLANTATION COMPANY, DURING ALL THE 50 failure to render an audited account of their
properties, petitioners filed in this present appeal an
YEARS OF ITS CORPORATE EXISTENCE "ARE administration covering the period from May 31, 1961
urgent petition to restrain proceedings in the lower
ALSO PROPERTIES OF THE ESTATE OF FOREST up to January 29, 1974, plus the inclusion of a provision
court. We resolved the petition on January 29, 1975 by
L. CEASE." on waiver and relinquishment by respondents of
issuing a corresponding temporary restraining order
III. IN AFFIRMING THE ARBITRARY whatever rights that may have accrued to their favor by
enjoining the court a quo from implementing its
CONCLUSION OF THE LOWER COURT THAT ITS virtue of the lower court's decision and the affirmative
decision of December 27, 1969, more particularly, the
DECISION OF DECEMBER 27,1969 IS AN decision of the appellate court.
taking over by a receiver of the properties subject of the
"INTERLUCUTORY DECISION." IN DISMISSED litigation, and private respondents Benjamin and We go now to the alleged errors committed by the
NG THE PETITION FOR WRIT OF MANDAMUS, Florence Cease from proceeding or taking any action respondent Court of Appeals.
AND IN AFFIRMING THE MANIFESTLY UNJUST on the matter until further orders from this Court (pp. As can be gleaned from petitioners' brief and the
JUDGMENT RENDERED WHICH CONTRADICTS 99-100, rollo). Private respondents filed a motion for petition itself, two contentions underlie the first
THE FINDINGS OF ULTIMATE FACTS THEREIN reconsideration of Our resolution of January 29, 1975.
assigned error. First, petitioners argue that there was an
CONTAINED. After weighing the arguments of the parties and taking irregular and arbitrarte termination and dismissal of the
During the period that ensued after the filing in this note of Our resolution in G.R. No. L-35629 which special proceedings for judicial administration
Court of the respective briefs and the subsequent upheld the appointment of a receiver, We issued simultaneously ordered in the lower court . s decision
submission of the case for decision, some incidents had another resolution dated April 11, 1975 lifting effective in Civil Case No. 6326 adjudicating the partition of the
transpired, the summary of which may be stated as immediately Our previous temporary restraining order estate, without categorically, reasoning the opposition
follows: which enforced the earlier resolution of January 29, to the petition for administration Second, that the issue
1975 (pp. 140-141, rollo).
1. Separate from this present appeal, petitioners filed a of ownership had been raised in the lower court when
petition for certiorari and prohibition in this Court, 3. On February 6, 1976, private respondents filed an Tiaong Milling asserted title over the properties
docketed as G.R. No. L-35629 (Ernesto Cease, et al. vs. urgent petition to restrain proceedings below in view of registered in its corporate name adverse to Forrest L.
Hon. Manolo L. Maddela, et al.) which challenged the the precipitate replacement of the court appointed Cease or his estate, and that the said issue was
order of respondent judge dated September 27, 1972 receiver Mayor Francisco Escueta (vice Mr. Eleno M. erroneously disposed of by the trial court in the
appointing his Branch Clerk of Court, Mr. Eleno M. Joyas) and the appointment of Mr. Guillermo Lagrosa partition proceedings when it concluded that the assets
Joyas, as receiver of the properties subject of the on the eve of respondent Judge Maddela's retirement (p. or properties of the defunct company is also the estate
appealed civil case, which order, petitioners saw as a 166, rollo). The urgent petition was denied in Our of the deceased proprietor.
virtual execution of the lower court's judgment (p. 92, resolution of February 18, 1976 (p. 176, rollo). The propriety of the dismissal and termination of the
rollo). In Our resolution of November 13, 1972, issued 4. Several attempts at a compromise agreement failed special proceedings for judicial administration must be
in G.R. No. L-35629, the petition was denied since to materialize. A Tentative Compromise Agreement affirmed in spite of its rendition in another related case
respondent judge merely appointed an auxilliary
G. Utulo vs. Leona Pasion Viuda de case, We cannot see in the records any compelling
in view of the established jurisprudence which favors Garcia, 66 Phil. 302. reason why it may not be dismissed just the same even
partition when judicial administration become, if considered in a separate action. This is inevitably
Where the estate has no debts, recourse
unnecessary. As observed by the Court of Appeals, the certain specially when the subject property has already
may be had to an administration
dismissal at first glance is wrong, for the reason that been found appropriate for partition, thus reducing the
proceeding only if the heirs have good
what was actually heard was Civil Case No. 6326. The petition for administration to a mere unnecessary
reasons for not resorting to an action for
technical consistency, however, it is far less importance solicitation.
partition. Where partition is possible,
than the reason behind the doctrinal rule against placing
either in or out of court, the estate should The second point raised by petitioners in their first
an estate under administration. Judicial rulings
not be burdened with an administration assigned error is equally untenable. In effect,
consistently hold the view that where partition is
proceeding without good and petitioners argue that the action for partition should not
possible, either judicial or extrajudicial, the estate
compelling reasons. (Intestate Estate of have prospered in view of the repudiation of the co-
should not be burdened with an administration
Mercado vs. Magtibay, 96 Phil. 383) ownership by Tiaong Milling and Plantation Company
proceeding without good and compelling reason. When
when, as early in the trial court, it already asserted
the estate has no creditors or pending obligations to be In the records of this case, We find no indication of any
ownership and corporate title over the properties
paid, the beneficiaries in interest are not bound to indebtedness of the estate. No creditor has come up to
adverse to the right of ownership of Forrest L. Cease or
submit the property to judicial administration which is charge the estate within the two-year period after the
his estate. We are not unmindful of the doctrine relied
always long and costly, or to apply for the appointment death of Forrest L. Cease, hence, the presumption under
upon by petitioners in Rodriguez vs. Ravilan, 17 Phil.
of an administrator by the court, especially when Section 1, Rule 74 that the estate is free from creditors
63 wherein this Court held that in an action for
judicial administration is unnecessary and superfluous. must apply. Neither has the status of the parties as legal
partition, it is assumed that the parties by whom it is
Thus - heirs, much less that of respondents, been raised as an
prosecuted are all co-owners or co-proprietors of the
issue. Besides, extant in the records is the stipulation of
When a person dies without leaving property to be divided, and that the question of common
the parties to submit the pleadings and contents of the
pending obligations to be paid, his heirs, ownership is not to be argued, not the fact as to whether
administration proceedings for the cognizance of the
whether of age or not, are bound to the intended parties are or are not the owners of the
trial judge in adjudicating the civil case for partition
submit the property to a judicial property in question, but only as to how and in what
(Respondents' Brief, p, 20, rollo). As respondents
administration, which is always long manner and proportion the said property of common
observe, the parties in both cases are the same, so are
and costly, or to apply for the ownership shall be distributed among the interested
the properties involved; that actual division is the
appointment of an administrator by the parties by order of the Court. Consistent with this
primary objective in both actions; the theory and
court. It has been uniformly held that in dictum, it has been field that if any party to a suit for
defense of the respective parties are likewise common;
such case the judicial administration and partition denies the pro-indiviso character of the estate
and that both cases have been assigned to the same
the appointment of an administrator are whose partition is sought, and claims instead, exclusive
respondent judge. We feel that the unifying effect of the
superfluous and unnecessary title thereto the action becomes one for recovery of
foregoing circumstances invites the wholesome
proceedings (Ilustre vs. Alaras property cognizable in the courts of ordinary
exception to the structures of procedural rule, thus
Frondosa, 17 Phil., 321; Malahacan vs. jurisdiction. 2
allowing, instead, room for judicial flexibility.
Ignacio, 19 Phil, 434; Bondad vs.
Respondent judge's dismissal of the administration Petitioners' argument has only theoretical persuasion, to
Bondad, 34 Phil., 232; Baldemor vs.
proceedings then, is a judicious move, appreciable in say the least, rather apparent than real. It must be
Malangyaon, 34 Phil., 367; Fule vs.
today's need for effective and speedy administration of remembered that when Tiaong Milling adduced its
Fule, 46 Phil., 317). Syllabus, Intestate
justice. There being ample reason to support the defense and raised the issue of ownership, its corporate
estate of the deceased Luz Garcia. Pablo
dismissal of the special proceedings in this appealed existence already terminated through the expiration of
dispositive part of his decision cannot be seen how one who got what
its charter. It is clear in Section 77 of Act No. 1459 complained of, ordered that, he had asked could be heard to claim
(Corporation Law) that upon the expiration of the that he had been the victim of a wrong,
4) Special Proceedings
charter period, the corporation ceases to exist and is petitioners should not now complain of
No. 3893 for
dissolved ipso facto except for purposes connected with an order they had themselves asked in
administration is
the winding up and liquidation. The provision allows a order to attack such an order afterwards;
terminated and
three year, period from expiration of the charter within if at all, perhaps, third parties, creditors,
dismissed; the instant
which the entity gradually settles and closes its affairs, the Bureau of Internal Revenue, might
case to proceed but on
disposes and convey its property and to divide its have been prejudiced, and could have
issues of damages only
capital stock, but not for the purpose of continuing the had the personality to attack that
and for such action
business for which it was established. At this terminal dismissal of Special Proceedings No.
inherently essential or
stage of its existence, Tiaong Milling may no longer 3893, but not petitioners herein, and it is
partition. p. 123, rollo,
persist to maintain adverse title and ownership of the not now for this Court of Appeals to
corporate assets as against the prospective distributees in truth and in fact, His Honor was protect said third persons who have not
when at this time it merely holds the property in trust, issuing that order also within Civil Case come to the Court below or sought to
its assertion of ownership is not only a legal No. 632 but in connection with Special intervene herein;
contradiction, but more so, to allow it to maintain Proceedings No. 389:3: for substance is
On the second assigned error, petitioners argue that no
adverse interest would certainly thwart the very more important Chan form, the
evidence has been found to support the conclusion that
purpose of liquidation and the final distribute loll of the contending par ties in both proceedings
the registered properties of Tiaong Milling are also
assets to the proper, parties. being exactly the same, but not only this,
properties of the estate of Forrest L. Cease; that on the
let it not be forgotten that when His
We agree with the Court of Appeals in its reasoning that contrary, said properties are registered under Act No.
Honor dismissed Special Proceedings
substance is more important than form when it 496 in the name of Tiaong Milling as lawful owner and
No. 3893, that dismissal precisely was a
sustained the dismissal of Special Proceedings No. possessor for the last 50 years of its corporate existence.
dismissal that petitioners herein had
3893, thus -
themselves sought and solicited from We do not agree. In reposing ownership to the estate of
a) As to the dismissal of Special respondent Judge as petitioners Forrest L. Cease, the trial court indeed found strong
Proceedings No. 3893, of course, at first themselves are in their present petition support, one that is based on a well-entrenched
glance, this was wrong, for the reason pp. 5-6, rollo; this Court must find principle of law. In sustaining respondents' theory of
that the case trial had been heard was difficulty in reconciling petitioners' "merger of Forrest L. Cease and The Tiaong Milling as
Civil Case No. 6326; but what should attack with the fact that it was they one personality", or that "the company is only the
not be overlooked either is Chat themselves that had insisted on that business conduit and alter ego of the deceased Forrest
respondent Judge was the same Judge dismissal; on the principle that not he L. Cease and the registered properties of Tiaong
that had before him in his own sala, said who is favored but he who is hurt by a Milling are actually properties of Forrest L. Cease and
Special Proceedings No. 3893, p. 43 judicial order is he only who should be should be divided equally, share and share alike among
rollo, and the parties to the present Civil heard to complain and especially since his six children, ... ", the trial court did aptly apply the
Case No. 6326 had themselves asked extraordinary legal remedies are familiar exception to the general rule by disregarding
respondent Judge to take judicial notice remedies in extermies granted to parties the legal fiction of distinct and separate corporate
of the same and its contents page 34, ' who have been the victims not merely personality and regarding the corporation and the
rollo; it is not difficult to see that when of errors but of grave wrongs, and it individual member one and the same. In shredding the
respondent Judge in par. 4 of the
Corporation is merged with those of the defend crime (Yutivo Sons Hardware Company vs.
fictitious corporate veil, the trial judge narrated the majority stockholders, the latter using Court of Tax Appeals, L-13203, Jan. 28, 1961, 1 SCRA
undisputed factual premise, thus: the former as his instrumentality and for 160), confuse legitimate legal or judicial issues (R. F.
While the records showed that originally the exclusive benefits of all his family. Sugay & Co. vs. Reyes, L-20451, Dec. 28, 1964),
its incorporators were aliens, friends or From the foregoing indication, perpetrate deception or otherwise circumvent the law
third-parties in relation of one to therefore, there is truth in plaintiff's (Gregorio Araneta, Inc. vs. reason de Paterno, L-2886,
another, in the course of its existence, it allegation that the corporation is only a Aug. 22, 1952, 49 O.G. 721). This is likewise true
developed into a close family business conduit of his father and an where the corporate entity is being used as an alter ego,
corporation. The Board of Directors and extension of his personality, they are adjunct, or business conduit for the sole benefit of the
stockholders belong to one family the one and the same thing. Thus, the assets stockholders or of another corporate entity (McConnel
head of which Forrest L. Cease always of the corporation are also the estate of vs. Court of Appeals, supra; Commissioner of Internal
retained the majority stocks and hence Forrest L. Cease, the father of the parties Revenue vs. Norton Harrison Co., L-7618, Aug. 31,
the control and management of its herein who are all legitimate children of 1964).
affairs. In fact, during the reconstruction full blood. In any of these cases, the notion of corporate entity will
of its records in 1947 before the Security A rich store of jurisprudence has established the rule be pierced or disregarded, and the corporation will be
and Exchange Commission only 9 known as the doctrine of disregarding or piercing the treated merely as an association of persons or, where
nominal shares out of 300 appears in the veil of corporate fiction. Generally, a corporation is there are two corporations, they will be merged as one,
name of his 3 eldest children then and invested by law with a personality separate and distinct the one being merely regarded as part or the
another person close to them. It is from that of the persons composing it as well as from instrumentality of the otter (Koppel [Phil.] Inc. vs.
likewise noteworthy to observe that as that of any other legal entity to which it may be related. Yatco, 77 Phil. 496, Yutivo Sons Hardware Company
his children increase or perhaps become By virtue of this attribute, a corporation may not, vs. Court of Tax Appeals, supra).
of age, he continued distributing his generally, be made to answer for acts or liabilities of its So must the case at bar add to this jurisprudence. An
shares among them adding Florence, stockholders or those of the legal entities to which it indubitable deduction from the findings of the trial
Teresa and Marion until at the time of may be connected, and vice versa. This separate and court cannot but lead to the conclusion that the business
his death only 190 were left to his name. distinct personality is, however, merely a fiction of the corporation is largely, if not wholly, the personal
Definitely, only the members of his created by law for convenience and to promote the ends venture of Forrest L. Cease. There is not even a shadow
family benefited from the Corporation. of justice (Laguna Transportation Company vs. Social of a showing that his children were subscribers or
The accounts of the corporation and Security System, L-14606, April 28, 1960; La purchasers of the stocks they own. Their participation
therefore its operation, as well as that of Campana Coffee Factory, Inc. vs. Kaisahan ng mga as nominal shareholders emanated solely from Forrest
the family appears to be Manggagawa sa La Campana, L-5677, May 25, 1953). L. Cease's gratuitous dole out of his own shares to the
indistinguishable and apparently joined For this reason, it may not be used or invoked for ends benefit of his children and ultimately his family.
together. As admitted by the defendants subversive of the policy and purpose behind its creation
(Emiliano Cano Enterprises, Inc. vs. CIR, L-20502, Were we sustain the theory of petitioners that the trial
(Manifestation of Compliance with
Feb. 26, 1965) or which could not have been intended court acted in excess of jurisdiction or abuse of
Order of March 7, 1963 [Exhibit "21"]
by law to which it owes its being McConnel vs. Court discretion amounting to lack of jurisdiction in deciding
the corporation 'never' had any account
of Appeals, L- 10510, March 17, 1961, 1 SCRA 722). Civil Case No. 6326 as a case for partition when the
with any banking institution or if any
This is particularly true where the fiction is used to defendant therein, Tiaong Milling and Plantation
account was carried in a bank on its
defeat public convenience, justify wrong, protect fraud, Company, Inc. as registered owner asserted ownership
behalf, it was in the name of Mr. Forrest
L. Cease. In brief, the operation of the
It is true that in Africa vs. Africa, 42 Phil. - that the Court considers the better rule
of the assets and properties involved in the litigation, 934 and other cases it was held - to be that stated in H. E. Heacock Co. vs.
which theory must necessarily be based on the contrary to the rule laid down in Ron vs. American Trading Co., to wit, that
assumption that said assets and properties of Tiaong Mojica, 8 Phil. 328; Rodriguez vs. where the primary purpose of a case is
Milling and Plantation Company, Inc. now appearing Ravilan, 17 Phil. 63 - that in a partition to ascertain and determine who between
under the name of F. L. Cease Plantation Company as case where defendant relies on the plaintiff and defendant is the true owner
Trustee are distinct and separate from the estate of defense of exclusive ownership, the and entitled to the exclusive use of the
Forrest L. Cease to which petitioners and respondents action becomes one for title and the disputed property, "the judgment . . .
as legal heirs of said Forrest L. Cease are equally decision or order directing partition is rendered by the lower court [is] a
entitled share and share alike, then that legal fiction of final, but the ruling to this effect has judgment on the merits as to those
separate corporate personality shall have been used to been expressly reversed in the questions, and [that] the order of the
delay and ultimately deprive and defraud the Fuentebella case which, in our opinion, court for an accounting was based upon,
respondents of their successional rights to the estate of expresses the correct view, considering and is incidental to the judgment on the
their deceased father. For Tiaong Milling and that a decision or order directing merits. That is to say, that the judgment
Plantation Company shall have been able to extend its partition is not final because it leaves . . . [is] a final judgment ... that in this
corporate existence beyond the period of its charter something more to be done in the trial kind of a case an accounting is a mere
which lapsed in June, 1958 under the guise and cover court for the complete disposition of the incident to the judgment; that an appeal
of F. L, Cease Plantation Company, Inc. as Trustee case, namely, the appointment of lies from the rendition of the judgment
which would be against the law, and as Trustee shall commissioners, the proceedings to be as rendered ... "(as is widely held by a
have been able to use the assets and properties for the had before them, the submission of their great number of judges and members of
benefit of the petitioners, to the great prejudice and report which, according to law, must be the bar, as shown by the cases so
defraudation. of private respondents. Hence, it becomes set for hearing. In fact, it is only after decided and filed and still pending with
necessary and imperative to pierce that corporate veil. said hearing that the court may render a the Court) for the fundamental reasons
Under the third assigned error, petitioners claim that the final judgment finally disposing of the therein stated that "this is more in
decision of the lower court in the partition case is not action (Rule 71, section 7, Rules of harmony with the administration of
interlocutory but rather final for it consists of final and Court). (1 SCRA at page 1193). justice and the spirit and intent of the
determinative dispositions of the contentions of the [Rules]. If on appeal the judgment of the
It should be noted, however, that the said ruling in
parties. We find no merit in petitioners' stand. lower court is affirmed, it would not in
Zaldarriaga as based on Fuentebella vs. Carrascoso,
the least work an injustice to any of the
Under the 1961 pronouncement and ruling of the XIV Lawyers Journal 305 (May 27, 1942), has been
legal rights of [appellee]. On the other
Supreme Court in Vda. de Zaldarriaga vs. Enriquez, 1 expressly abandoned by the Court in Miranda vs. Court
hand, if for any reason this court should
SCRA 1188 (and the sequel case of Vda. de of Appeals, 71 SCRA 295; 331-333 (June 18, 1976)
reverse the judgment of the lower court,
Zaldarriaga vs. Zaldarriaga, 2 SCRA 356), the lower wherein Mr. Justice Teehankee, speaking for the Court,
the accounting would be a waste of time
court's dismissal of petitioners' proposed appeal from laid down the following doctrine:
and money, and might work a material
its December 27, 1969 judgment as affirmed by the The Court, however, deems it proper for injury to the [appellant]; and
Court of Appeals on the ground of prematurity in that the guidance of the bench and bar to now
the judgment was not final but interlocutory was in - that accordingly, the contrary ruling in
declare as is clearly indicated from the
order. As was said in said case: Fuentebella vs. Carrascoso which
compelling reasons and considerations
expressly reversed the Heacock case and
hereinabove stated:
distribution proceedings are terminated that would follow from throwing the
a line of similar decisions and ruled that will not apply where appellant claims door open to multiplicity of appeals in a
such a decision for recovery of property exclusive ownership of the whole single case" of lesser import and
with accounting "is not final but merely property and denies the adverse party's consequence. (Emphasis copied).
interlocutory and therefore not right to any partition, as was the ruling The miranda ruling has since then been applied as the
appealable" and subsequent cases in Villanueva vs. Capistrano and Africa new rule by a unanimous Court in Valdez vs. Bagasao,
adhering to the same must be now in turn vs .Africa, supra, Fuentebellas express 82 SCRA 22 (March 8, 1978).
abandoned and set aside. rehearsal of these cases must likewise be
deemed now also abandoned in view of If there were a valid genuine claim of Exclusive
Fuentebella adopted instead the
the Court's expressed preference for the ownership of the inherited properties on the part of
opposite line of conflicting decisions
rationale of the Heacock case. petitioners to respondents' action for partition, then
mostly in partition proceedings and
under the Miranda ruling, petitioners would be
exemplified by Ron vs. Mojica 8 Phil. The Court's considered opinion is that sustained, for as expressly held therein " the general
928 (under the old Code of Civil imperative considerations of public rule of partition that an appeal will not lie until the
Procedure) that an order for partition of policy and of sound practice in the partition or distribution proceedings are terminated will
real property is not final and appealable courts and adherence to the not apply where appellant claims exclusive ownership
until after the actual partition of the constitutional mandate of simplified, of the whole property and denies the adverse party's
property as reported by the court just, speedy and inexpensive right to any partition."
appointed commissioners and approved determination of every action call for
by the court in its judgment accepting considering such judgments for But this question has now been rendered moot and
the report. lt must be especially noted recovery of property with accounting as academic for the very issue of exclusive ownership
that such rule governing partitions is final judgments which are duly claimed by petitioners to deny and defeat respondents'
now so expressly provided and spelled appealable (and would therefore right to partition - which is the very core of their
out in Rule 69 of the Rules of Court, become final and executory if not rejected appeal - has been squarely resolved herein
with special reference to Sections 1, 2, appealed within the reglementary against them, as if the appeal had been given due
3, 6, 7 and 11, to wit, that there must first period) with the accounting as a mere course. The Court has herein expressly sustained the
be a preliminar, order for partition of the incident of the judgment to be rendered trial court's findings, as affirmed by the Court of
real estate (section 2) and where the during the course of the appeal as Appeals, that the assets or properties of the defunct
parties-co-owners cannot agree, the provided in Rule 39, section 4 or to be company constitute the estate of the deceased
court appointed commissioners make a implemented at the execution stage proprietor (supra at page 7) and the defunct company's
plan of actual partition which must first upon final affirmance on appeal of the assertion of ownership of the properties is a legal
be passed upon and accepted by the trial judgment (as in Court of Industrial contradiction and would but thwart the liquidation and
court and embodied in a judgment to be Relations unfair labor practice cases final distribution and partition of the properties among
rendered by it (sections 6 and 11). In ordering the reinstatement of the worker the parties hereof as children of their deceased father
partition cases, it must be further borne with accounting, computation and Forrest L. Cease. There is therefore no further
in mind that Rule 69, section 1 refers to payment of his backwages less earnings hindrance to effect the partition of the properties among
"a person having the right to compel the elsewhere during his layoff) and that the the parties in implementation of the appealed judgment.
partition of real estate," so that the only reason given in Fuentebelia for the One last consideration. Parties are brothers and sisters,
general rule of partition that an appeal contrary ruling, viz, "the general harm legal heirs of their deceased father, Forrest L. Cease. By
will not lie until the partition or
NORTON and HARRISON COMPANY, Payment for the goods is, however, made to Norton,
all rights in law and jurisprudence, each is entitled to respondent. which in turn pays Jackbilt the amount charged the
share and share alike in the estate, which the trial court customer less a certain amount, as its compensation or
Office of the Solicitor General for petitioner.
correctly ordained and sustained by the appellate court. profit. To exemplify the sales procedures adopted by
Pio Joven for respondent.
Almost 20 years have lapsed since the filing of Special the Norton and Jackbilt, the following may be cited. In
Proceedings No. 3893 for the administration of the PAREDES, J.: the case of the sale of 420 pieces of concrete blocks to
Estate of Forrest L. Cease and Civil Case No. 6326 for This is an appeal interposed by the Commissioner of the American Builders on April 1, 1952, the purchaser
liquidation and partition of the assets of the defunct Internal Revenue against the following judgment of the paid to Norton the sum of P189.00 the purchase price.
Tiaong Milling and Plantation Co., Inc. A succession of Court of Tax Appeals: Out of this amount Norton paid Jackbilt P168.00, the
receivers were appointed by the court to take, keep in difference obviously being its compensation. As per
possession, preserve and manage properties of the IN VIEW OF THE FOREGOING, we records of Jackbilt, the transaction was considered a
corporation which at one time showed an income of find no legal basis to support the sale to Norton. It was under this procedure that the sale
P386,152.90 and expenses of P308,405.01 for the assessment in question against of concrete blocks manufactured by Jackbilt was
period covering January 1, 1960 to August 31, 1967 as petitioner. If at all, the assessment conducted until May 1, 1953, when the agency
per Summary of Operations of Commissioner for should have been directed against agreement was terminated and a management
Finance appointed by the Court (Brief for Respondents, JACKBILT, the manufacturer. agreement between the parties was entered into. The
p. 38). In the meantime, ejectment cases were filed by Accordingly, the decision appealed management agreement provided that Norton would
and against the heirs in connection with the properties from is reversed, and the surety bond sell concrete blocks for Jackbilt, for a fixed monthly fee
involved, aggravating the already strained relations of filed to guarantee payment of said of P2,000.00, which was later increased to P5,000.00.
the parties. A prudent and practical realization of these assessment is ordered cancelled. No
pronouncement as to costs. During the existence of the distribution or agency
circumstances ought and must constrain the parties to
agreement, or on June 10, 1949, Norton & Harrison
give each one his due in law and with fairness and Norton and Harrison is a corporation organized in 1911, acquired by purchase all the outstanding shares of stock
dispatch that their basic rights be enjoyed. And by (1) to buy and sell at wholesale and retail, all kinds of of Jackbilt. Apparently, due to this transaction, the
remanding this case to the court a quo for the actual goods, wares, and merchandise; (2) to act as agents of Commissioner of Internal Revenue, after conducting an
partition of the properties, the substantial rights of manufacturers in the United States and foreign investigation, assessed the respondent Norton &
everyone of the heirs have not been impaired, for in countries; and (3) to carry on and conduct a general Harrison for deficiency sales tax and surcharges in the
fact, they have been preserved and maintained. wholesale and retail mercantile establishment in the amount of P32,662.90, making as basis thereof the sales
WHEREFORE, IN VIEW OF THE FOREGOING, the Philippines. Jackbilt is, likewise, a corporation of Norton to the Public. In other words, the
judgment appealed from is hereby AFFIRMED with organized on February 16, 1948 primarily for the Commissioner considered the sale of Norton to the
costs against the petitioners. purpose of making, producing and manufacturing public as the original sale and not the transaction from
concrete blocks. Under date of July 27, 1948. Norton Jackbilt. The period covered by the assessment was
SO ORDERED. and Jackbilt entered into an agreement whereby Norton from July 1, 1949 to May 31, 1953. As Norton and
was made the sole and exclusive distributor of concrete Harrison did not conform with the assessment, the
blocks manufactured by Jackbilt. Pursuant to this matter was brought to the Court of Tax Appeals.
agreement, whenever an order for concrete blocks was
VEIL The Commissioner of Internal Revenue contends that
received by the Norton & Harrison Co. from a
COMMISSIONER OF INTERNAL REVENUE, customer, the order was transmitted to Jackbilt which since Jackbilt was owned and controlled by Norton &
petitioner, delivered the merchandise direct to the customer. Harrison, the corporate personality of the former
vs. (Jackbilt) should be disregarded for sales tax purposes,
by JACKBILT to petitioner. Petitioner Upon the aforestated circumstances,
and the sale of Jackbilt blocks by petitioner to the public merely acted as agent for JACKBILT in which disclose Norton's control over
must be considered as the original sales from which the the marketing of its products. This is and direction of Jackbilt's affairs, the
sales tax should be computed. The Norton & Harrison shown by the fact that petitioner merely corporate personality of Jackbilt should
Company contended otherwise — that is, the accepted orders from the public for the be disregarded, and the transactions
transaction subject to tax is the sale from Jackbilt to purchase of JACKBILT blocks. The between these two corporations relative
Norton. purchase orders were transmitted to to the concrete blocks should be ignored
Wherefore, the parties respectfully pray that the JACKBILT which delivered the blocks in determining the percentage tax for
foregoing stipulation of facts be admitted and approved to the purchaser directly. There was no which Norton is liable. Consequently,
by this Honorable Court, without prejudice to the instance in which the blocks ordered by the percentage tax should be computed
parties adducing other evidence to prove their case not the purchasers were delivered to the on the basis of the sales of Jackbilt
covered by this stipulation of facts. 1äwphï1.ñët petitioner. Petitioner never purchased blocks to the public.
concrete blocks from JACKBILT so that
The majority of the Tax Court, in relieving Norton & The majority opinion is now before Us on appeal by the
it never acquired ownership of such
Harrison of liability under the assessment, made the Commissioner of Internal Revenue, on four (4)
concrete blocks. This being so,
following observations: assigned errors, all of which pose the following
petitioner could not have sold propositions: (1) whether the acquisition of all the
The law applicable to the case is Section JACKBILT blocks for its own account. stocks of the Jackbilt by the Norton & Harrison Co.,
186 of the National Internal Revenue It did so merely as agent of JACKBILT. merged the two corporations into a single corporation;
Code which imposes a percentage tax of The distributorship agreement of July (2) whether the basis of the computation of the
7% on every original sale of goods, 27, 1948, is denominated by the parties deficiency sales tax should be the sale of the blocks to
wares or merchandise, such tax to be themselves as an "agency for the public and not to Norton.
based on the gross selling price of such marketing" JACKBILT products. ... .
goods, wares or merchandise. The term It has been settled that the ownership of all the stocks
xxx xxx xxx
"original sale" has been defined as the of a corporation by another corporation does not
first sale by every manufacturer, Therefore, the taxable selling price of necessarily breed an identity of corporate interest
producer or importer. (Sec. 5, Com. Act JACKBILT blocks under the aforesaid between the two companies and be considered as a
No. 503.) Subsequent sales by persons agreement is the price charged to the sufficient ground for disregarding the distinct
other than the manufacturer, producer or public and not the amount billed by personalities (Liddell & Co., Inc. v. Coll. of Int. Rev.
importer are not subject to the sales tax. JACKBILT to petitioner. The L-9687, June 30, 1961). However, in the case at bar, we
deficiency sales tax should have been find sufficient grounds to support the theory that the
If JACKBILT actually sold concrete assessed against JACKBILT and not separate identities of the two companies should be
blocks manufactured by it to petitioner against petitioner which merely acted as disregarded. Among these circumstances, which we
under the distributorship or agency the former's agent. find not successfully refuted by appellee Norton are: (a)
agreement of July 27, 1948, such sales Norton and Harrison owned all the outstanding stocks
constituted the original sales which are xxx xxx xxx
of Jackbilt; of the 15,000 authorized shares of Jackbilt
taxable under Section 186 of the Presiding Judge Nable of the same Court expressed a on March 31, 1958, 14,993 shares belonged to Norton
Revenue Code, while the sales made to partial dissent, stating: and Harrison and one each to seven others; (b) Norton
the public by petitioner are subsequent constituted Jackbilt's board of directors in such a way
sales which are not taxable. But it as to enable it to actually direct and manage the other's
appears to us that there was no such sale
salaries and bonuses P4,220.00, but received from should be disregarded. This is a case where the doctrine
affairs by making the same officers of the board for Jackbilt, by way of entertainment, representation, of piercing the veil of corporate fiction, should be made
both companies. For instance, James E. Norton is the travelling and transportation allowances P3,000.00. to apply. In the case of Liddell & Co. Inc. v. Coll. of Int.
President, Treasurer, Director and Stockholder of However, in the withholding statement (Exh. 28-A), it Rev., supra, it was held:
Norton. He also occupies the same positions in Jackbilt was shown that the total of P4,200.00 and P3,000.00 There are quite a series of conspicuous
corporation, the only change being, in the Jackbilt, he (P7,220.00) was received by Garcia from Norton, thus circumstances that militates against the
is merely a nominal stockholder. The same is true with portraying the oneness of the two companies. The separate and distinct personality of
Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Income Tax Returns of Albert Golden and Dioscoro Liddell Motors Inc., from Liddell & Co.
Golden and Gerardo Garcia, while they are merely Ramos both employees of Norton but board members We notice that the bulk of the business
employees of the North they are Directors and nominal of Jackbilt, also disclose the game method of payment of Liddell & Co. was channel Red
stockholders of the Jackbilt (c) Norton financed the of compensation and allowances. The offices of Norton
through Liddell Motors, Inc. On the
operations of the Jackbilt, and this is shown by the fact and Jackbilt are located in the same compound. other hand, Liddell Motors Inc. pursued
that the loans obtained from the RFC and Bank of Payments were effected by Norton of accounts for no activities except to secure cars,
America were used in the expansion program of Jackbilt and vice versa. Payments were also made to trucks, and spare parts from Liddell &
Jackbilt, to pay advances for the purchase of equipment, Norton of accounts due or payable to Jackbilt and vice Co., Inc. and then sell them to the
materials rations and salaries of employees of Jackbilt versa. general public. These sales of vehicles
and other sundry expenses. There was no limit to the
Norton and Harrison, while not denying the presence of by Liddell & Co, to Liddell Motors. Inc.
advances given to Jackbilt so much so that as of May
the set up stated above, tried to explain that the control for the most part were shown to have
31, 1956, the unpaid advances amounted to
over the affairs of Jackbilt was not made in order to taken place on the same day that Liddell
P757,652.45, which were not paid in cash by Jackbilt,
evade payment of taxes; that the loans obtained by it Motors, Inc. sold such vehicles to the
but was offset by shares of stock issued to Norton, the
which were given to Jackbilt, were necessary for the public. We may even say that the cars
absolute and sole owner of Jackbilt; (d) Norton treats
expansion of its business in the manufacture of concrete and trucks merely touched the hands of
Jackbilt employees as its own. Evidence shows that
blocks, which would ultimately benefit both Liddell Motors, Inc. as a matter of
Norton paid the salaries of Jackbilt employees and gave
corporations; that the transactions and practices just formality.
the same privileges as Norton employees, an indication
mentioned, are not unusual and extraordinary, but
that Jackbilt employees were also Norton's employees. xxx xxx xxx
pursued in the regular course of business and trade; that
Furthermore service rendered in any one of the two Accordingly, the mere fact that Liddell
there could be no confusion in the present set up of the
companies were taken into account for purposes of & Co. and Liddell Motors, Inc. are
two corporations, because they have separate Boards,
promotion; (e) Compensation given to board members corporations owned and controlled by
their cash assets are entirely and strictly separate;
of Jackbilt, indicate that Jackbilt is merely a department Frank Liddell directly or indirectly is
cashiers and official receipts and bank accounts are
of Norton. The income tax return of Norton for 1954 not by itself sufficient to justify the
distinct and different; they have separate income tax
shows that as President and Treasurer of Norton and disregard of the separate corporate
returns, separate balance sheets and profit and loss
Jackbilt, he received from Norton P56,929.95, but identity of one from the other. There is
statements. These explanations notwithstanding an
received from Jackbilt the measly amount of P150.00, however, in this instant case, a peculiar
over-all appraisal of the circumstances presented by the
a circumstance which points out that remuneration of sequence of the organization and
facts of the case, yields to the conclusion that the
purported officials of Jackbilt are deemed included in activities of Liddell Motors, Inc.
Jackbilt is merely an adjunct, business conduit or alter
the salaries they received from Norton. The same is true
ego, of Norton and Harrison and that the fiction of As opined in the case of Gregory v.
in the case of Eduardo Garcia, an employee of Norton
corporate entities, separate and distinct from each, Helvering "the legal right of a tax payer
but a member of the Board of Jackbilt. His Income tax
return for 1956 reveals that he received from Norton in
make it a mere subsidiary or branch of
to decrease the amount of what the latter created for the purpose of
otherwise would be his taxes, or selling the vehicles at retail (here
altogether avoid them, by means which concrete blocks) ... . JOHN F. McLEOD, Petitioner,
the law permits, cannot be doubted". But vs.
It may not be amiss to state in this connection, the
as held in another case, "where a NATIONAL LABOR RELATIONS
advantages to Norton in maintaining a semblance of
corporation is a dummy, is unreal or a COMMISSION (First Division), FILIPINAS
separate entities. If the income of Norton should be
sham and serves no business purpose SYNTHETIC FIBER CORPORATION (FILSYN),
considered separate from the income of Jackbilt, then
and is intended only as a blind, the FAR EASTERN TEXTILE MILLS, INC., STA.
each would declare such earning separately for income
corporate form may be ignored for the ROSA TEXTILES, INC., (PEGGY MILLS, INC.),
tax purposes and thus pay lesser income tax. The
law cannot countenance a form that is PATRICIO L. LIM, and ERIC HU, Respondents.
combined taxable Norton-Jackbilt income would
bald and a mischievous fictions".
subject Norton to a higher tax. Based upon the 1954- DECISION
... a taxpayer may gain advantage of 1955 income tax return of Norton and Jackbilt (Exhs. 7
doing business thru a corporation if he & 8), and assuming that both of them are operating on
pleases, but the revenue officers in the same fiscal basis and their returns are accurate, we The Case
proper cases, may disregard the separate would have the following result: Jackbilt declared a This is a petition for review1 to set aside the Decision2
corporate entity where it serves but as a taxable net income of P161,202.31 in which the income dated 15 June 2000 and the Resolution3 dated 27
shield for tax evasion and treat the tax due was computed at P37,137.00 (Exh. 8); whereas December 2000 of the Court of Appeals in CA-G.R. SP
person who actually may take benefits Norton declared as taxable, a net income of No. 55130. The Court of Appeals affirmed with
of the transactions as the person P120,101.59, on which the income tax due was modification the 29 December 1998 Decision4 of the
accordingly taxable. computed at P25,628.00. The total of these liabilities is National Labor Relations Commission (NLRC) in
... to allow a taxpayer to deny tax P50,764.84. On the other hand, if the net taxable NLRC NCR 02-00949-95.
liability on the ground that the sales earnings of both corporations are combined, during the
same taxable year, the tax due on their total which is The Facts
were made through another and distinct
corporation when it is proved that the P281,303.90 would be P70,764.00. So that, even on the The facts, as summarized by the Labor Arbiter and
latter is virtually owned by the former or question of income tax alone, it would be to the adopted by the NLRC and the Court of Appeals, are as
that they are practically one and the advantages of Norton that the corporations should be follows:
same is to sanction a circumvention of regarded as separate entities.
On February 2, 1995, John F. McLeod filed a complaint
our tax laws. (and cases cited therein.) WHEREFORE, the decision appealed from should be for retirement benefits, vacation and sick leave benefits,
In the case of Yutivo Sons Hardware Co. v. Court of as it is hereby reversed and another entered making the non-payment of unused airline tickets, holiday pay,
Tax Appeals, L-13203, Jan. 28, 1961, this Court made appellee Norton & Harrison liable for the deficiency underpayment of salary and 13th month pay, moral and
a similar ruling where the circumstances of unity of sales taxes assessed against it by the appellant exemplary damages, attorney’s fees plus interest
corporate identities have been shown and which are Commissioner of Internal Revenue, plus 25% against Filipinas Synthetic Corporation (Filsyn), Far
identical to those obtaining in the case under surcharge thereon. Costs against appellee Norton & Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc.,
consideration. Therein, this Court said: Harrison. Patricio Lim and Eric Hu.
We are, however, inclined to agree with In his Position Paper, complainant alleged that he is an
the court below that SM was actually expert in textile manufacturing process; that as early as
owned and controlled by petitioner as to
end of 1993, he was only given a reduced 13th month strike up to July 1992 resulting in closure of operations
1956 he was hired as the Assistant Spinning Manager pay of P44,183.63, leaving a balance of P15,816.87; due to irreversible losses as per Notice (Annex "1");
of Universal Textiles, Inc. (UTEX); that he was that thereafter the owners of Far Eastern Textiles that complainant was relied upon to settle the labor
promoted to Senior Manager and worked for UTEX till decided for cessation of operations of Sta. Rosa problem but due to his lack of attention and absence the
1980 under its President, respondent Patricio Lim; that Textiles; that on two occasions, complainant wrote strike continued resulting in closure of the company;
in 1978 Patricio Lim formed Peggy Mills, Inc. with letters (Annexes "E-1" to "E-2") to Patricio Lim and losses to Sta. Rosa which acquired its assets as per
respondent Filsyn having controlling interest; that requesting for his retirement and other benefits; that in their financial statements (Annexes "2" and "3"); that
complainant was absorbed by Peggy Mills as its Vice the last quarter of 1994 respondents offered the attendance records of complainant from April 1992
President and Plant Manager of the plant at Sta. Rosa, complainant compromise settlement of only to November 1993 (Annexes "4" and "5") show that he
Laguna; that at the time of his retirement complainant P300,000.00 which complainant rejected; that again was either absent or worked at most two hours a day;
was receiving P60,000.00 monthly with vacation and complainant wrote a letter (Annex "F") reiterating his that Sta. Rosa and Peggy Mills are interposing
sick leave benefits; 13th month pay, holiday pay and demand for full payment of all benefits and to no avail, counterclaims for damages in the total amount of
two round trip business class tickets on a Manila- hence this complaint; and that he is entitled to all his P36,757.00 against complainant; that complainant’s
London-Manila itinerary every three years which is money claims pursuant to law. monthly salary at Peggy Mills was P50,495.00 and not
convertible to cas[h] if unused; that in January 1986, P60,000.00; that Peggy Mills, does not have a
On the other hand, respondents in their Position Paper
respondents failed to pay vacation and leave credits and retirement program; that whatever amount complainant
alleged that complainant was the former Vice-President
requested complainant to wait as it was short of funds is entitled should be offset with the counterclaims; that
and Plant Manager of Peggy Mills, Inc.; that he was
but the same remain unpaid at present; that complainant complainant worked only for 12 years from 1980 to
hired in June 1980 and Peggy Mills closed operations
is entitled to such benefit as per CBA provision (Annex 1992; that complainant was only hired as a consultant
due to irreversible losses at the end of July 1992 but the
"A"); that respondents likewise failed to pay and not an employee by Sta. Rosa Textile; that
corporation still exists at present; that its assets were
complainant’s holiday pay up to the present; that complainant’s attendance record of absence and two
acquired by Sta. Rosa Textile Corporation which was
complainant is entitled to such benefits as per CBA hours daily work during the period of the strike wipes
established in April 1992 but still remains non-
provision (Annex "B"); that in 1989 the plant union out any vacation/sick leave he may have accumulated;
operational at present; that complainant was hired as
staged a strike and in 1993 was found guilty of staging that there is no basis for complainant’s claim of two (2)
consultant by Sta. Rosa Textile in November 1992 but
an illegal strike; that from 1989 to 1992 complainant business class airline tickets; that complainant’s pay
he resigned on November 30, 1993; that Filsyn and Far
was entitled to 4 round trip business class plane tickets already included the holiday pay; that he is entitled to
Eastern Textiles are separate legal entities and have no
on a Manila-London-Manila itinerary but this benefit holiday pay as consultant by Sta. Rosa; that he has
employer relationship with complainant; that
not (sic) its monetary equivalent was not given; that on waived this benefit in his 12 years of work with Peggy
respondent Patricio Lim is the President and Board
August 1990 the respondents reduced complainant’s Mills; that he is not entitled to 13th month pay as
Chairman of Sta. Rosa Textile Corporation; that
monthly salary of P60,000.00 by P9,900.00 till consultant; and that he is not entitled to moral and
respondent Eric Hu is a Taiwanese and is Director of
November 1993 or a period of 39 months; that in 1991 exemplary damages and attorney’s fees.
Sta. Rosa Textiles, Inc.; that complainant has no cause
Filsyn sold Peggy Mills, Inc. to Far Eastern Textile
of action against Filsyn, Far Eastern Textile Ltd., Sta. In his Reply, complainant alleged that all respondents
Mills, Inc. as per agreement (Annex "D") and this was
Rosa Textile Corporation and Eric Hu; that Sta. Rosa being one and the same entities are solidarily liable for
renamed as Sta. Rosa Textile with Patricio Lim as
only acquired the assets and not the liabilities of Peggy all salaries and benefits and complainant is entitled to;
Chairman and President; that complainant worked for
Mills, Inc.; that Patricio Lim was only impleaded as that all respondents have the same address at 12/F B.A.
Sta. Rosa until November 30 that from time to time the
Board Chairman of Sta. Rosa Textile and not as private Lepanto Building, Makati City; that their counsel holds
owners of Far Eastern consulted with complainant on
individual; that while complainant was Vice President office in the same address; that all respondents have the
technical aspects of reoperation of the plant as per
and Plant Manager of Peggy Mills, the union staged a same offices and key personnel such as Patricio Lim
correspondence (Annexes "D-1" and "D-2"); that when
complainant reached and applied retirement age at the
fulfilled; that Patricio Lim promised complainant his benefits under RA 7641 but complainant refused; that
and Eric Hu; that respondents’ Position Paper is retirement pay as per the latter’s letters (Annexes "E- the regular salaries of complainant from closure up to
verified by Marialen C. Corpuz who knows all the 1", "E-2" and "F"); that the law itself provides for December 31, 1992 have offset whatever vacation and
corporate officers of all respondents; that the veil of retirement benefits; that Patricio Lim by way of sick leaves he accumulated; that his claim for unused
corporate fiction may be pierced if it is used as a shield Memorandum (Annex "M") approved vacation and sick plane tickets from 1989 to 1992 has no policy basis, the
to perpetuate fraud and confuse legitimate issues; that leave benefits of 22 days per year effective 1986; that company’s formula of employees monthly rate x 314
complainant never accepted the change in his position Peggy Mills required monthly paid employees to sign days over 12 months already included holiday pay; that
from Vice-President and Plant Manger to consultant an acknowledgement that their monthly compensation complainant’s unpaid portion of the 13th month pay in
and it is incumbent upon respondents to prove that he includes holiday pay; that complainant was not made to 1993 has no basis because he was only an employee up
was only a consultant; that the Deed of Dation in sign this undertaking precisely because he is entitled to to December 31, 1992; that the 13th month pay was
Payment with Lease (Annex "C") proves that Sta. Rosa holiday pay over and above his monthly pay; that the based on his last salary; and that complainant is not
took over the assets of Peggy Mills as early as June 15, company paid for complainant’s two (2) round trip entitled to damages.5
1992 and not 1995 as alleged by respondents; that tickets to London in 1983 and 1986 as reflected in the On 3 April 1998, the Labor Arbiter rendered his
complainant never resigned from his job but applied for complainant’s passport (Annex "N"); that respondents decision with the following dispositive portion:
retirement as per letters (Annexes "E-1", "E-2" and claim that complainant is not entitled to 13th month pay
"F"); that documents "G", "H" and "I" show that Eric but paid in 1993 and all the past 13 years; that WHEREFORE, premises considered, We hold all
Hu is a top official of Peggy Mills that the closure of complainant is entitled to moral and exemplary respondents as jointly and solidarily liable for
Peggy Mills cannot be the fault of complainant; that the damages and attorney’s fees; that all doubts must be complainant’s money claims as adjudicated above and
strike was staged on the issue of CBA negotiations resolved in favor of complainant; and that complainant computed below as follows:
which is not part of the usual duties and responsibilities reserved the right to file perjury cases against those Retirement Benefits (one month salary for
as Plant Manager; that complainant is a British national concerned. every year of service)
and is prohibited by law in engaging in union activities;
In their Reply, respondents alleged that except for 6/80 - 11/30/93 = 14 years
that as per Resolution (Annex "3") of the NLRC in the
Peggy Mills, the other respondents are not proper
proper case, complainant testified in favor of P60,000 x 14.0 mos. ……………………
persons in interest due to the lack of employer-
management; that the alleged attendance record of P840,000.00
employee relationship between them and complainant;
complainant was lifted from the logbook of a security
that undersigned counsel does not represent Peggy Vacation and Sick Leave (3 yrs.)
agency and is hearsay evidence; that in the other
Mills, Inc.
attendance record it shows that complainant was P2,000.00 x 22 days x 3 yrs. ……………
reporting daily and even on Saturdays; that his limited In a separate Position Paper, respondent Peggy Mills 132,000.00
hours was due to the strike and cessation of operations; alleged that complainant was hired on February 10,
1991 as per Board Minutes (Annex "A"); that on Underpayment of Salaries (3 yrs.)
that as plant manager complainant was on call 24 hours
a day; that respondents must pay complainant the August 19, 1987, the workers staged an illegal strike P60,000 - P50,495 = P9,505
unpaid portion of his salaries and his retirement benefits causing cessation of operations on July 21, 1992; that
P 9,505 x 36.0 mos. …………………...
that cash voucher No. 17015 (Annex "K") shows that respondent filed a Notice of Closure with the DOLE
complainant drew the monthly salary of P60,000.00 (Annex "B"); that all employees were given separation
which was reduced to P50,495.00 in August 1990 and pay except for complainant whose task was extended to Holiday Pay (3 yrs.)
therefore without the consent of complainant; that December 31, 1992 to wind up the affairs of the P2,000 x 30 days ……………………….
complainant was assured that he will be paid the company as per vouchers (Annexes "C" and "C-1"); 60,000.00
deduction as soon as the company improved its that respondent offered complainant his retirement
financial standing but this assurance was never
The Ruling of the Court of Appeals The Court of Appeals held that there should be clear
Underpayment of 13th month pay (1993) and convincing evidence that SRTI, FETMI, and Filsyn
On 15 June 2000, the Court of Appeals rendered
……... 15,816.87 were being used as alter ego, adjunct or business
judgment as follows:
Moral Damages conduit for the sole benefit of Peggy Mills, Inc. (PMI),
WHEREFORE, the decision dated December 29, 1998 otherwise, said corporations should be treated as
……………………………….. 3,000,000.00
of the NLRC is hereby AFFIRMED with the distinct and separate from each other.
Exemplary Damages ………………………….. MODIFICATION that respondent Patricio Lim is
1,000,000.00 The Court of Appeals pointed out that the Articles of
jointly and solidarily liable with Peggy Mills, Inc., to
Incorporation of PMI show that it has six incorporators,
10% Attorney’s Fees …………………………. pay the following amounts to petitioner John F.
namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr.,
138,999.68 McLeod:
Cesar R. Concio, Jr., E. A. Picasso, and Walter Euyang.
TOTAL P5,528,996.55 1. retirement pay equivalent to 22.5 days for On the other hand, the Articles of Incorporation of
every year of service for his twelve (12) years Filsyn show that it has 10 incorporators, namely, Jesus
Unused Airline Tickets (3 yrs.) of service from 1980 to 1992 based on a salary Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng Uh,
(To be converted in Peso upon payment) rate of P50,495, a month; Ramon A. Yulo, Honorio Poblador, Jr., Cipriano
2. moral damages in the amount of one hundred Azada, Manuel Tomacruz, Ismael Maningas, and
$2,450.00 x 3.0 [yrs.]..……………… Benigno Zialcita, Jr.
$7,350.00 thousand (P100,000.00) Pesos;
3. exemplary damages in the amount of fifty The Court of Appeals pointed out that PMI and Filsyn
SO ORDERED.6 have only two interlocking incorporators and directors,
thousand (P50,000.00) Pesos; and
Filipinas Synthetic Fiber Corporation (Filsyn), Far namely, Patricio and Carlos Palanca, Jr.
Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, 4. attorney’s fees equivalent to 10% of the total
award. Reiterating the ruling of this Court in Laguio v.
Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu NLRC,11 the Court of Appeals held that mere
appealed to the NLRC. The NLRC rendered its decision No costs is awarded. substantial identity of the incorporators of two
on 29 December 1998, thus: corporations does not necessarily imply fraud, nor
WHEREFORE, the Decision dated 3 April 1998 is warrant the piercing of the veil of corporate fiction.
hereby REVERSED and SET ASIDE and a new one is The Court of Appeals rejected McLeod’s theory that all
respondent corporations are the same corporate entity The Court of Appeals also pointed out that when SRTI
entered ORDERING respondent Peggy Mills, Inc. to and PMI executed the Dation in Payment with Lease, it
pay complainant his retirement pay equivalent to 22.5 which should be held solidarily liable for the payment
of his monetary claims. was clear that SRTI did not assume the liabilities PMI
days for every year of service for his twelve (12) years incurred before the execution of the contract.
of service from 1980 to 1992 based on a salary rate of The Court of Appeals ruled that the fact that (1) all
P50,495.00 a month. respondent corporations have the same address; (2) all The Court of Appeals held that McLeod failed to
were represented by the same counsel, Atty. Isidro S. substantiate his claim that all respondent corporations
All other claims are DISMISSED for lack of merit. should be treated as one corporate
Escano; (3) Atty. Escano holds office at respondent
SO ORDERED.7 corporations’ address; and (4) all respondent entity. The Court of Appeals thus upheld the NLRC’s
John F. McLeod (McLeod) filed a motion for corporations have common officers and key personnel, finding that no employer-employee relationship existed
reconsideration which the NLRC denied in its would not justify the application of the doctrine of between McLeod and respondent corporations except
Resolution of 30 June 1999.8 McLeod thus filed a piercing the veil of corporate fiction. PMI.
petition for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC.9
The Court of Appeals stated that for McLeod to be December 2000, respectively, in CA-G.R. SP
The Court of Appeals ruled that Eric Hu, as an officer entitled to payment of service incentive leave and No. 55130 are in accord with law and
of PMI, should be exonerated from any liability, there holidays, there must be an agreement to that effect jurisprudence;
being no proof of malice or bad faith on his part. The between him and his employer. 2. Whether an employer-employee relationship
Court of Appeals, however, ruled that McLeod was
Moreover, the Court of Appeals rejected McLeod’s exists between the private respondents and the
entitled to recover from PMI and Patricio, the
argument that since PMI paid for his two round-trip petitioner for purposes of determining employer
company’s Chairman and President.
tickets Manila-London in 1983 and 1986, he was also liability to the petitioner;
The Court of Appeals pointed out that Patricio "entitled to unused airline tickets." The Court of 3. Whether the private respondents may avoid
deliberately and maliciously evaded PMI’s financial Appeals stated that the fact that PMI granted McLeod their financial obligations to the petitioner by
obligation to McLeod. The Court of Appeals stated that, "free transport to and from Manila and London for the invoking the veil of corporate fiction;
on several occasions, despite his approval, Patricio year 1983 and 1986 does not ipso facto characterize it
refused and ignored to pay McLeod’s retirement as regular that would establish a prevailing company 4. Whether petitioner is entitled to the relief he
benefits. The Court of Appeals stated that the delay policy." seeks against the private respondents;
lasted for one year prompting McLeod to initiate legal
The Court of Appeals also denied McLeod’s claims for 5. Whether the ruling of [this] Court in Special
action. The Court of Appeals stated that although PMI Police and Watchman Association (PLUM)
underpayment of salaries and his 13th month pay for
offered to pay McLeod his retirement benefits, this Federation v. National Labor Relations
the year 1994. The Court of Appeals upheld the
offer for P300,000 was still below the "floor limits"
NLRC’s ruling that it could be deduced from McLeod’s Commission cited by the Office of the Solicitor
provided by law. The Court of Appeals held that an General is applicable to the case of petitioner;
own narration of facts that he agreed to the reduction of
employee could demand payment of retirement benefits and
his compensation from P60,000 to P50,495 in August
as a matter of right.
1990 to November 1993. 6. Whether the appeal taken by the private
The Court of Appeals stated that considering that PMI respondents from the Decision of the labor
The Court of Appeals found the award of moral
was no longer in operation, its "officer should be held arbiter meets the mandatory requirements
damages for P50,000 in order because of the "stubborn
liable for acting on behalf of the corporation."
refusal" of PMI and Patricio to respect McLeod’s valid recited in the Labor Code of the Philippines, as
The Court of Appeals also ruled that since PMI did not claims. amended.13
have a retirement program providing for retirement The Court’s Ruling
The Court of Appeals also ruled that attorney’s fees
benefits of its employees, Article 287 of the Labor Code
equivalent to 10% of the total award should be given to The petition must fail.
must be followed. The Court of Appeals thus upheld the
McLeod under Article 2208, paragraph 2 of the Civil
NLRC’s finding that McLeod was entitled to retirement McLeod asserts that the Court of Appeals should not
pay equivalent to 22.5 days for every year of service have upheld the NLRC’s findings that he was a
from 1980 to 1992 based on a salary rate of P50,495 a Hence, this petition. managerial employee of PMI from 20 June 1980 to 31
month. The Issues December 1992, and then a consultant of SRTI up to 30
The Court of Appeals held that McLeod was not November 1993. McLeod asserts that if only for this
McLeod submits the following issues for our
entitled to payment of vacation, sick leave and holiday "brazen assumption," the Court of Appeals should not
pay because as Vice President and Plant Manager, have sustained the NLRC’s ruling that his cause of
McLeod is a managerial employee who, under Article 1. Whether the challenged Decision and action was only against PMI.
82 of the Labor Code, is not entitled to these benefits. Resolution of the 14th Division of the Court of These assertions do not deserve serious consideration.
Appeals promulgated on 15 June 2000 and 27
asked all the respondents for the payment of his NOW THEREFORE, for and in consideration of the
Records disclose that McLeod was an employee only of benefits.24 foregoing premises, and of the terms and conditions
PMI.14 PMI hired McLeod as its acting Vice President hereinafter set forth, the parties hereby agree as
These assertions deserve scant consideration.
and General Manager on 20 June 1980.15 PMI follows:
confirmed McLeod’s appointment as Vice What took place between PMI and SRTI was dation in
1. CESSION. In consideration of the amount of TWO
President/Plant Manager in the Special Meeting of its payment with lease. Pertinent portions of the contract
Board of Directors on 10 February 1981.16 McLeod that PMI and SRTI executed on 15 June 1992 read:
(P210,000,000.00), PMI hereby cedes, conveys and
himself testified during the hearing before the Labor WHEREAS, PMI is indebted to the Development Bank transfers to SRTC all of its rights, title and interest in
Arbiter that his "regular employment" was with PMI.17 of the Philippines ("DBP") and as security for such and to the Assets by way of a dation in payment.25
When PMI’s rank-and-file employees staged a strike on debts (the "Obligations") has mortgaged its real (Emphasis supplied)
19 August 1989 to July 1992, PMI incurred serious properties covered by TCT Nos. T-38647, T-37136,
As a rule, a corporation that purchases the assets of
business losses.18 This prompted PMI to stop and T-37135, together with all machineries and
another will not be liable for the debts of the selling
permanently plant operations and to send a notice of improvements found thereat, a complete listing of
corporation, provided the former acted in good faith
closure to the Department of Labor and Employment on which is hereto attached as Annex "A" (the "Assets");
and paid adequate consideration for such assets, except
21 July 1992.19 WHEREAS, by virtue of an inter-governmental agency when any of the following circumstances is present: (1)
PMI informed its employees, including McLeod, of the arrangement, DBP transferred the Obligations, where the purchaser expressly or impliedly agrees to
closure.20 PMI paid its employees, including including the Assets, to the Asset Privatization Trust assume the debts, (2) where the transaction amounts to
managerial employees, except McLeod, their unpaid ("APT") and the latter has received payment for the a consolidation or merger of the corporations, (3) where
wages, sick leave, vacation leave, prorated 13th month Obligations from PMI, under APT’s Direct Debt Buy- the purchasing corporation is merely a continuation of
pay, and separation pay. Under the compromise Out ("DDBO") program thereby causing APT to the selling corporation, and (4) where the selling
agreement between PMI and its employees, the completely discharge and cancel the mortgage in the corporation fraudulently enters into the transaction to
employer-employee relationship between them ended Assets and to release the titles of the Assets back to escape liability for those debts.26
on 25 November 1992.21 PMI;
None of the foregoing exceptions is present in this case.
Records also disclose that PMI extended McLeod’s WHEREAS, PMI obtained cash advances from SRTC
Here, PMI transferred its assets to SRTI to settle its
service up to 31 December 1992 "to wind up some in the total amount of TWO HUNDRED TEN
obligation to SRTI in the sum of P210,000,000. We are
affairs" of the company.22 McLeod testified on cross- MILLION PESOS (P210,000,000.00) (the
not convinced that PMI fraudulently transferred these
examination that he received his last salary from PMI "Advances") to enable PMI to consummate the DDBO
assets to escape its liability for any of its debts. PMI had
in December 1992.23 with APT, with SRTC subrogating APT as PMI’s
already paid its employees, except McLeod, their
creditor thereby;
It is thus clear that McLeod was a managerial employee money claims.
of PMI from 20 June 1980 to 31 December 1992. WHEREAS, in payment to SRTC for PMI’s liability,
There was also no merger or consolidation of PMI and
PMI has agreed to transfer all its rights, title and
However, McLeod claims that after FETMI purchased SRTI.
interests in the Assets by way of a dation in payment to
PMI in January 1993, he "continued to work at the same
SRTC, provided that simultaneous with the dation in Consolidation is the union of two or more existing
plant with the same responsibilities" until 30 November
payment, SRTC shall grant unto PMI the right to lease corporations to form a new corporation called the
1993. McLeod claims that FETMI merely renamed
the Assets under terms and conditions stated hereunder; consolidated corporation. It is a combination by
PMI as SRTI. McLeod asserts that it was for this reason
agreement between two or more corporations by which
that when he reached the retirement age in 1993, he xxxx
their rights, franchises, and property are united and
of PMI’s creditors, laborers, and workers and for Textile is enough during that period of time of the
become those of a single, new corporation, composed physical injury or injury to property arising from PMI’s development of Peggy Mills to reorganize a staff. I was
generally, although not necessarily, of the stockholders custody, possession, care, repairs, maintenance, use or under the basic impression that they might still retain
of the original corporations. operation of the Assets except ordinary wear and tear;28 my status as Vice President and Plant Manager of the
Merger, on the other hand, is a union whereby one (Emphasis supplied) company.
corporation absorbs one or more existing corporations, Also, McLeod did not present any evidence to show the ATTY. ESCANO:
and the absorbing corporation survives and continues alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa But the answer is still, there is no employment contract
the combined business. Textiles, Inc." in your possession appointing you in any capacity by
The parties to a merger or consolidation are called Hence, it is not correct for McLeod to treat PMI and Far Eastern?
constituent corporations. In consolidation, all the SRTI as the same entity. WITNESS:
constituents are dissolved and absorbed by the new
Respondent corporations assert that SRTI hired
consolidated enterprise. In merger, all constituents, There was no written contract, sir.
McLeod as consultant after PMI stopped operations.29
except the surviving corporation, are dissolved. In both xxxx
On the other hand, McLeod asserts that he was
cases, however, there is no liquidation of the assets of
respondent corporations’ employee from 1980 to 30 ATTY. ESCANO:
the dissolved corporations, and the surviving or
November 1993.30 However, McLeod failed to present
consolidated corporation acquires all their properties, So, there is proof that you were in fact really employed
any proof of employer-employee relationship between
rights and franchises and their stockholders usually by Peggy Mills?
him and Filsyn, SRTI, or FETMI. McLeod testified,
become its stockholders.
thus: WITNESS:
The surviving or consolidated corporation assumes
ATTY. ESCANO: Yes, sir.
automatically the liabilities of the dissolved
corporations, regardless of whether the creditors have Do you have any employment contract with Far Eastern ATTY. ESCANO:
consented or not to such merger or consolidation.27 Textile?
Of course, my interest now is to whether or not there is
In the present case, there is no showing that the subject WITNESS: a similar document to present that you were employed
dation in payment involved any corporate merger or It is my belief up the present time. by the other respondents like Filsyn Corporation?
consolidation. Neither is there any showing of those
indicative factors that SRTI is a mere instrumentality of
PMI. May I request that the witness be allowed to go through I have no document, sir.
Moreover, SRTI did not expressly or impliedly agree to his Annexes, Your Honor. ATTY. ESCANO:
assume any of PMI’s debts. Pertinent portions of the ATTY. ESCANO: What about Far Eastern Textile Mills?
subject Deed of Dation in Payment with Lease provide,
thus: Yes, but I want a precise answer to that question. If he WITNESS:
has an employment contract with Far Eastern Textile?
hereby warrants and represents the following: WITNESS:
xxxx Can I answer it this way, sir? There is not a valid
contract but I was under the impression taking into And Sta. Rosa Textile Mills?
(e) PMI shall warrant that it will hold SRTC or its consideration that the closeness that I had at Far Eastern WITNESS:
assigns, free and harmless from any liability for claims
However, McLeod claims that "for purposes of In the case at bar, petitioner seeks to pierce the veil of
There is no document, sir. determining employer liability, all private respondents corporate entity of Acrylic, alleging that the creation of
xxxx are one and the same employer" because: (1) they have the corporation is a devise to evade the application of
the same address; (2) they are all engaged in the same the CBA between petitioner Union and private
ATTY. ESCANO: business; and (3) they have interlocking directors and respondent Company. While we do not discount the
Q Yes. Let me be more specific, Mr. McLeod. Do you officers.35 possibility of the similarities of the businesses of
have a contract of employment from Far Eastern private respondent and Acrylic, neither are we inclined
This assertion is untenable.
Textiles, Inc.? to apply the doctrine invoked by petitioner in granting
A corporation is an artificial being invested by law with the relief sought. The fact that the businesses of private
A No, sir. a personality separate and distinct from that of its respondent and Acrylic are related, that some of the
Q What about Sta. Rosa Textile Mills, do you have an stockholders and from that of other corporations to employees of the private respondent are the same
employment contract from this company? which it may be connected.36 persons manning and providing for auxiliary services to
While a corporation may exist for any lawful purpose, the units of Acrylic, and that the physical plants, offices
A No, sir. and facilities are situated in the same compound, it is
the law will regard it as an association of persons or, in
xxxx case of two corporations, merge them into one, when its our considered opinion that these facts are not sufficient
corporate legal entity is used as a cloak for fraud or to justify the piercing of the corporate veil of Acrylic.42
Q And what about respondent Eric Hu. Have you had
illegality. This is the doctrine of piercing the veil of (Emphasis supplied)
any contract of employment from Mr. Eric Hu?
corporate fiction. The doctrine applies only when such Also, the fact that SRTI and PMI shared the same
A Not a direct contract but I was taken in and I told to corporate fiction is used to defeat public convenience, address, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas,
take over this from Mr. Eric Hu. Automatically, it justify wrong, protect fraud, or defend crime,37 or when Makati City,43 can be explained by the two companies’
confirms that Mr. Eric Hu, in other words, was under it is made as a shield to confuse the legitimate issues, or stipulation in their Deed of Dation in Payment with
the control of Mr. Patricio Lim at that period of time. where a corporation is the mere alter ego or business Lease that "simultaneous with the dation in payment,
Q No documents to show, Mr. McLeod? conduit of a person, or where the corporation is so SRTC shall grant unto PMI the right to lease the Assets
A No. No documents, sir.32
organized and controlled and its affairs are so under terms and conditions stated hereunder."44
conducted as to make it merely an instrumentality,
As for the addresses of Filsyn and FETMI, Filsyn held
McLeod could have presented evidence to support his agency, conduit or adjunct of another corporation.38
allegation of employer-employee relationship between office at 12th Floor, BA-Lepanto Bldg., Paseo de
him and any of Filsyn, SRTI, and FETMI, but he did
To disregard the separate juridical personality of a Roxas, Makati City,45 while FETMI held office at 18F,
corporation, the wrongdoing must be established Tun Nan Commercial Building, 333 Tun Hwa South
not. Appointment letters or employment contracts,
clearly and convincingly. It cannot be presumed.39 Road, Sec. 2, Taipei, Taiwan, R.O.C.46 Hence, they did
payrolls, organization charts, SSS registration,
personnel list, as well as testimony of co-employees, Here, we do not find any of the evils sought to be not have the same address as that of PMI.
may serve as evidence of employee status.33 prevented by the doctrine of piercing the corporate veil. That respondent corporations have interlocking
It is a basic rule in evidence that parties must prove their Respondent corporations may be engaged in the same incorporators, directors, and officers is of no moment.
affirmative allegations. While technical rules are not business as that of PMI, but this fact alone is not enough The only interlocking incorporators of PMI and Filsyn
strictly followed in the NLRC, this does not mean that reason to pierce the veil of corporate fiction.40 were Patricio and Carlos Palanca, Jr.47 While Patricio
the rules on proving allegations are entirely ignored. In Indophil Textile Mill Workers Union v. Calica,41 the was Director and Board Chairman of Filsyn, SRTI, and
Bare allegations are not enough. They must be Court ruled, thus: PMI,48 he was never an officer of FETMI.
supported by substantial evidence at the very least.34
or when there is a conflict of interest resulting in (a) Article 265 of the Labor Code, in part, expressly
Eric Hu, on the other hand, was Director of Filsyn and damages to the corporation, its stockholders or other provides:
SRTI.49 He was never an officer of PMI. persons; (2) they consent to the issuance of watered "Any worker whose employment has been terminated
Marialen C. Corpuz, Filsyn’s Finance Officer,50 down stocks or when, having knowledge of such as a consequence of an unlawful lockout shall be
testified on cross-examination that (1) among all of issuance, do not forthwith file with the corporate entitled to reinstatement with full backwages."
Filsyn’s officers, only she was the one involved in the secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the Article 273 of the Code provides that:
management of PMI; (2) only she and Patricio were the
common officers between Filsyn and PMI; and (3) corporation; or (4) they are made by specific provision "Any person violating any of the provisions of Article
Filsyn and PMI are "two separate companies."51 of law personally answerable for their corporate 265 of this Code shall be punished by a fine of not
action.57 exceeding five hundred pesos and/or imprisonment for
Apolinario L. Posio, PMI’s Chief Accountant, testified
Considering that McLeod failed to prove any of the not less than one (1) day nor more than six (6) months."
that "SRTI is a different corporation from PMI."52
foregoing exceptions in the present case, McLeod (b) How can the foregoing provisions be implemented
At any rate, the existence of interlocking incorporators, cannot hold Patricio solidarily liable with PMI. when the employer is a corporation? The answer is
directors, and officers is not enough justification to
The records are bereft of any evidence that Patricio found in Article 212 (c) of the Labor Code which
pierce the veil of corporate fiction, in the absence of
acted with malice or bad faith. Bad faith is a question provides:
fraud or other public policy considerations.53
of fact and is evidentiary. Bad faith does not connote "(c) ‘Employer’ includes any person acting in the
In Del Rosario v. NLRC,54 the Court ruled that bad judgment or negligence. It imports a dishonest interest of an employer, directly or indirectly. The term
substantial identity of the incorporators of corporations purpose or some moral obliquity and conscious shall not include any labor organization or any of its
does not necessarily imply fraud. wrongdoing. It means breach of a known duty through officers or agents except when acting as employer.".
In light of the foregoing, and there being no proof of some ill motive or interest. It partakes of the nature of
fraud.58 The foregoing was culled from Section 2 of RA 602,
employer-employee relationship between McLeod and
the Minimum Wage Law. Since RANSOM is an
respondent corporations and Eric Hu, McLeod’s cause In the present case, there is nothing substantial on artificial person, it must have an officer who can be
of action is only against his former employer, PMI. record to show that Patricio acted in bad faith in presumed to be the employer, being the "person acting
On Patricio’s personal liability, it is settled that in the terminating McLeod’s services to warrant Patricio’s in the interest of (the) employer" RANSOM. The
absence of malice, bad faith, or specific provision of personal liability. PMI had no other choice but to stop corporation, only in the technical sense, is the
law, a stockholder or an officer of a corporation cannot plant operations. The work stoppage therefore was by employer.
be made personally liable for corporate liabilities.55 necessity. The company could no longer continue with
its plant operations because of the serious business The responsible officer of an employer corporation can
To reiterate, a corporation is a juridical entity with legal losses that it had suffered. The mere fact that Patricio be held personally, not to say even criminally, liable for
personality separate and distinct from those acting for was president and director of PMI is not a ground to non-payment of back wages. That is the policy of the
and in its behalf and, in general, from the people conclude that he should be held solidarily liable with law.
comprising it. The rule is that obligations incurred by PMI for McLeod’s money claims. xxxx
the corporation, acting through its directors, officers,
and employees, are its sole liabilities.56 The ruling in A.C. Ransom Labor Union-CCLU v. (c) If the policy of the law were otherwise, the
NLRC,59 which the Court of Appeals cited, does not corporation employer can have devious ways for
Personal liability of corporate directors, trustees or apply to this case. We quote pertinent portions of the evading payment of back wages. In the instant case, it
officers attaches only when (1) they assent to a patently ruling, thus: would appear that RANSOM, in 1969, foreseeing
unlawful act of the corporation, or when they are guilty
the possibility or probability of payment of back
of bad faith or gross negligence in directing its affairs,
could not be implemented because of the disposition corporate personality. Petitioner Sunio, therefore,
wages to the 22 strikers, organized ROSARIO to posthaste of its leviable assets evidently in order to should not have been made personally answerable for
replace RANSOM, with the latter to be eventually evade its just and due obligations. The doctrine of the payment of private respondents’ back salaries.62
phased out if the 22 strikers win their case. "piercing the veil of corporate fiction" was thus clearly (Emphasis supplied)
RANSOM actually ceased operations on May 1, 1973, appropriate. Chua likewise involved another family Thus, the rule is still that the doctrine of piercing the
after the December 19, 1972 Decision of the Court of corporation, and this time the conflict was between two corporate veil applies only when the corporate fiction is
Industrial Relations was promulgated against brothers occupying the highest ranking positions in the used to defeat public convenience, justify wrong,
RANSOM.60 (Emphasis supplied) company. There were incontrovertible facts which protect fraud, or defend crime. In the absence of malice,
Clearly, in A.C. Ransom, RANSOM, through its pointed to extreme personal animosity that resulted, bad faith, or a specific provision of law making a
President, organized ROSARIO to evade payment of evidently in bad faith, in the easing out from the corporate officer liable, such corporate officer cannot
backwages to the 22 strikers. This situation, or anything company of one of the brothers by the other.
be made personally liable for corporate liabilities.
similar showing malice or bad faith on the part of The basic rule is still that which can be deduced from Neither Article 212(c) nor Article 273 (now 272) of the
Patricio, does not obtain in the present case. In Santos the Court’s pronouncement in Sunio vs. National Labor Code expressly makes any corporate officer
v. NLRC,61 the Court held, thus: Labor Relations Commission; thus: personally liable for the debts of the corporation. As
It is true, there were various cases when corporate this Court ruled in H.L. Carlos Construction, Inc. v.
We come now to the personal liability of petitioner,
officers were themselves held by the Court to be Marina Properties Corporation:63
Sunio, who was made jointly and severally responsible
personally accountable for the payment of wages and with petitioner company and CIPI for the payment of We concur with the CA that these two respondents are
money claims to its employees. In A.C. Ransom Labor the backwages of private respondents. This is reversible not liable. Section 31 of the Corporation Code (Batas
Union-CCLU vs. NLRC, for instance, the Court ruled error. The Assistant Regional Director’s Decision Pambansa Blg. 68) provides:
that under the Minimum Wage Law, the responsible failed to disclose the reason why he was made "Section 31. Liability of directors, trustees or officers.
officer of an employer corporation could be held personally liable. Respondents, however, alleged as - Directors or trustees who willfully and knowingly
personally liable for nonpayment of backwages for "(i)f grounds thereof, his being the owner of one-half (½) vote for or assent to patently unlawful acts of the
the policy of the law were otherwise, the corporation interest of said corporation, and his alleged arbitrary corporation or who are guilty of gross negligence or bad
employer (would) have devious ways for evading dismissal of private respondents. faith ... shall be liable jointly and severally for all
payment of backwages." In the absence of a clear
Petitioner Sunio was impleaded in the Complaint in his damages resulting therefrom suffered by the
identification of the officer directly responsible for
capacity as General Manager of petitioner corporation. corporation, its stockholders and other persons."
failure to pay the backwages, the Court considered the
There appears to be no evidence on record that he acted
President of the corporation as such officer. The case The personal liability of corporate officers validly
maliciously or in bad faith in terminating the services
was cited in Chua vs. NLRC in holding personally attaches only when (a) they assent to a patently
of private respondents. His act, therefore, was within
liable the vice-president of the company, being the unlawful act of the corporation; or (b) they are guilty of
the scope of his authority and was a corporate act.
highest and most ranking official of the corporation bad faith or gross negligence in directing its affairs; or
next to the President who was dismissed for the latter’s It is basic that a corporation is invested by law with a (c) they incur conflict of interest, resulting in damages
claim for unpaid wages. personality separate and distinct from those of the to the corporation, its stockholders or other persons.
persons composing it as well as from that of any other
A review of the above exceptional cases would readily The records are bereft of any evidence that Typoco
legal entity to which it may be related. Mere ownership
disclose the attendance of facts and circumstances that acted in bad faith with gross or inexcusable negligence,
by a single stockholder or by another corporation of all
could rightly sanction personal liability on the part of or that he acted outside the scope of his authority as
or nearly all of the capital stock of a corporation is not
the company officer. In A.C. Ransom, the corporate company president. The unilateral termination of the
of itself sufficient ground for disregarding the separate
entity was a family corporation and execution against it
McLeod’s assertion of underpayment of his 13th month McLeod’s reliance on Annex M74 can hardly carry the
Contract during the existence of the TRO was indeed pay in December 1993 is unavailing.66 As already day for him. Annex M, which is McLeod’s letter
contemptible – for which MPC should have merely stated, PMI stopped plant operations in 1992. McLeod addressed to "Philip Lim, VP Administration," merely
been cited for contempt of court at the most – and a himself testified that he received his last salary from contains McLeod’s proposals for the grant of some
preliminary injunction would have then stopped work PMI in December 1992. After the termination of the benefits to supervisory and confidential employees.
by the second contractor. Besides, there is no showing employer-employee relationship between McLeod and Contrary to McLeod’s allegation, Patricio did not sign
that the unilateral termination of the Contract was null PMI, SRTI hired McLeod as consultant and not as the letter. Hence, the letter does not embody any
and void.64 employee. Since McLeod was no longer an employee, agreement between McLeod and the management that
McLeod is not entitled to payment of vacation leave he was not entitled to the 13th month pay.67 Besides, would entitle McLeod to his money claims.
there is no evidence on record that McLeod indeed
and sick leave as well as to holiday pay. Article 82, Title Neither can McLeod’s assertions find support in Annex
received his alleged "reduced 13th month pay of
I, Book Three of the Labor Code, on Working U.75 Annex U is the Agreement which McLeod and
Conditions and Rest Periods, provides: P44,183.63" in December 1993.68 Universal Textile Mills, Inc. executed in 1959. The
Coverage. ─ The provisions of this title shall apply to Also unavailing is McLeod’s claim that he was entitled Agreement merely contains the renewal of the service
employees in all establishments and undertakings to the "unpaid monetary equivalent of unused plane agreement which the parties signed in 1956.
whether for profit or not, but not to government tickets for the period covering 1989 to 1992 in the McLeod cannot successfully pretend that his monthly
employees, managerial employees, field personnel, amount of P279,300.00."69 PMI has no company policy salary of P60,000 was reduced without his consent.
members of the family of the employer who are granting its officers and employees expenses for trips
dependent on him for support, domestic helpers, abroad.70 That at one time PMI reimbursed McLeod for McLeod testified that in 1990, Philip Lim explained to
persons in the personal service of another, and workers his and his wife’s plane tickets in a vacation to him why his salary would have to be reduced. McLeod
who are paid by results as determined by the Secretary London71 could not be deemed as an established said that Philip told him that "they were short in
practice considering that it happened only once. To be finances; that it would be repaid."76 Were McLeod not
of Labor in appropriate regulations.
considered a "regular practice," the giving of the amenable to that reduction in salary, he could have
As used herein, "managerial employees" refer to those benefits should have been done over a long period, and immediately resigned from his work in PMI.
whose primary duty consists of the management of the must be shown to have been consistent and deliberate.72 McLeod knew that PMI was then suffering from serious
establishment in which they are employed or of a
In American Wire and Cable Daily Rated Employees business losses. In fact, McLeod testified that PMI was
department or subdivision thereof, and to other officers
or members of the managerial staff. (Emphasis Union v. American Wire and Cable Co., Inc.,73 the not able to operate from August 1989 to 1992 because
Court held that for a bonus to be enforceable, the of the strike. Even before 1989, as Vice President of
employer must have promised it, and the parties must PMI, McLeod was aware that the company had
As Vice President/Plant Manager, McLeod is a have expressly agreed upon it, or it must have had a incurred "huge loans from DBP."77 As it happened,
managerial employee who is excluded from the fixed amount and had been a long and regular practice McLeod continued to work with PMI. We find it
coverage of Title I, Book Three of the Labor Code. on the part of the employer. pertinent to quote some portions of Apolinario Posio’s
McLeod is entitled to payment of vacation leave and testimony, to wit:
sick leave only if he and PMI had agreed on it. The In the present case, there is no showing that PMI ever
promised McLeod that it would continue to grant him Q You also stated that before the period of the strike as
payment of vacation leave and sick leave depends on
the benefit in question. Neither is there any proof that shown by annex "K" of the reply filed by the
the policy of the employer or the agreement between
PMI and McLeod had expressly agreed upon the giving complainant which was I think a voucher, the salary of
the employer and employee.65 In the present case, there
of that benefit. Mr. McLeod was roughly P60,000.00 a month?
is no showing that McLeod and PMI had an agreement
concerning payment of these benefits. A Yes, sir.
would have a reduced number of working days in view Since PMI has no retirement plan,80 we apply Section
Q And as shown by their annex "L" to their reply, that of the strike at Peggy Mills, is that right? 5, Rule II of the Rules Implementing the New
this was reduced to roughly P50,000.00 a month? Retirement Law which provides:
A Yes, sir.
A Yes, sir. 5.1 In the absence of an applicable agreement or
Q And that this was so because on account of the strike,
Q You stated that this was indeed upon the instruction retirement plan, an employee who retires pursuant to
there was no work to be done in the company?
by the Vice-President of Peggy Mills at that time and the Act shall be entitled to retirement pay equivalent to
A Yes, sir.78 at least one-half (1/2) month salary for every year of
that was Mr. Philip Lim, would you not?
xxxx service, a fraction of at least six (6) months being
A Yes, sir. considered as one whole year.
Q Now, you also stated if you remember during the first
Q Of your own personal knowledge, can you say if this
time that you testified that in the beginning, the monthly 5.2 Components of One-half (1/2) Month Salary. ─ For
was, in fact, by agreement between Mr. Philip Lim or the purpose of determining the minimum retirement
salary of the complainant was P60,000.00, is that
any other officers of Peggy Mills and Mr. McLeod? pay due an employee under this Rule, the term "one-
A If I recall it correctly, I assume it was an agreement, half month salary" shall include all of the following:
A Yes, sir.
verbal agreement with, between Mr. Philip Lim and Mr. (a) Fifteen (15) days salary of the employee based on
McLeod, because the voucher that we prepared was Q And because of the long period of the strike, when his latest salary rate. x x x
actually acknowledged by Mr. McLeod, the reduced there was no work to be done, by agreement with the
amount was acknowledged by Mr. McLeod thru the complainant, his monthly salary was adjusted to only With McLeod having worked with PMI for 12 years,
voucher that we prepared. P50,495 because he would not have to report for work from 1980 to 1992, he is entitled to a retirement pay
on Saturday. Do you remember having made that equivalent to ½ month salary for every year of service
Q In other words, Mr. Witness, you mean to tell us that based on his latest salary rate of P50,495 a month.
Mr. McLeod continuously received the reduced amount
of P50,000.00 by signing the voucher and receiving the A Yes, sir. There is no basis for the award of moral damages.
amount in question? Q You also stated that the complainant continuously Moral damages are recoverable only if the defendant
A Yes, sir. received his monthly salary in the adjusted amount of has acted fraudulently or in bad faith, or is guilty of
P50,495.00 monthly signing the necessary vouchers or gross negligence amounting to bad faith, or in wanton
Q As far as you remember, Mr. Posio, was there any disregard of his contractual obligations. The breach
pay slips for that without complaining, is that not right,
complaint by Mr. McLeod because of this reduced must be wanton, reckless, malicious, or in bad faith,
Mr. Posio?
amount of his salary at that time? oppressive or abusive.81 From the records of the case,
A Yes, sir.79 the Court finds no ultimate facts to support a conclusion
A I don’t have any personal knowledge of any
complaint, sir. Since the last salary that McLeod received from PMI of bad faith on the part of PMI.
was P50,495, that amount should be the basis in Records disclose that PMI had long offered to pay
Q At least, that is in so far as you were concerned, he
computing his retirement benefits. McLeod must be McLeod his money claims. In their Comment,
said nothing when he signed the voucher in question?
credited only with his service to PMI as it had a respondents assert that they offered to pay McLeod the
A Yes, sir. juridical personality separate and distinct from that of sum of P840,000, as "separation benefits, and not
Q Now, you also stated that the reason for what appears the other respondent corporations. P300,000, if only to buy peace and to forestall any
to be an agreement between Peggy Mills and Mr. complaint" that McLeod may initiate before the NLRC.
McLeod in so far as the reduction of his salary from McLeod admitted at the hearing before the Labor
P60,000.00 to P50,000.00 a month was because he Arbiter that PMI has made this offer ─
Yes, sir. Q You mentioned that you were offered for the
ATTY. ESCANO: settlement of your claims in 1994 for P840,000.00, is
x x x According to your own statement in your Position that right, Mr. Witness?
The question now is, if the same amount is offered to
Paper and I am referring to page 8, your unpaid A During that period in time, while the petition in this
you by way of retirement which is exactly what you
retirement benefit for fourteen (14) years of service at case was ongoing, we already filed a case at that period
stated in your own Position Paper, would you accept it
P60,000.00 per year is P840,000.00, is that correct? of time, sir. There was a discussion. To the best of my
or not?
WITNESS: knowledge, they are willing to settle for P840,000.00
WITNESS: and based on what the Attorney told me, I refused to
That is correct, sir. accept because I believe that my position was not in
Not on the concept without all the basic benefits due
ATTY. ESCANO: me, I will refuse.82 anyway due to a compromise situation to the benefits I
am entitled to.83
And this amount is correct P840,000.00, according to xxxx
your Position Paper? Hence, the awards for exemplary damages and
ATTY. ROXAS: attorney’s fees are not proper in the present case.84
Q You mentioned in the cross-examination of Atty. That respondent corporations, in their appeal to the
That is correct, sir. Escano that you were offered the separation pay in NLRC, did not serve a copy of their memorandum of
ATTY. ESCANO: 1994, is that correct, Mr. Witness? appeal upon PMI is of no moment. Section 3(a), Rule
WITNESS: VI of the NLRC New Rules of Procedure provides:
The question I want to ask is, are you aware that this
amount was offered to you sometime last year through A I was offered a settlement of P300,000.00 for Requisites for Perfection of Appeal. ─ (a) The appeal
your own lawyer, my good friend, Atty. Avecilla, who complete settlement and that was I think in January or shall be filed within the reglementary period as
is right here with us? February 1994, sir. provided in Section 1 of this Rule; shall be under oath
with proof of payment of the required appeal fee and
WITNESS: ATTY. ESCANO: the posting of a cash or surety bond as provided in
I was aware, sir. No. What was mentioned was the amount of Section 5 of this Rule; shall be accompanied by a
P840,000.00. memorandum of appeal x x x and proof of service on
the other party of such appeal. (Emphasis supplied)
So this was offered to you, is that correct? WITNESS:
The "other party" mentioned in the Rule obviously
WITNESS: What did you say, Atty. Escano?
refers to the adverse party, in this case, McLeod.
I was told that a fixed sum of P840,000.00 was offered. ATTY. ESCANO: Besides, Section 3, Rule VI of the Rules which requires,
The amount that I mentioned was P840,000.00 among others, proof of service of the memorandum of
ATTY. ESCANO: appeal on the other party, is merely a rundown of the
corresponding to the . . . . . . .
And , of course, the reason, if I may assume, that you contents of the required memorandum of appeal to be
declined this offer was that, according to you, there are WITNESS: submitted by the appellant. These are not jurisdictional
other claims which you would like to raise against the May I ask that the question be clarified, your Honor? requirements.85
Respondents which, by your impression, they were not WHEREFORE, we DENY the petition and AFFIRM
willing to pay in addition to this particular amount? the Decision of the Court of Appeals in CA-G.R. SP
WITNESS: No. 55130, with the following MODIFICATIONS: (a)
Makati Stock Exchange wherein from the Resource and Finance
the retirement pay of John F. McLeod should be one becomes a member upon the Corporation for which she
computed at ½ month salary for every year of service execution of an undertaking by executed a promissory note
for 12 years based on his salary rate of P50,495 a at least 2 members of its Board (Exhibit F) and the amount of
month; (b) Patricio L. Lim is absolved from personal of Directors who own 95% of P100,000.00 from her brother
liability; and (c) the awards for moral and exemplary the stocks to answer solidarily Benito Prieto, Jr. With this
damages and attorney’s fees are deleted. No for the corporation liabilities of amount, she deposited it in the
pronouncement as to costs. the member company. Leocadio Bank of Asia, Makati Branch in
SO ORDERED. de Asis and Francisco de Asis favor of Francisco de Asis &
who owned 95% of the Co., Inc. under current account
G.R. No. L-61549 May 27, 1985 outstanding capital stock of the of 2-001, in accordance with the
FRANCISCO DE ASIS & CO., INC., FRANCISCO Francisco de Asis & Co., Inc. instructions of its President
DE ASIS and LEOCADIO DE ASIS, petitioners, executed a joint and several Francisco de Asis (Exhibit B).
vs. undertaking on July 25, 1967 Thereafter, on or about August,
THE COURT OF APPEALS, and MERCEDES wherein they jointly and 1973 Francisco de Asis
PRIETO DELGADO, respondents. severally warrant the equitable informed her that he had
payment of all valid and P100,000.00 to be made as
Cruz, Durian, Agabin, Atienza & Alday for petitioners. legitimate corporate liabilities of partial payment of their loan and
Efren C. Carag for private respondent. Francisco de Asis & Co., Inc. in suggested that she invest it by
connection with its membership buying shares of Philex Mining.
in the Makati Stock Exchange To this suggestion, she agreed.
RELOVA, J: (Exhibits A, A-1, and A-2). Unfortunately, this supposed
partial payment which was to be
In this petition for review on certiorari, petitioners seek Sometime in June, 1970 the
invested in shares of Philex was
to reverse and/or modify the decision, dated July 30, defendant company thru its
not carried out because
1981, of respondent Court of Appeals affirming the president Francisco de Asis
Francisco de Asis & Co., Inc.
decision of the trial court, as well as the resolution, approached Mrs. Mercedes P.
was suspended by the Makati
dated August 20, 1982, denying the motion for Delgado for assistance to secure
Stock Exchange from trading,
reconsideration. a loan in the amount of
As a result, there was a rush of
P200,000.00 from the Resource
The facts of the case as aptly synthesized and adopted claims against the company
& Finance Corporation. Since
in toto by the respondent appellate court are as follows: resulting in its collapse. She
Francisco de Asis was a good
Defendant Francisco de Asis & Called up Mr. Asis to settle the
friend and his father Leocadio de
Co., Inc. was organized loan and she was assured of
Asis was solvent and answerable
sometime in 1967 with settlement as Mr. Leocadio de
in a joint and solidarily
Francisco de Asis as its president Asis is solvent and answerable
undertaking of the company, she
and Leocadio de Asis as one of for the debts of the company.
agreed to raise the amount of
the members of the Board of Mr. de Asis even sent her a cable
P200,000.00 as requested. She
Directors, As a stock brokerage assuring her that the loan would
was able to secure P100,000.00
company, it did business in the be settled (Exhibits C and C-1).
because no license will be issued approached plaintiff, who was a
This loan she extended to unless this condition is first good friend, and informed her
Francisco de Asis & Co., Inc. satisfied. He was an original that he was in need of
remained unpaid. On the other Director of the defendant P200,000.00 because the stock
hand, she had been paying on her corporation and at one time brokerage firm bearing his
own the loan with the Resource chairman of the board for a short name, defendant Francisco de
& Finance Corp. as well as with period. He ceased to be an Asis and Co., Inc. was
her brother Benito Prieto, Jr. She officer of this corporation encountering cash flow
is married but separated from her sometime in 1970. He had no problems;
husband. direct participation in the 8. On July 2, 1970, plaintiff
On the part of the defendants management of the corporation
deposited the P200,000.00 to the
only Leocadio de Asis testified. to attend the board meetings. bank account of defendant
His testimony substantially The corporation had never pass corporation at the Bank of Asia,
established that he is a lawyer any resolution authorizing Makati Branch (pages 32-33,
and had fully understood the Francisco de Asis to secure a Rollo).
effects and circumstances of loan of P200,000.00 from
Mercedes P. Delgado. As a have been denied and proved to be false. Thus, We are
executing the joint and several
matter of fact, he had no in affirmance of the findings of respondent appellate
undertaking, Exhibit A, which
knowledge of this transaction court that—
was made in accomodation to his
son Francisco de Asis. He was a except when the instant suit was The necessity and urgency for
nominal stockholder of the filed. (pp. 34-37, Record on the loan of P200,000.00 was not
Francisco de Asis & Co., Inc. of Appeal). (pages 30-32, Rollo). to meet the personal need of
which 97% of the subscribed Petitioners raised the same assignments of errors Francisco de Asis as there is no
capital belong to his son presented and passed upon by the appellate court that showing that he was in financial
Francisco while the remaining the latter erred (1) in declaring that the obligation sued difficulties but to resolve the
3% was subscribed by him This upon was corporate loan of Francisco de Asis and Co., cash flow problems of Francisco
joint and several undertaking, Inc. and not a personal loan of Francisco de Asis with de Asis and Co., Inc. for which
Exhibit A, was to answer for the private respondent; and (2) in holding petitioner plaintiff-appellee deposited the
obligation in favor of the Makati Leocadio de Asis liable, jointly and severally, with amount of P200,000.00 on July
Stock Exchange in connection petitioners Francisco de Asis and Francisco de Asis & 2, 1970 in the current account of
with the operation of said Co., Inc. under the "Joint and Several Undertakings." defendant corporation at the
exchange and not in favor of any Makati Branch of the Bank of
WE do not agree.
other party (Exhibit I). He was Asia. Neither would the absence
compelled to execute this joint The records are negative of any evidence which would of the usual documents, i.e.,
and several undertaking which show that the corporate nature of the transaction alleged promissory notes and/or real
in his opinion is null and void in paragraphs 4 and 8 of the complaint which read: estate or chattel mortgages,
especially considering that a negate the existence of the loan.
4. Sometime in June of 1970,
nominal stock member like Considering the relationship
defendant, Francisco de Asis
himself wig be held liable
same under Article 2154 of the Civil Code which the transactions and dealings of
between the parties, being very provides: said corporation and a copy of
good friends, plaintiff-appellee said document shall be filed with
If something is received when
dispensed with the customary the Commission provided,
there is no right to demand it,
documentation in her desire to however, that if the 95%
and it was unduly delivered
bail out a friend from the outstanding capital stock is
through mistake, the obligation
difficulties that his corporation owned by only one person
to return it arises.
is facing, 97% of the capital another stockholder shall be
stock of which he owned. But Relative to the argument that Francisco and Leocadio required to execute with him the
the loan of P200,000.00 is not de Asis' liability under their "Joint and Several said public instrument or
totally without any document. Undertaking" is limited to the obligation of the guaranty. (page 34, Rollo),
The deposit slip (Exhibit "B") of corporation in connection with its membership at the (Emphasis supplied).
the Bank of Asia showing the Makati Stock Exchange, their liability is spelled out by
And, as pointed out by respondent appellate court,
deposit of P200,000.00 on July Exhibit "A" as follows:
"Leocadio and Francisco de Asis knowingly and
2, 1970, in Current Account No. NOW, THEREFORE, for and in voluntarily executed and signed the Joint and Several
2-0017 of defendant corporation consideration of the foregoing Undertaking, Exhibit "A" ". More so, in the case of
indicates the receipt of said premises, the Owners hereby Leocadio de Asis who is a lawyer and, therefore, knew
amount. And the record is bereft jointly and severally warrant the the legal import and far-reaching consequences of the
of any evidence disclosing that equitable payment of all valid document he signed.
said funds were used other than and legitimate corporate
for corporate purposes. ACCORDINGLY, for lack of merit, the petition is
liabilities of the Francisco de
If the transaction contemplated Asis & Co., Inc. in connection
by the parties herein is that of a with its membership at the SO ORDERED.
personal loan to Francisco de Makati Stock Exchange Exhibit
RUBEN MARTINEZ,* substituted by his heirs,
Asis, then plaintiff could have "A" (page 33, Rollo).
simply written out a check in the The execution of the foregoing instrument is a WILFRIDO C. MARTINEZ, EMMA M.
latter's name or deposited the requirement for membership in the Makati Stock NAVA, and EDNA M. SAKHRANI,
amount of the loan in his Exchange. Subdivision 2, Section 1 of Article XIII of petitioners, vs. COURT OF APPEALS and
personal account. (page 33, the Constitution of the Makati Stock Exchange clearly BPI INTERNATIONAL FINANCE,
Rollo). states: respondents.
The claim of the corporation that it had not authorized that stockholders owning at least DECISION
Francisco de Asis to obtain loan for the company from 95% of the outstanding capital
the private respondent is belied by the fact that upon CALLEJO, SR., J.:
stock of the applicant
deposit of the sum of P200,000.00 in its current corporation shall execute a Before us is a petition for review on certiorari of
account, it had retained and disbursed the said amount. public instrument making the Decision[1] of the Court of Appeals, in CA-G.R. CV
And, assuming that it had not really authorized themselves jointly and severally No. 43985, modifying the Decision[2] of the Regional
Francisco de Asis to borrow money from private liable without limitation for all Trial Court of Kalookan City, Branch 122, in Civil Case
respondent, the company is still obliged to return the No. C-10811.
thereof. The majority stockholders of RJL were Ruben currency account and a deposit account with the
The antecedents are as follows: Martinez and his brothers, Jose and Luis Martinez. respondent. The authorized signatory in both accounts
Respondent BPI International Finance[3] is a Sixty-eight (68) percent of the total assets of Ruben of CLL was Wilfrido C. Martinez. Some instructions
foreign corporation not doing business in the Martinez were in the RJL. also came from Gonzales, to be confirmed by Wilfrido
Philippines, with office address at the Bank of America Martinez.[9] On March 21, 1980, petitioner Ruben
In 1979, respondent BPI International Finance
Tower, 12 Harcourt Road, Central Hongkong. It was a Martinez and/or his son Wilfrido C. Martinez and/or
(then AIFL) granted CLL a letter of credit in the amount
deposit-taking company organized and existing under Miguel J. Lacson affixed their signatures on the two
of US$3,000,000. Wilfrido Martinez signed the letter
and by virtue of the laws of Hongkong, and was also signature cards furnished by the respondent which
agreement with the respondent for the CLL. The
engaged in investment banking operations therein. became MMP No. 063 and MMP No. 084. On the face
respondent and the CLL had made the following
of the cards, the signatories became joint account
Cintas Largas, Ltd. (CLL) was also a foreign arrangements:
holders of the said money market placements.[10]
corporation, established in Hongkong, with a paid-up Cintas Largas, Ltd. will purchase
capital of HK$10,000. The registered shareholders of On March 25, 1980, the CLL opened a money
molasses from the Philippines, mainly from
the CLL in Hongkong were the Overseas Nominee, Ltd. market placement account with the respondent bearing
Mar Tierra Corporation, and then sell the
and Shares Nominee, Ltd., which were mainly nominee MMP No. 084 with an initial placement of
molasses to foreign countries. Both the
shareholders. In Hongkong, the nominee shareholder of US$68,768.60, transferred from MMP No. 063.[11] At
purchase of the molasses from the Philippines
CLL was Baker & McKenzie Nominees, Ltd., a leading times, funds in MMP Nos. 063 and 084 were
and the subsequent sale thereof to foreign
solicitor firm. However, beneficially, the company was transferred to the CLLs deposit account, and vice versa.
customers were effected by means of Letters
equally owned by Messrs. Ramon Siy, Ricardo Lopa, of Credit. A Letter of Credit would be opened On May 19, 1980, the CLL, through Wilfrido
Wilfrido C. Martinez, and Miguel J. Lacson.[4] The by Cintas Largas, Ltd. in favour of Mar Tierra Martinez, and the respondent, through Senen L. Matoto
registered office address of CLL in Hongkong was Corporation or any other seller in the and Michael Sung, Senior Manager of the Money
22/F, Princes Building, also the office address of Price Philippines. Upon the sale of the molasses to Management Division of the respondent, executed a
Waterhouse & Co., a large accounting firm in foreign buyers, a Letter of Credit would then letter-agreement in which the existing back-to-back
Hongkong. be opened by such buyers, in favour of Cintas credit facility granted to the CLL way back in 1979 was
The bulk of the business of the CLL was the Largas, Ltd. The Letters of Credit were extended up to July 1980, and increased to
importation of molasses from the Philippines, effected through the Letter of Credit Facility US$5,000,000. The credit facility was to be secured as
principally from the Mar Tierra Corporation, and the of Cintas Largas, Ltd. in plaintiff. The profits follows:
resale thereof in the international market.[5] However, of Cintas Largas, Ltd. from these transactions SECURITY: (i) Back-to-Back L/C to be
Mar Tierra Corporation also sold molasses to its were then deposited in either the deposit secured by an L/C
customers.[6] Wilfrido C. Martinez was the president of account of Cintas Largas, Ltd. with plaintiff or
issued, by a bank
Mar Tierra Corporation, while its executive vice- the Money Market Placement Account Nos. acceptable to
president was Blamar Gonzales. The business 063 and 084, depending upon the instructions AFHK, in favor of
operations of both the CLL and Mar Tierra Corporation of Wilfrido C. Martinez and Blamar C. Cintas Largas.
were run by Wilfrido Martinez and Gonzales. Gonzales, principally.[7]
(ii) AFHK L/C issued prior
About 42% of the capital stock of Mar Tierra On January 24, 1979, the CLL opened a money to receipt of
Corporation was owned by RJL Martinez Fishing market placement with the respondent bearing MMP Backing L/C to be
Corporation (RJL), the leading tuna fishing outfit in the No. 063, with an initial placement of US$390,000.[8] secured by a 10%
Philippines. Petitioner Ruben Martinez was the The CLL also opened and maintained a foreign margin by way of a
president of RJL and a member of the board of directors
On October 10, 1980, Blamar Gonzales, acting for ============
hold out on cash Mar Tierra Corporation, sent to the respondent a telex
deposit with AFHK confirming his telephone conversation with Michael
with interest at Sung/Bing Matoto requesting the respondent to transfer VALUE DATE MATURITY DATE DATE
LIBOR. The US$340,000 to Account No. FCD SA 18402-7, AMOUNT MATURITY VALUE
Backing L/C, registered in the name of Mar Tierra Corporation, 15/9/80 1 DAY CALL 10-7/8 USD 46,131.26
however, shall be Philippine Banking Corporation, Union Cement
opened not later Building, Port Area, Manila, as payee, with the 25/9/80 1 DAY CALL 11-1/4 USD500,000.00
than 120 days after following specific instructions: (a) there should be no (RATE ADJ: TO 12-1/4 VALUE 7/10/80)
the issuance of mention of Wilfrido Martinez or Mar Tierra
AFHKs L/C. Corporation; (b) the telex instruction should be signed 26/9/80 31/10/80 12-1/4 USD420,831.45
only by Wilfrido Martinez and sent only through the USD 425,843.44
(iii) JSS of Messrs. Ramon
Siy, Wilfrido C. telex machine of Mar Tierra Corporation; and, (c) the 2. ACCORDING TO AIDC, O/S OF PESO
Martinez, Ricardo final confirmation of the transfer should be made by LOAN IS 10,930,000.00, AND THE
Lopa and Miguel J. telephone call.[18] Gonzales requested the respondent, HOLDOUT REQUIRED IS 120 PCT
Lacson for both of in the same telex, to confirm its total available account
COMPUTATION: PESO 10,930,000.00
the above cases. so that instructions on the transfer of the funds to FCD
SA 18402-7 could be formalized.[19] 7.89 (EXCHANGE RATE)
On October 13, 1980, Sung sent a telex to Gonzales 1.20 (120 PCT)
L/C documentation.[12]
informing the latter of the balances of the MMP Nos. --------------------
The facility was designed to finance the purchases 063 and 084 and in the CLL account deposit, with the
of molasses made by the CLL from the Philippines for corresponding maturity dates thereof, thus: 1,662,357.00
re-export.[13] =============
In compliance with the letter-agreement, Wilfrido A/C. 3. ACCORDINGLY, THE FUND
C. Martinez, Miguel J. Lacson, Ricardo Lopa, and AVAILABLE IS APPROX.
Ramon Siy executed a continuing suretyship agreement MMP 063
USD340,000.00. PLS REVERT.[20]
in which they bound and obliged themselves, jointly VALUE DATE MATURITY DATE DATE
and severally, with the CLL to pay the latters obligation AMOUNT MATURITY VALUE Sung informed Gonzales that the account available
under the said credit facility.[14] was approximately US$340,000, considering the CLL
25/9/80 28/11/80 12-1/4 USD306,043.48 USD deposit account and the money market placements.[21]
As of September 26, 1980, the balance of the 312,708.43 On October 14, 1980, the respondent received a telex
deposit account of the CLL with the respondent was from Wilfrido C. Martinez requesting that the transfer
MMP 084
US$1,025,052.06.[15] On the other hand, the balance of of US$340,000 from the deposit account of the CLL or
the money placement in MMP No. 063, as of 25/09/80 28/11/80 12-1/4 USD751,883.88 USD
any deposit available be effected by telegraphic transfer
September 25, 1980 was US$312,708.43,[16] while the 768,258.24
as soon as possible to their account, payee FCD SA
balance of the money market placement in MMP No. ------------------------- 18402-7, Philippine Banking Corporation, Port Area,
084 as of September 8, 1980 stood at Manila.[22] On October 21, 1980, Wilfrido Martinez
US$768,258.24.[17] USD1080,966.67
wrote the respondent confirming his request for the
firm, the Jacinto, Belano, Castro & Co., to review the express instructions of defendants
transfer of US$340,000 to their account, FCD SA flow of the CLLs funds and the receivables of Mar GONZALES and WILFRIDO C.
18402-7, with the Philippine Banking Corporation, Tierra Corporation. MARTINEZ acting for and in behalf of the
through Wells Fargo Bank of New York, Philippine defendant CINTAS, defendants GONZALES
On August 16, 1982, the CLL, through its certified
Banking Corporation Account No. FCDU SA No. 003- and WILFRIDO C. MARTINEZ being the
public accountant, wrote the respondent requesting the
019205.[23] duly authorized representatives of defendant
latter to furnish its accountant with a copy of the
CINTAS to transact any and all of its business
The respondent complied with the request of the financial report prepared by its auditors.[29] An audit
CLL, through Wilfrido Martinez and Gonzales, and with plaintiff.
was, thereafter, conducted by the Jacinto, Belano,
remitted US$340,000 as instructed.[24] However, Castro & Co., certified public accountants of the CLL 2.3 The remittance of US$340,000.00
instead of deducting the amount from the funds in the and Mar Tierra Corporation. Based on their report, the was made under an agreement for plaintiff to
CLL foreign currency or deposit accounts and/or MMP auditors found that the CLL owed the respondent advance the said amount and for defendants
Nos. 063 and 084, the respondent merely posted the US$340,000.[30] GONZALES, WILFRIDO C. MARTINEZ
US$340,000 as an account receivable of the CLL since, and CINTAS to repay plaintiff all such monies
In the meantime, the respondent demanded from
at that time, the money market placements had not yet so advanced to said defendants or to their
the CLL, Wilfrido Martinez, Lacson, Gonzales, and
matured.[25] When the money market placements order.
petitioner Ruben Martinez, the payment of the
matured, however, the respondent did not collect the
US$340,000 remitted by it to FCD SA 18402-7, per 2.4 In making said remittance, plaintiff
US$340,000 therefrom. Instead, the respondent
instructions of Gonzales and Wilfrido Martinez. No acted as the agent of the foregoing defendants
allowed the CLL and/or Wilfrido C. Martinez to
remittance was made to the respondent. Petitioner in meeting the latters liability to the recipient/s
withdraw, up to July 3, 1981, the bulk of the CLL
Ruben Martinez denied knowledge of any such of the amount so remitted.
deposit account and MMP Nos. 084 and 063;[26] hence,
remittance, as well as any liability for the amount
it failed to secure reimbursement for the US$340,000 2.5 The remittance of US$340,000.00
from the said deposit account and/or money market which remains unsettled to date is a just,
placements. On June 17, 1983, the respondent filed a complaint binding and lawful obligation of the
against the CLL, Wilfrido Martinez, Lacson, Gonzales, defendants GONZALES, WILFRIDO C.
In the meantime, problems ensued in the
and petitioner Ruben Martinez, with the RTC of MARTINEZ and CINTAS.
reconciliation of the transactions involving the funds of
Kaloocan City for the collection of the principal amount
the CLL, including the MMP Nos. 063 and 084 with the 2.6 Defendant CINTAS is a reinvoicing
of US$340,000, with a plea for a writ of preliminary
respondent, as well as the receivables of Mar Tierra or paper company with nominee shareholders
attachment. Two alternative causes of action against the
Corporation. There was also a need to audit the said in Hongkong. The real and beneficial
defendants were alleged therein, viz:
funds. Sometime in July 1982, conferences were held shareholders of the foregoing defendants are
between the executive committee of Mar Tierra FIRST ALTERNATIVE CAUSE OF the defendants LACSON and WILFRIDO C.
Corporation and some of its officers, including Miguel ACTION MARTINEZ.
J. Lacson, where the means to reduce the administrative 2.1 The allegations contained in the 2.7 Defendant CINTAS is being used by
expenses and accountants fees, and the possibility of foregoing paragraphs are repleaded herein by the foregoing defendants as an alter ego or
placing the CLL on an inactive status were reference. business conduit for their sole benefit and/or
discussed.[27] The respondent pressured the CLL, to defeat public convenience.
Wilfrido Martinez, and Gonzales to pay the 2.2 The remittance by plaintiff of the sum
US$340,000 it remitted to Account No. FCD SA of US$340,000.00 as previously explained in 2.8 Defendant CINTAS, being a mere
18402-7.[28] Eventually, Wilfrido C. Martinez and the foregoing paragraphs was made upon the alter ego or business conduit for the foregoing
Blamar Gonzales engaged the services of the auditing
3.4 Defendant CINTAS likewise opened erroneously paid or overpaid to said
defendants, has no corporate personality and maintained a deposit account with defendants, they have failed and continue to
distinct and separate from that of its beneficial plaintiff. fail to make any restitution.[31]
shareholders and, likewise, has no substantial
3.5 Defendants W.C. Martinez and The respondent prayed therein that, after due
assets in its own name.
Gonzales upon giving instructions to plaintiff proceedings, judgment be rendered in its favor, viz:
2.9 The remittance of US$340,000.00 as to remit the amount of US$340,000.00 as ON THE
referred to previously, although made upon previously discussed also instructed plaintiff
the instructions of defendants GONZALES, to reimburse itself from available funds in FIRST ALTERNATIVE CAUSE OF
WILFRIDO C. MARTINEZ and CINTAS, MMP Account Nos. 063 and 084 and the ACTION
was in fact a remittance made for the benefit defendant CINTAS deposit account. 4.1 Ordering defendants GONZALES,
of the beneficial shareholders of defendant WILFRIDO C. MARTINEZ and CINTAS,
3.6 Due to excusable mistake, plaintiff
CINTAS. jointly and severally, liable to pay plaintiff the
was unable to obtain reimbursement for the
2.10 Any and all obligations of defendant remittance it made from MMP Account Nos. amount of US$340,000.00 with interests
CINTAS are the obligations of its beneficial 063, 084 and from the deposit account of thereon from February 20, 1982 until fully
shareholders since the former is being used by defendant CINTAS. paid.
the latter as an alter ego or business conduit 4.2 Declaring that defendant CINTAS is a
3.7 As a consequence of said mistake,
for their sole benefit and/or to defeat public mere alter ego or business conduit of
plaintiff delivered to the foregoing defendants
convenience. defendants LACSON and WILFRIDO C.
and/or to third parties upon orders of the
SECOND ALTERNATIVE CAUSE OF defendants substantially all the funds in MMP MARTINEZ; hence, the foregoing defendants
ACTION Account Nos. 063, 084 and the deposit are, jointly and severally, liable to pay plaintiff
account of defendant CINTAS. the amount of US$340,000.00 with interests
3.1 The allegations contained in the
foregoing paragraphs are incorporated herein 3.8 The amount of US$340,000.00
by reference. delivered by plaintiff to the foregoing 4.3 Ordering the foregoing defendants to
defendants constituted an overpayment and/or be, jointly and severally, liable for the amount
3.2 Defendants RUBEN MARTINEZ,
erroneous payment as defendants had no right of P100,000.00 as and for attorneys fees; and
are joint account holders of Money Market to demand the same; further, said amount 4.4 Ordering the foregoing defendants to
Placement Account Nos. 063 and 084 having been unduly delivered by mistake, the be, jointly and severally, liable to plaintiff for
(hereinafter referred to as MMP 063 and 084 foregoing defendants were obliged to return it. actual damages in an amount to be proved at
for brevity) opened and maintained by said 3.9 Since the foregoing defendants had no the trial. Or -
defendants with the plaintiff. legal right to the overpayment or erroneous ON THE
3.3 Said money market placement payment of US$340,000.00 they, therefore,
hold said money in trust for the plaintiff. SECOND ALTERNATIVE CAUSE OF
accounts, although nominally opened and ACTION
maintained by said defendants, were in reality 3.10 Despite numerous demands to the
for the account and benefit of all the defendants WILFRIDO C. MARTINEZ, 5.1 Declaring that plaintiff made an
defendants. RUBEN MARTINEZ, LACSON and erroneous payment in the amount of
CINTAS for restitution of the funds US$340,000.00 to defendants LACSON,
3. Defendant did not participate in any 10. Plaintiff is guilty of gross negligence
WILFRIDO C. MARTINEZ, RUBEN manner whatsoever in the remittance of funds and it only has itself to blame for its alleged
MARTINEZ and CINTAS. from the plaintiff to the alleged FCD Account loss;
5.2 Declaring the foregoing defendants to in the Philippine Banking Corporation; 11. Sometime on or about 1980,
be, jointly and severally, liable to reimburse 4. Defendant has not received nor defendant was made to sign blank forms
plaintiff the amount of US$340,000.00 with benefited from the alleged remittance, concerning opening of money market
interest thereon from February 20, 1982 until payment, overpayment or erroneous payment placements and perhaps, this is how he
fully paid. allegedly made by plaintiff; hence, insofar as became a joint account holder of MMP 063
5.3 Ordering defendants to be, jointly and he is concerned, there is nothing to return to or and 084; defendant at that time did not realize
severally, liable for the amount of to hold in trust for the plaintiff; the import or significance of his act;
P100,000.00 as and for attorneys fees; and afterwards, defendant did not do any act or
5. Plaintiffs alleged remittance of the
omission by which he could be implicated in
5.4 Ordering defendants to be, jointly and amount by mere telex or telephone instruction
this case;
severally, liable to plaintiff for actual damages was highly irregular and questionable
in an amount to be proved at the trial. considering that the undertaking was that no 12. Assuming that defendant is a joint
remittance or transfer could be done without account holder of said MMP 063 and 084,
5.5 A writ of preliminary attachment be the prior signature of the authorized plaintiff has failed to plead defendants
issued against the properties of the defendants signatories; obligations, if any, by being said joint account
WILFRIDO C. MARTINEZ, RUBEN holder; likewise, the Complaint fails to attach
MARTINEZ, LACSON and CINTAS as a 6. The alleged telex instructions to the
the corresponding documents showing
security for the satisfaction of any judgment plaintiff was for it to confirm the amounts that
defendants being a joint account holder.[33]
that may be recovered. are free and available which it did;
The CLL was declared in default for its failure to
Plaintiff further prays for such other relief 7. Plaintiff is guilty of estoppel or laches
by making it appear that the funds so remitted file an answer to the complaint.
as may be deemed just and equitable in the
premises.[32] are free and available and by not acting within After trial, the RTC rendered its decision, the
reasonable time to correct the alleged mistake; dispositive portion of which reads as follows:
In his answer to the complaint, petitioner Ruben
Martinez interposed the following special and 8. The alleged remittance, overpayment PREMISES CONSIDERED, judgment is
affirmative defenses: and erroneous payment was manipulated by hereby rendered as follows:
plaintiffs own employees, officers or
BY WAY OF SPECIAL AND 1. Ordering all the defendants, jointly and
representatives without connivance or
AFFIRMATIVE DEFENSES, answering severally, to pay plaintiff the amount of
collusion on the part of the answering
defendant respectfully states: US$340,000.00 or its equivalent in Philippine
defendant; hence, plaintiff has only itself to currency measured at the Central Bank
2. Defendant is not the holder, owner, blame for the same; likewise, its recourse is prevailing rate of exchange in October 1980
depositor, trustee and has no interest not against answering defendant; and with legal interest thereon computed from
whatsoever in the account in Philippine 9. Plaintiffs Complaint is defective in that the filing of plaintiffs complaint on June 17,
Banking Corporation (FCD SA 18402-7) it has failed to state the facts constituting the 1983 until fully paid;
where the plaintiff remitted the amount sought mistake regarding its failure to obtain
to be recovered. Hence, he did not benefit 2. Declaring that defendant Cintas Largas
reimbursement from MMP 063 and 084;
directly or indirectly from the said remittance; Ltd. is a mere business conduit and alter ego
The decision was appealed to the CA. On June 27, COUNTER-CLAIM OF PETITIONER
of the individual defendants, thereby holding 1997, the CA rendered its decision, the dispositive RUBEN MARTINEZ CONSIDERING THE
the individual defendants, jointly and portion of which reads: EVIDENCE ON RECORD THAT PROVES
severally, liable to pay plaintiff the aforesaid THE SAME.[38]
WHEREFORE, the decision of the
amount of US$340,000.00 or its equivalent in
Court a quo dated December [19], 1991 is The paramount issue posed for resolution is
Philippine Currency measured at the Central
hereby MODIFIED, by exonerating appellant whether or not the petitioner is obliged to reimburse to
Bank prevailing rate of exchange in October
Blamar Gonzales from any liability to appellee the respondent the principal amount of US$340,000.
1980, with interest thereon as above-stated;
and the complaint against him is The petitioner asserts that the trial and appellate
3. Ordering all defendants to, jointly and DISMISSED. The decision appealed from is courts erred when they held him liable for the
severally, pay unto plaintiff the amount of AFFIRMED in all other respect. reimbursement of US$340,000 to the respondent. He
P50,000.00 as and for attorneys fees, plus
SO ORDERED.[35] contends that he is not in actuality a stockholder of Mar
Tierra Corporation, nor a stockholder of the CLL. He
The appellate court exonerated Gonzales of any
All counterclaims and cross-claims are was not involved in any way in the operations of the
liability, reasoning that he was not a stockholder of the
dismissed for lack of merit. said corporations. He added that while he may have
CLL nor of Mar Tierra Corporation, but was a mere
SO ORDERED.[34] signed the signature cards of MMP Nos. 063 and 084 in
employee of the latter corporation.[36] Petitioner Ruben
blank, he never had any involvement in the
The trial court ruled that the CLL was a mere paper Martinez sought a reconsideration of the decision of the
management and disposition of the said accounts, nor
company with nominee shareholders in Hongkong. It CA, to no avail.[37]
of any deposits in or withdrawals from either or both
ruled that the principle of piercing the veil of corporate Dissatisfied with the decision and resolution of the accounts. He was not aware of any transactions
entity was applicable in this case, and held the appellate court, the petitioner, filed the petition at bar, between the respondent, Wilfrido Martinez, and
defendants liable, jointly and severally, for the claim of on the following grounds: Gonzales, with reference to the remittance of the
the respondent, on its finding that the defendants US$340,000 to FCD SA 18402-7; nor did he oblige
merely used the CLL as their business conduit. The trial himself to pay the said amount to the respondent.
court declared that the majority shareholder of Mar RESPONDENT COURT OF APPEALS According to the petitioner, there is no evidence that he
Tierra Corporation was the RJL, controlled by ERRED IN FINDING THAT HEREIN had benefited from any of the following: (a) the
petitioner Ruben Martinez and his brothers, Jose and PETITIONER RUBEN MARTINEZ IS remittance by the respondent of the US$340,000 to
Luis Martinez, as majority shareholders thereof. LIABLE TO RESPONDENT BPI Account No. FCD SA 18402-7 owned by Mar Tierra
Moreover, petitioner Ruben Martinez was a joint INTERNATIONAL FINANCE FOR Corporation; (b) the money market placements in MMP
account holder of MMP Nos. 063 and 084. The trial REIMBURSEMENT OF THE Nos. 063 and 084, or, (c) from any deposits in or
court, likewise, found that the auditors of Mar Tierra US$340,000.00 REMITTED BY SAID withdrawals from the said account and money market
Corporation and the CLL confirmed that the defendants RESPONDENT BPI INTERNATIONAL placements.
owed US$340,000. The trial court concluded that the FINANCE TO FCD SA ACCOUNT NO.
respondent had established its causes of action against 18402-7 AT THE PHILIPPINE BANKING On the other hand, the appellate court found the
Wilfrido Martinez, Lacson, Gonzales, and petitioner CORPORATION, PORT AREA BRANCH. petitioner and his co-defendants, jointly and severally,
Ruben Martinez; hence, held all of them liable for the liable to the respondent for the payment of the
II US$340,000 based on the following findings of the trial
claim of the respondent.
Corporation of which defendant Wilfrido or whether the respondent adduced the requisite
The Court finds that defendant Cintas Martinez is the President and one of its owners quantum of evidence warranting the piercing of the veil
Largas (Ltd.) with capitalization of and defendant Blamar Gonzales as the Vice of corporate entity of the CLL.[41] The Court is not a
$10,000.00 divided into 1,000 shares at President, sells molasses to defendant Cintas trier of facts. Hence, the factual findings of the trial
HK$10 per share, is a mere paper company Largas Ltd. Defendant Miguel J. Lacson is a court, as affirmed by the appellate court, are generally
with nominee shareholders in Hongkong, business partner in purchasing molasses for conclusive upon this Court.[42] However, the rule is
namely: Overseas Nominees Ltd. and Shares Mar Tierra Corporation. Mar Tierra subject to the following exceptions: (a) where the
Nominees Ltd., with defendants Wilfrido and Corporation was selling molasses to Cintas conclusion is a finding grounded entirely on
Miguel J. Lacson as the sole directors (Exh. Largas Ltd. which were purchased by Miguel speculation, surmise and conjectures; (b) where the
A). Since the said shareholders are mere Lacson and Wilfrido C. Martinez (t.s.n., 12- information made is manifestly mistaken; (c) where
nominee companies, it would appear that the 19-88, pp. 23-24). The majority owner of Mar there is grave abuse of discretion; (d) where the
said defendants Wilfrido and Miguel J. Lacson Tierra Corporation is RJL Martinez Fishing judgment is based on a misapplication of facts, and the
who are the sole directors are the real and Corporation which is owned by brothers findings of facts of the trial court and the appellate court
beneficial shareholders (t.s.n., 9-1-87, p. 5). Ruben Martinez, Jose Martinez and Luis are contradicted by the evidence on record; and (e)
Further, defendant Cintas Largas Ltd. has no Martinez (t.s.n., 12-19-88, pp. 24-25; t.s.n., 6- when certain material facts and circumstances had been
real office in Hongkong as it is merely being 20-88, pp. 11-12). The FCD SA-18402-7 overlooked by the trial court which, if taken into
accommodated by Price Waterhouse, a large account at Philippine Banking Corporation, account, would alter the result of the case.
accounting office in Hongkong (t.s.n., 9-1-87, Port Area Branch, where the US$340,000.00 We have reviewed the records and find that some
pp. 7-8). was remitted by the plaintiff is the account of substantial factual findings of the trial court and the
Defendant Cintas Largas Ltd., being a Mar Tierra Corporation, and with the appellate court and, consequently, their conclusions
mere alter ego or business conduit for the interlapping connection of the defendants to based on the said findings, are not supported by the
individual defendants with no corporate each other, these could be the reason why the evidence on record.
personality distinct and separate from that of funds of Cintas Largas Ltd. were being co-
mingled and controlled by defendants more The general rule is that a corporation is clothed
its beneficial shareholders and with no
particularly defendants Blamar Gonzales and with a personality separate and distinct from the
substantial assets in its own name, it is safe to
Wilfrido C. Martinez (Exhs. D, E, F, G, H, I, persons composing it. Such corporation may not be
conclude that the remittance of
J, L, M, N, O, P, R, S, and T). held liable for the obligation of the persons composing
US$340,000.00 was, in fact, a remittance
it; and neither can its stockholders be held liable for
made for the benefit of the individual On the basis of the evidence, the Court such obligation.[43] A corporation has a separate
defendants. Plaintiff was supposed to deduct finds and so holds that the cause of action of personality distinct from its stockholders and from
the US$340,000.00 remitted to the foreign the plaintiff against the defendants has been other corporation to which it may be connected.[44] This
currency deposit account from Cintas Largas established.[39] separate and distinct personality of a corporation is a
(Ltd.) funds or from money market placement
We do not agree with the trial court and appellate fiction created by law for convenience and to prevent
account Nos. 063 and 084 as well as Cintas
court. injustice.[45]
Largas Ltd. deposit account (Exh. FF-24).
We note that the question of whether or not a Nevertheless, being a mere fiction of law, peculiar
Defendant Cintas Largas Ltd. was
corporation is merely an alter ego is purely one of situations or valid grounds can exist to warrant, albeit
established only for financing (t.s.n., 12-19-
fact.[40] So is the question of whether or not a sparingly, the disregard of its independent being and the
88, pp. 25-26) and the active owners of Cintas
corporation is a paper company or a sham or subterfuge piercing of the corporate veil.[46] Thus, the veil of
are defendants Miguel Lacson and Wilfrido C.
Martinez (t.s.n., 12-19-88, p. 22). Mar Tierra
2. Such control must have been used by Tierra Corporation and paid for the same through the
separate corporate personality may be lifted when such the defendant to commit fraud or wrong, to credit facility granted by the respondent to the CLL.
personality is used to defeat public convenience, justify perpetuate the violation of a statutory or other The CLL, thereafter, made remittances to Mar Tierra
wrong, protect fraud or defend crime; or used as a positive legal duty, or dishonest and unjust act Corporation from its deposit account and MMP Nos.
shield to confuse the legitimate issues; or when the in contravention of plaintiffs legal rights; and 063 and 084 with the respondent. The close business
corporation is merely an adjunct, a business conduit or relationship of the two corporations does not warrant a
3. The aforesaid control and breach of
an alter ego of another corporation or where the finding that Mar Tierra Corporation was but a conduit
duty must proximately cause the injury or
corporation is so organized and controlled and its of the CLL.
unjust loss complained of.
affairs are so conducted as to make it merely an
Likewise, the respondent failed to adduce
instrumentality, agency, conduit or adjunct of another The absence of any one of these elements
preponderant evidence to prove that the Mar Tierra
corporation;[47] or when the corporation is used as a prevents piercing the corporate veil. In
Corporation and the RJL were so organized and
cloak or cover for fraud or illegality, or to work applying the instrumentality or alter ego
controlled, its affairs so conducted as to make the latter
injustice, or where necessary to achieve equity or for doctrine, the courts are concerned with reality
corporation merely an instrumentality, agency, conduit
the protection of the creditors.[48] In such cases where and not form, with how the corporation
or adjunct of the former or of Wilfrido Martinez,
valid grounds exist for piercing the veil of corporate operated and the individual defendants
Gonzales, and Lacson for that matter, or that such
entity, the corporation will be considered as a mere relationship to that operation.[53]
corporations were organized to defraud their creditors,
association of persons.[49] The liability will directly In this case, the respondent failed to adduce the including the respondent. The mere fact, therefore, that
attach to them.[50] quantum of evidence necessary to prove any valid the businesses of two or more corporations are
However, mere ownership by a single stockholder ground for the piercing of the veil of corporate entity of interrelated is not a justification for disregarding their
or by another corporation of all or nearly all of the Mar Tierra Corporation, or of RJL for that matter, and separate personalities, absent sufficient showing that
capital stocks of a corporation is not by itself a render the petitioner liable for the respondents claim, the corporate entity was purposely used as a shield to
sufficient ground to disregard the separate corporate jointly and severally, with Wilfrido Martinez and defraud creditors and third persons of their rights.[54]
personality. The substantial identity of the Lacson. The mere fact that the majority stockholder of
Also, the mere fact that part of the proceeds of the
incorporators of two or more corporations does not Mar Tierra Corporation is the RJL, and that the
sale of molasses made by Mar Tierra Corporation to the
warrantly imply that there was fraud so as to justify the petitioner, along with Jose and Luis Martinez, owned
CLL may have been used by the latter as deposits in its
piercing of the writ of corporate fiction.[51] To disregard about 42% of the capital stock of RJL, do not constitute
deposit account with the respondent or in the money
the said separate juridical personality of a corporation, sufficient evidence that the latter corporation, and/or
market placements in MMP Nos. 063 and 084, or that
the wrongdoing must be proven clearly and the petitioner and his brothers, had complete
the funds of Mar Tierra Corporation and the CLL with
convincingly.[52] domination of Mar Tierra Corporation. It does not
the respondent were mingled, and their disposition
automatically follow that the said corporation was used
The test in determining the application of the controlled by Wilfrido Martinez, does not constitute
by the petitioner for the purpose of committing fraud or
instrumentality or alter ego doctrine is as follows: preponderant evidence that the petitioner, Wilfrido
wrong, or to perpetrate an injustice on the respondent.
1. Control, not mere majority or complete Martinez and Lacson used the Mar Tierra Corporation
There is no evidence on record that the petitioner had
stock control, but complete domination, not and the RJL to defraud the respondent. The respondent
any involvement in the purchases of molasses by
only of finances but of policy and business treated the CLL and Mar Tierra Corporation as separate
Wilfrido Martinez, Gonzales and Lacson, and the
practice in respect to the transaction attacked entities and considered them as one and the same entity
subsequent sale thereof to the CLL, through Mar Tierra
so that the corporate entity as to this only when Wilfrido C. Martinez and/or Blamar
Corporation. On the contrary, the evidence on record
transaction had at the time no separate mind, Gonzales failed to pay the US$340,000 remitted by the
shows that the CLL purchased molasses from Mar
will or existence of its own; respondent to FCD SA 18402-7. This being the case,
CORPORATION, PORT AREA BRANCH, 2.2 The remittance by plaintiff of the sum
there is no factual and legal basis to hold the petitioner UNION CEMENT BLDG, BONIFACIO of US$340,000.00 as previously explained in
liable to the respondent for the said amount. DRIVE, PORT AREA, METRO MANILA, the foregoing paragraphs was made upon the
Contrary to the ruling of the trial court and the PHILS. express instructions of defendants
appellate court, the auditors of the CLL and the Mar GONZALES and WILFRIDO C.
Tierra Corporation, in their report, did not find the MARTINEZ acting for and in behalf of the
petitioner liable for the respondents claim in their defendant CINTAS, defendants GONZALES
report. The auditors, in fact, found the CLL alone liable and WILFRIDO C. MARTINEZ being the
for the said amount.[55] Even a cursory reading of the duly authorized representatives of defendant
report will show that the name of the petitioner was not CINTAS to transact any and all of its business
mentioned therein. with plaintiff.
The respondent failed to adduce evidence that the 2.3 The remittance of US$340,000.00
petitioner had any involvement in the transactions was made under an agreement for plaintiff to
PLS CONFRM TODAY TOTAL AMT. advance the said amount and for defendants
between the CLL, through Wilfrido Martinez and
Gonzales, and the respondent, with reference to the
CAN FORMALIZE INSTRUCTION OF and CINTAS to repay plaintiff all such monies
remittance of the US$340,000 to FCD SA 18402-7. In
TRANSFER IF THE ABOVE PROCEDURE so advanced to said defendants or to their
fact, the said transaction was so confidential that
Gonzales even suggested to the respondent that the
name of Wilfrido Martinez or Mar Tierra Corporation 2.4 In making said remittance, plaintiff
be not made of record, and to authorize only Wilfrido acted as the agent of the foregoing defendants
Martinez to sign the telex instruction: IN CASE OF WELLS FARGO HK, WE in meeting the latters liability to the recipient/s
WLD LIKE TO SUGGEST THE FF of the amount so remitted.
OCT. 10, 1980
TO: AYALA FINANCE 2.5 The remittance of US$340,000.00
1. WELLS FARGO HK WIL SEND A TLX which remains unsettled to date is a just,
18402-7. MARTINEZ and CINTAS.
2. REIMBURSEMENT INSTRUCTION, AT 2.6 Defendant CINTAS is a reinvoicing
THIS IS TO CONFRM OUR TELEPHONE THE SAME TIME WELLS FARGO HK WIL or paper company with nominee shareholders
TO SUGGEST THE FF PROCEDURES FOR TO CREDIT FCDU NO. 003-019205 FOR shareholders of the foregoing defendants are
1. TLX INSTRUCTION THAT FUNDS BE Even the respondent admitted, in its complaint, that MARTINEZ.
TRANSFERRED TO OUR FCD ACCT BY the CLL, Gonzales, and Wilfrido Martinez, bound and 2.7 Defendant CINTAS is being used by
TELEGRAPHIC TRANSFER. obliged themselves to repay the US$340,000, viz: the foregoing defendants as an alter ego or
The appellate court affirmed the ruling of the trial Confirmation/Correspondence to be mailed
business conduit for their sole benefit and/or court without making any specific reference to the to: _____Office
to defeat public convenience. aforequoted ruling of the trial court.[60] _
2.8 Defendant CINTAS, being a mere We do not agree. The judicial admissions made by __
alter ego or business conduit for the foregoing Wilfrido Martinez in his answer to the complaint are __
defendants, has no corporate personality not binding on the petitioner.[61] The evidence on record R
distinct and separate from that of its beneficial shows that the petitioner affixed his signatures on the es
shareholders and likewise has no substantial signature cards merely upon the request of his son, id
assets in its own name. Wilfrido Martinez. The signature cards were printed en
2.9 The remittance of US$340,000.00 as forms of the respondent with the names of the ce
referred to previously, although made upon signatories and the supposed account holders __
the instructions of defendants GONZALES, typewritten thereon and, except for the account number, ___
WILFRIDO C. MARTINEZ and CINTAS, were similarly worded, viz: Othe
was in fact a remittance made for the benefit SIGNATURE CARD rs:__
of the beneficial shareholders of defendant ____
Account Name: Mr. Ruben Martinez and/or
CINTAS.[57] ____
Account Number: MMP-063
The admissions made by the respondent in its _
Mr. Wilfrido C. Martinez
complaint are judicial admissions which cannot be ____
contradicted unless there is a showing that it was made and/or Mr. Miguel J. Lacson __________
through palpable mistake or that no such admission was I.D. Card/Passport _________
made.[58] No.:____________________________________ Other
The respondent impleaded the petitioner only in its ____ Instructions:__________________________
second alternative cause of action, on its allegation that Residence Address: ____________________
the latter was a joint account holder of MMP Nos. 063 ________________________________________ ____________________________________
and 084, simply because he signed the signature cards __ _________________________
with Wilfrido Martinez and/or Lacson in blank. The
trial court found the submission of the respondent duly ____________________________________ ____________________________________
established, based on Wilfrido Martinezs answer to the _Tel.___________________ _________________________
complaint, and held the petitioner liable for the said Office Specimen of signature:
amount based on the signature cards in this language: Address:_____________________________
1. Sgd. (Ruben Martinez) 3. Sgd. (Wilfrido
Defendants Ruben Martinez, Wilfrido C. __________________
Martinez and Miguel Lacson are joint account ____________________________________
holders of the money market placement SIGNATURE NAME SIGNATURE
_Tel. ___________________
account Nos. 063 and 084 (par. 17 page 4 NAME
Answer of defendant Wilfrido C. Martinez; Number of signature required to withdraw
2. Sgd. (Ruben Martinez) 4. Sgd. (Miguel J.
par. 2, page 5, Amended Answer of defendant funds:_____________________
Lacson; t.s.n., 4-18-88, p. 7).[59]
the US$340,000. By the time the respondent realized its not yet matured. Subsequently, we failed
SIGNATURE NAME SIGNATURE mistakes, the funds in the said accounts had already to charge the deposit and MMP accounts
NAME[62] been withdrawn solely by the CLL and/or Wilfrido when they matured and Cintas Largas,
The respondent failed to adduce any evidence, Martinez. This was the testimony of Michael Sung, the Ltd. and/or Wilfrido C. Martinez had
testimonial or documentary, including the relevant witness for the respondent. already withdrawn the bulk of the funds
laws[63] of Hongkong where the placements were made contained in Money Market Placement
Q: Do you know whether this US$340,000
to hold the petitioner liable for the respondents claims. Account No. 063 and the Cintas Largas,
was really transferred to Foreign
Other than the signature cards, the respondent failed to Ltd. Deposit Account thus, we were
Currency Deposit Account No. 18402-7
adduce a shred of evidence to prove (a) the terms and unable to obtain reimbursement
of the Philippine Banking Corporation in
conditions of the money market placements of the CLL therefrom.[64]
in MMP Nos. 063 and 084; and, (b) the rights and It cannot even be argued that if the petitioner would
A: Yes.
obligations of the petitioner, Wilfrido Martinez and not be adjudged liable for the respondents claim, he
Lacson, over the money market placements. In light of Q: Pursuant to the procedure for fund transfer would thereby be enriching himself at the expense of
the evidence on record, the CLL and/or Wilfrido as contained in Exhs. B, C, D and E, after the respondent. There is no evidence on record that the
Martinez never surrendered their ownership over the having made such remittance of petitioner withdrew a single centavo from or was
funds in favor of the petitioner when the latter co- US$340,000.00, what was plaintiff personally benefited by the funds in MMP Nos. 063 and
signed the signature cards. The CLL and/or Wilfrido supposed to do, if any, in order to get 084. The testimonial and documentary evidence of the
Martinez retained complete control and dominion over reimbursement for such transfer? respondent clearly shows that the CLL and/or Wilfrido
the funds. A: Plaintiff was supposed to deduct the Martinez used and disposed of the said funds without
By merely affixing his signatures on the signature US$340,000.00 remitted to the foreign the knowledge, involvement, and consent of the
cards, the petitioner did not necessarily become a joint currency deposit account from the Cintas petitioner. Furthermore, the documentary evidence of
and solidary creditor of the respondent over the said Largas funds or from Money Market the respondent shows the following:
placements. Neither did the petitioner bind himself to Placement Account Nos. 063 and 084 as M
pay to the respondent the US$340,000 which was well as the Cintas Largas, Ltd. deposit M
borrowed by the CLL and/or Wilfrido Martinez, and account. P
later remitted to FCD SA 18402-7. Q: Do you know if plaintiff was able to obtain 06
The respondent has no one but itself to blame for reimbursement of the US$340,000 3
its failure to deduct the US$340,000 from the foreign remitted to the Philippine Banking Statement of Accounts (Deposit)
currency and deposit accounts and money market Corporation in Manila?
Value Funds Funds Remarks
placements of the CLL. The evidence on record shows A: No, because instead of deducting the Date In Out
that the respondent was supposed to deduct the said remittance of US$340,000 from the funds
amount from the money market placements of the CLL in the money market placement accounts
in MMP Nos. 063 and 084, but failed to do so. The and/or the Cintas Largas Deposit 28/ 6,664. Interests
respondent remitted the amount from its own funds and, Account, we posted the US$340,000 11/ 95 earned
by its negligence, merely posted the amount in the remittance as an account receivable of 80
account of the CLL. Worse, the respondent allowed the Cintas Largas, Ltd. since at that time the
CLL and Wilfrido Martinez to withdraw the entirety of money market placement deposits have
the deposits in the said accounts, without first deducting
to Grand of
29/ 4,779. "" Solid Cintas
12/ 66 Enterpri Larga
80 ses Co., s
21/ 4,024. "" Ltd. 09/1 1,290.56 Intere
01/ 83 5,713.7 Transfer 2/80 sts
81 4 to A/C earne
21/ 119,478 Purchase Receiva d
01/ .51 HK$632 ble " 200,000.00 Transf
81 ,041.33 (MMP- er to
@5.29 & 063) Cintas
transferr ________ _________ Larga
ed to its ____ ___ s A/R.
US$443,9 US$443,97 18/1 1,545.42 Intere
t A/C
75.85 5.85[65] 2/80 sts
13/ 2,321. Interests earne
======= ========
02/ 99 earned d
==== ====
200,000.00 T/T to
MMP 084
" 100,015 Transfer Chase
.00 to Cintas Statement of Accounts (Deposit) Manh
Largas Value Funds In Funds Out Rema attan
A/C Date rks NY
Receiva for
ble. Credit
17/ 55.07 Interests 28/1 16,374.36 Intere A/C
02/ earned 1/80 sts Allied
81 earne Capita
d l F/O
18/ 1,317. "" Frank
03/ 27 01/1 488.16 "" Chan
81 2/80 B/O
100,000 Purchase 04/1 1,089.06 "" Grand
.00 HK$525 2/80 Solid.
,000.00 " US$250,000 Transf 02/0 4,608.27 Intere
@5.25 .00 er to 3/81 sts
cheque A/C
(MM @5.112,
earne P- Cheque
d 084) made
" 20,470.74 Transf payable
" 30.00 Cable
er to to Grand
A/C Solid.
of 26/ 3,264. Interests
________ __________
Grand 11/ 34 earned
____ ___
Solid 80
US$777,8 US$777,815
09/0 321.91 Intere " 300,000.0 Purchase
15.02 .02[66]
3/81 sts 0 HK$1,53
earne ======= ========= 5,100.00
d ==== === @5.117,
" 60,000.00 Transf CINTAS LARGAS Cheque
er to made
Statement of Accounts (Deposit) payable
of Value Funds In Funds Out Remarks to Grand
Trinis Date Solid
ia Ltd. 21/ 1,299. Interests
20/0 213.40 Intere 01/ 80 earned
31/ 5,011. Interests 81
3/81 sts 10/ 99 earned
earne 80 " 81,41 Remittan
d 5.00 ce from
17/ 8,067. "" C. Itoh &
" 45,286.26 T/T to 11/ 70
Nitto Co., NY
Tradi 02/ 2,445. Interests
ng & " 350,000.0 Transfer 03/ 49 earned
Josho 0 to A/C of 81
Ind. Grand
Solid " 129,529.2 Transfer
6 to Grand
Ltd., 09/ 3,062. Interests Solids
Japan. 11/ 23 earned A/C
" 2,028.02 Transf 80 Receiva
er to " 350,000.0 Purchase ble
A/C 0 HK$1,78
Recei 9,200.00
" 40,000.00 Purchase " 50,000.00 Purchase
02/ 143,0 Transfer HK$214, HK$275,
04/ 00.00 from 480.00 750.00
81 CLs @5.362, @5.515,
Stateme cheque Cheque
nt A/C made made
10/ 456.8 Interests payable payable
04/ 1 earned to Grand to Grand
81 Solid. Solid

" 50,000.00 Purchase " 52,69 Remittan 11/ 2,252. Interests

HK$267, 2.00 ce from 06/ 36 earned
150.00 Dai Ichi 81
@5.343, Kangyo " 66,400.00 T/T to
Cheque Bank Security
made NY. Pacific
payable REF. Natl
to Grand KOMEI Bank LA
Solid. MARU for A/C
13/ US$ Interests 19/ 178,4 Transfer of
04/ 40.89 earned 05/ 65.18 from Twentiet
81 81 CLs A/C h
Receiva Century
21/ 311.6 "" ble Fox Intl
04/ 6 Corp.
81 22/ 46,47 Remittan
05/ 2.00 ce from " 15.00 Cable
" US$ Purchase 81 C. Itoh & Charge
50,000.00 HK$268, Co., NY
850.00 " 31.65 Purchase
@5.377, HK$175.
cheque 00
made @5.53
payable 26/ 28.40 Interests for
to Grand 05/ earned payment
Solid. 81 of
28/ 132.0 Interests 04/ 1,242. ""
04/ 4 earned 06/ 80
ion Fee.
81 81
for A/C " US$ Reimbur
25/ 1,192. Interests of 1,250.00 sement
06/ 24 earned Furuno of
81 Electric expenses
" 60,000.00 Purchase Co. Ref.: paid to
HK$331, Mar Price
500.00 Tierra Waterho
@5.525, Takashir use &
cheque o Maru, Co.
made Eatelite 17/ 11.91 Interests
payable Nav. and
09/ earned
to Grand Radar. 81
Solid. " 15.00 Cable " 237.43 Purchase
" 22,656.88 T/T to Charge HK$1,42
Daiwa 06/ 17.60 Interests 1.50 for
Bank, 07/ earned cheque
Los 81 payment
Angeles to Price
07/ 14.83 ""
for A/C Waterho
of OAC use &
Equipme Co.
nt Corp. " 16,000.00 T/T to
Dai Ichi 08/ 70,360.00 Remittan
" 45,800.00 T/T to 01/ ce from
Josho 82 C. Itoh &
Ind. Co. Co., NY
Branch 19/ 268.74 Interests
for A/C 01/ earned
" 15.00 Cable of 82
Charge Takashir " 3,064.81 Transfer
03/ 165.4 Interests o Maru. to CLs
07/ 7 earned " 15.00 Cable Margin
81 Charge A/C
" 11,870.00 T/T to 15/ US$ Interests " 50,000.00 Purchase
Bank of 09/ 482.29 earned HK$295,
Tokyo, 81 100.00,
Kobe cheque
SOLIDBANK CORPORATION, petitioner, vs. Chairman of the Board of Directors of the Corporation.
made MINDANAO FERROALLOY Jong-Won Hong, the General Manager of Ssangyong
payable CORPORATION, Spouses JONG-WON Corporation, was the Vice-President of the
to Grand HONG and SOO-OK KIM HONG,* Corporation for Finance, Marketing and
Solid. TERESITA CU, and RICARDO P. Administration. So was Teresita R. Cu. On November
" 5,952.38 Transfer GUEVARA and Spouse,** respondents. 26, 1990, the Board of Directors of the Corporation
to A/C of approved a Resolution authorizing its President and
Trinisia Chairman of the Board of Directors or Teresita R. Cu,
PANGANIBAN, J.: acting together with Jong-Won Hong, to secure an
To justify an award for moral and exemplary omnibus line in the aggregate amount of
________ _________ P30,000,000.00 from the Solidbank x x x.
damages under Articles 19 to 21 of the Civil Code (on
_____ ____
human relations), the claimants must establish the other xxxxxxxxx
TO US$1,756 US$1,732,1 partys malice or bad faith by clear and convincing
TA ,387.32 03.25 In the meantime, the Corporation started its operations
L: sometime in April, 1991. Its indebtedness ballooned to
The Case P200,453,686.69 compared to its assets of only
- 24,284.07 Outstand P65,476,000.00. On May 21, 1991, the Corporation
Before us is a Petition for Review[1] under Rule 45
ing secured an ordinary time loan from the Solidbank in
of the Rules of Court, assailing the December 21, 2001
deposits the amount of P3,200,000.00. Another ordinary time
Decision[2] and the May 15, 2002 Resolution[3] of the
________ _________ Court of Appeals (CA) in CA-GR CV No. 67482. The loan was granted by the Bank to the Corporation on
_____ ____ CA disposed as follows: May 28, 1991, in the amount of P1,800,000.00 or in
the total amount of P5,000,000.00, due on July 15 and
US$1,756 US$1,756,3 IN THE LIGHT OF ALL THE FOREGOING, the 26, 1991, respectively.
,387.32 87.32[67] appeal is DISMISSED. The Decision appealed from is
AFFIRMED.[4] However, the Corporation and the Bank agreed to
======= ======== consolidate and, at the same time, restructure the two
===== ===== The assailed Resolution, on the other hand, denied (2) loan availments, the same payable on September
Clearly from the foregoing, the withdrawals from petitioners Motion for Reconsideration. 20, 1991. The Corporation executed Promissory Note
the deposit and foreign currency accounts and MMP The Facts No. 96-91-00865-6 in favor of the Bank evidencing its
Nos. 063 and 084 of the CLL, after the respondent loan in the amount of P5,160,000.00, payable on
The CA narrated the antecedents as follows: September 20, 1991. Teresita Cu and Jong-Won Hong
remitted the US$340,000, were for the account of the
CLL and/or Wilfrido Martinez, and not of the The Maria Cristina Chemical Industries (MCCI) and affixed their signatures on the note. To secure the
petitioner. three (3) Korean corporations, namely, the Ssangyong payment of the said loan, the Corporation, through
Corporation, the Pohang Iron and Steel Company and Jong-Won Hong and Teresita Cu, executed a Deed of
IN LIGHT OF ALL THE FOREGOING, the Assignment in favor of the Bank covering its rights,
the Dongil Industries Company, Ltd., decided to forge
petition is GRANTED. The Decision of the Court of title and interest to the following:
a joint venture and establish a corporation, under the
name of the Mindanao Ferroalloy Corporation The entire proceeds of drafts
complaint of the respondent against the petitioner in
(Corporation for brevity) with principal offices in drawn under Irrevocable Letter of
Civil Case No. C-10811 is DISMISSED. No costs.
Iligan City. Ricardo P. Guevara was the President and Credit No. M-S-041-2002080
demanding payment of its loan availments inclusive of Respondents as the goods covered by the quedan were
opened with The Mitsubishi Bank interests due. The Corporation failed to comply with nonexistent:
Ltd. Tokyo dated June 13, 1991 for the demand of the Bank. On November 23, 1992, the xxxxxxxxx
the account of Ssangyong Japan Bank sent another letter to the [Corporation]
Corporation, 7F. Matsuoka-Tamura- demanding payment of its account which, by In their Answer to the complaint [in the civil case], the
Cho Bldg., 22-10, 5-Chome, November 23, 1992, had amounted to P7,283,913.33. Spouses Jong-Won Hong and Soo-ok Kim Hong
Shimbashi, Minato-Ku, Tokyo, The Corporation again failed to comply with the alleged, inter alia, that [petitioner] had no cause of
Japan up to the extent of demand of the Bank. action against them as:
US$197,679.00 x x x the clean loan of P5.1 M
On January 6, 1993, the Bank filed a complaint against
The Corporation likewise executed a Quedan, by way the Corporation with the Regional Trial Court of obtained was a corporate undertaking
of additional security, under which the Corporation Makati City, entitled and docketed as Solidbank of defendant MINFACO executed
bound and obliged to keep and hold, in trust for the Corporation vs. Mindanao Ferroalloy Corporation, through its duly authorized
Bank or its Order, Ferrosilicon for US$197,679.00. Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil representatives, Ms. Teresita R. Cu
Jong-Won Hong and Teresita Cu affixed their Case No. 93-038 for Sum of Money with a plea for the and Mr. Jong-Won Hong, both Vice
signatures thereon for the Corporation. The issuance of a writ of preliminary attachment. x x x Presidents then of MINFACO. x x x.
Corporation, also, through Jong-Won Hong and xxxxxxxxx
Teresita Cu, executed a Trust Receipt Agreement, by
way of additional security for said loan, the Under its Amended Complaint, the Plaintiff alleged [On their part, respondents] Teresita Cu and Ricardo
Corporation undertaking to hold in trust, for the Bank, that it impleaded Ricardo Guevara and his wife as Guevara alleged that [petitioner] had no cause of action
as its property, the following: Defendants because, [among others]: against them because: (a) Ricardo Guevara did not sign
any of the documents in favor of [petitioner]; (b)
1. THE MITSUBISHI BANK Defendants JONG-WON Teresita Cu signed the Promissory Note, Deed of
LTD., Tokyo L/C No. M-S- HONG and TERESITA CU, are the Assignment, Trust Receipt and Quedan in blank and
041-2002080 for account of Vice-Presidents of defendant merely as representative and, hence, for and in behalf
Ssangyong Japan Corporation, corporation, and also members of the of the Defendant Corporation and, hence, was not
Tokyo, Japan for companys Board of Directors. They personally liable to [petitioner].
US$197,679.00 Ferrosilicon to are impleaded as joint and solidary
expire September 20, 1991. debtors of [petitioner] bank having In the interim, the Corporation filed, on June 20, 1994,
signed the Promissory Note, Quedan, a Petition, with the Regional Trial Court of Iligan City,
2. SEC QUEDAN NO. 91-476 for Voluntary Insolvency x x x.
and Trust Receipt agreements with
dated June 26, 1991 covering
[petitioner], in this case. xxxxxxxxx
the following:
xxxxxxxxx Appended to the Petition was a list of its creditors,
Ferrosilicon for
US$197,679.00 [Petitioner] likewise filed a criminal complaint x x x including [petitioner], for the amount of
entitled and docketed as Solidbank Corporation vs. P8,144,916.05. The Court issued an Order, on July 12,
However, shortly after the execution of the said deeds, 1994, finding the Petition sufficient in form and
Ricardo Guevara, Teresita R. Cu and Jong Won Hong
the Corporation stopped its operations. The substance x x x.
x x x for Violation of P.D. 115. On April 14, 1993, the
Corporation failed to pay its loan availments from the
investigating Prosecutor issued a Resolution finding xxxxxxxxx
Bank inclusive of accrued interest. On February 11,
no probable cause for violation of P.D. 115 against the
1992, the Bank sent a letter to the Corporation
WHEREFORE, premises Guevara was not even a signatory to the Promissory
In view of said development, the Court issued an considered, this Court hereby Note, the Trust Receipt Agreement, the Deed of
Order, in Civil Case No. 93-038, suspending the resolves to give due course to the Assignment or the Quedan; he was merely authorized
proceedings as against the Defendant Corporation but motion for summary judgment filed to represent Minfaco to negotiate with and secure the
ordering the proceedings to proceed as against the by herein [petitioner]. Consequently, loans from the bank. On the other hand, the CA noted
individual defendants x x x. judgment is hereby rendered in favor that Respondents Cu and Hong had not signed the
xxxxxxxxx of [Petitioner] SOLIDBANK above documents as comakers, but as signatories in
CORPORATION and against their representative capacities as officers of Minfaco.
On December 10, 1999, the Court rendered a Decision [Respondent] MINDANAO
dismissing the complaint for lack of cause of action of Likewise, the CA held that the individual
[petitioner] against the Spouses Jong-Won Hong, respondents were not liable to petitioner for damages,
ordering the latter to pay the former
Teresita Cu and the Spouses Ricardo Guevara, x x x. simply because (1) they had not received the proceeds
the amount of P7,086,686.70, of the irrevocable Letter of Credit, which was the
xxxxxxxxx representing the outstanding balance subject of the Deed of Assignment; and (2) the goods
of the subject loan as of 24
In dismissing the complaint against the individual subject of the Trust Receipt Agreement had been found
September 1994, plus stipulated
[respondents], the Court a quo found and declared that to be nonexistent. The appellate court took judicial
interest at the rate of 16% per annum
[petitioner] failed to adduce a morsel of evidence to notice of the practice of banks and financing institutions
to be computed from the aforesaid
prove the personal liability of the said [respondents] to investigate, examine and assess all properties offered
date until fully paid together with an
for the claims of [petitioner] and that the latter by borrowers as collaterals, in order to determine the
amount equivalent to 12% of the total
impleaded the [respondents], in its complaint and feasibility and advisability of granting loans. Before
amount due each year from 24
amended complaint, solely to put more pressure on the agreeing to the consolidation of Minfacos loans, it
September 1994 until fully paid.
Defendant Corporation to pay its obligations to presumed that petitioner had done its homework.
Lastly, said [respondent] is hereby
[petitioner]. ordered to pay [petitioner] the As to the award of damages to the individual
[Petitioner] x x x interposed an appeal, from the amount of P25,000.00 to [petitioner] respondents, the CA upheld the trial courts findings that
Decision of the Court a quo and posed, for x x x as reasonable attorneys fees as well it was clearly unfair on petitioners part to have
resolution, the issue of whether or not the individual as cost of litigation.[5] impleaded the wives of Guevara and Hong, because the
[respondents], are jointly and severally liable to women were not privy to any of the transactions
In its appeal, petitioner argued that (1) it had
[petitioner] for the loan availments of the [respondent] between petitioner and Minfaco. Under Articles 19, 20
adduced the requisite evidence to prove the solidary
Corporation, inclusive of accrued interests and and 2229 of the Civil Code, such reckless and wanton
liability of the individual respondents, and (2) it was not
penalties. act of pressuring individual respondents to settle the
liable for their counterclaims for damages and attorneys corporations obligations is a ground to award moral and
In the meantime, on motion of [petitioner], the Court fees. exemplary damages, as well as attorneys fees.
set aside its Order, dated February 2, 1995, suspending Ruling of the Court of Appeals
the proceedings as against the [respondent] Hence this Petition.[6]
Corporation. [Petitioner] filed a Motion for Summary Affirming the RTC, the appellate court ruled that
Judgment against the [respondent] Corporation. On the individual respondents were not solidarily liable
February 28, 2000, the Court rendered a Summary with the Mindanao Ferroalloy Corporation, because In its Memorandum, petitioner raises the following
Judgment against the [respondent] Corporation, the they had acted merely as officers of the corporation, issues:
decretal portion of which reads as follows: which was the real party in interest. Respondent
loan documents made them comakers; or because they Tramat Mercantile v. Court of Appeals[13] held
A. Whether or not there is ample evidence on record to committed fraud and deception, which justifies the thus:
support the joint and solidary liability of individual piercing of the corporate veil. Personal liability of a corporate director, trustee or
respondents with Mindanao Ferroalloy Corporation.
The first contention hinges on certain factual officer along (although not necessarily) with the
B. In the absence of joint and solidary liability[,] will determinations made by the trial and the appellate corporation may so validly attach, as a rule, only when
the provision of Article 1208 in relation to Article 1207 courts. These tribunals found that, although he had not 1. He assents (a) to a patently
of the New Civil Code providing for joint liability be signed any document in connection with the subject unlawful act of the corporation, or (b)
applicable to the case at bar. transaction, Respondent Guevara was authorized to for bad faith or gross negligence in
C. May bank practices be the proper subject of judicial represent Minfaco in negotiating for a P30 million loan directing its affairs, or (c) for conflict
notice under Sec. 1 [of] Rule 129 of the Rules of Court. from petitioner. As to Cu and Hong, it was determined, of interest, resulting in damages to
among others, that their signatures on the loan
D. Whether or not there is evidence to sustain the claim the corporation, its stockholders or
documents other than the Deed of Assignment were not
that respondents were impleaded to apply pressure other persons;
prefaced with the word by, and that there were no other
upon them to pay the obligations in lieu of MINFACO signatures to indicate who had signed for and on behalf 2. He consents to the issuance of
that is declared insolvent. of Minfaco, the principal borrower. In the Promissory watered stocks or who, having
E. Whether or not there are sufficient bases for the Note, they signed above the printed name of the knowledge thereof, does not
award of various kinds of and substantial amounts in corporation -- on the space provided for forthwith file with the corporate
damages including payment for attorneys fees. Maker/Borrower, not on that provided for Co-maker. secretary his written objection
F. Whether or not respondents committed fraud and Petitioner has not shown any exceptional
misrepresentations and acted in bad faith. circumstance that sanctions the disregard of these 3. He agrees to hold himself
findings of fact, which are thus deemed final and personally and solidarily liable with
G. Whether or not the inclusion of respondents spouses conclusive upon this Court and may not be reviewed on the corporation; or
is proper under certain circumstances and supported by appeal.[8]
prevailing jurisprudence.[7] 4. He is made, by a specific
No Personal Liability provision of law, to personally
In sum, there are two main questions: (1) whether answer for his corporate action.
the individual respondents are liable, either jointly or for Corporate Deeds
solidarily, with the Mindanao Ferroalloy Corporation; Consistent with the foregoing principles, we
Basic is the principle that a corporation is vested
and (2) whether the award of damages to the individual sustain the CAs ruling that Respondent Guevara was
by law with a personality separate and distinct from that
respondents is valid and legal. not personally liable for the contracts. First, it is beyond
of each person composing[9] or representing it.[10] cavil that he was duly authorized to act on behalf of the
The Courts Ruling Equally fundamental is the general rule that corporate corporation; and that in negotiating the loans with
officers cannot be held personally liable for the
The Petition is partly meritorious. petitioner, he did so in his official capacity. Second, no
consequences of their acts, for as long as these are for sufficient and specific evidence was presented to show
First Issue: and on behalf of the corporation, within the scope of that he had acted in bad faith or gross negligence in that
their authority and in good faith.[11] The separate
Liability of Individual Respondents negotiation. Third, he did not hold himself personally
corporate personality is a shield against the personal and solidarily liable with the corporation. Neither is
Petitioner argues that the individual respondents liability of corporate officers, whose acts are properly there any specific provision of law making him
were jointly or solidarily liable with Minfaco, either attributed to the corporation.[12] personally answerable for the subject corporate acts.
because their participation in the loan contract and the
Furthermore, nothing supports the alleged joint 2. Execute and deliver all documentation necessary to
On the other hand, Respondents Cu and Hong liability of the individual petitioners because, as implement all of the foregoing.[17]
signed the Promissory Note without the word by correctly pointed out by the two lower courts, the Further, the agreement involved here is a contract
preceding their signatures, atop the designation evidence shows that there is only one debtor: the of adhesion, which was prepared entirely by one party
Maker/Borrower and the printed name of the corporation. In a joint obligation, there must be at least and offered to the other on a take it or leave it basis.
corporation, as follows: two debtors, each of whom is liable only for a Following the general rule, the contract must be read
__(Sgd) Cu/Hong__ proportionate part of the debt; and the creditor is against petitioner, because it was the party that prepared
entitled only to a proportionate part of the credit.[15]
(Maker/Borrower) it,[18] more so because a bank is held to high standards
Moreover, it is rather late in the day to raise the of care in the conduct of its business.[19]
MINDANAO FERROALLOY alleged joint liability, as this matter has not been In the totality of the circumstances, we hold that
While their signatures appear without pleaded before the trial and the appellate courts. Before Respondents Cu and Hong clearly signed the Note
qualification, the inference that they signed in their the lower courts, petitioner anchored its claim solely on merely as representatives of Minfaco.
individual capacities is negated by the following facts: the alleged joint and several (or solidary) liability of the
1) the name and the address of the corporation appeared individual respondents. Petitioner must be reminded No Reason to Pierce
on the space provided for Maker/Borrower; 2) that an issue cannot be raised for the first time on the Corporate Veil
Respondents Cu and Hong had only one set of appeal, but seasonably in the proceedings before the
trial court.[16] Under certain circumstances, courts may treat a
signatures on the instrument, when there should have
corporation as a mere aggroupment of persons, to
been two, if indeed they had intended to be bound So too, the Promissory Note in question is a whom liability will directly attach. The distinct and
solidarily -- the first as representatives of the negotiable instrument. Under Section 19 of the separate corporate personality may be disregarded,
corporation, and the second as themselves in their Negotiable Instruments Law, agents or representatives inter alia, when the corporate identity is used to defeat
individual capacities; 3) they did not sign under the may sign for the principal. Their authority may be public convenience, justify a wrong, protect a fraud, or
spaces provided for Co-maker, and neither were their established, as in other cases of agency. Section 20 of defend a crime. Likewise, the corporate veil may be
addresses reflected there; and 4) at the back of the the law provides that a person signing for and on behalf pierced when the corporation acts as a mere alter ego or
Promissory Note, they signed above the words of a [disclosed] principal or in a representative capacity business conduit of a person, or when it is so organized
Authorized Representative. x x x is not liable on the instrument if he was duly and controlled and its affairs so conducted as to make it
Solidary Liability authorized. merely an instrumentality, agency, conduit or adjunct
Not Lightly Inferred The authority of Respondents Cu and Hong to sign of another corporation.[20] But to disregard the separate
for and on behalf of the corporation has been amply juridical personality of a corporation, the wrongdoing
Moreover, it is axiomatic that solidary liability established by the Resolution of Minfacos Board of must be clearly and convincingly established; it cannot
cannot be lightly inferred.[14] Under Article 1207 of the Directors, stating that Atty. Ricardo P. Guevara be presumed.[21]
Civil Code, there is a solidary liability only when the (President and Chairman), or Ms. Teresita R. Cu (Vice
obligation expressly so states, or when the law or the Petitioner contends that the corporation was used
President), acting together with Mr. Jong Won Hong to protect the fraud foisted upon it by the individual
nature of the obligation requires solidarity. Since (Vice President), be as they are hereby authorized for
solidary liability is not clearly expressed in the respondents. It argues that the CA failed to consider the
and in behalf of the Corporation to: 1. Negotiate with following badges of fraud and evident bad faith: 1) the
Promissory Note and is not required by law or the and obtain from (petitioner) the extension of an
nature of the obligation in this case, no conclusion of individual respondents misrepresented the corporation
omnibus line in the aggregate of P30 million x x x; and as solvent and financially capable of paying its loan; 2)
solidary liability can be made.
they knew that prices of ferrosilicon were declining in
Hence, no words, acts or machinations arising from any assess would-be borrowers credit standing or real
the world market when they secured the loan in June of those instruments could have been used by them estate[32] offered as security for the loan applied for.
1991; 3) not a single centavo was paid for the loan; and prior to or simultaneous with the execution of the
Second Issue:
4) the corporation suspended its operations shortly after contract, or even as some accident or particular of the
the loan was granted.[22] obligation. Award of Damages
Fraud refers to all kinds of deception -- whether Second, petitioner bank was in a position to verify The individual respondents were awarded moral
through insidious machination, manipulation, for itself the solvency and trustworthiness of and exemplary damages as well as attorneys fees under
concealment or misrepresentation -- that would lead an respondent corporation. In fact, ordinary business Articles 19 to 21 of the Civil Code, on the basic premise
ordinarily prudent person into error after taking the prudence required it to do so before granting the that the suit was clearly malicious and intended merely
circumstances into account.[23] In contracts, a fraud multimillion loans. It is of common knowledge that, as to harass.
known as dolo causante or causal fraud[24] is basically a matter of practice, banks conduct exhaustive Article 19 of the Civil Code expresses the
a deception used by one party prior to or simultaneous investigations of the financial standing of an applicant fundamental principle of law on human conduct that a
with the contract, in order to secure the consent of the debtor, as well as appraisals of collaterals offered as person must, in the exercise of his rights and in the
other.[25] Needless to say, the deceit employed must be securities for loans to ensure their prompt and performance of his duties, act with justice, give every
serious. In contradistinction, only some particular or satisfactory payment. To uphold petitioners cry of fraud one his due, and observe honesty and good faith. Under
accident of the obligation is referred to by incidental when it failed to verify the existence of the goods this basic postulate, the exercise of a right, though legal
fraud or dolo incidente,[26] or that which is not serious covered by the Trust Receipt Agreement and the by itself, must nonetheless be done in accordance with
in character and without which the other party would Quedan is to condone its negligence. the proper norm. When the right is exercised arbitrarily,
have entered into the contract anyway.[27] unjustly or excessively and results in damage to
Judicial Notice
Fraud must be established by clear and convincing another, a legal wrong is committed for which the
of Bank Practices wrongdoer must be held responsible.[33]
evidence; mere preponderance of evidence is not
adequate.[28] Bad faith, on the other hand, imports a This point brings us to the alleged error of the To be liable under the abuse-of-rights principle,
dishonest purpose or some moral obliquity and appellate court in taking judicial notice of the practice three elements must concur: a) a legal right or duty, b)
conscious doing of a wrong, not simply bad judgment of banks in conducting background checks on its exercise in bad faith, and c) the sole intent of
or negligence.[29] It is synonymous with fraud, in that it borrowers and sureties. While a court is not mandated prejudicing or injuring another.[34] Needless to say,
involves a design to mislead or deceive another.[30] to take judicial notice of this practice under Section 1 absence of good faith[35] must be sufficiently
of Rule 129 of the Rules of Court, it nevertheless may
Unfortunately, petitioner was unable to establish established.
do so under Section 2 of the same Rule. The latter Rule
clearly and precisely how the alleged fraud was Article 20 makes [e]very person who, contrary to
provides that a court, in its discretion, may take judicial
committed. It failed to establish that it was deceived law, willfully or negligently causes damage to another
notice of matters which are of public knowledge, or
into granting the loans because of respondents liable for damages. Upon the other hand, held liable for
ought to be known to judges because of their judicial
misrepresentations and/or insidious actions. Quite the damages under Article 21 is one who willfully causes
contrary, circumstances indicate the weakness of its loss or injury to another in a manner that is contrary to
submission. Thus, the Court has taken judicial notice of the morals, good customs or public policy.
practices of banks and other financial institutions.
First, petitioner does not deny that the P5 million For damages to be properly awarded under the
Precisely, it has noted that it is their uniform practice,
loan represented the consolidation of two loans,[31] above provisions, it is necessary to demonstrate by
before approving a loan, to investigate, examine and
granted long before the bank required the individual clear and convincing evidence[36] that the action
respondents to execute the Promissory Note, Trust instituted by petitioner was clearly so unfounded and
Receipt Agreement, Quedan or Deed of Assignment.
(5) Where the defendant acted in gross and evident bad
untenable as to amount to gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid,
In 1987, Yamamoto and the other respondent,
faith.[37] To justify an award of damages for malicious just and demandable claim; Ikuo Nishino (Nishino), also a Japanese national,
prosecution, one must prove two elements: malice or
(6) In actions for legal support; forged a Memorandum of Agreement under which they
sinister design to vex or humiliate and want of probable
agreed to enter into a joint venture wherein Nishino
cause.[38] (7) In actions for the recovery of wages of household
would acquire such number of shares of stock
helpers, laborers and skilled workers;
Petitioner was proven wrong in impleading equivalent to 70% of the authorized capital stock of
Spouses Guevara and Hong. Beyond that fact, however, (8) In actions for indemnity under workmens WAKO.
respondents have not established that the suit was so compensation and employers liability laws;
patently malicious as to warrant the award of damages (9) In a separate civil action to recover civil liability
under the Civil Codes Articles 19 to 21, which are Eventually, Nishino and his brotherxxv
arising from a crime;
grounded on malice or bad faith.[39] With the Yoshinobu Nishino (Yoshinobu) acquired more than
presumption of law on the side of good faith, and in the (10) When at least double judicial costs are awarded; 70% of the authorized capital stock of WAKO,
absence of adequate proof of malice, we find that (11) In any other case where the court deems it just and reducing Yamamotos investment therein to, by his
petitioner impleaded the spouses because it honestly equitable that attorneys fees and expenses of litigation claim, 10%,xxv less than 10% according to
believed that the conjugal partnerships had benefited should be recovered. Nishino.xxv
from the proceeds of the loan, as stated in their
Complaint and subsequent pleadings. Its act does not In the instant case, none of the enumerated grounds
amount to evident bad faith or malice; hence, an award for recovery of attorneys fees are present. The corporate name of WAKO was later
for damages is not proper. The adverse result of an act WHEREFORE, this Petition is PARTIALLY changed to, as reflected earlier, its current name NLII.
per se neither makes the act wrongful nor subjects the GRANTED. The assailed Decision is AFFIRMED, but
actor to the payment of damages, because the law could the award of moral and exemplary damages as well as
not have meant to impose a penalty on the right to attorneys fees is DELETED. No costs. Negotiations subsequently ensued in light of a
litigate.[40] planned takeover of NLII by Nishino who would buy-
SO ORDERED. out the shares of stock of Yamamoto. In the course of
For the same reason, attorneys fees cannot be the negotiations, Yoshinobu and Nishinos counsel
granted. Article 2208 of the Civil Code states that in the Atty. Emmanuel G. Doce (Atty. Doce) advised
absence of a stipulation, attorneys fees cannot be Yamamoto by letter dated October 30, 1991, the
recovered, except in any of the following YAMAMOTO VS NISHINO LEATHER pertinent portions of which follow:
(1) When exemplary damages are awarded;
In 1983, petitioner, Ryuichi Yamamoto Hereunder is a simple
(2) When the defendants act or omission has compelled (Yamamoto), a Japanese national, organized under memorandum of the subject matters
the plaintiff to litigate with third persons or to incur Philippine laws Wako Enterprises Manila, discussed with me by Mr. Yoshinobu
expenses to protect his interest; Incorporated (WAKO), a corporation engaged Nishino yesterday, October 29th, based
(3) In criminal cases of malicious prosecution against principally in leather tanning, now known as Nishino on the letter of Mr. Ikuo Nishino from
the plaintiff; Leather Industries, Inc. (NLII), one of herein Japan, and which I am now transmitting
respondents. to you.xxv
(4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;
x x x xxxv (Emphasis and The trial court, by Decision of June 9, 1995,
underscoring supplied) decided the case in favor of Yamamoto,xxv disposing
xxxx thus:

12. Machinery and WHEREFORE, judgment is

On the basis of such letter, Yamamoto
Equipment: hereby rendered: (1) declaring plaintiff
attempted to recover the machineries and equipment
as the rightful owner and possessor of
which were, by Yamamotos admission, part of his
the machineries in question, and making
investment in the corporation,xxv but he was frustrated
The following the writ of seizure permanent; (2)
by respondents, drawing Yamamoto to file on January
machinery/equipment have been ordering defendants to pay plaintiff
15, 1992 before the Regional Trial Court (RTC) of
contributed by you to the company: attorneys fees and expenses of litigation
Makati a complaintxxv against them for replevin.
in the amount of Fifty Thousand Pesos
(P50,000.00), Philippine Currency; (3)
Splitting machine - Branch 45 of the Makati RTC issued a writ of dismissing defendants counterclaims for
1 unit replevin after Yamamoto filed a bond. xxv lack of merit; and (4) ordering
defendants to pay the costs of suit.
Samming machine -
1 unit
In their Answer with Counterclaim,xxv
Forklift - respondents claimed that the machineries and SO ORDERED.xxv
1 unit equipment subject of replevin form part of Yamamotos (Underscoring supplied)
Drums - capital contributions in consideration of his equity in
4 units NLII and should thus be treated as corporate property;
and that the above-said letter of Atty. Doce to
Toggling machine - Yamamoto was merely a proposal, conditioned on On appeal,xxv the Court of Appeals held in
2 units [Yamamotos] sell-out to . . . Nishino of his entire favor of herein respondents and accordingly reversed
equity,xxv which proposal was yet to be authorized by the RTC decision and dismissed the complaint.xxv In so
the stockholders and Board of Directors of NLII. holding, the appellate court found that the machineries
Regarding the above machines, you and equipment claimed by Yamamoto are corporate
may take them out with you (for your property of NLII and may not thus be retrieved without
own use and sale) if you want, By way of Counterclaim, respondents, alleging the authority of the NLII Board of Directors;xxv and that
provided, the value of such that they suffered damage due to the seizure via the petitioners argument that Nishino and Yamamoto
machines is deducted from your and implementation of the writ of replevin over the cannot hide behind the shield of corporate fiction does
Wakos capital contributions, which machineries and equipment, prayed for the award to not lie,xxv nor does petitioners invocation of the
will be paid to you. them of moral and exemplary damages, attorneys fees doctrine of promissory estoppel.xxv At the same time,
and litigation expenses, and costs of suit. the Court of Appeals found no ground to support
respondents Counterclaim.xxv
Kindly let me know of your
comments on all the above, soonest.
the directors are directors in name only
The Court of Appeals having deniedxxv his and are there to do the bidding of the
Indeed, without a Board Resolution authorizing
Motion for Reconsideration,xxv Yamamoto filed the Nish[i]nos, nothing more. Its minutes
respondent Nishino to act for and in behalf of the
present petition,xxv faulting the Court of Appeals are paper minutes. x x x xxv
corporation, he cannot bind the latter. Under the
Corporation Law, unless otherwise provided, corporate
powers are exercised by the Board of Directors.xxv xxxx
Urging this Court to pierce the veil of corporate The fact that the parties started at
fiction, Yamamoto argues, viz:
x x x IN HOLDING THAT THE VEIL a 70-30 ratio and Yamamotos
OF CORPORATE FICTION SHOULD percentage declined to 10% does not
NOT BE PIERCED IN THE CASE AT mean the 20% went to others. x x x The
During the negotiations, the
BAR. 20% went to no one else but Ikuo
issue as to the ownership of the
himself. x x x Yoshinobu is the
Machiner[ies] never came up. Neither
did the issue on the proper procedure to younger brother of Ikuo and has no
B. be taken to execute the complete take- say at all in the business. Only Ikuo
over of the Company come up since makes the decisions. There were,
Ikuo, Yoshinobu, and Yamamoto were therefore, no other members of the
x x x IN HOLDING THAT THE the owners thereof, the presence of other Board who have not given their
DOCTRINE OF PROMISSORY approval.xxv (Emphasis and
stockholders being only for the purpose
ESTOPPEL DOES NOT APPLY TO underscoring supplied)
of complying with the minimum
THE CASE AT BAR. requirements of the law.

C. What course of action the While the veil of separate corporate personality
Company decides to do or not to do may be pierced when the corporation is merely an
depends not on the other members of the adjunct, a business conduit, or alter ego of a person,xxv
x x x IN HOLDING THAT Board of Directors. It depends on what the mere ownership by a single stockholder of even all
RESPONDENTS ARE NOT LIABLE or nearly all of the capital stocks of a corporation is not
Ikuo and Yoshinobu decide. The
FOR ATTORNEYS FEES.xxv by itself a sufficient ground to disregard the separate
Company is but a mere
instrumentality of Ikuo [and] corporate personality.xxv

The resolution of the petition hinges, in the The elements determinative of the applicability
main, on whether the advice in the letter of Atty. Doce xxxx of the doctrine of piercing the veil of corporate fiction
that Yamamoto may retrieve the machineries and follow:
x x x The Company hardly holds
equipment, which admittedly were part of his board meetings. It has an inactive board,
investment, bound the corporation. The Court holds in
the negative.
wrongdoing or unjust act in contravention of a plaintiffs anytime, respondents should not be
1. Control, not mere majority or legal rights must be clearly and convincingly allowed to turn around and do the exact
complete stock control, but complete established; it cannot be presumed.xxv Without a opposite of what they have represented
domination, not only of finances but of demonstration that any of the evils sought to be they will do.
policy and business practice in respect prevented by the doctrine is present, it does not
to the transaction attacked so that the apply.xxv
corporate entity as to this transaction In paragraph twelve (12) of the
had at the time no separate mind, will or Letter, Yamamoto was expressly
existence of its own; In the case at bar, there is no showing that advised that he could take out the
Nishino used the separate personality of NLII to Machinery if he wanted to so, provided
unjustly act or do wrong to Yamamoto in contravention that the value of said machines would be
2. Such control must have been of his legal rights. deducted from his capital contribution x
used by the defendant to commit fraud x x.
or wrong, to perpetuate the violation of
a statutory or other positive legal duty, Yamamoto argues, in another vein, that
or dishonest and unjust act in promissory estoppel lies against respondents, thus: xxxx
contravention of the plaintiffs legal
rights; and
Under the doctrine of Respondents cannot now argue
promissory estoppel, x x x estoppel may that they did not intend for Yamamoto
3. The aforesaid control and arise from the making of a promise, to rely upon the Letter. That was the
breach of duty must proximately cause even though without consideration, if it purpose of the Letter to begin with.
the injury or unjust loss complained of. was intended that the promise should be Petitioner[s] in fact, relied upon said
relied upon and in fact it was relied Letter and such reliance was further
upon, and if a refusal to enforce it would strengthened during their meeting at the
The absence of any one of these be virtually to sanction the perpetration Manila Peninsula.
elements prevents piercing the of fraud or would result in other
corporate veil. In applying the injustice.
instrumentality or alter ego doctrine, To sanction respondents attempt
the courts are concerned with reality to evade their obligation would be to
and not form, with how the corporation x x x Ikuo and Yoshinobu sanction the perpetration of fraud and
operated and the individual defendants wanted Yamamoto out of the Company. injustice against petitioner.xxv
relationship to that operation.xxv For this purpose negotiations were had (Underscoring supplied)
(Italics in the original; emphasis and between the parties. Having expressly
underscoring supplied) given Yamamoto, through the Letter
and through a subsequent meeting at the
Manila Peninsula where Ikuo himself It bears noting, however, that the
confirmed that Yamamoto may take out aforementioned paragraph 12 of the letter is followed
In relation to the second element, to disregard the the Machinery from the Company
separate juridical personality of a corporation, the
or directors of the corporation unless the indispensable Sometime in 1991, respondents delivered to
by a request for Yamamoto to give his comments on all conditions and procedures for the protection of petitioners various quantities of eggs at an agreed
the above, soonest.xxv corporate creditors are followed.xxv service fee of 80 centavos per egg, whether successfully
hatched or not. Each delivery was reflected in a Setting
Report indicating the following: the number of eggs
What was thus proffered to Yamamoto was not WHEREFORE, the petition is DENIED. delivered; the date of setting or the date the eggs were
a promise, but a mere offer, subject to his acceptance. delivered and laid out in the incubators; the date of
Without acceptance, a mere offer produces no candling or the date the eggs, through a lighting system,
obligation.xxv Costs against petitioner. were inspected and determined if viable or capable of
being hatched into chicks; and the date of hatching,
which is also the date respondents would pick-up the
Thus, under Article 1181 of the Civil Code, [i]n SO ORDERED. chicks and by-products. Initially, the service fees were
conditional obligations, the acquisition of rights, as paid upon release of the eggs and by-products to
well as the extinguishment or loss of those already respondents. But as their business went along,
acquired, shall depend upon the happening of the event respondents delays on their payments were tolerated by
which constitutes the condition. In the case at bar, there For review on certiorari is the Decisionxxv dated April San Juan, who just carried over the balance, as there
is no showing of compliance with the condition for 30, 2003 of the Court of Appeals in CA-G.R. CV No. may be, into the next delivery, out of keeping goodwill
allowing Yamamoto to take the machineries and 56082, which had affirmed the Decisionxxv dated July with respondents.
equipment, namely, his agreement to the deduction of 8, 1996 of the Regional Trial Court (RTC) of Malolos,
their value from his capital contribution due him in the From January 13 to February 3, 1993,
Bulacan, Branch 9 in Civil Case No. 745-M-93. The
buy-out of his interests in NLII. Yamamotos allegation respondents had delivered to San Juan a total of
Court of Appeals, after applying the doctrine of piercing
that he agreed to the conditionxxv remained just that, 101,3[50]xxv eggs, detailed as follows:xxv
the veil of corporate fiction, held petitioners ASJ
no proof thereof having been presented. Corporation (ASJ Corp.) and Antonio San Juan Date Set SR Number No. of eggs
solidarily liable to respondents Efren and Maura delivered Date hatched/Pick-up date
Evangelista for the unjustified retention of the chicks and 1/13/1993 SR 108 32,566
The machineries and equipment, which egg by-products covered by Setting Report Nos. 108 to
comprised Yamamotos investment in NLII,xxv thus eggs February 3, 1993
remained part of the capital property of the 1/20/1993 SR 109 21,485
corporation.xxv The pertinent facts, as found by the RTC and the eggs February 10, 1993
Court of Appeals, are as follows:
1/22/1993 SR 110 7,213
Respondents, under the name and style of R.M. eggs February 12, 1993
It is settled that the property of a corporation is Sy Chicks, are engaged in the large-scale business of
not the property of its stockholders or members.xxv buying broiler eggs, hatching them, and selling their 1/28/1993 SR 111 14,495
Under the trust fund doctrine, the capital stock, hatchlings (chicks) and egg by-productsxxv in Bulacan eggs February 18, 1993
property, and other assets of a corporation are regarded and Nueva Ecija. For the incubation and hatching of
as equity in trust for the payment of corporate creditors 1/30/1993 SR 112 15,346
these eggs, respondents availed of the hatchery services eggs February 20, 1993
which are preferred over the stockholders in the of ASJ Corp., a corporation duly registered in the name
distribution of corporate assets.xxv The distribution of of San Juan and his family. 2/3/1993 SR 113 10,24[5]xxv
corporate assets and property cannot be made to depend eggs February 24, 1993
on the whims and caprices of the stockholders, officers,
respondents. Fearing San Juans threats, respondents damages and P50,000.00 as attorneys
TOTAL 101,350 eggs never went back to the hatchery. fees, plus the costs of suit.
On February 3, 1993, respondent Efren went to The parties tried to settle amicably their SO ORDERED.xxv
the hatchery to pick up the chicks and by-products differences before police authorities, but to no avail.
Both parties appealed to the Court of Appeals.
covered by Setting Report No. 108, but San Juan Thus, respondents filed with the RTC an action for Respondents prayed for an additional award of
refused to release the same due to respondents failure damages based on petitioners retention of the chicks P76,139.00 as actual damages for the cost of other
to settle accrued service fees on several setting reports and by-products covered by Setting Report Nos. 108 to unreturned by-products and P1,727,687.52 as
starting from Setting Report No. 90. Nevertheless, San 113. unrealized profits, while petitioners prayed for the
Juan accepted from Efren 10,245 eggs covered by
On July 8, 1996, the RTC ruled in favor of reversal of the trial courts entire decision.
Setting Report No. 113 and P15,000.00xxv in cash as
respondents and made the following findings: (1) as of
partial payment for the accrued service fees. On April 30, 2003, the Court of Appeals denied
Setting Report No. 107, respondents owed petitioners both appeals for lack of merit and affirmed the trial
On February 10, 1993, Efren returned to the P102,336.80;xxv (2) petitioners withheld the release of courts decision, with the slight modification of
hatchery to pick up the chicks and by-products covered the chicks and by-products covered by Setting Report including an award of exemplary damages of
by Setting Report No. 109, but San Juan again refused Nos. 108-113;xxv and (3) the retention of the chicks P10,000.00 in favor of respondents. The Court of
to release the same unless respondents fully settle their and by-products was unjustified and accompanied by Appeals, applying the doctrine of piercing the veil of
accounts. In the afternoon of the same day, respondent threats and intimidations on respondents.xxv The RTC corporate fiction, considered ASJ Corp. and San Juan
Maura, with her son Anselmo, tendered P15,000.00xxv disregarded the corporate fiction of ASJ Corp.,xxv and as one entity, after finding that there was no bona fide
to San Juan, and tried to claim the chicks and by- held it and San Juan solidarily liable to respondents for intention to treat the corporation as separate and distinct
products. She explained that she was unable to pay their P529,644.80 as actual damages, P100,000.00 as moral from San Juan and his wife Iluminada. The fallo of the
balance because she was hospitalized for an damages, P50,000.00 as attorneys fees, plus interests Court of Appeals decision reads:
undisclosed ailment. San Juan accepted the P15,000.00, and costs of suit. The decretal portion of the decision
but insisted on the full settlement of respondents reads: WHEREFORE, in view of the
accounts before releasing the chicks and by-products. foregoing, the Decision appealed from
WHEREFORE, based on the
Believing firmly that the total value of the eggs is hereby AFFIRMED, with the slight
evidence on record and the
delivered was more than sufficient to cover the modification that exemplary damages
laws/jurisprudence applicable thereon,
outstanding balance, Maura promised to settle their in the amount of P10,000.00 are
judgment is hereby rendered ordering
accounts only upon proper accounting by San Juan. San awarded to plaintiffs.
the defendants to pay, jointly and
Juan disliked the idea and threatened to impound their Costs against defendants.
severally, unto the plaintiffs the
vehicle and detain them at the hatchery compound if
amounts of P529,644.80, representing SO ORDERED.xxv
they should come back unprepared to fully settle their
the value of the hatched chicks and by-
accounts with him. Hence, the instant petition, assigning the
products which the plaintiffs on the
On February 11, 1993, respondents directed average expected to derive under Setting following errors:
their errand boy, Allan Blanco, to pick up the chicks Reports Nos. 108 to 113, inclusive, with I.
and by-products covered by Setting Report No. 110 and legal interest thereon from the date of
also to ascertain if San Juan was still willing to settle this judgment until the same shall have THE HONORABLE COURT OF
amicably their differences. Unfortunately, San Juan been fully paid, P100,000.00 as moral APPEALS GRIEVOUSLY ERRED IN
was firm in his refusal and reiterated his threats on HOLDING, AS DID THE COURT A
THE HONORABLE COURT OF to personally observe and analyze the demeanor of the
WITHHELD/OR FAILED TO APPEALS ERRED IN HOLDING witnesses while testifying, is in a better position to pass
RELEASE THE CHICKS AND BY- THAT PETITIONERS HAVE judgment on their credibility.xxv More importantly,
PRODUCTS COVERED BY SETTING VIOLATED THE PRINCIPLES factual findings of the trial court, when amply
REPORT NOS. 108 AND 109. ENUNCIATED IN ART. 19 OF THE supported by evidence on record and affirmed by the
II. NEW CIVIL CODE AND appellate court, are binding upon this Court and will not
CONSEQUENTLY IN AWARDING be disturbed on appeal.xxv While there are exceptional
THE HONORABLE COURT OF MORAL DAMAGES, EXEMPLARY circumstancesxxv when these findings may be set
APPEALS ERRED IN ADMITTING DAMAGES AND ATTORNEYS aside, none of them is present in this case.
MAURA EVANGELISTA Based on the records, as well as the parties own
SUPPORTIVE OF ITS FINDINGS VI. admissions, the following facts were uncontroverted:
THAT PETITIONERS (1) As of Setting Report No. 107, respondents were
WITHHELD/OR FAILED TO indebted to petitioners for P102,336.80 as accrued
RELEASE THE CHICKS AND BY- service fees for Setting Report Nos. 90 to 107;xxv (2)
PRODUCTS COVERED BY SETTING Petitioners, based on San Juans own admission,xxv did
REPORT NOS. 108 AND 109. not release the chicks and by-products covered by
Plainly, the issues submitted for resolution are: Setting Report Nos. 108 and 109 for failure of
III. First, did the Court of Appeals err when (a) it ruled that respondents to fully settle their previous accounts; and
THE HONORABLE COURT OF petitioners withheld or failed to release the chicks and (3) Due to San Juans threats, respondents never
APPEALS, AS DID THE COURT A by-products covered by Setting Report Nos. 108 and returned to the hatchery to pick up those covered by
QUO, ERRED IN NOT FINDING 109; (b) it admitted the testimony of Maura; (c) it did Setting Report Nos. 110 to 113.xxv
THAT RESPONDENTS FAILED TO not find that it was respondents who failed to return to
Furthermore, although no hard and fast rule can
RETURN TO THE PLANT TO GET the hatchery to pick up the chicks and by-products
be accurately laid down under which the juridical
THE CHICKS AND BY-PRODUCTS covered by Setting Report Nos. 110 to 113; and (d) it
personality of a corporate entity may be disregarded,
COVERED BY SETTING REPORT pierced the veil of corporate fiction and held ASJ Corp.
the following probative factors of identity justify the
NOS. 110, 111, 112 AND 113. and Antonio San Juan as one entity? Second, was it
application of the doctrine of piercing the veil of
proper to hold petitioners solidarily liable to
IV. corporate fictionxxv in this case: (1) San Juan and his
respondents for the payment of P529,644.80 and other
wife own the bulk of shares of ASJ Corp.; (2) The lot
where the hatchery plant is located is owned by the San
APPEALS ERRED IN HOLDING, AS In our view, there are two sets of issues that the Juan spouses; (3) ASJ Corp. had no other properties or
DID THE COURT A QUO, THAT THE petitioners have raised. assets, except for the hatchery plant and the lot where it
PIERCING OF THE VEIL OF is located; (4) San Juan is in complete control of the
CORPORATE ENTITY IS The first set is factual. Petitioners seek to
establish a set of facts contrary to the factual findings corporation; (5) There is no bona fide intention to treat
JUSTIFIED, AND CONSEQUENTLY ASJ Corp. as a different entity from San Juan; and (6)
HOLDING PETITIONERS JOINTLY of the trial and appellate courts. However, as well
established in our jurisprudence, only errors of law are The corporate fiction of ASJ Corp. was used by San
AND SEVERALLY LIABLE TO PAY Juan to insulate himself from the legitimate claims of
RESPONDENTS THE SUM OF reviewable by this Court in a petition for review under
Rule 45.xxv The trial court, having had the opportunity respondents, defeat public convenience, justify wrong,
P529,644.[80]. defend crime, and evade a corporations subsidiary
Respondents offer to partially satisfy their another.xxv Here, while petitioners had the right to
liability for damages.xxv These findings, being purely accounts is not enough to extinguish their obligation. withhold delivery, the high-handed and oppressive acts
one of fact,xxv should be respected. We need not assess Under Article 1248xxv of the Civil Code, the creditor of petitioners, as aptly found by the two courts below,
and evaluate the evidence all over again where the cannot be compelled to accept partial payments from had no legal leg to stand on. We need not weigh the
findings of both courts on these matters coincide. the debtor, unless there is an express stipulation to that corresponding pieces of evidence all over again
On the second set of issues, petitioners contend effect. More so, respondents cannot substitute or apply because factual findings of the trial court, when adopted
that the retention was justified and did not constitute an as their payment the value of the chicks and by- and confirmed by the appellate court, are binding and
abuse of rights since it was respondents who failed to products they expect to derive because it is necessary conclusive and will not be disturbed on appeal.xxv
comply with their obligation. Respondents, for their part, that all the debts be for the same kind, generally of a Since it was established that respondents
aver that all the elements on abuse of rights were present. monetary character. Needless to say, there was no valid suffered some pecuniary loss anchored on petitioners
They further state that despite their offer to partially application of payment in this case.
abuse of rights, although the exact amount of actual
satisfy the accrued service fees, and the fact that the Furthermore, it was respondents who violated damages cannot be ascertained, temperate damages are
value of the chicks and by-products was more than the very essence of reciprocity in contracts, recoverable. In arriving at a reasonable level of
sufficient to cover their unpaid obligations, petitioners consequently giving rise to petitioners right of temperate damages of P408,852.10, which is equivalent
still chose to withhold the delivery. retention. This case is clearly one among the species of to the value of the chicks and by-products, which
The crux of the controversy, in our considered non-performance of a reciprocal obligation. Reciprocal respondents, on the average, are expected to derive, this
view, is simple enough. Was petitioners retention of the obligations are those which arise from the same cause, Court was guided by the following factors: (a) award of
chicks and by-products on account of respondents wherein each party is a debtor and a creditor of the temperate damages will cover only Setting Report Nos.
failure to pay the corresponding service fees other, such that the performance of one is conditioned 109 to 113 since the threats started only on February 10
unjustified? While the trial and appellate courts had the upon the simultaneous fulfillment of the other.xxv and 11, 1993, which are the pick-up dates for Setting
same decisions on the matter, suffice it to say that a From the moment one of the parties fulfills his Report Nos. 109 and 110; the rates of (b) 41% and (c)
modification is proper. Worth stressing, petitioners act obligation, delay by the other party begins.xxv 17%, representing the average rates of conversion of
of withholding the chicks and by-products is entirely broiler eggs into hatched chicks and egg by-products as
Since respondents are guilty of delay in the
different from petitioners unjustifiable acts of tabulated by the trial court based on available statistical
performance of their obligations, they are liable to pay
threatening respondents. The retention had legal basis; data which was unrebutted by petitioners; (d) 68,784
petitioners actual damages of P183,416.80, computed
the threats had none. eggs,xxv or the total number of broiler eggs under
as follows: From respondents outstanding balance of
Setting Report Nos. 109 to 113; and (e) P14.00 and (f)
To begin with, petitioners obligation to deliver P102,336.80, as of Setting Report No. 107, we add the
P1.20, or the then unit market price of the chicks and
the chicks and by-products corresponds to three dates: corresponding services fees of P81,080.00xxv for
by-products, respectively.
the date of hatching, the delivery/pick-up date and the Setting Report Nos. 108 to 113 which had remain
date of respondents payment. On several setting unpaid. Thus, the temperate damages of P408,852.10 is
reports, respondents made delays on their payments, computed as follows:
Nonetheless, San Juans subsequent acts of
but petitioners tolerated such delay. When respondents threatening respondents should not remain among those [b X (d X e) + c X (d X f)] = Temperate
accounts accumulated because of their successive treated with impunity. Under Article 19xxv of the Civil Damages
failure to pay on several setting reports, petitioners Code, an act constitutes an abuse of right if the 41% X (68,784 eggs X P14) =
opted to demand the full settlement of respondents following elements are present: (a) the existence of a P394,820.16
accounts as a condition precedent to the delivery. legal right or duty; (b) which is exercised in bad faith;
However, respondents were unable to fully settle their and (c) for the sole intent of prejudicing or injuring
12% from the date of finality of this P15,000.00 which had become final and executory,
17% X (68,784 eggs X P1.20) = P judgment until fully paid. should be executed to its full amount, since in fixing it,
14,031.94 payment already made had been considered.
c. The award of moral damages,
[P394,820.16 + P14,031.94] = exemplary damages and attorneys Now we are asked whether the judgment may be
P408,852.10 fees of P100,000.00, P10,000.00, executed against Jose M. Aruego, supposed President
At bottom, we agree that petitioners conduct P50,000.00, respectively, in favor of of University Publishing Co., Inc., as the real
flouts the norms of civil society and justifies the award respondents is hereby AFFIRMED. defendant.
of moral and exemplary damages. As enshrined in civil d. All other claims are hereby Fifteen years ago, on September 24, 1949, Mariano A.
law jurisprudence: Honeste vivere, non alterum laedere DENIED. Albert sued University Publishing Co., Inc. Plaintiff
et jus suum cuique tribuere. To live virtuously, not to alleged inter alia that defendant was a corporation duly
No pronouncement as to costs.
injure others and to give everyone his due.xxv Since organized and existing under the laws of the
exemplary damages are awarded, attorneys fees are also SO ORDERED. Philippines; that on July 19, 1948, defendant, through
proper. Article 2208 of the Civil Code provides that: Jose M. Aruego, its President, entered into a contract
In the absence of stipulation, with plaintifif; that defendant had thereby agreed to pay
attorneys fees and expenses of litigation, plaintiff P30,000.00 for the exclusive right to publish
other than judicial costs, cannot be ENTITLEMENT RO CONSTI RIGHTS his revised Commentaries on the Revised Penal Code
recovered, except: and for his share in previous sales of the book's first
A. DUE PROCESS edition; that defendant had undertaken to pay in eight
(1) When exemplary damages quarterly installments of P3,750.00 starting July 15,
are awarded; MARIANO A. ALBERT, plaintiff-appellant, 1948; that per contract failure to pay one installment
xxxx vs. would render the rest due; and that defendant had failed
UNIVERSITY PUBLISHING CO., INC., defendant- to pay the second installment.
WHEREFORE, the petition is PARTLY appellee.
GRANTED. The Decision dated April 30, 2003 of the Defendant admitted plaintiff's allegation of defendant's
Court of Appeals in CA-G.R. CV No. 56082 is hereby Uy & Artiaga and Antonio M. Molina for plaintiff- corporate existence; admitted the execution and terms
MODIFIED as follows: appellant. of the contract dated July 19, 1948; but alleged that it
Aruego, Mamaril & Associates for defendant- was plaintiff who breached their contract by failing to
a. Respondents are ORDERED to appellees. deliver his manuscript. Furthermore, defendant
pay petitioners P183,416.80 as counterclaimed for damages.1äwphï1.ñët
actual damages, with interest of 6% BENGZON, J.P., J.:
from the date of filing of the Plaintiff died before trial and Justo R. Albert, his
No less than three times have the parties here appealed
complaint until fully paid, plus legal estate's administrator, was substituted for him.
to this Court.
interest of 12% from the finality of The Court of First Instance of Manila, after trial,
this decision until fully paid. In Albert vs. University Publishing Co., Inc., L-9300,
rendered decision on April 26, 1954, stating in the
April 18, 1958, we found plaintiff entitled to damages
b. The award of actual damages of dispositive portion —
(for breach of contract) but reduced the amount from
P529,644.80 in favor of respondents P23,000.00 to P15,000.00. IN VIEW OF ALL THE FOREGOING,
is hereby REDUCED to the Court renders judgment in favor of
P408,852.10, with legal interest of Then in Albert vs. University Publishing Co., Inc., L-
the plaintiff and against the defendant
15275, October 24, 1960, we held that the judgment for
The fact of non-registration of University Publishing we ruled: "A person acting or purporting to act on
the University Publishing Co., Inc., Co., Inc. in the Securities and Exchange Commission behalf of a corporation which has no valid existence
ordering the defendant to pay the has not been disputed. Defendant would only raise the assumes such privileges and obligations and becomes
administrator Justo R. Albert, the sum of point that "University Publishing Co., Inc.," and not personally liable for contracts entered into or for other
P23,000.00 with legal [rate] of interest Jose M. Aruego, is the party defendant; thereby acts performed as such agent." Had Jose M. Aruego
from the date of the filing of this assuming that "University Publishing Co., Inc." is an been named as party defendant instead of, or together
complaint until the whole amount shall existing corporation with an independent juridical with, "University Publishing Co., Inc.," there would be
have been fully paid. The defendant personality. Precisely, however, on account of the non- no room for debate as to his personal liability. Since he
shall also pay the costs. The registration it cannot be considered a corporation, not was not so named, the matters of "day in court" and
counterclaim of the defendant is hereby even a corporation de facto (Hall vs. Piccio, 86 Phil. "due process" have arisen.
dismissed for lack of evidence. 603). It has therefore no personality separate from Jose
In this connection, it must be realized that parties to a
As aforesaid, we reduced the amount of damages to M. Aruego; it cannot be sued independently. suit are "persons who have a right to control the
P15,000.00, to be executed in full. Thereafter, on July The corporation-by-estoppel doctrine has not been proceedings, to make defense, to adduce and cross-
22, 1961, the court a quo ordered issuance of an invoked. At any rate, the same is inapplicable here. examine witnesses, and to appeal from a decision" (67
execution writ against University Publishing Co., Inc. Aruego represented a non-existent entity and induced C.J.S. 887) — and Aruego was, in reality, the person
Plaintiff, however, on August 10, 1961, petitioned for a not only the plaintiff but even the court to believe in who had and exercised these rights. Clearly, then,
writ of execution against Jose M. Aruego, as the real such representation. He signed the contract as Aruego had his day in court as the real defendant; and
defendant, stating, "plaintiff's counsel and the Sheriff of "President" of "University Publishing Co., Inc.," stating due process of law has been substantially observed.
Manila discovered that there is no such entity as that this was "a corporation duly organized and existing By "due process of law" we mean " "a law which hears
University Publishing Co., Inc." Plaintiff annexed to his under the laws of the Philippines," and obviously
before it condemns; which proceeds upon inquiry, and
petition a certification from the securities and Exchange misled plaintiff (Mariano A. Albert) into believing the renders judgment only after trial. ... ." (4 Wheaton, U.S.
Commission dated July 31, 1961, attesting: "The same. One who has induced another to act upon his 518, 581.)"; or, as this Court has said, " "Due process
records of this Commission do not show the registration wilful misrepresentation that a corporation was duly of law" contemplates notice and opportunity to be heard
of UNIVERSITY PUBLISHING CO., INC., either as a organized and existing under the law, cannot thereafter before judgment is rendered, affecting one's person or
corporation or partnership." "University Publishing set up against his victim the principle of corporation by property" (Lopez vs. Director of Lands, 47 Phil. 23,
Co., Inc." countered by filing, through counsel (Jose M. estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it
Aruego's own law firm), a "manifestation" stating that
"University Publishing Co., Inc." purported to come to may not be amiss to mention here also that the "due
"Jose M. Aruego is not a party to this case," and that,
court, answering the complaint and litigating upon the process" clause of the Constitution is designed to secure
therefore, plaintiff's petition should be denied.
merits. But as stated, "University Publishing Co., Inc." justice as a living reality; not to sacrifice it by paying
Parenthetically, it is not hard to decipher why has no independent personality; it is just a name. Jose undue homage to formality. For substance must prevail
"University Publishing Co., Inc.," through counsel, M. Aruego was, in reality, the one who answered and over form. It may now be trite, but none the less apt, to
would not want Jose M. Aruego to be considered a litigated, through his own law firm as counsel. He was quote what long ago we said in Alonso vs. Villamor, 16
party to the present case: should a separate action be in fact, if not, in name, the defendant. Phil. 315, 321-322:
now instituted against Jose M. Aruego, the plaintiff will
Even with regard to corporations duly organized and A litigation is not a game of
have to reckon with the statute of limitations.
existing under the law, we have in many a case pierced technicalities in which one, more deeply
The court a quo denied the petition by order of the veil of corporate fiction to administer the ends of schooled and skilled in the subtle art of
September 9, 1961, and from this, plaintiff has justice. * And in Salvatiera vs. Garlitos, supra, p. 3073, movement and position, entraps and
Concio, a list of three (3) film packages (36 title) from
destroys the other. It is, rather, a contest ENTITLEMENT TO MORAL DAMAGES which ABS-CBN may exercise its right of first refusal
in which each contending party fully under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A
and fairly lays before the court the facts and 2-B Viva). ABS-CBN, however through Mrs.
in issue and then, brushing side as ABS-CBN BROADCASTING CORPORATION, Concio, can tick off only ten (10) titles (from the list)
wholly trivial and indecisive all petitioners, vs. HONORABLE COURT OF we can purchase (Exh. 3 Viva) and therefore did not
imperfections of form and technicalities APPEALS, REPUBLIC BROADCASTING accept said list (TSN, June 8, 1992, pp. 9-10). The titles
of procedure, asks that Justice be done CORP., VIVA PRODUCTIONS, INC., and ticked off by Mrs. Concio are not the subject of the case
upon the merits. Lawsuits, unlike duels, VICENTE DEL ROSARIO, respondents. at bar except the film Maging Sino Ka Man.
are not to be won by a rapier's thrust. DECISION For further enlightenment, this rejection letter
Technicality, when it deserts its proper
DAVIDE, JR., C.J.: dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
office as an aid to justice and becomes
its great hindrance and chief enemy, In this petition for review on certiorari, petitioners 6 January 1992
deserves scant consideration from ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) Dear Vic,
courts. There should be no vested rights seeks to reverse and set aside the decisionxxv of 31
in technicalities. This is not a very formal business letter I
October 1996 and the resolutionxxv of 10 March 1997
am writing to you as I would like to express
The evidence is patently clear that Jose M. Aruego, of the Court of Appeals in CA-G.R. CV No. 44125. The
my difficulty in recommending the purchase
acting as representative of a non-existent principal, was former affirmed with modification the decisionxxv of 28
of the three film packages you are offering
the real party to the contract sued upon; that he was the April 1993 of the Regional Trial Court (RTC) of
one who reaped the benefits resulting from it, so much Quezon City, Branch 80, in Civil Case No. Q-12309.
so that partial payments of the consideration were made The latter denied the motion to reconsider the decision From among the three packages I can only
by him; that he violated its terms, thereby precipitating of 31 October 1996. tick off 10 titles we can purchase. Please see
the suit in question; and that in the litigation he was the attached. I hope you will understand my
The antecedents, as found by the RTC and adopted
real defendant. Perforce, in line with the ends of justice, position. Most of the action pictures in the list
by the Court of Appeals, are as follows:
responsibility under the judgment falls on him. do not have big action stars in the cast. They
In 1990, ABS-CBN and VIVA executed a Film are not for primetime. In line with this I wish
We need hardly state that should there be persons who Exhibition Agreement (Exh. A) whereby Viva gave to mention that I have not scheduled for
under the law are liable to Aruego for reimbursement ABS-CBN an exclusive right to exhibit some Viva telecast several action pictures in our very first
or contribution with respect to the payment he makes films. Sometime in December 1991, in accordance with contract because of the cheap production value
under the judgment in question, he may, of course, paragraph 2.4 [sic] of said agreement stating that- of these movies as well as the lack of big
proceed against them through proper remedial action stars. As a film producer, I am sure you
measures. 1.4 ABS-CBN shall have the right of first
refusal to the next twenty-four (24) Viva films understand what I am trying to say as Viva
PREMISES CONSIDERED, the order appealed for TV telecast under such terms as may be produces only big action pictures.
from is hereby set aside and the case remanded agreed upon by the parties hereto, provided, In fact, I would like to request two (2)
ordering the lower court to hold supplementary however, that such right shall be exercised by additional runs for these movies as I can only
proceedings for the purpose of carrying the ABS-CBN from the actual offer in writing. schedule them in out non-primetime slots. We
judgment into effect against University have to cover the amount that was paid for
Publishing Co., Inc. and/or Jose M. Aruego. So Viva, through defendant Del Rosario, offered
ABS-CBN, through its vice-president Charo Santos- these movies because as you very well know
52 titles, as a total of 156 titles, proposing to sell to covering 53 films, 52 of which came from the list sent
that non-primetime advertising rates are very ABS-CBN airing rights over this package of 52 by defendant Del Rosario and one film was added by
low. These are the unaired titles in the first originals and 52 re-runs for P60,000,000.00 of which Ms. Concio, for a consideration of P35 million. Exhibit
contract. P30,000,000.00 will be in cash and P30,000,000.00 C provides that ABS-CBN is granted film rights to 53
1. Kontra Persa [sic] worth of television spots (Exh. 4 to 4-C Viva; 9 Viva). films and contains a right of first refusal to 1992 Viva
Films. The said counter proposal was however rejected
2. Raider Platoon On April 2, 1992, defendant Del Rosario and ABS-
by Vivas Board of Directors [in the] evening of the
CBNs general manager, Eugenio Lopez III, met at the
3. Underground guerillas same day, April 7, 1992, as Viva would not sell
Tamarind Grill Restaurant in Quezon City to discuss
anything less than the package of 104 films for P60
4. Tiger Command the package proposal of VIVA. What transpired in that
million pesos (Exh. 9 Viva), and such rejection was
lunch meeting is the subject of conflicting versions. Mr.
5. Boy de Sabog relayed to Ms. Concio.
Lopez testified that he and Mr. Del Rosario allegedly
6. lady Commando agreed that ABS-CBN was granted exclusive film On April 29, 1992, after the rejection of ABS-CBN
rights to fourteen (14) films for a total consideration of and following several negotiations and meetings
7. Batang Matadero P36 million; that he allegedly put this agreement as to defendant Del Rosario and Vivas President Teresita
8. Rebelyon the price and number of films in a napkin and signed it Cruz, in consideration of P60 million, signed a letter of
and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24- agreement dated April 24, 1992, granting RBS the
I hope you will consider this request of
26, 77-78, June 8, 1992). On the other hand. Del exclusive right to air 104 Viva-produced and/or
Rosario denied having made any agreement with Lopez acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including
The other dramatic films have been regarding the 14 Viva films; denied the existence of a the fourteen (14) films subject of the present case.xxv
offered to us before and have been rejected napkin in which Lopez wrote something; and insisted
On 27 May 1992, ABS-CBN filed before the RTC
because of the ruling of MTRCB to have them that what he and Lopez discussed at the lunch meeting a complaint for specific performance with a prayer for
aired at 9:00 p.m. due to their very adult was Vivas film package offer of 104 films (52 originals a writ of preliminary injunction and/or temporary
themes. and 52 re-runs) for a total price of P60 million. Mr. restraining order against private respondents Republic
Lopez promising [sic]to make a counter proposal which
As for the 10 titles I have choosen [sic] Broadcasting Corporationxxv (hereafter RBS), Viva
from the 3 packages please consider including came in the form of a proposal contract Annex C of the Production (hereafter VIVA), and Vicente del Rosario.
all the other Viva movies produced last year, I complaint (Exh. 1 Viva; Exh C ABS-CBN). The complaint was docketed as Civil Case No. Q-92-
have quite an attractive offer to make. On April 06, 1992, Del Rosario and Mr. Graciano 12309.
Thanking you and with my warmest Gozon of RBS Senior vice-president for Finance On 28 May 1992, the RTC issued a temporary
discussed the terms and conditions of Vivas offer to sell
regards. restraining orderxxv enjoining private respondents from
the 104 films, after the rejection of the same package
(Signed) proceeding with the airing, broadcasting, and televising
by ABS-CBN. of the fourteen VIVA films subject of the controversy,
Charo Santos-Concio On April 07, 1992, defendant Del Rosario received starting with the film Maging Sino Ka Man, which was
On February 27, 1992, defendant Del Rosario through his secretary , a handwritten note from Ms. scheduled to be shown on private respondent RBS
approached ABS-CBNs Ms. Concio, with a list Concio, (Exh. 5 Viva), which reads: Heres the draft of channel 7 at seven oclock in the evening of said date.
consisting of 52 original movie titles (i.e., not yet aired the contract. I hope you find everything in order, to On 17 June 1992, after appropriate proceedings,
on television) including the 14 titles subject of the which was attached a draft exhibition agreement (Exh. the RTC issued an orderxxv directing the issuance of a
present case, as well as 104 re-runs (previously aired on C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal writ of preliminary injunction upon ABS-CBNs posting
television) from which ABS-CBN may choose another
docketed as CA-G.R. SP No. 29300. exemplary damages;
of a P35 million bond. ABS-CBN moved for the
On 3 November 1992, the Court of Appeals issued (3) For the defendant VIVA, plaintiff ABS-
reduction of the bond,xxv while private respondents
a temporary restraining orderxxv to enjoin the airing, CBN is ordered to pay P212,000.00 by way
moved for reconsideration of the order and offered to
broadcasting, and televising of any or all of the films of reasonable attorneys fees.
put up a counterbond.xxv
involved in the controversy. (4) The cross-claim of defendant RBS against
In the meantime, private respondents filed separate
On 18 December 1992, the Court of Appeals defendant VIVA is dismissed.
answer with counterclaim.xxv RBS also set up a cross-
promulgated a decisionxxv dismissing the petition in
claim against VIVA. (5) Plaintiff to pay the costs.
CA-G.R. SP No. 29300 for being premature. ABS-
On 3 August 1992, the RTC issued an order xxv CBN challenged the dismissal in a petition for review According to the RTC, there was no meeting of
dissolving the writ of preliminary injunction upon the filed with this Court on 19 January 1993, which was minds on the price and terms of the offer. The alleged
posting by RBS of a P30 million counterbond to answer docketed s G.R. No. 108363. agreement between Lopez III and Del Rosario was
for whatever damages ABS-CBN might suffer by virtue subject to the approval of the VIVA Board of Directors,
In the meantime the RTC received the evidence for
of such dissolution. However, it reduced petitioners and said agreement was disapproved during the
the parties in Civil Case No. Q-92-12309. Thereafter,
injunction bond to P15 million as a condition precedent meeting of the Board on 7 April 1992. Hence, there was
on 28 April 1993, it rendered a decisionxxv in favor of
for the reinstatement of the writ of preliminary no basis for ABS-CBNs demand that VIVA signed the
RBS and VIVA and against ABS-CBN disposing as
injunction should private respondents be unable to post 1992 Film Exhibition Agreement. Furthermore, the
a counterbond. right of first refusal under the 1990 Film Exhibition
WHEREFORE, under cool reflection and Agreement had previously been exercised per Ms.
At the pre-trialxxv on 6 August 1992, the parties
prescinding from the foregoing, judgment is rendered Concios letter to Del Rosario ticking off ten titles
upon suggestion of the court, agreed to explore the
in favor of defendants and against the plaintiff. acceptable to them, which would have made the 1992
possibility of an amicable settlement. In the meantime,
agreement an entirely new contract.
RBS prayed for and was granted reasonable time within (1) The complaint is hereby dismissed;
which to put up a P30 million counterbond in the event On 21 June 1993, this Court deniedxxv ABS-CBNs
(2) Plaintiff ABS-CBN is ordered to pay
that no settlement would be reached. petition for review in G.R. No. 108363, as no reversible
defendant RBS the following:
error was committed by the Court of Appeals in its
As the parties failed to enter into an amicable a) P107,727.00 the amount of challenged decision and the case had become moot and
settlement, RBS posted on 1 October 1992 a premium paid by RBS to the surety academic in view of the dismissal of the main action by
counterbond, which the RTC approved in its Order of which issued defendants RBSs the court a quo in its decision of 28 April 1993.
15 October 1992.xxv bond to lift the injunction;
Aggrieved by the RTCs decision, ABS-CBN
On 19 October 1992, ABS-CBN filed a motion for b) P191,843.00 for the amount of print appealed to the Court of Appeals claiming that there
reconsiderationxxv of the 3 August and 15 October 1992 advertisement for Maging Sino Ka was a perfected contract between ABS-CBN and VIVA
Orders, which RBS opposed.xxv Man in various newspapers; granting ABS-CBN the exclusive right to exhibit the
On 29 October, the RTC conducted a pre-trial.xxv c) Attorneys fees in the amount of P1 subject films. Private respondents VIVA and Del
Pending resolution of its motion for million; Rosario also appealed seeking moral and exemplary
reconsideration, ABS-CBN filed with the Court of damages and additional attorneys fees.
d) P5 million as and by way of moral
Appeals a petitionxxv challenging the RTCs Order of 3 damages; In its decision of 31 October 1996, the Court of
August and 15 October 1992 and praying for the Appeals agreed with the RTC that the contract between
issuance of a writ of preliminary injunction to enjoin e) P5 million as and by way of ABS-CBN and VIVA had not been perfected, absent
the RTC from enforcing said orders. The case was
The offer of VIVA was sometime in December denied VIVA and Del Rosarios appeal because it was
the approval by the VIVA Board of Directors of 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; RBS and not VIVA which was actually prejudiced
whatever Del Rosario, its agent, might have agreed with Decision, p. 11, Records, p. 1150), when the first list of when the complaint was filed by ABS-CBN.
Lopez III. The appellate court did not even believe VIVA films was sent by Mr. Del Rosario to ABS-CBN. Its motion for reconsideration having been denied,
ABS-CBNs evidence that Lopez III actually wrote The Vice President of ABS-CBN, Mrs. Charo Santos- ABS-CBN filed the petition in this case, contending
down such an agreement on a napkin, as the same was Concio, sent a letter dated January 6, 1992 (Exhibit 3, that the Court of Appeals gravely erred in
never produced in court. It likewise rejected ABS- Records, p. 89) where ABS-CBN exercised its right of
CBNs insistence on its right of first refusal and refusal by rejecting the offer of VIVA. As aptly I
ratiocinated as follows: observed by the trial court, with the said letter of Mrs. RULING THAT THERE WAS NO
As regards the matter of right of first refusal, it may Concio of January 6, 1992, ABS-CBN had lost its right PERFECTED CONTRACT BETWEEN
be true that a Film Exhibition Agreement was entered of first refusal. And even if We reckon the fifteen (15) PETITIONER AND PRIVATE
into between Appellant ABS-CBN and appellant VIVA day period from February 27, 1992 (Exhibit 4 to 4-C) RESPONDENT VIVA
under Exhibit A in 1990 and that parag. 1.4 thereof when another list was sent to ABS-CBN after the letter NOTWITHSTANDING
provides: of Mrs. Concio, still the fifteen (15) day period within PREPONFERANCE OF EVIDENCE
which ABS-CBN shall exercise its right of first refusal ADDUCED BY PETITIONER TO THE
1.4 ABS-CBN shall have the right of first has already expired.xxv CONTRARY.
refusal to the next twenty-four (24) VIVA
films for TV telecast under such terms as may Accordingly, respondent court sustained the award II
be agreed upon by the parties hereto, provided, factual damages consisting in the cost of print
advertisements and the premium payments for the IN AWARDING ACTUAL AND
however, that such right shall be exercised by COMPENSATORY DAMAGES IN
ABS-CBN within a period of fifteen (15) days counterbond, there being adequate proof of the
pecuniary loss which RBS has suffered as a result of the FAVOR OF PRIVATE RESPONDENT
from the actual offer in writing (Records, p. RBS.
14). filing of the complaint by ABS-CBN. As to the award
of moral damages, the Court of Appeals found III
[H]owever, it is very clear that said right of first refusal reasonable basis therefor, holding that RBSs reputation
in favor of ABS-CBN shall still be subjected to such was debased by the filing of the complaint in Civil Case IN AWARDING MORAL AND
terms as may be agreed upon by the parties thereto, and No. Q-92-12309 and by the non-showing of the film EXEMPLARY DAMAGES IN FAVOR
that the said right shall be exercised by ABS-CBN Maging Sino Ka Man. Respondent court also held that OF PRIVATE RESPONDENT RBS.
within fifteen (15) days from the actual offer in writing. exemplary damages were correctly imposed by way of IV
Said parag. 1.4 of the agreement Exhibit A on the example or correction for the public good in view of the
right of first refusal did not fix the price of the film right filing of the complaint despite petitioners knowledge
to the twenty-four (24) films, nor did it specify the that the contract with VIVA had not been perfected. It
terms thereof. The same are still left to be agreed upon also upheld the award of attorneys fees, reasoning that ABS-CBN claims that it had yet to fully exercise
by the parties. with ABS-CBNs act of instituting Civil Case No. Q-92- its right of first refusal over twenty-four titles under the
12309, RBS was unnecessarily forced to litigate. The 1990 Film Exhibition Agreement, as it had chosen only
In the instant case, ABS-CBNs letter of rejection appellate court, however, reduced the awards of moral ten titles from the first list. It insists that we give
Exhibit 3 (Records, p. 89) stated that it can only tick off damages to P 2 million, exemplary damages to P2 credence to Lopezs testimony that he and Del Rosario
ten (10) films, and the draft contract Exhibit C accepted million, and attorneys fees to P500,000.00. met at the Tamarind Grill Restaurant, discussed the
only fourteen (14) films, while parag. 1.4 of Exhibit A terms and conditions of the second list (the 1992 Film
speaks of the next twenty-four (24) films. On the other hand, respondent Court of Appeals
did not arise from any contractual dealings or from affirms that ABS-CBNs claim of a right of first refusal
Exhibition Agreement) and upon agreement thereon, specific acts committed by ABS-CBN against RBS that was correctly rejected by the trial court. RBS insists the
wrote the same on a paper napkin. It also asserts that may be characterized as wanton, fraudulent, or premium it had paid for the counterbond constituted a
the contract has already been effective, as the elements reckless; they arose by virtue only of the filing of the pecuniary loss upon which it may recover. It was
thereof, namely, consent, object, and consideration complaint. An award of moral and exemplary damages obliged to put up the counterbond due to the injunction
were established. It then concludes that the Court of is not warranted where the record is bereft of any proof procured by ABS-CBN. Since the trial court found that
Appeals pronouncements were not supported by law that a party acted maliciously or in bad faith in filing an ABS-CBN had no cause of action or valid claim against
and jurisprudence, as per our decision of 1 December action.xxv In any case, free resort to courts for redress of RBS and, therefore not entitled to the writ of injunction,
1995 in Limketkai Sons Milling, Inc. v. Court of wrongs is a matter of public policy. The law recognizes RBS could recover from ABS-CBN the premium paid
Appeals,xxv which cited Toyota Shaw, Inc. v. Court of the right of every one to sue for that which he honestly on the counterbond. Contrary to the claim of ABS-
Appeals;xxv Ang Yu Asuncion v. Court of Appeals,xxv believes to be his right without fear of standing trial for CBN, the cash bond would prove to be more expensive,
and Villonco Realty Company v. Bormaheco, Inc.xxv damages where by lack of sufficient evidence, legal as the loss would be equivalent to the cost of money
Anent the actual damages awarded to RBS, ABS- technicalities, or a different interpretation of the laws RBS would forego in case the P30 million came from
CBN disavows liability therefor. RBS spent for the on the matter, the case would lose ground.xxv One who, its funds or was borrowed from banks.
premium on the counterbond of its own volition in makes use of his own legal right does no injury.xxv If RBS likewise asserts that it was entitled to the cost
order to negate the injunction issued by the trial court damage results from filing of the complaint, it is of advertisements for the cancelled showing of the film
after the parties had ventilated their respective positions damnum absque injuria.xxv Besides, moral damages are Maging Sino Ka Man because the print advertisements
during the hearings for the purpose. The filing of the generally not awarded in favor of a juridical person, were out to announce the showing on a particular day
counterbond was an option available to RBS, but it can unless it enjoys a good reputation that was debased by and hour on Channel 7, i.e., in its entirety at one time,
hardly be argued that ABS-CBN compelled RBS to the offending party resulting in social humiliation.xxv not as series to be shown on a periodic basis. Hence, the
incur such expense. Besides, RBS had another available As regards the award of attorneys fees, ABS-CBN print advertisements were good and relevant for the
option, i.e., move for the dissolution of the injunction; maintains that the same had no factual, legal, or particular date of showing, and since the film could not
or if it was determined to put up a counterbond, it could equitable justification. In sustaining the trial courts be shown on that particular date and hour because of
have presented a cash bond. Furthermore under Article award, the Court of Appeals acted in clear disregard of the injunction, the expenses for the advertisements had
2203 of the Civil Code, the party suffering loss injury the doctrine laid down in Buan v. Camaganacanxxv that gone to waste.
is also required to exercise the diligence of a good the text of the decision should state the reason why As regards moral and exemplary damages, RBS
father of a family to minimize the damages resulting attorneys fees are being awarded; otherwise, the award asserts that ABS-CBN filed the case and secured
from the act or omission. As regards the cost of print should be disallowed. Besides, no bad faith has been injunctions purely for the purpose of harassing and
advertisements, RBS had not convincingly established imputed on, much less proved as having been prejudicing RBS. Pursuant then to Articles 19 and 21 of
that this was a loss attributable to the non-showing of committed by, ABS-CBN. It has been held that where the Civil Code, ABS-CBN must be held liable for such
Maging Sino Ka Man; on the contrary, it was brought no sufficient showing of bad faith would be reflected in damages. Citing Tolentino,xxv damages may be
out during trial that with or without the case or a partys persistence in a case other than an erroneous awarded in cases of abuse of rights even if the done is
injunction, RBS would have spent such an amount to conviction of the righteousness of his cause, attorneys not illicit, and there is abuse of rights where a plaintiff
generate interest in the film. fees shall not be recovered as cost.xxv institutes an action purely for the purpose of harassing
ABS-CBN further contends that there was no other On the other hand, RBS asserts that there was no or prejudicing the defendant.
clear basis for the awards of moral and exemplary perfected contract between ABS-CBN and VIVA In support of its stand that a juridical entity can
damages. The controversy involving ABS-CBN and absent meeting of minds between them regarding the recover moral and exemplary damages, private
RBS did not in any way originate from business object and consideration of the alleged contract. It
transaction between them. The claims for such damages
RBS suffer the humiliation. The humiliation and injury fulfillment or performance of the terms
respondent RBS cited People v. Manero, where it are far greater in degree when caused by an entity agreed upon in the contract.xxv
was stated that such entity may recover moral and whose ultimate business objective is to lure customers Contracts that are consensual in nature are
exemplary damages if it has a good reputation that is (viewers in this case) away from the competition.xxv perfected upon mere meeting of the minds. Once there
debased resulting in social humiliation. It then
For their part, VIVA and Vicente del Rosario is concurrence between the offer and the acceptance
ratiocinates; thus:
contend that the findings of fact of the trial court and upon the subject matter, consideration, and terms of
There can be no doubt that RBS reputation has the Court of Appeals do not support ABS-CBNs claim payment a contract is produced. The offer must be
been debased by ABS-CBNs acts in this case. When that there was a perfected contract. Such factual certain. To convert the offer into a contract, the
RBS was not able to fulfill its commitment to the findings can no longer be disturbed in this petition for acceptance must be absolute and must not qualify the
viewing public to show the film Maging Sino Ka Man review under Rule 45, as only questions of law can be terms of the offer; it must be plain, unequivocal,
on the scheduled dates and times (and on two occasions raised, not questions of fact. On the issue of damages unconditional, and without variance of any sort from
that RBS advertised), it suffered serious embarrassment and attorneys fees, they adopted the arguments of RBS. the proposal. A qualified acceptance, or one that
and social humiliation. When the showing was involves a new proposal, constitutes a counter-offer and
The key issues for our consideration are (1)
cancelled, irate viewers called up RBS offices and is a rejection of the original offer. Consequently, when
whether there was a perfected contract between VIVA
subjected RBS to verbal abuse (Announce kayo ng something is desired which is not exactly what is
and ABS-CBN, and (2) whether RBS is entitled to
announce, hindi ninyo naman ilalabas, nanloloko yata proposed in the offer, such acceptance is not sufficient
damages and attorneys fees. It may be noted that that
kayo) (Exh. 3-RBS, par.3). This alone was not to generate consent because any modification or
award of attorneys fees of P212,000 in favor of VIVA
something RBS brought upon itself. It was exactly what variation from the terms of the offer annuls the offer.xxv
is not assigned as another error.
ABS-CBN had planted to happen.
When Mr. Del Rosario of Viva met Mr. Lopez of
The amount of moral and exemplary damages ABS-CBN at the Tamarind Grill on 2 April 1992 to
cannot be said to be excessive. Two reasons justify the The first issue should be resolved against ABS- discuss the package of films, said package of 104 VIVA
amount of the award. CBN. A contract is a meeting of minds between two films was VIVAs offer to ABS-CBN to enter into a new
persons whereby one binds himself to give something Film Exhibition Agreement. But ABS-CBN, sent
The first is that the humiliation suffered by RBS, is
or render some service to anotherxxv for a consideration. through Ms. Concio, counter-proposal in the form a
national in extent. RBS operations as a broadcasting
There is no contract unless the following requisites draft contract proposing exhibition of 53 films for a
company is [sic] nationwide. Its clientele, like that of
concur: (1) consent of the contracting parties; (2) object consideration of P35 million. This counter-proposal
ABS-CBN, consists of those who own and watch
certain which is the subject of the contract; and (3) could be nothing less than the counter-offer of Mr.
television. It is not an exaggeration to state, and it is a
cause of the obligation, which is established.xxv A Lopez during his conference with Del Rosario at
matter of judicial notice that almost every other person
contract undergoes three stages: Tamarind Grill Restaurant. Clearly, there was no
in the country watches television. The humiliation
suffered by RBS is multiplied by the number of (a) preparation, conception, or generation, acceptance of VIVAs offer, for it was met by a counter-
televiewers who had anticipated the showing of the which is the period of negotiation and offer which substantially varied the terms of the offer.
film, Maging Sino Ka Man on May 28 and November bargaining, ending at the moment of ABS-CBNs reliance in Limketkai Sons Milling,
3, 1992 but did not see it owing to the cancellation. agreement of the parties; Inc. v. Court of Appealsxxv and Villonco Realty
Added to this are the advertisers who had placed (b) perfection or birth of the contract, which is Company v. Bormaheco, Inc.,xxv is misplaced. In these
commercial spots for the telecast and to whom RBS had the moment when the parties come to cases, it was held that an acceptance may contain a
a commitment in consideration of the placement to agree on the terms of the contract; and request for certain changes in the terms of the offer and
show the film in the dates and times specified. yet be a binding acceptance as long as it is clear that the
(c) consummation or death, which is the
The second is that it is a competitor that caused
of agency as to the binding effects of their acts would perfection thereof. For settled is the rule that there can
meaning of the acceptance is positively and apply.xxv For such officers to be deemed fully clothed be no contract where there is no object certain which is
unequivocally to accept the offer, whether such request by the corporation to exercise a power of the Board, the its subject matter (Art. 1318, NCC).
is granted or not. This ruling was, however, reversed in latter must specially authorize them to do so. that Del THIRD, Mr. Lopez [sic] answer to question 29 of
the resolution of 29 March 1996,xxv which ruled that the Rosario did not have the authority to accept ABS-CBNs his affidavit testimony (Exh. D) States:
acceptance of an offer must be unqualified and counter-offer was best evidenced by his submission of
absolute, i.e., it must be identical in all respects with the draft contract to VIVAs Board of Directors for the We were able to reach an agreement.
that of the offer so as to produce consent or meetings of latters approval. In any event, there was between Del VIVA gave us the exclusive license to show
the minds. Rosario and Lopez III no meeting of minds. The these fourteen (14) films, and we agreed to pay
following findings of the trial court are instructive: Viva the amount of P16,050,000.00 as well as
On the other hand, in Villonco, cited in Limketkai,
grant Viva commercial slots worth
the alleged changes in the revised counter-offer were A number of considerations militate against ABS- P19,950,000.00. We had already earmarked
not material but merely clarificatory of what had CBNs claim that a contract was perfected at that lunch this P16,050,000.00.
previously been agreed upon. It cited the statement in meeting on April 02, 1992 at the Tamarind Grill.
Stuart v. Franklin Life Insurance Co.xxv that a vendors which gives a total consideration of P36 million
FIRST, Mr. Lopez claimed that what was agreed
change in a phrase of the offer to purchase, which (P19,951,000.00 plus P16,050,000.00 equals
upon at the Tamarind Grill referred to the price and the
change does not essentially change the terms of the P36,000,000.00).
number of films, which he wrote on a napkin. However,
offer, does not amount to a rejection of the offer and the On cross-examination Mr. Lopez testified:
Exhibit C contains numerous provisions which were
tender of a counter-offer.xxv However, when any of the
not discussed at the Tamarind Grill, if Lopez testimony Q What was written in this napkin?
elements of the contract is modified upon acceptance,
was to be believed nor could they have been physically
such alteration amounts to a counter-offer. A The total price, the breakdown the known Viva
written on a napkin. There was even doubt as to
In the case at bar, ABS-CBN made no unqualified whether it was a paper napkin or cloth napkin. In short movies, the 7 blockbuster movies and the other
acceptance of VIVAs offer hence, they underwent what were written in Exhibit C were not discussed, and 7 Viva movies because the price was broken
period of bargaining. ABS-CBN then formalized its therefore could not have been agreed upon, by the down accordingly. The none [sic] Viva and the
counter-proposals or counter-offer in a draft contract. parties. How then could this court compel the parties to seven other Viva movies and the sharing
VIVA through its Board of Directors, rejected such sign Exhibit C when the provisions thereof were not between the cash portion and the concerned spot
counter-offer. Even if it be conceded arguendo that Del previously agreed upon? portion in the total amount of P35 million pesos.
Rosario had accepted the counter-offer, the acceptance Now, which is which? P36 million or P35 million? This
SECOND, Mr. Lopez claimed that what was
did not bind VIVA, as there was no proof whatsoever weakens ABS-CBNs claim.
agreed upon as the subject matter of the contract was 14
that Del Rosario had the specific authority to do so.
films. The complaint in fact prays for delivery of 14 FOURTH. Mrs. Concio, testifying for ABS-CBN
Under the Corporation Code,xxv unless otherwise films. But Exhibit C mentions 53 films as its subject stated that she transmitted Exhibit C to Mr. Del Rosario
provided by said Code, corporate powers, such as the matter. Which is which? If Exhibit C reflected the true with a handwritten note, describing said Exhibit C as a
power to enter into contracts, are exercised by the intent of the parties, then ABS-CBNs claim for 14 films draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The
Board of Directors. However, the Board may delegate in its complaint is false or if what it alleged in the said draft has a well defined meaning.
such powers to either an executive committee or complaint is true, then Exhibit C did not reflect what
officials or contracted managers. The delegation, was agreed upon by the parties. This underscores the Since Exhibit C is only a draft, or a tentative,
except for the executive committee, must be for specific fact that there was no meeting of the minds as to the provisional or preparatory writing prepared for
purposes.xxv Delegation to officers makes the latter subject matter of the contract, so as to preclude discussion, the terms and conditions thereof could not
agents of the corporation; accordingly, the general rules have been previously agreed upon by ABS-CBN and
A Yes, sir. (Tsn, p. 69, June 8, 1992). refusal had already been exercised when Ms. Concio
Viva. Exhibit C could not therefore legally bind Viva, wrote to Viva ticking off ten films. Thus:
The above testimony of Mr. Lopez shows beyond
not having agreed thereto. In fact, Ms. Concio admitted
doubt that he knew Mr. Del Rosario had no authority to [T]he subsequent negotiation with ABS-CBN two
that the terms and conditions embodied in Exhibit C
bind Viva to a contract with ABS-CBN until and unless (2) months after this letter was sent, was for an
were prepared by ABS-CBNs lawyers and there was no
its Board of Directors approved it. The complaint, in entirely different package. Ms. Concio herself
discussion on said terms and conditions.
fact, alleges that Mr. Del Rosario is the Executive admitted on cross-examination to having used or
As the parties had not yet discussed the proposed Producer of defendant Viva which is a corporation. exercised the right of first refusal. She stated that
terms and conditions in Exhibit C, and there was no (par. 2, complaint). As a mere agent of Viva, Del the list was not acceptable and was indeed not
evidence whatsoever that Viva agreed to the terms and Rosario could not bind Viva unless what he did is accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-
conditions thereof, said document cannot be a binding ratified by its Directors. (Vicente vs.Geraldez, 52 10). Even Mr. Lopez himself admitted that the
contract. The fact that Viva refused to sign Exhibit C SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. right of first refusal may have been already
reveals only two [sic] well that it did not agree on its 634). As a mere agent, recognized as such by plaintiff, exercised by Ms. Concio (as she had). (TSN, June
terms and conditions, and this court has no authority to Del Rosario could not be held liable jointly and 8, 1992, pp. 71-75). Del Rosario himself knew and
compel Viva to agree thereto. severally with Viva and his inclusion as party defendant understand [sic] that ABS-CBN has lost its right of
FIFTH. Mr. Lopez understand [sic] that what he has no legal basis. (Salonga vs. Warner Barnes first refusal when his list of 36 titles were rejected
and Mr. Del Rosario agreed upon at the Tamarind Grill [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. (Tsn, June 9, 1992, pp. 10-11).xxv
was only provisional, in the sense that it was subject to 556).
approval by the Board of Directors of Viva. He The testimony of Mr. Lopez and the allegations in However, we find for ABS-CBN on the issue of
testified: the complaint are clear admissions that what was damages. We shall first take up actual damages.
Q Now, Mr. Witness, and after that Tamarinf supposed to have been agreed upon at the Tamarind Chapter 2, Title XVIII, Book IV of the Civil Code is
meeting the second meeting wherein you Grill between Mr. Lopez and Del Rosario was not a the specific law on actual or compensatory damages.
claimed that you have the meeting of the minds binding agreement. It is as it should be because Except as provided by law or by stipulation, one is
between you and Mr. Vic del Rosario, what corporate power to enter into a contract is lodged in the entitled to compensation for actual damages only for
happened? Board of Directors. (Sec. 23, Corporation Code). such pecuniary loss suffered by him as he has duly
Without such board approval by the Viva board,
A Vic Del Rosario was supposed to call us up and proved.xxv The indemnification shall comprehend not
whatever agreement Lopez and Del Rosario arrived at
tell us specifically the result of the discussion only the value of the loss suffered, but also that of the
could not ripen into a valid binding upon Viva (Yao Ka
with the Board of Directors. profits that the obligee failed to obtain.xxv In contracts
Sin Trading vs. Court of Appeals, 209 SCRA 763). The and quasi-contracts the damages which may be
Q And you are referring to the so-called evidence adduced shows that the Board of Directors of
awarded are dependent on whether the obligor acted
agreement which you wrote in [sic] a piece of Viva rejected Exhibit C and insisted that the film with good faith or otherwise. In case of good faith, the
paper? package for 104 films be maintained (Exh. 7-1 Cica).xxv damages recoverable are those which are the natural
A Yes, sir. The contention that ABS-CBN had yet to fully and probable consequences of the breach of the
exercise its right of first refusal over twenty-four films obligation and which the parties have foreseen or could
Q So, he was going to forward that to the board of under the 1990 Film Exhibition Agreement and that the have reasonably foreseen at the time of the constitution
Directors for approval? meeting between Lopez and Del Rosario was a of the obligation. If the obligor acted with fraud, bad
A Yes, sir (Tsn, pp. 42-43, June 8, 1992) continuation of said previous contract is untenable. As faith, malice, or wanton attitude, he shall be responsible
observed by the trial court, ABS-CBNs right of first for all damages which may be reasonably attributed to
Q Did Mr. Del Rosario tell you that he will submit
it to his Board for approval?
injury to another in a manner that is contrary to morals, expenses to protect his rights, still attorneys fees may
the non-performance of the obligation. In crimes and good customs or public policy shall compensate the not be awarded where no sufficient showing of bad
quasi-delicts, the defendants shall be liable for all latter for the damage. faith could be reflected in a partys persistence in a case
damages which are the natural and probable other than an erroneous conviction of the righteousness
It may further be observed that in cases where a
consequences of the act or omission complained of, of his cause.xxv
writ of preliminary injunction is issued, the damages
whether or not such damages have been foreseen or
which the defendant may suffer by reason of the writ As to moral damages the law is Section 1, Chapter
could have reasonably been foreseen by the
are recoverable from the injunctive bond.xxv In this 3, Title XVIII, Book IV of the Civil Code. Article 2217
case, ABS-CBN had not yet filed the required bond; as thereof defines what are included in moral damages,
Actual damages may likewise be recovered for loss a matter of fact, it asked for reduction of the bond and while Article 2219 enumerates the cases where they
or impairment of earning capacity in cases of temporary even went to the Court of Appeals to challenge the may be recovered. Article 2220 provides that moral
or permanent personal injury, or for injury to the order on the matter. Clearly then, it was not necessary damages may be recovered in breaches of contract
plaintiffs business standing or commercial credit.xxv for RBS to file a counterbond. Hence, ABS-CBN where the defendant acted fraudulently or in bad faith.
The claim of RBS for actual damages did not arise cannot be held responsible for the premium RBS paid RBSs claim for moral damages could possibly fall only
from contract, quasi-contract, delict, or quasi-delict. It for the counterbond. under item (10) of Article 2219, thereof which reads:
arose from the fact of filing of the complaint despite Neither could ABS-CBN be liable for the print (10) Acts and actions referred to in Articles 21, 26,
ABS-CBNs alleged knowledge of lack of cause of advertisements for Maging Sino Ka Man for lack of 27, 28, 29, 30, 32, 34 and 35.
action. Thus paragraph 12 of RBSs Answer with sufficient legal basis. The RTC issued a temporary Moral damages are in the category of an award
Counterclaim and Cross-claim under the heading restraining order and later, a writ of preliminary designed to compensate the claimant for actual injury
COUNTERCLAIM specifically alleges: injunction on the basis of its determination that there suffered and not to impose a penalty on the
existed sufficient ground for the issuance thereof.
12. ABS-CBN filed the complaint knowing wrongdoer.xxv The award is not meant to enrich the
fully well that it has no cause of action Notably, the RTC did not dissolve the injunction on the complainant at the expense of the defendant, but to
against RBS. As a result thereof, RBS ground of lack of legal and factual basis, but because of enable the injured party to obtain means, diversion, or
suffered actual damages in the amount of the plea of RBS that it be allowed to put up a amusements that will serve to obviate the moral
P6,621,195.32.xxv counterbond. suffering he has undergone. It is aimed at the
Needless to state the award of actual damages cannot As regards attorneys fees, the law is clear that in restoration, within the limits of the possible, of the
be comprehended under the above law on actual the absence of stipulation, attorneys fees may be spiritual status quo ante, and should be proportionate to
damages. RBS could only probably take refuge under recovered as actual or compensatory damages under the suffering inflicted.xxv Trial courts must then guard
Articles 19, 20, and 21 of the Civil Code, which read as any of the circumstances provided for in Article 2208 against the award of exorbitant damages; they should
follows: of the Civil Code.xxv exercise balanced restrained and measured objectivity
to avoid suspicion that it was due to passion, prejudice,
ART. 19. Every person must, in the exercise of hid The general rule is that attorneys fees cannot be
or corruption or the part of the trial court.xxv
rights and in the performance of his duties, act with recovered as part of damages because of the policy that
justice, give everyone his due, and observe honesty and no premium should be placed on the right to litigate.xxv The award of moral damages cannot be granted in
good faith. They are not to be awarded every time a party wins a favor of a corporation because, being an artificial
suit. The power of the court t award attorneys fees person and having existence only in legal
ART. 20. Every person who, contrary to law, under Article 2208 demands factual, legal, and contemplation, it has no feelings, no emotions, no
wilfully or negligently causes damage to another shall equitable justification.xxv Even when a claimant is senses. It cannot, therefore, experience physical
indemnify the latter for the same. compelled to litigate with third persons or to incur suffering and mental anguish, which can be
ART. 21. Any person who wilfully causes loss or
conscious and intentional design to do a wrongful act
experienced only by one having a nervous system. for a dishonest purpose or moral obliquity.xxv Such
WHEREFORE, the decision
The statement in People v. Maneroxxv and Mambulao must be substantiated by evidence.xxv of the Regional Trial Court is
Lumber Co. v. PNBxxv that a corporation may recover
There is no adequate proof that ABS-CBN was hereby AFFIRMED in toto.xxv
moral damages if it has a good reputation that is
inspired by malice or bad faith. It was honestly
debased, resulting in social humiliation is an obiter
convinced of the merits of its cause after it had
dictum. On this score alone the award for damages must
undergone serious negotiations culminating in its
be set aside, since RBS is a corporation.
formal submission of a draft contract. Settled is the rule
The basic law on exemplary damages is Section 5 that the adverse result of an action does not per se make
Chapter 3, Title XVIII, Book IV of the Civil Code. the action wrongful and subject the actor to damages, The challenged Resolution denied
These are imposed by way of example or correction for for the law could not have meant impose a penalty on reconsideration.
the public good, in addition to moral, temperate, the right to litigate. If damages result from a persons
liquidated, or compensatory damages.xxv They are exercise of a right, it is damnum absque injuria.xxv
recoverable in criminal cases as part of the civil liability
WHEREFORE, the instant petition is
when the crime was committed with one or more
GRANTED. The challenged decision of the Court of
aggravating circumstances;xxv in quasi-delicts, if the
Appeals in CA-G.R. CV No. 44125 is hereby The Facts
defendant acted with gross negligence;xxv and in
REVERSED except as to unappealed award of
contracts and quasi-contracts, if the defendant acted in
attorneys fees in favor of VIVA Productions, Inc.
a wanton, fraudulent, reckless, oppressive, or Respondent Southern Rolling Mills Co., Inc.
malevolent manner.xxv No pronouncement as to costs.
was organized in 1959 for the purpose of engaging in a
It may be reiterated that the claim of RBS against SO ORDERED. steel processing business. It was later renamed Visayan
ABS-CBN is not based on contract, quasi-contract, COSTAL PACIFIC TRDING, INC. VS SOUTHERN Integrated Steel Corporation (VISCO).xxv
delict, or quasi-delict. Hence, the claims for moral and ROLLING MILLS
exemplary damages can only be based on Articles 19,
20, and 21 of the Civil Code. The Case On December 11, 1961, VISCO obtained a loan
from the Development Bank of the Philippines (DBP)
The elements of abuse of right under Article 19 are in the amount of P836,000. This loan was secured by a
the following: (1) the existence of a legal right or duty, duly recorded Real Estate Mortgage over VISCOs three
(2) which is exercised in bad faith, and (3) for the sole (3) parcels of land, including all the machineries and
intent of prejudicing or injuring another. Article 20 equipment found there.xxv