G.R. Nos. 89679-81 September 28, 1990 LAND BANK OF THE PHILIPPINES, petitioner,

vs COMMISSION ON AUDIT, respondent.

Menandro A. Alvarez and Norberto L. Martinez for petitioner.

MELENCIO-HERRERA, J.:

This Petition raises the issue of whether it is within the corporate powers of the Land Bank of the Philippines (LBP) to waive the penalty charges of P9,636.36 on the loan of the Home Savings Bank and Trust Company (HSBTC). The LBP

asserts that, as a banking institution, its Charter authorizes it to condone claims or liabilities. The Commission on Audit, on the other hand, maintains

that such power is exclusively vested in the Commission pursuant to Section 36 of Pres. Decree No. 1445, or the Government Auditing Code.

The records indicate that on 22 July 1980, the Board of Directors of the LBP issued Resolution No. 80-222 (Rollo, pp. 4-5, pp. 91-93) fixing the new rates for

penalty charges on past due loans/amortization and other credit accommodations. The Resolution also provided that "in cases of defaults in

loan payment and other credit accommodations due to unforeseen, highly justifiable reasons/circumstances beyond the control of the borrower such as damages due to natural calamities, sickness, adverse government rulings or

court judgments, duly processed and verified by the lending units, penalty charges may be condoned / reduced by the Loan Executive Committee upon recommendation of the appropriate lending units" (Emphasis supplied)

Pursuant to this Resolution, LBP, through its Loan Executive Committee, waived the penalty charges in the amount of Nine Thousand Six Hundred

Thirty Six Pesos and Thirty Six Centavos (P9,636.36) on the loan of HSBTC, a thrift banking institution organized under Philippine laws (Rollo, p. 4).

On 23 September 1986, LBP requested its Corporate Auditor to pass in audit

its waiver of the penalty charges. Said official questioned the waiver and opined that the power to condone interests or penalties is vested exclusively in the COA but, in the absence of a categorical ruling on the matter applicable to a

government banking institution, referred the LBP request to the COA in a letter dated 20 January 1987.

In COA Decision No. 551, dated 29 June 1988 (Annex "C", Petition, Rollo, p.

29), the COA held that the waiver is unauthorized and should outrightly be disallowed in audit, pursuant to Pres. Decree No. 1445, Section 36, infra. Reconsiderations successively sought by LBP met with denial in COA Decision

No. 701, dated 13 December 1988 (Annex "F", Petition, Rollo, p. 38), and in COA Decision No. 977, dated 6 June 1989 (Annex "A", ibid., p. 25), both of

which Decisions emphasized COA's exclusive prerogative to settle and/or compromise claims.

Thus, this Petition and Amended Petition erroneously brought under Rules 44

and 43 of the Rules of Court, respectively, the proper remedy being that of certiorari under Rule 65 (Article IX (A) Sec. 7, 1987 Constitution).

The issue for resolution is whether or not LBP is authorized to compromise or

release claims or liabilities in whole or in part.

COA maintains that it has the sole prerogative to compromise liabilities to the Government pursuant to Section 36 of Pres. Decree No. 1445, the Government

Auditing Code, which provides, inter alia, that:

Sec. 36. Power to compromise claims. —

(1) When the interest of the government so requires, the Commission may compromise or release in whole or in part, any

claim or settled liability to any government agency not exceeding ten thousand pesos and with the written approval of the Prime Minister, it may likewise compromise or release any similar claim

or liability not exceeding one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the Prime Minister, with their recommendations,

to the National Assembly.

xxx xxx xxx

On the other hand, LBP claims that it, too, has the power to condone penalties being a commercial bank clothed with authority to exercise all the general

powers mentioned in the Corporation Law and the General Banking Act, as provided in Section 75[12] of its Charter, Rep. Act. No. 3844, as amended by Pres. Decree No. 251, among which is the power to write off loans and

advances (General Banking Act, Sec. 84, infra), which necessarily includes the lesser power to charge off interests and penalties. LBP also submits that its

Charter (Rep. Act No. 3844, as amended), being a special law, should prevail over the general grant of authority to COA by Pres. Decree No. 1445 to compromise claims.

We agree with LBP.

LBP was created as a body corporate and government instrumentality to provide timely and adequate financial support in all phases involved in the execution of needed agrarian reform (Rep. Act No. 3844, as amended, Sec. 74).

Section 75 of its Charter vests in LBP specific powers normally exercised by banking institutions, such as the authority to grant short, medium and long-

term loans and advances against security of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans, transactions or

obligations; and to borrow from, or rediscount notes, bills of exchange and other commercial papers with the Central Bank. In addition to the enumeration

of specific powers granted to LBP, Section 75 of its Charter also authorizes it:

12. To exercise the general powers mentioned in the Corporation Law and the General Banking Act, as amended, insofar as they are not inconsistent or incompatible with this Decree.

One of the general powers mentioned in the General Banking Act is that

provided for in Section 84 thereof, reading:

xxx xxx xxx

Writing-off loans and advances with an outstanding amount of one hundred thousand pesos or more shall require the prior approval

of the Monetary Board (As amended by PD 71).

It will thus be seen that LBP is a unique and specialized banking institution, not an ordinary "government agency" within the scope of Section 36 of Pres. Decree No. 1445. As a bank, it is specifically placed under the supervision and

regulation of the Central Bank of the Philippines pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree No. 251). In so far as loans

and advances are concerned, therefore, it should be deemed primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the frequency of writing-off loans in the Board of Directors of

a bank provided that the loans written-off do not exceed a certain aggregate amount. The pertinent portion of that Circular reads:

b. Frequency/ceiling of write-off. The frequency for writing-off

loans and advances shall be left to the discretion of the Board of Directors of the bank concerned. Provided, that the aggregate amount of loans and advances which may be written-off during the

year, shall in no case exceed 3% of total loans and investments; Provided, further, that charge-offs are made against allowance for possible losses, earnings during the year and/or retained earnings.

The authority to write-off loans and advances should be construed to include within its scope the waiver of penalty charges on past due loans, which are of a lesser category.

Concededly, the power to write-off is not expressly granted in the LBP Charter.

It can be logically implied however, from LBP's authority to exercise the general powers vested in banking institutions as provided in the General Banking Act. The clear intendment of its Charter is for LBP to be clothed not only with the

express powers granted to it, but also with those implied, incidental and necessary for the exercise of those express powers. "The test to be applied is

whether the act of the corporation is in direct and immediate furtherance of its business, fairly incident to the express powers and reasonably necessary to

their exercise. If so, the corporation has the power to do it; otherwise, not" (Montelibano v. Bacolod-Murcia Milling Co. Inc., L-15092, 18 May 1962, 5 SCRA 36).

It bears emphasizing that LBP was created to provide adequate financial

support to the agrarian reform program as well as to grant loans to farmers' cooperatives/associations, and to finance and/or guarantee the acquisition of farm lots transferred to tenant-farmers. Its clientele consists primarily of

agrarian reform beneficiaries, landowners affected by agrarian reform and Land Bank bond-holders. It should, therefore, be given some measure of flexibility in

its operations in order not to hamper it unduly in the fulfillment of its objectives. Moreover, it is only the penalty charges on a past due loan of the HSBTC that are being condoned and not the loan itself. The criteria for waiver

are likewise specifically spelled out in LBP Resolution No. 80-222, namely, for "unforeseen, highly justifiable reasons/circumstances beyond the control of the

borrower such as damages due to natural calamities, sickness, adverse government rulings or court judgments, duly processed and verified by the appropriate lending units."

But while we rule that LBP is empowered by its corporate charter to waive

penalty charges, thereby overruling COA's avowed exclusive prerogative to settle and compromise liabilities to the Government, nevertheless, pursuant to

Pres. Decree No. 1445, LBP is still subject to COA's general audit jurisdiction to see to it that the fiscal responsibility that rests directly with the head of the government agency has been properly and effectively discharged (Section

25[1]), and as provided for in its Section 26, reading:

Sec. 26. General jurisdiction. — The authority and powers of the Commission shall extend to and comprehend all matters relating to

auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and

inspection of the books, records, and papers relating to those accounts, and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in

an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to

the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations . . .

This is but in keeping with the wide sphere of state audit set forth in the fundamental law of the land.

SEC. 2 (1) The Commission on Audit shall have the power,

authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses

of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled

corporations with original charters, . . . (Article IX [D], Sec. 2[l], 1987 Constitution).

Having arrived at the foregoing conclusions, we find no need to pass upon the

other arguments raised.

WHEREFORE, the Decisions of the Commission on Audit sought to be reviewed are hereby SET ASIDE in so far as they hold that the Commission on Audit, vis-a-vis the Land Bank, has the exclusive prerogative to settle and compromise

liabilities to the Government. No costs.

SO ORDERED.

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner, vs.

HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP,

VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of 31 October

1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April

1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals,

are as follows:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit

some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that —.

1.4 ABS-CBN shall have the right of first refusal to the next

twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in

writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages

(36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off

only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the

case at bar except the film ''Maging Sino Ka Man."

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I

would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can

purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big

action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several

action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action

stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-primetime slots. We

have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas

4. Tiger Command 5. Boy de Sabog

6. Lady Commando 7. Batang Matadero 8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have

been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please

consider including all the other Viva movies produced last year. I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)

Charo Santos-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the

present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of

156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of

television spots (Exh. "4" to "4-C" Viva; "9" -Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant

in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting

versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly

put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario

denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote

something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez

promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"·- Viva;

Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of

the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva),

which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-

proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a

consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however

rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and

such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and

Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films

(Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present case. 4

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or

temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente

Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film

Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an

order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and

offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of

preliminary injunction upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as

a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court,

agreed to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached.

As the parties failed to enter into an amicable settlement RBS posted on 1

October 1992 a counterbond, which the RTC approved in its Order of 15 October 1992. 13

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3

August and 15 October 1992 Orders, which RBS opposed. 15

On 29 October 1992, the RTC conducted a pre-trial. 16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17 challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction

to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining

order 18 to enjoin the airing, broadcasting, and televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision 19

dismissing the petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No.

Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing,

judgments is rendered in favor of defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction;

b) P191,843.00 for the amount of print advertisement for "Maging

Sino Ka Man" in various newspapers;

c) Attorney's fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees.

(4) The cross-claim of defendant RBS against defendant VIVA is

dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was

disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition

Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to

Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the Court of Appeals in its

challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April

1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private

respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC

that the contract between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-

CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-

CBN's insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof

provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed upon

by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of

ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer

in writing.

Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24)

films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.

In the instant case, ABS-CBN's letter of rejection Exhibit 3

(Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films,

while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films.

The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150),

when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-

Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said

letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list

was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of

first refusal has already expired. 22

Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS

had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor,

holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly

imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that

with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the

awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when

the complaint was filed by ABS-CBN."

Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in

I

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA

NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.

II

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN

FAVOR OF PRIVATE RESPONDENT RBS.

III

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

IV

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over

twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant,

discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It

also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by

law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability

therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The

filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had

another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond.

Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost

of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it

was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of

moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from

specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not warranted where

the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a

matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different

interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage results front

the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in

social humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award,

the Court of Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should state the reason why

attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of

bad faith would be reflected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's

claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due

to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not

entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the

cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the

cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and

hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that

particular date and hour because of the injunction, the expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the

case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino, 34 damages may

be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the

purpose of harassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited People v. Manero, 35 where it was

stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by

ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino

Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called

up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS

brought upon itself. it was exactly what ABS-CBN had planned to happen.

The amount of moral and exemplary damages cannot be said to be

excessive. Two reasons justify the amount of the award.

The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its

clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the

country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the

showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation.

Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and

times specified.

The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to

lure customers (viewers in this case) away from the competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that

there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees,

they adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to

damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of

minds between two persons whereby one binds himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2)

object certain which is the subject of the contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of

the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance

of the terms agreed upon in the contract. 39

Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance

upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the

acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,

constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification

or variation from the terms of the offer annuls the offer. 40

When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA

films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of

P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill

Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In

these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it

is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the

acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or

meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely clarificatory of what had

previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase,

which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any of the elements of the contract is modified upon acceptance, such

alteration amounts to a counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its

counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that

Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to

do so.

Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts; are exercised by the Board

of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to

officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would apply. 48 For such officers to be deemed fully clothed by the corporation to

exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-

offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial

court are instructive:

A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at

the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically

written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in

Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not

previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as

its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its

complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds

as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no

contract where there is no object which is its subject matter (Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit

testimony (Exh. "D") states:

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and

we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16,

050,000.00.

which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. The total price, the breakdown the known Viva

movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down

accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of

P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she

transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by

ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by

ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . .

As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever

that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused

to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del

Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors

of Viva. He testified:

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you

have the meeting of the minds between you and Mr. Vic del Rosario, what happened?

A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the

Board of Directors.

Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?

A. Yes, sir.

Q. So, he was going to forward that to the board of

Directors for approval?

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?

A. Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he

knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the

Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not

bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by

plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis.

(Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint

are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate

power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the

Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence

adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film package for 140 films be maintained

(Exh. "7-1" - Viva ). 49

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the

meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off

ten films, Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on cross-examination to having used or

exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June

8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself

knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9,

1992, pp. 10-11) 50

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific

law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification

shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the

damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are

those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably

foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the

obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been foreseen or

could have reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, or for injury to

the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus

paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no

cause of action RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under

Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,

and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in

a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by reason of the writ

are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter,

Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the

counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary

restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal

and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation,

attorney's fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate.

59 They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and

equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a

party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages,

while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract

where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,

32, 34, and 35.

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty on the

wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone.

It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. 63 Trial

courts must then guard against the award of exorbitant damages; they should

exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64

The award of moral damages cannot be granted in favor of a corporation

because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,

experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral

damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages

must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the

public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; 69

in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,

reckless, oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the

Civil Code.

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for

the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and

has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is

done with intent to injure. 72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by

evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone

serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have

meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,

Inc.1âwphi1.nêt

No pronouncement as to costs. SO ORDERED.

G.R. No. L-32473 July 31, 1973 IGNACIO VICENTE and MOISES ANGELES, petitioners,

vs. HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance of

Bulacan, Branch V (Sta. Maria), and HI CEMENT CORPORATION,

respondents G.R. No. L-32483 July 31, 1973

JUAN BERNABE, petitioner, vs.

HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ,

Presiding Judge, Branch V, Court of First Instance of Bulacan, respondents.

Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles. Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe. Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

ANTONIO, J.:

There are two original actions of certiorari with prayer for preliminary injunction wherein petitioners seek to annul the orders dated April 24, May 18, and July 18, 1970 of respondent Judge of the Court of First Instance of

Bulacan in Civil Case No. SM-201 (Hi Cement Corporation vs. Juan Bernabe, Ignacio Vicente and Moises Angeles). The two cases are herein decided jointly

because they proceed from the same case and involve in substance the same question of law.

On September 9, 1967 herein private respondent Hi Cement Corporation filed with the Court of First Instance of Bulacan a complaint for injunction and

damages against herein petitioners Juan Bernabe, Ignacio Vicente and Moises Angeles. In said complaint the plaintiff alleged that it had acquired on October

27, 1965, Placer Lease Contract No. V-90, from the Banahaw Shale Mining Association, under a deed of sale and transfer which was duly registered with the Office of the Mining Recorder of Bulacan on November 4, 1965 and duly

approved by the Secretary of Agriculture and Natural Resources on December 15, 1965; that the said Placer Lease Contract No. V-90 was for a period of

twenty-five years commencing from August 1, 1960 and covered two mining claims (Red Star VIII & IX) with a combined area of about fifty-one hectares;

that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the defendants Juan Bernabe (about two hectares), Ignacio

Vicente (about two hectares) and Moises Angeles (about one-fourth hectare); that the plaintiff had, on several occasions, informed the defendants, thru its representatives, of the plaintiff's acquisition of the aforesaid placer mining

claims which included the areas occupied by them; that the plaintiff had requested the defendants to allow its workers to enter the area in question for exploration and development purposes as well as for the extraction of minerals

therefrom, promising to pay the defendants reasonable amounts as damages, but the defendants refused to allow entry of the plaintiff's representatives; that

the defendants were threatening the plaintiff's workers with bodily harm if they entered the premises, for which reason the plaintiff had suffered irreparable damages due to its failure to work on and develop its claims and to extract

minerals therefrom, resulting in its inability to comply with its contractual commitments, for all of which reasons the plaintiff prayed the court to issue

preliminary writs of mandatory injunction perpetually restraining the defendants and those cooperating with them from the commission or continuance of the acts complained of, ordering defendants to allow plaintiff, or

its agents and workers, to enter, develop and extract minerals from the areas claimed by defendants, to declare the injunction permanent after hearing, and to order the defendants to pay damages to the plaintiff in the amount of

P200,000.00, attorney's fees, expenses of litigation and costs.

On September 12, 1967 the trial court issued a restraining order and required the defendants to file their answers. The defendants filed their respective

answers, which contained the usual admissions and denials and interposed special and affirmative defenses, namely, among others, that they are rightful owners of certain portions of the land covered by the supposed mining claims

of the plaintiff; that it was the plaintiff and its workers who had committed acts of force and violence when they entered into and intruded upon the defendants'

lands; and that the complaint failed to state a cause of action. The defendants set up counter-claims against the plaintiff for actual and moral damages, as well as for attorney's fees.

In another pleading filed on the same date, defendant Juan Bernabe opposed

the issuance of a writ of preliminary mandatory or prohibitory injunction. In its Order dated September 30, 1967, the trial court, however, directed the issuance of a writ of preliminary mandatory injunction upon the plaintiff's

posting of a bond in the amount of P100,000.00. In its order, the court suggested the relocation of the boundaries of the plaintiff's claims in relation to

the properties of the defendants, and to this end named as Commissioner, a Surveyor from the Office of the District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining claims, to show in a survey plan the

location of the areas thereof in conflict with the portions whose ownership is

claimed by the defendants and to submit his report thereof to the court on or before October 31, 1967. The court also directed the parties to send their

representatives to the place of the survey on the date thereof and to furnish the surveyor with copies of their titles. The Commissioner submitted his report to

the Court on November 24, 1967 containing the following findings:

1. In the attached survey plan, the area covered and embraced full and heavy lines is the Placer Mining Claims of the Plaintiff containing an area of 107 hectares while the area bounded by fine-

broken lines are the properties of the Defendants.

2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels known as Lot 1-B and Lot 2 of Psu-103374, both

described in O.C.T. No. O-1769 with a total area of 34,984 square meters were totally covered by the Claims of the Plaintiff.

3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619 square meters, is also inside the Claims of the

Plaintiff.

4. The property of the defendant JUAN BERNABE known as Psu-178969, described in O.C.T. No. 0-2050 is partially covered by the

Claims of the Plaintiff and the area affected is 57,539 square meters.

In an Order issued on December 14, 1967, the court approved the report "with the conformity of all the parties in this case."

Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to

amend the complaint "so as to conform to the facts brought out and/or impliedly admitted in the pre-trial. This motion was granted by the court on

April 6, 1968. Accordingly, on October 21, 1968, the plaintiff filed its amended complaint. The amendments consisted in the statement of the correct areas of the land belonging to defendants Bernabe (57,539 square meters), Vicente

(32,619 square meters) and Angles (34,984 square meters), as well as the addition of allegations to the effect, among others, that at the pre-trial the defendants Angeles and Vicente declared their willingness to sell to the plaintiff

their properties covered by the plaintiff's mining claims for P10.00 per square meter, and that when the plaintiff offered to pay only P0.90 per square meter,

the said defendants stated that they were willing to go to trial on the issue of what would be the reasonable price for the properties of defendants sought to be taken by plaintiff. With particular reference to defendant Bernabe, the

amended complaint alleged that the said defendant neither protested against nor prohibited the predecessor-in-interest of the plaintiff from prospecting,

discovering, locating and contracting minerals from the aforementioned claims, or from conducting the survey thereon, or filed any opposition against the

application for lease by the Red Star Mining Association, and that as a result of the failure of said defendant to object to the acts of possession or occupation

over the said property by plaintiff, defendant is now estopped from claiming that plaintiff committed acts of usurpation on said property. The plaintiff

prayed the court, among other things, to fix the reasonable value of the defendants' properties as reasonable compensation for any resulting damage.

Defendant Bernabe filed an amended answer substantially reproducing his original answer and denying the averments concerning him in the amended

complaint.

The respective counsels of the parties then conferred among themselves on the possibility of terminating the case by compromise, the defendants having

previously signified their willingness to sell to the plaintiff their respective properties at reasonable prices.

On January 30, 1969 the counsels of the parties executed and submitted to the court for its approval the following Compromise Agreement:

COMPROMISE AGREEMENT

COME NOW the plaintiff and the defendants, represented by their

respective counsel, and respectfully submit the following agreement:

1. That the plaintiff is willing to buy the properties subject of

litigation, and the defendants are willing to sell their respective properties;

2. That this Honorable Court authorizes the plaintiff and the defendants to appoint their respective commissioners, that is, one

for the plaintiff and one for each defendant;

3. That the parties hereby agree to abide by the decision of the Court based on the findings of the Commissioners;

4. That the fees of the Commissioners shall be paid as follows:

For those appointed by the parties shall be paid by

them respectively; and for the one appointed by the Court, his fees shall be paid pro-rata by the parties;

5. That the names of the Commissioners to be appointed by the

parties shall be submitted to the Court on or before February 8, 1969.

WHEREFORE, the undersigned respectfully pray that the foregoing agreement be approved.

Sta. Maria, Bulacan, January 30, 1969.

For the Plaintiff:

(Sgd. ) FRANCISCO VENTURA t/ FRANCISCO VENTURA.

(Sgd.) FLORENTINO V. CARDENAS t/ FLORENTINO V. CARDENAS

(Sgd.) ENRIQUETO I. MAGPANTAY

t/ ENRIQUETO I. MAGPANTAY

For Juan Bernabe:

(Sgd.) ANDRECIANO F. CABALLERO t/ ANDRECIANO F. CABALLERO

For Ignacio Vicente and

Moises Angeles:

(Sgd.) CONRADO MANZANO t/ CONRADO MANZANO

The Clerk of Court

CFI, Sta. Maria, Bulacan

GREETINGS:

Please submit the foregoing Compromise Agreement to the Honorable Court for the consideration and approval immediately upon receipt hereof.

VENTURA, CARDENAS & MAGPANTAY

By:

(Sgd.) FRANCISCO VENTURA t/ FRANCISCO VENTURA

On the same date, the foregoing Compromise Agreement was approved by the trial court, which enjoined the parties to comply with the terms and conditions

thereof.

Pursuant to the terms of the said compromise agreement the counsels of both parties submitted the names of the persons designated by them as their

respective commissioners, and in conformity therewith, the trial court, in its Order dated February 26, 1969, appointed the following as Commissioners: Mr.

Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M. Aquino, to represent defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles; Mr. Santiago Cabungcal, to represent defendant Vicente; and Mr.

Liberato Barrameda, to represent the court, and directed that said Commissioners should appear before the court on March 17, 1969, to take their oath and qualify as such Commissioners, and then meet on March 31,

1969 in the court for their first session and to submit their report not later than April 30, 1969.

On September 15, 1969, Commissioner Liberato Barrameda submitted to the

court for its approval a Consolidated Report, containing the three reports of the Commissioners of the plaintiff and the three defendants, together with an analysis of the said reports and a summary of the important facts and

conclusions. The following unit prices for the three defendants' properties were recommended in the Consolidated Report:

A — JUAN BERNABE at P12.00 per square meter, wherefrom

plaintiff has been extracting its first output, and would still continue to extract therefrom as the property consists of a mountain of limestone and shale;

B — IGNACIO VICENTE:

a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.

b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.

C — MOISES ANGELES (riceland) at P8.00 per sq. m.

It is worthy of note that in the individual report of the Commissioner nominated by plaintiff HI Cement Corporation, the price recommended for defendant Juan Bernabe's property was P0.60 per square meter, while in the

individual report of the Commissioner nominated by the said defendant, the price recommended was P50.00 per square meter. The Commissioners named

by defendants Vicente and Angeles recommended was P15.00 per square meter for the lands owned by the said two defendants, while the Commissioners named by the said two defendants, while the Commissioner named by the

plaintiff recommended P0.65 per square meter for Vicente's land, and P0.55 per square meter for Angeles' land.

On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for plaintiff HI Cement Corporation, filed with the trial court a manifestation

stating that on September 1, 1969 he sent a copy of the Compromise Agreement to Mr. Antonio Diokno, President of the corporation, requesting the

latter to intercede with the Board of Directors for the confirmation or approval of the commitment made by the plaintiff's lawyers to abide by the decision of

the Court based on the reports of the Commissioners; and that on October 15, 1969 he received a letter from Mr. Diokno, a copy of which was attached to the manifestation. In that letter Mr. Diokno said:

While I realize your interest in cooperating with the Court in its

desire to expedite the disposition of the case, this commitment would deprive us of the right to appeal if we do not agree with the valuation set by the Court. Our Board, therefore, cannot waive its

rights; only when it knows the value set by the Court on the properties can it decide whether to abide by it or appeal therefrom.

I would like to stress that, under the law, the compromise agreement requires the express approval of our Board of Directors to be binding on our corporation. Such an approval, I regret to say,

cannot be obtained at this time.

On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's manifestation, praying the court to ignore, disregard and, if possible, order

striken from the record, the plaintiff's manifestation on the following grounds: that its filing after the Consolidated Report of the Commissioners had been submitted and approved, and long after the signing of the Compromise

Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's motive; that when the Compromise Agreement was being considered,

the court inquired from the parties and their respective lawyers if all the attorneys appearing in the case had been duly authorized and/or empowered to enter into a compromise agreement, and the three lawyers for the plaintiff

answered in the affirmative; that in fact it was Atty. Ventura himself who prepared the draft of the Compromise Agreement in his own handwriting and was the first to sign the agreement; that one of the three lawyers for the

plaintiff, Atty. Florentino V. Cardenas, who also signed the Compromise Agreement, was the official representative, indeed was an executive official, of

plaintiff corporation; that the Compromise Agreement, having been executed pursuant to a pre-trial conference, partakes the nature of a stipulation of facts mutually agreed upon by the parties and approved by the court, hence, was

binding and conclusive upon the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as its Commissioner pursuant to the Compromise Agreement, was a clear indication of the plaintiff's tacit approval

of the terms and conditions of the Compromise Agreement, if not an implied ratification of Atty. Ventura's acts.

On March 13, 1970 the court rendered a decision in which the terms and

conditions of the Compromise Agreement are reproduced, and the Consolidated

Report of the Commissioners is extensively quoted. The rationale and dispositive portion of the decision read:

What is fair and just compensation?

"Just compensation includes all elements of value that inheres in

the property, but it does not exceed market value fairly determined. The sum required to be paid the owner does not

depend upon the usage to which he has devoted his land but is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for which the

property is adoptable and needed or likely to be needed in the reasonably near future is to be considered, not necessarily as the

measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held."

The term fair and just compensation as applied in expropriation or

eminent domain proceedings need not necessarily be applied in the present case. In expropriation proceedings the government is the

party involved and its use is for public purpose. In the instant case, however, private parties are involved and the use of the land is a private venture and for profit.

It appears that defendants' properties are practically adjacent to

plaintiff's plant site. It also appears that practically all the surrounding areas were acquired by the plaintiff by purchase.

In the report submitted by the commissioner representing the

plaintiff, it is claimed that the surrounding areas were acquired thru purchase by the plaintiff in the amount of less than P1.00 per square meter. On the other hand, it appears from the reports

submitted by the commissioners representing the defendants that there were some recorded sales around the area from P20.00 to P25.00 per square meter and there were subdivision lots which

command even higher prices.

The properties are reported to consist of mineral land which are rocky and barren containing limestone and shale. From viewpoint

of the owners their property which is described as rocky and barren mineral land must necessarily command a higher price, and this Court believes that the plaintiff will adopt the same

attitude from the viewpoint of its business.

While it may be true that the plaintiff acquired properties within the area in question at a low price, we cannot overlook the fact that

this was so at the time when plaintiff corporation was not yet in operation and that the land owners were not as yet aware of the

potential value of their landholdings.

Irrespective of the different classifications of the properties owned by the defendants, and considering the benefits that will enure to

the plaintiff and bearing in mind the property rights and privileges to which the property owners are entitled both under the constitution and the mining law, coupled with the fact that the

plaintiff had already taken advantage of the properties even long before the rightful acquisition of the same, this Court believes that the just and fair market value of the land should be in the amount

P15.00 per square meter.

In view of the above findings, the plaintiff pursuant to the compromise agreement, is hereby ordered to pay the defendants

the amount of P15.00 per square meter for the subject properties, and upon full payment, the restraining order earlier issued by this Court shall be deemed lifted.

On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the judgment, being based on a compromise agreement, is not appealable and is, on the other hand,

immediately executory. The other two defendants, Moises Angeles and Ignacio Vicente, likewise filed their respective motions for execution. These motions were granted by the court in its Order of April 14, 1970.

On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14,

1970 Order, alleging that it had an opposition to the defendants' motions for execution, and that the Compromise Agreement had been repudiated by the

plaintiff corporation through its Vice President, as earlier manifested by the plaintiff. The plaintiff prayed for ten days from the date of the hearing of the motion within which to file its written opposition to the motions for execution.

Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21, 1970.

On April 22, 1970 the plaintiff filed with the court a motion for new trial on the

ground that the decision of the court dated March 13, 1970 is null and void because it was based on the Compromise Agreement of January 30, 1969 which was itself null and void for want of a special authority by the plaintiff's

lawyers to enter into the said agreement. The plaintiff also prayed that the decision dated March 13, 1970 and the Order dated April 14, 1970 granting the defendants' motions for execution, be set aside. Defendant Juan Bernabe

filed on April 27, 1970 an opposition to the plaintiff's motion on the grounds that the decision of the court is in accordance with law, for three lawyers for

the plaintiff signed the Compromise Agreement, and one of them, Atty.

Cardenas, was an official representative of plaintiff corporation, hence, when he signed the Compromise Agreement, he did so in the dual capacity of lawyer

and representative of the management of the corporation; that the plaintiff itself pursued, enforced and implemented the agreement by appointing Mr.

Larry Marquez as its duly accredited Commissioner; and that the plaintiff is conclusively bound by the acts of its lawyers in entering into the Compromise Agreement.

In the meantime, or on April 24, 1970, the court issued an Order setting aside

its Order of April 14, 1970 under which the defendants' motions for execution of judgment had been granted, and gave the plaintiff ten days within which to file an opposition to the defendants' motions for execution.

On May 9, 1970 the plaintiff filed an opposition to the motions for execution of judgment, on the grounds that the decision dated March 13, 1970 is contrary to law for it is based on a compromise agreement executed by the plaintiff's

lawyers who had no special power of attorney as required by Article 1878 of the Civil Code, or any special authority as required by Section 23, Rule 138 of the Rules of Court; and that the judgment is void for lack of jurisdiction of the

court because the same is based on a void compromise agreement.

On May 18, 1970 the court issued an Order setting aside its decision dated March 13, 1970, denying the defendants' motions for execution of judgment,

and setting for June 23, 1970 a pre-trial conference in the case. The three defendants moved for reconsideration, but their motions were denied in an Order dated July 18, 1970.

It is in these factual premises that the defendants in Civil Case No. SM-201

came to this Court by means of the present petitions. In G.R. No. L-32473, petitioners Vicente and Angeles pray this Court to issue a writ of preliminary

injunction, and, after hearing, to annul and set aside the Order dated May 18,1970 issued by respondent Judge setting aside the decision dated March 13, 1970; to declare the said decision legal, effective and immediately

executory; to dissolve the writ of preliminary mandatory injunction issued by respondent Judge on September 30, 1967 commanding petitioners to allow

private respondent to enter their respective properties and excavate thereon; to make the preliminary injunction permanent; and to award treble costs in favor of petitioners and against private respondent. In G.R. No. L-32483, petitioner

Juan Bernabe prays this Court to issue a writ of preliminary injunction or, at least a temporary restraining order, and, after hearing, to annul and set aside the Order dated April 24, 1970 issued by respondent Judge setting aside his

Order of April 14, 1970 and allowing private respondent to file an opposition to petitioners' motion for execution, the Order dated May 18, 1970, and the Order

dated July 18, 1970. Petitioner Bernabe also seeks the reinstatement of the trial court's decision dated May 13, 1970 and its Order dated April 14, 1970

granting his motion for execution of judgment, and an award in his favor of attorney's fees and of actual, moral and exemplary damages.

At issue is whether the respondent court, in setting aside its decision of March

13, 1970 and denying the motions for execution of said decision, had acted without or in excess of its jurisdiction or with grave abuse of discretion. We

hold that said court did not, in view of the following considerations:

1. Special powers of attorney are necessary, among other cases, in the following: to compromise and to renounce the right to appeal from a judgment. 1 Attorneys have authority to bind their clients in any case by any agreement in

relation thereto made in writing, and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority,

compromise their clients' litigation, or receive anything in discharge of their clients' claims but the full amount in cash. 2

The Compromise Agreement dated January 30, 1969 was signed only by the lawyers for petitioners and by the lawyers for private respondent corporation. It

is not disputed that the lawyers of respondent corporation had not submitted to the Court any written authority from their client to enter into a compromise.

This Court has said that the Rules 3 "require, for attorneys to compromise the

litigation of their clients, a special authority. And while the same does not state that the special authority be in writing the court has every reason to expect that, if not in writing, the same be duly established by evidence other than the

self-serving assertion of counsel himself that such authority was verbally given him." 4

2. The law specifically requires that "juridical persons may compromise only in

the form and with the requisites which may be necessary to alienate their property." 5 Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily

committed to the Board of Directors. The right of the Directors "to compromise a disputed claim against the corporation rests upon their right to manage the affairs of the corporation according to their honest and informed judgment and

discretion as to what is for the best interests of the corporation." 6 This power may however be delegated either expressly or impliedly to other corporate

officials or agents. Thus it has been stated, that as a general rule an officer or agent of the corporation has no power to compromise or settle a claim by or against the corporation, except to the extent that such power is given to him

either expressly or by reasonable implication from the circumstances. 7 It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded that the Board of Directors of the HI Cement Corporation

had authorized its lawyers to enter into the said compromise agreement.

Petitioners claim that private respondent's attorneys admitted twice in open court on January 30, 1969, that they were authorized to compromise their

client's case, which according to them, was never denied by the said lawyers in any of the pleadings filed by them in the case. The claim is unsupported by

evidence. On the contrary, in private respondent's "Reply to Defendant Bernabe's Answer Dated November 8, 1969," said counsels categorically denied that they ever represented to the court that they were authorized to enter into a

compromise. Indeed, the complete transcript of stenographic notes taken at the proceedings on January 30, 1969 are before Us, and nowhere does it appear therein that respondent corporation's lawyers ever made such a representation.

In any event, assuming arguendo that they did, such a self-serving assertion cannot properly be the basis for the conclusion that the respondent corporation

had in fact authorized its lawyers to compromise the litigation.

3. Petitioners however insist that there was tacit ratification on the part of the corporation, because it nominated Mr. Larry Marquez as its commissioner

pursuant to the agreement, paid his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's administrative manager, not only did not object but even affixed his signature to the agreement. It is also argued that

respondent corporation having represented, through its lawyers, to the court and to petitioners that said lawyers had authority to bind the corporation and having induced by such representations the petitioners to sign the compromise

agreement, said respondent is now estopped from questioning the same.

The infirmity of these arguments is in their assumption that Atty. Cerdenas as administrative manager had authority to bind the corporation or to

compromise the case. Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or other governing body, unless conferred by the charter of the corporation. A corporation officer's power

as an agent of the corporation must therefore be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the

acts of board of directors, formally expressed or implied from a habit or custom of doing business. 8 In the case at bar no provision of the charter and by-laws of the corporation or any resolution or any other act of the board of directors of

HI Cement Corporation has been cited, from which We could reasonably infer that the administrative manager had been granted expressly or impliedly the power to bind the corporation or the authority to compromise the case. Absent

such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would be legally ineffectual.

4. As regards the nomination of Mr. Marquez as commissioner, counsel for

respondent corporation has explained — and this has not been disproven — that Atty. Cardenas, apparently on his own, submitted the same to the court. There is no iota of proof that at the time of the submission to the Court, on

February 26, 1969, of the name of Mr. Marquez, respondent corporation knew of the contents of the compromise agreement. As matter of fact, according to

the manifestation of Atty. Ventura to the court, it was only on September 1, 1969 that he sent to Mr. Antonio Diokno, Vice-President of the corporation, a

copy of the compromise agreement for the approval by the board of directors and on October 22, 1969, Mr. Diokno informed him that the approval of the

Board cannot be obtained, as under the agreement the corporation is deprived of its right to appeal from the judgement.

In the absence of any proof that the governing body of respondent corporation had knowledge, either actual or constructive, or the contents of the

compromise agreement before September 1, 1969, why should the nomination of Mr. Marquez as commissioner, by Attys. Ventura, Cardenas and Magpantay, on February 26, 1969, be considered as a form of tacit ratification of the

compromise agreement by the corporation? In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must be shown that

the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. 9 It cannot be assumed also that Atty. Cardenas, as administrative

manager of the corporation, had authority to ratify. For ratification can never be made "on the part of the corporation by the same persons who wrongfully

assume the power to make the contract, but the ratification must be by the officer or governing body having authority to make such contract and, as we have seen, must be with full knowledge." 10

5. Equally inapposite is petitioners' invocation of the principle of estoppel. In

the case at bar, except those made by Attys. Ventura, Cardenas and Magpantay, petitioners have not demonstrated any act or declaration of the

corporation amounting to false representation or concealment of material facts calculated to mislead said petitioners. The acts or conduct for which the corporation may be liable under the doctrine of estoppel must be those of the

corporation, its governing body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation. 11

It having been found by the trial court that "the counsel for the plaintiff entered into the compromise agreement without the written authority of his client and

the latter did not ratify, on the contrary it repudiated and disowned the same ...", 12 We therefore declare that the orders of the court a quo subject of these

two petitions, have not been issued in excess of its jurisdictional authority or in grave abuse of its discretion.

WHEREFORE, the petitions in these two cases are hereby dismissed. Costs

against the petitioners.

G.R. No. L-68555 March 19, 1993 PRIME WHITE CEMENT CORPORATION, petitioner,

vs.

HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.

De Jesus & Associates for petitioner. Padlan, Sutton, Mendoza & Associates for private respondent.

CAMPOS, JR., J.:

Before Us is a Petition for Review on Certiorari filed by petitioner Prime White

Cement Corporation seeking the reversal of the decision * of the then Intermediate Appellate Court, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, the judgment appealed

from is hereby affirmed in toto. 1

The facts, as found by the trial court and as adopted by the respondent Court are hereby quoted, to wit:

On or about the 16th day of July, 1969, plaintiff and defendant

corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as

the exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years and proving (sic) among others that:

a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white cement per month;

b. The plaintiff shall pay the defendant corporation

P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports;

c. The plaintiff shall, every time the defendant

corporation is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor

of the corporation and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the

said bank or banking institution shall release the corresponding amount as payment of the goods so

shipped.

Right after the plaintiff entered into the aforesaid dealership agreement, he placed an advertisement in a national, circulating

newspaper the fact of his being the exclusive dealer of the defendant corporation's white cement products in Mindanao area,

more particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R and R-1) and was even congratulated by his business

associates, so much so, he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area.

Relying heavily on the dealership agreement, plaintiff sometime in

the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and

Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, by

September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he

informed the defendant corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening

of the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970 (Exhibit B), looking forward to the defendant corporation's duty to comply with the

dealership agreement. In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said defendant decided to

impose the following conditions:

a. Delivery of white cement shall commence at the end of November, 1970;

b. Only 8,000 bags of white cement per month for only

a period of three (3) months will be delivered;

c. The price of white cement was priced at P13.30 per bag;

d. The price of white cement is subject to readjustment

unilaterally on the part of the defendant;

e. The place of delivery of white cement shall be Austurias (sic);

f. The letter of credit may be opened only with the

Prudential Bank, Makati Branch;

g. Payment of white cement shall be made in advance and which payment shall be used by the defendant as

guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of

materials in the manufacture of white cement. (Exhibit C).

xxx xxx xxx

Several demands to comply with the dealership agreement (Exhibits D, E, G, I, R, L, and N) were made by the plaintiff to the

defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel

his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement.

Notwithstanding that the dealership agreement between the

plaintiff and defendant was in force and subsisting, the defendant corporation, in violation of, and with evident intention not to be

bound by the terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao (Exhibit T) hence, this

suit. (Plaintiff's Record on Appeal, pp. 86-90). 2

After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate court

affirmed the said decision mainly on the following basis, and We quote:

There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement Exhibit "A", they were the

President and Chairman of the Board, respectively, of defendant-appellant corporation. Neither is the genuineness of the said agreement contested. As a matter of fact, it appears on the face of

the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of

the corporation. When they, therefore, entered into the said transaction they created the impression that they were duly clothed with the authority to do so. It cannot now be said that the

disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. 3

In this petition for review, petitioner Prime White Cement Corporation made the following assignment of errors. 4

I

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM

THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION

ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.

II

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY

OF DIRECTORS AND OFFICERS OF THE CORPORATION.

III

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND

JURISPRUDENCE, PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL CODE.

IV

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL

DAMAGES IS PROPER.

V

IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE

DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED USUAL, COURSE OF JUDICIAL PROCEEDINGS.

There is only one legal issue to be resolved by this Court: whether or not the

"dealership agreement" referred by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. We do not agree with

the conclusion of the respondent Court that it is.

Under the Corporation Law, which was then in force at the time this case arose, 5 as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by

law. 6 Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its

President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still

bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms — like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and

retention of benefits flowing therefrom. 7 Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of

business, provided the same is reasonable under the circumstances. 8 These rules are basic, but are all general and thus quite flexible. They apply where

the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.

The situation is quite different where a director or officer is dealing with his

own corporation. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director.

A director of a corporation holds a position of trust and as such, he owes a

duty of loyalty to his corporation. 9 In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit.

As corporate managers, directors are committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact that directors have the

control and guidance of corporate affairs and property and hence of the property interests of the stockholders." 10 In the case of Gokongwei v. Securities and Exchange Commission, this Court quoted with favor from Pepper v. Litton, 11 thus:

. . . He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. . . . He cannot utilize

his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly

through the corporation what he could not do directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms

that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the

equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. . . . .

On the other hand, a director's contract with his corporation is not in all

instances void or voidable. If the contract is fair and reasonable under the

circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. Section 32 of the Corporation Code provides,

thus:

Sec. 32. Dealings of directors, trustees or officers with the corporation. — A contract of the corporation with one or more of its

directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to

constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the

circumstances; and

4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of Directors.

Where any of the first two conditions set forth in the preceding

paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the

outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at

such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

Although the old Corporation Law which governs the instant case did not

contain a similar provision, yet the cited provision substantially incorporates well-settled principles in corporate law. 12

Granting arguendo that the "dealership agreement" involved here would be

valid and enforceable if entered into with a person other than a director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes the whole situation.

First of all, We believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting

September, 1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known, or at least must be presumed to

know, that at that time, prices of commodities in general, and white cement in

particular, were not stable and were expected to rise. At the time of the contract, petitioner corporation had not even commenced the manufacture of

white cement, the reason why delivery was not to begin until 14 months later. He must have known that within that period of six years, there would be a

considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no

provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness on his part as a

director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is also a basis which

renders a contract entered into by the President, without authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period

of five years was not fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to resell the cement to his "new dealers"

Henry Wee 13 and Gaudencio Galang 14 stipulated as follows:

The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.00 per bag (94 lbs).

The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang, on October 13, 1967. A similar contract with Prudencio Lim

was made on December 29, 1969. 15 All of these contracts were entered into soon after his "dealership agreement" with petitioner corporation, and in each

one of them he protected himself from any increase in the market price of white cement. Yet, except for the contract with Henry Wee, the contracts were for only two years from October, 1970. Why did he not protect the corporation in

the same manner when he entered into the "dealership agreement"? For that matter, why did the President and the Chairman of the Board not do so either? As director, specially since he was the other party in interest, respondent Te's

bounden duty was to act in such manner as not to unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear

that he was guilty of disloyalty to the corporation; he was attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the stockholders ratified the "dealership agreement" or that they were fully

aware of its provisions. The contract was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.

As a result of this action which has been proven to be without legal basis,

petitioner corporation's reputation and goodwill have been prejudiced. However, there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in

favor of a corporation.

In view of the foregoing, the Decision and Resolution of the Intermediate Appellate Court dated March 30, 1984 and August 6, 1984, respectively, are

hereby SET ASIDE. Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20,000.00 for attorney's fees, plus the cost

of suit and expenses of litigation.

SO ORDERED.

G.R. No. L-53820 June 15, 1992 YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,

vs.

HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman, CONSTANCIO B.

MALAGNA, respondents.

DAVIDE, JR., J.:

Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072-R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now Regional Trial

Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation."

The root of this controversy is the undated letter-offer of Constancio B.

Maglana, President and Chairman of the Board of private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS, which describes itself as "a business

concern of single proprietorship," 3 and is represented by its manager, Mr. Henry Yao; the letter reads as follows:

PRIME WHITE CEMENT CORPORATION

602 Cardinal Life Building Herran Street, Manila

Yao Ka Sin Tacloban City

Gentlemen:

We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit:

1). Commodity „1¤7 Prime White Cement

2). Price „1¤7 At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag net,

FOB Asturias Cebu.

3). Quality „1¤7 As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the

Philippines.

4). Quantity „1¤7 Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000) bags

minimum effective from June, 1973 to August 1973.

5). Delivery Schedule „1¤7 Shipment be made within four (4) days upon receipt of your shipping instruction.

6). Bag/Container „1¤7 a) All be made of Standard

Kraft (water resistant paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage allowance „1¤7 additional four percent (4%) over the quantity of

each shipment.

7). Terms of Payment „1¤7 Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND

(P243,000.00) payable on the signing of this contract and the balance to be paid upon presentation of corresponding shipping documents.

It is understood that in the event of a delay in our shipment, you

hold the option to discount any price differential resulting from a lower market price vis-a-vis the contract price. In addition, grant

(sic) you the option to extend this contract until the complete delivery of Forty Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the option to renew this

contract under the same price, terms and conditions.

Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction.

Thank You.

Very truly yours,

PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA

President & Chairman

CONFORME:

YAO KA SIN TRADING BY: (SGD) HENRY YAO

WITNESSES:

(SGD) T. CATINDIG (SGD) ERNESTO LIM

RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the form of

Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973.

PRIME WHITE CEMENT CORPORATION

BY:

(SGD) CONSTANCIO B. MAGLANA President & Chairman 4

This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro Catindig, Senior Vice-

President of the Consolidated Bank and Trust Corporation (Solid Bank). 5

The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a contract that binds the PWCC. The trial court

rule in favor of the petitioner, but the respondent Court held otherwise.

The records disclose the following material operative facts:

In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC disapproved the same; the rejection is evidenced by the following Minutes (Exhibit "10"):

the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to by them, but must be understood as a new and separate contract, and has in no

way to do with the letter-offer which they (sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation.

On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the

disapproval of Exhibit "A". Pursuant, however, to its decision with respect to the 10,000 bags of cement, it is issued the corresponding Delivery Order

(Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the

same in the amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A".

YKS accepted without protest both the Delivery and Official Receipts.

While YKS denied having received a copy of Exhibit "1", it was established that

the original thereof was shown to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this fact was duly

noted in Exhibit "1" (Exhibit "l-A").

On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias,

Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to

you and which you correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6 Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented

in evidence.

On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August 1973. Enclosed in the reply was a copy of

Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no copy of the so-called 15 August 1973 letter was presented in evidence.

On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a

follow-up to the letter of 15 August 1973; YKS insisted on the delivery of 45,030 bags of white cement. 10

On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling

the latter's attention to the statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu. 11

On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting

on the full compliance with the terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated.

On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to

the 2 November 1973 telegram, but this was returned to sender as unclaimed. 13

As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement.

On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation under

Exhibit "A". 14

On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the unenforceability

of Exhibit "A". 15

On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No.

5064.

In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged that: (a) YKS "has no

legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A" be

approved by the Board of Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never

consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A" was made

known to YKS through various letters sent to it, copies of which were attached to the Answer as Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only 10;000 bags were sold to it

without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is solely to blame for the failure to take complete delivery of 10,000 bags

for it did not send its boat or truck to PWCC's plant; and (i) YKS has, therefore, no cause of action.

In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of P500,000.00 and

attorney's fees in the sum of P10,000.00.

On 24 July 1974, YKS filed its Answer to the Counterclaim. 21

Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that according to the By-Laws of PWCC, the

Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation enters into," subject to the qualification that

"all the president's actuations, prior to and after he had signed and executed said contracts, shall be given to the board of directors of defendant

Corporation." Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC

participation in the same, and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and

financial involvement of around P10 million therein. 23

During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to make the offer and

sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the

corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the powers of the President is "to operate and conduct the business of the

corporation according to his own judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions." 25 Per

standard practice of the corporation, contracts should first pass through the marketing and intelligence unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over contracts involving

funds of and white cement produced by the PWCC. Finally, among the duties of its legal counsel is to review proposed contracts before they are submitted to

the Board. While the president. may be tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the corporation. 26

On 20 November 1975, after trial on the merits, the court handed down its

decision in favor of herein petitioner, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

(1) Ordering defendant: to complete the delivery of

45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a breakage allowance of empty bags at 4% over the quantity agreed;

(2) Ordering defendant to pay P50,000.00, as moral

damages; P5,000.00 as exemplary damages; P3,000.00 as attorney's fees; and the costs of these proceedings.

SO ORDERED. 27

In disregarding PWCC's theory, the trial court interpreted the provision of the

By-Laws „1¤7 granting its Board of Directors the power to enter into an agreement or contract of any kind with any person through the President, „1¤7

to mean that the latter may enter into such contract or agreement at any time and that the same is not subject to the ratification of the board of directors but

"subject only to the declared objects and purpose of the corporation and existing laws." It then concluded:

It is obvious therefore, that it is not the whole membership of the

board of directors who actually enters into any contract with any person in the name and for and in behalf of the corporation, but

only its president. It is likewise crystal clear that this automatic representation of the board by the president is limited only by the "declared objects and purpose of the corporation and existing

provisions of law." 28

It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the orders, directives

or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the

business of the corporation according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board of directors. 29 The trial court found no evidence that the board had set a

prior limitation upon the exercise of such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved by the

Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded that Mr. Maglana

merely followed the By-Laws "presumably both as president and chairman of the board thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana

and thus binds the corporation.

The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price; it was exercised before compliance with the original contract by PWCC; and the repudiation of

the original contract by PWCC was deemed a withdrawal of the option before acceptance by the petitioner.

Both parties appealed from the said decision to the respondent Court of

Appeals before which petitioner presented the following Assignment of Errors:

I

THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN BEFORE THE

COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS

NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE.

II

THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY

DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31

while the private respondent cited the following errors:

I

THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A

VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED

PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE

DEFENDANTS BOARD OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE

DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO PLAINTIFF.

II

THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN

LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-

EXISTING CONTRACT.

III

THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS

FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND

CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN EXHIBIT "A".

IV

THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY

CLEAR AND INDUBITABLE EVIDENCE. 32

In its decision 33 promulgated on 21 December 1979, the respondent Court reversed the decision of the trial court, thus:

WHEREFORE, the judgment appealed from is REVERSED and set

aside, Plaintiff's complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation P25,000.00 exemplary

damages, and P10,000.00 attorney's fees.

SO ORDERED.

Such conclusion is based on its findings, to wit:

Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised and principally financed by the National Investment and

Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank (PNB), with cash financial exposure of

some P10,000,000.00. PNB is a government financial institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is very material to the issue of whether

defendant corporations president can bind the corporation with his own act.

Second, for failure to deny under oath the following actionable

documents in support of defendant's counterclaim:

1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of

white cement delivered to plaintiff was not by reason of the letter contract, Exhibit "A", which was totally disapproved by defendant corporation's board of

directors, clearly stating that "If within ten (10) days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from our

plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of

the Philippines, per instruction of the Board." (Annex "I" to defendant's Answer).

2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only committed to you and which you

accordingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August

1, 1973" (Annex "2" of defendant's Answer).

3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3" to

defendant's Answer).

4. Letter to stores dated August 21, 1973,

5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at P24.30 per bag

(Annex "5", to defendant's Answer).

plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8 Sec. 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1, Rules of

Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit "A", was rejected by defendant corporation's Board of

Directors and plaintiff was duly notified thereof and that the P243,000.00 check was considered by both parties as payment of the 10,000 bags of cement under a separate transaction. As proof

of which plaintiff did not complain nor protest until February 9, 1974, when he threatened legal action.

Third, Maglana's signing the letter-offer prepared for him in the

Solidbank was made clearly upon the condition that it was subject to the approval of the board of directors of defendant corporation. We find consistency herein because according to the Corporation

Law, and the By-Laws of defendant corporation, all corporate commitments and business are conducted by, and contracts

entered into through, the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or "8").

Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is concerned, was an

unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized by the Board of Directors of

defendant corporation nor was his, actuation ratified by the Board, the agreement is unenforceable (Art. 1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of

Manila, 43 O-G. 3224).

While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-

Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority and consent of the Board of Directors.

Whatever authority Maglana may have must be derived from the Board of Directors of defendant corporation. A corporate officers

power as an agent must be sought from the law, the articles of incorporation and the By-Laws or from a resolution of the Board

(Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20 SCRA 987).

It clearly results from the foregoing that the judgment appealed

from is untenable. Having no cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards in its favor. . . . 34

Its motion for reconsideration having been denied by the respondent Court in its resolution 35 dated 15 April 1980, petitioner filed the instant petition based

on the following grounds:

1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Maglana in behalf of the respondent corporation binds the said corporation.

2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract.

3. That the option to renew the contract as contained in Exhibit "A" is enforceable.

4. That Sec. 8, Rule 8 of the Rules of Court only applies when the

adverse party appear (sic) to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1, Rule 9 of

the said Rules with regards (sic) to denying under oath refers only to allegations of usury.

We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to submit simultaneously their Memoranda, which the parties subsequently complied with. 39

Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this

case. It also eluded the attention of the trial court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of both the complaint and the instant

petition, the plaintiff and the petitioner, respectively, is:

YAO KA SIN TRADING, owned and operated by

YAO KA SIN. 40

and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin." 41 In the body of the

petition, it is described as "a single proprietorship business concern." 42 It also appears that, as gathered from the decision of the trial court, no Yao Ka Sin

testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A" 43 Under Section 1, Rule 3 of the Rules of

Court, only natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, 44 this Court held

that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court:

The law merely recognizes the existence of a sole proprietorship as

a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure

licenses and permits, register the business name, and pair taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or

defend an action in court. 45

Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46

The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. However, it is now too late in the

history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not

pursue this issue before the respondent Court and this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment

to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused

thereby to the adverse party;" and that "[a] sole proprietorship does not, of coarse, possess any juridical personality separate and apart from the

personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner

in the instant case. As this Court stated nearly eighty (80) years ago in Alonso vs. Villamor: 48

No one has been misled by the error in the name of the party

plaintiff. If we should by reason of this error send this case back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same

interests, the same witnesses, and the same evidence. The name of

the plaintiff would constitute the only difference between the old trial and the new. In our judgment there is not enough in a name

to justify such action.

And now to the merits of the petition.

The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and Chairman, was not

empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of

private respondent:

a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any kind with any person in the name

and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law. (Exhibit "8-A"); and

b) The power of the Chairman of the Board of Directors to "execute

and sign, for and in behalf of the corporation, all contracts or agreements which the corporation may enter into" (Exhibit "I-1").

And even admitting, for the sake of argument, that Mr. Maglana was not so

authorized under the By-Laws, the private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service Insurance System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for

clothing him with apparent authority.

We are not persuaded.

Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said corporation may be

performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions,

the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when

once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind

the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have

been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually

pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that

it has conferred. 52

While there can be no question that Mr. Maglana was an officer „1¤7 the President and Chairman „1¤7 of private respondent corporation at the time he

signed Exhibit "A", the above provisions of said private respondent's By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently, of the Board of Directors. That

power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President „1¤7 and not all the members of the Board, or so much thereof as are required for the act „1¤7 shall sign it

for the corporation. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and

sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly

conferred is inherent in Mr. Maglana's position as president and chairman of the corporation.

Although there is authority "that if the president is given general control and

supervision over the affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the course of its ordinary business," 53 We find such inapplicable in this case. We note that the private

corporation has a general manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct management of the business

and operation of the corporation, conducting the same accordingly to the order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active and in

the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into

contracts similar to that of Exhibit "A" either with the petitioner or with other parties.

Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power to act for it and

had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts

without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is

bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it,

continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or negligently clothes its officers or agents with

apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons dealing in

good faith with such officers or agents." 55 This "apparent authority may result from (1) the general manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with

which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56

It was incumbent upon the petitioner to prove that indeed the private

respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by

evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed by

the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the

comptroller, who is the NIDC representative, and the legal counsel.

The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the corporations

concerned, of apparent authority conferred upon the officer involved which bound the corporations on the basis of ratification. In the first case, it was

established that the offer of compromise made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the signature of defendant's general manager Rodolfo Andal, plaintiff

was informed telegraphically that her proposal had been accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same.

Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram.

Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court then ruled that:

This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes in

itself a binding ratification of the original agreement (Civil Code, Art. 1393).

Art. 1393. Ratification may be effected expressly or

tactly it is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the

person who has a right to invoke it should execute an act which necessarily implies an intention to waive his

right

In the second case, this Court found:

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra

trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts.

But that board itself, by its acts and through acquiescence, practically laid aside the by-laws requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid

corporate acts.

The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows:

Art. 1317. No one may contract in the name of another without

being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his

powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it, has been execrated,

before it is revoked by the other contracting party.

The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract binding upon the private respondent. It was effectively disapproved and rejected by the Board of

Directors which, at the same time, considered the amount of P243,000.00 received Mr. Maglana as payment for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its decision

that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit

your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board." 57 Petitioner received the copy of this notification and thereafter accepted without any protest the Delivery

Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact agreed to

a new transaction involving only 10,000 bags of white cement.

The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot rise higher than its

source. In any event, the option granted in. this case is without any consideration Article 1324 of the Civil Code expressly provides that:

When the offerer has allowed the offeree a certain period to accept,

the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

while Article 1749 of the same Code provides:

A promise to buy and sell a determinate thing for a price certain is

reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the

promise is supported by a consideration distinct from the price.

Accordingly, even if it were accepted, it can not validly bind the private respondent. 58

The fourth ground is, however, meritorious.

Section 8, Rule 8 of the Rules of Court provides:

Sec. 8. How to contest genuineness of such documents „1¤7 When

an action or defense is founded upon a written instrument, copied in or attached in the corresponding pleading as provided in the preceding section, the genuineness and due execution of the

instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims

to be the facts; but this provision does not apply when the adverse party does not appear, to be a party to the instrument or when compliance with an order for an inspection of the original

instrument is refused.

It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, the above quoted rule is not applicable. 59 While the respondent Court, erred in holding otherwise, the challenged decision must, nevertheless, stand in view of the above disquisitions on the first to the third grounds of the petition.

WHEREFORE, judgment is hereby rendered AFFIRMING the decision of

respondent Court of Appeals in C.A. G.R. No. 61072-R promulgated on 21 December 1979.

Cost against the petitioner.

G.R. No. 115849 January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners,

vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO

DEMETRIA, and JOSE JANOLO, respondents.

D E C I S I O N

PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers

constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers

Bank (now First Philippine International Bank) repudiate such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a "derivative suit" by the

majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-

shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the Rules of Court, to

set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said

Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof

to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive

portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiffs and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an

area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant

Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of

this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the

plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the same deed and transfer of

the six (6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the

sum of P100,000.00 as exemplary damages ;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally,

actual and moderate damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and

reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the

aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized and

existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times

material to this case, Head-Manager of the Property Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose

Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition.

The Facts

The facts of this case are summarized in the respondent Court's Decision3 as

follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer

Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had

them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of

BYME investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of

the defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal

purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a

total area of 101 hectares, more or less.

TCT NO. AREA

T-106932 113,580 sq.

m.

T-106933 70,899 sq. m.

T-106934 52,246 sq. m.

T-106935 96,768 sq.

m.

T-106936 187,114 sq. m.

T-106937 481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank

a formal reply by letter which is hereunder quoted (Exh. "C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES 142 Charisma St., Doña Andres II Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots

at Sta. Rosa, Laguna (formerly owned by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for

more than 101 hectares on lot basis.

We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):

September 17, 1987

Producers Bank Paseo de Roxas

Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to amend my

previous offer and I now propose to buy the said lot at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987.

What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two

days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"):

The Producers Bank of the Philippines

Paseo de Roxas, Makati Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a

total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been

placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T.

Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme

investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs

for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by

the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our)

perfected sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer

(Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement."

Thus:

Mr. Mercurio Rivera Manager, Producers Bank Paseo de Roxas, Makati

Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which

are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was

accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has

been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand

upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof.

We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of

the foregoing letter and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our

Conservator for proper disposition" However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting

Conservator, defendant Encarnacion. Plaintiffs' letter reads:

PRODUCERS BANK OF THE PHILIPPINES

Paseo de Roxas, Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O.

JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos.

106932, 106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots. Please inform

us of the date of documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand

for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the trial court

(Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of defendant's answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant

Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the

non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with

damages against the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale, The defendants took the

position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no

meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's

outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the

motion to intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera

and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was

substituted in place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of

Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case") — purportedly a "derivative suit" — with the Regional Trial

Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the

property as unenforceable and to stop Ejercito from enforcing or implementing the sale"4 In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals.

During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent

opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with prejudice."5 Private

respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.

In their Petition6 and Memorandum7, petitioners summarized their position as follows:

I.

The Court of Appeals erred in declaring that a contract of sale was

perfected between Ejercito (in substitution of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable

contract of sale between the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to

the evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:

I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are

supported by the evidence on record and may no longer be questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by; respondent Ejercito) and

the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no

authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the

statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract?

5) Did the respondent Court commit any reversible error in its findings of

facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other

action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his

knowledge, no such action or proceeding is pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have

included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of

petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification,

petitioners are guilty of actual forum shopping because the instant petition

pending before this Court involves "identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the

Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in

either case will constitute res judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the "Second Case"

(assuming the Bank is the real party in interest in a derivative suit), it was plaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a

"derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide";

4) Petitioners did not hide the Second Case at they mentioned it in the

said VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law.12, where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to

secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less

than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the

parties are not precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried in a particular court or jurisdiction

where he feels he will receive the most favorable judgment or verdict." Hence, according to Words and Phrases14, "a litigant is open to the charge of "forum

shopping" whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expenses and

vexatious situations on the courts".

In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws,

but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the

defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of

pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each

remedy being available independently of the others — although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the

litigant actually shops for a forum of his action, This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of

their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting

adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme

inconvenience to some of the parties to the action.

Thus, "forum shopping" had acquired a different concept — which is unethical professional legal practice. And this necessitated or had given

rise to the formulation of rules and canons discouraging or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and mis-used

to assure scheming litigants of dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before

that, the Court had prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in

different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or

certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in

the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an

unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum

shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum shopping exists where the elements

of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No.

86-36563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the

identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful,

amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No.

86-36563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or

lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent

any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July

15, 1986, which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or

person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to the others; and,

a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other

party as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the other sanctions, which are

direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with

the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.

Very simply stated, the original complaint in the court a quo which gave rise to

the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the

Second Case seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank", which is the petitioner herein.

In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the

relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to

respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner

impleaded different respondents therein — PNOC in the case before the lower court and the COA in the case before this Court and sought what

seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into

by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a

rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil

action for certiorari and prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-

shopping. Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners' claim of

absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired

after its commencement, is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of

September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the

pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration of

the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It remained

an effective vehicle for obtention of relief; and petitioners' remedy in the premises was plain and patent: the filing of an amended and

supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of

another action in another forum based on essentially the same facts, The adoption of this latter recourse renders the petitioners amenable to

disciplinary action and both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co.

et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct

personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of

sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the

Philippines" 24. Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holdsstock in order to protect or

vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation.

In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the Second Case was a

derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the

outstanding capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an

identity of interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from its shareholders. But the rulings of

this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or

generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who

compose it will be lifted to allow for its consideration merely as an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the

corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be

allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending

corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even

assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was

the plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where

Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff — instead of filing a responsive pleading in the other case — setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss Civil

Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual

setting between Victronics and the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein In the case before us however, petitioners

filed a responsive pleading to the complaint — as a result of which, the issues were joined.

Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive pleadings, the petitioners became plaintiffs themselves in the

original case, giving unto themselves the very remedies they repeated in the Second Case.

Ultimately, what is truly important to consider in determining whether forum-

shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same

reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly

the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said

sale. Indeed, a final decision in one would constitute res judicata in the other 28.

The foregoing conclusion finding the existence of forum-shopping

notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the proceedings in this

Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in

observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio

imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle

with court proceedings and processes They are warned that a repetition of the same will be dealt with more severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive

issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the

ultimate issue. Holding that a valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property

owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank

intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the

property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the

defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself,

which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over

to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for

sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the

Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value

at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that

evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and

once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person.

Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept

offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera

is the officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be

had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point

(TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I

asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when

I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two week's (sic) time, in effect what he

was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the

committee to me.

Q — Please answer the question.

A — He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee

of which Luis Co was the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent

with the authority and the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,

1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey

and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the

Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no

other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5

Million for more than 101 hectares on lot basis," such counter-offer price had been determined by the Past Due Committee and approved by the

Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee of such matters as original loan of

borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5

Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that

price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of

these declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due Committee of

the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note

that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been

made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official

bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and

later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of

ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to

do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from

denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected

contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established."

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates

of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized.

Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual

basis of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings of

fact. Verily, in a petition under Rule 45 such as this, errors of fact — if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent

more than that presented by petitioners is not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly

where, as in this case, said courts carefully and meticulously discussed their findings. This is basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of

Appeals, let us review the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be

drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special reference to

banks, was laid out in Prudential Bank vs. Court of Appeals31, where it was held that:

Conformably, we have declared in countless decisions that the principal

is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the

contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the

interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scape of

their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the

apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds even though no benefit may

accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent

acting within the general scope of his authority even though, in the

particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other

person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks

have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection

and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner

Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property Management Department

of the Bank". By his own admission, Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold

by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5

million (TSN, 30 July 1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the

buyers' proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on

September 28, 1994, during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting,

Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties

interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for sale

the property in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court, through Justice Jose A. R. Melo, affirmed the doctrine of

apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority

through documents and testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they

consist of Rivera's self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent

cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as the liability of

a corporation is concerned 33.

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for the Bank in three criminal

cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's actual authority prior

to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not

a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer

in the letter dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there was a

meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late

Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37.

However, the above-cited authorities and precedents cannot apply in the

instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and

reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30,

1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting "was meant

to have the offerors improve on their position of P5.5. million."38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the

CA) common finding that private respondents' evidence is more in keeping with truth and logic — that during the meeting on September 28, 1987, Luis Co and

Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)"39. Hence, assuming arguendo that the counter-offer of P4.25 million

extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And

by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and

unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more

than seven (7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-

minute attempt on the Bank's part to get out of a binding contractual obligation.

Taken together, the factual findings of the respondent Court point to an

implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good

faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle

that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the

first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be

raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA

713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense,

private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on

purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable

conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42:

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this

verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action — there being no note, memorandum or writing subscribed by

the Bank to evidence such contract. (Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price

and the plaintiffs' acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the

parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks' letter of

September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications

commenced not only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient

memoranda — since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new" offer which was accepted by Janolo

on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's

counter-offer of P5.5 million. Hence, petitioners — by such utter failure to object — are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2

of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under

them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is a plenty — and the silence of petitioners all throughout the presentation makes the evidence binding on

them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him we were able to meet

Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced,

sir.

Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they intends (sic) to have, sir.

Q What do you mean?.

A That is the amount they want, sir.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?

A He said in a day or two, he will make final acceptance, sir.

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

Q What transpired during that meeting between you and Mr. Luis Co of

the defendant Bank?

A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and he said that was already passed upon by the committee. What the bank expects

which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible.

Q What was your response to the answer of Mr. Luis Co?

A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.

Q For the record, your Honor please, will you tell this Court who was

with Mr. Co in his Office in Producers Bank Building during this meeting?

A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q By Mr. Co you are referring to?

A Mr. Luis Co.

Q After this meeting with Mr. Luis Co, did you and your partner accede

on (sic) the counter offer by the bank?

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was

reached by the Committee and it is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5

million was reached by the Committee?

A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic)

in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended

that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of

Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-banking

functions is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator

to take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise

all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous management and

board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to the contrary

notwithstanding, and such other powers as the Monetary Board shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale was raised for the first time in this

Petition — as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as

it would be offensive to the basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said

contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who

took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated — not the contract — but the

authority of Rivera to make a binding offer — and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is

reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate Zarate Carandang Perlas & Ass. Suite 323 Rufino Building

Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any

of your clients nor perfected a "contract to sell and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and

approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A.),

you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged

counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of the Central Bank

Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the

corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the

aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or

Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws.

We believe that this is more than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our

acts are official, legal and in accordance with law. We also have no personal interest in any of the properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-

reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability."

Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe

against the non-impairment clause of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revoke

contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the

place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not

unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts — as he

has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the

expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual

rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not reviewable by the

Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45, we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988,

158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court. "The

jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of Appeals,

G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that "it is not the

function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la Merced, G. R.

No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of

Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as

to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs.

Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46, we held:

The resolution of this petition invites us to closely scrutinize the facts of

the case, relating to the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. The

Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not

a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp. 47:

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may

not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the

conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or

impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts;

when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to

justify the re-evaluation of the findings of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company Inc. vs. Hon. Court of Appeals, et al. 48 is equally

applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of this Court to assess and evaluate all

over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with

findings and conclusions which were not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined by the past due

committee and approved by conservator Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the

price and start negotiations anew, but a meeting on the already determined price of P5.5 million" Hence, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual

findings.

The first point was clearly passed upon by the Court of Appeals 50, thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer

is at P5.5 Million for more than 101 hectares on lot basis, "such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs'

offer for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in

Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by

plaintiff, during the meeting of September 28, 1987 between the

plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank official

refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27,

1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's

submissions on this point do not inspire belief."

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, as he would have been in

the best position to establish their thesis. Under the rules on evidence 51, such suppression gives rise to the presumption that his testimony would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners'

evidence was deemed insufficient by both the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and

became bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are

espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals 52. We have studied both the

records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and conclusions are

seasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that can be said

in favor of petitioners on this point is that the factual findings of respondent Court did not correspond to petitioners' claims, but were closer to the evidence

as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common agreement

thereon. Indeed, conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in

a better position to observe the demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the

raising of issues for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts entered into by the Bank's officers] — which per se could justify the dismissal

of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues — the perfection of the contract of sale and its

enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did

so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by

which the parties through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and "there is

need to rehabilitate the Bank in order to get it back on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As of

June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time,

the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against forum-shopping, which must

be upheld under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject properties may currently command a much higher price, it is

equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P3.5 million 54. That the Bank

procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding

obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness

and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and

Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in

forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners.

SO ORDERED.

G.R. No. 126751 March 28, 2001

SAFIC ALCAN & CIE, petitioner, vs.

IMPERIAL VEGETABLE OIL CO., INC., respondent. YNARES-SANTIAGO, J.:

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the international purchase, sale and trading of coconut oil. It filed

with the Regional Trial Court of Manila, Branch XXV, a complaint dated February 26, 1987 against private respondent Imperial Vegetable Oil Co., Inc.

(hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil, valued at US$222.50

per ton, covered by Purchase Contract Nos. A601446 and A601655, respectively, to be delivered within the month of January 1987. Private

respondent, however, failed to deliver the said coconut oil and, instead, offered a "wash out" settlement, whereby the coconut oil subject of the purchase contracts were to be "sold back" to IVO at the prevailing price in the

international market at the time of wash out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing price and the contract price of the 2,000 long tons of crude coconut oil, which amounted to US$293,500.00.

IVO failed to pay this amount despite repeated oral and written demands.

Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and October 31, 1986, it placed purchase orders with IVO for a

total of 4,750 tons of crude coconut oil, covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681, A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out

settlement narrated above, Safic demanded that IVO make marginal deposits within forty-eight hours on the eight purchase contracts in amounts equivalent

to the difference between the contract price and the market price of the coconut oil, to compensate it for the damages it suffered when it was forced to acquire coconut oil at a higher price. IVO failed to make the prescribed

marginal deposits on the eight contracts, in the aggregate amount of US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the trade, as governed by the provisions of the standard N.I.O.P. Contract arid the FOSFA

Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to these rules becomes so impaired as to create a

reasonable doubt as to the ability of such party to perform its obligations under the contract, the other party may from time to time demand

marginal deposits to be made within forty-eight (48) hours after receipt of such demand, such deposits not to exceed the difference between the contract price and the market price of the goods covered by the contract

on the day upon which such demand is made, such deposit to bear interest at the prime rate plus one percent (1%) per annum. Failure to make such deposit within the time specified shall constitute a breach of

contract by the party upon whom demand for deposit is made, and all losses and expenses resulting from such breach shall be for the account

of the party upon whom such demand is made. (Underscoring ours.)1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this contract either party shall suspend payment, commit an act of bankruptcy, notify any of his creditors that he is unable to meet

his debts or that he has suspended payment or that he is about to suspend payment of his debts, convene, call or hold a meeting either of

his creditors or to pass a resolution to go into liquidation (except for a voluntary winding up of a solvent company for the purpose of reconstruction or amalgamation) or shall apply for an official

moratorium, have a petition presented for winding up or shal1i have a Receiver appointed, the contract shall forthwith be closed either at the market price then current for similar goods or, at the option of the other

party at a price to be ascertained by repurchase or resale and the difference between the contract price and such closing-out price shall be

the amount which the other party shall be entitled to claim shall be liable to account for under this contract (sic). Should either party be dissatisfied with the price, the matter shall be referred to arbitration.

Where no such resale or repurchase takes place, the closing-out price shall be fixed by a Price Settlement Committee appointed by the

Federation. (Underscoring ours.)2

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus attorney's fees and litigation expenses. The complaint also included an application for a writ of preliminary attachment

against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment. Subsequently, the trial court ordered that the assets

of IVO be placed under receivership, in order to ensure the preservation of the same.

In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue because it was doing business in the Philippines

without the requisite license or authority; the subject contracts were speculative contracts entered into by IVO's then President, Dominador

Monteverde, in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading, and despite IVO's lack of the

necessary license from Central Bank to engage in such kind of trading activity; and that under Article 2018 of the Civil Code, if a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with

the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void.1âwphi1.nêt

IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumor-mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it was unable to operate its business

normally because of the arrest of most of its physical assets; that its suppliers were driven away; and that its major creditors have inundated it with claims

for immediate payment of its debts, and China Banking Corporation had foreclosed its chattel and real estate mortgages.

During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the parties had entered into and consummated a number

of contracts for the sale of crude coconut oil. In those transactions, Safic placed several orders and IVO faithfully filled up those orders by shipping out the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the

1986 contracts being sued upon, the trial court refused to declare the same as gambling transactions, as defined in Article 2018 of the Civil Code, although

they involved some degree of speculation. After all, the court noted, every business enterprise carries with it a certain measure of speculation or risk. However, the contracts performed in 1985, on one hand, and the 1986

contracts subject of this case, on the other hand, differed in that under the 1985 contracts, deliveries were to be made within two months. This, as alleged

by Safic, was the time needed for milling and building up oil inventory. Meanwhile, the 1986 contracts stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven to twelve months

after the placing of orders. The coconuts that were supposed to be milled were in all likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986 contracts constituted trading in futures or in

mere expectations.

The lower court further held that the subject contracts were ultra vires and were entered into by Dominador Monteverde without authority from the Board

of Directors. It distinguished between the 1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably authorized to bind

IVO, and the 1986 contracts, which were highly speculative in character. Moreover, the 1985 contracts were covered by letters of credit, while the 1986 contracts were payable by telegraphic transfers, which were nothing more than

mere promises to pay once the shipments became ready. For these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied

corporate sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde for his personal benefit.

The trial court ruled that Safic failed to substantiate its claim for actual

damages. Likewise, it rejected IVO's counterclaim and supplemental counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan & Cie, without prejudice to any action it might

subsequently institute against Dominador Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from the subject

matter of this case. The counterclaim and supplemental counterclaim of the latter defendant are likewise hereby dismissed for lack of merit. No pronouncement as to costs.

The writ of preliminary attachment issued in this case as well as the

order placing Imperial Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside.3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-

G.R. CV No.40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF

THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH

WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING

SUCH DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH OUT CONTRACTS.

On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the, appeals and affirming the judgment appealed from in toto.4

Hence, Safic filed the instant petition for review with this Court, substantially

reiterating the errors it raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when:

a. it declared that the 1986 forward contracts (i.e., Contracts Nos.

A601446 and A60155 (sic) involving 2,000 long tons of crude coconut oil, and Contracts Nos. A60l297A/B, A601385, A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons of crude coconut oil)

were unauthorized acts of Dominador Monteverde which do not bind IVO in whose name they were entered into. In this connection, the Court of

Appeals erred when (i) it ignored its own finding that (a) Dominador Monteverde, as IVO's President, had "an implied authority to make any contract necessary or appropriate to the contract of the ordinary

business of the company"; and (b) Dominador Monteverde had validly entered into similar forward contracts for and on behalf of IVO in 1985; (ii) it distinguished between the 1986 forward contracts despite the fact

that the Manila RTC has struck down IVO's objection to the 1986 forward contracts (i.e. that they were highly speculative paper trading

which the IVO Board of Directors had prohibited Dominador Monteverde from engaging in because it is a form of gambling where the parties do not intend actual delivery of the coconut oil sold) and instead found that

the 1986 forward contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde in concluding that the IVO Board of

Directors did not authorize its President, Dominador Monteverde, to enter into the 1986 forward contracts; and (iv) it did not find IVO, in any case, estopped from denying responsibility for, and liability under, the

1986 forward contracts because IVO had recognized itself bound to similar forward contracts which Dominador Monteverde entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding that Dominador

Monteverde was (like in the 1986 forward contracts) not expressly authorized by the IVO Board of Directors to enter into such forward

contracts;

b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that Safic had presented not only testimonial, but also documentary, evidence which proved the higher amount it had to pay for

crude coconut oil (vis-à-vis the contract price it was to pay to IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the

1986 forward contracts; and

c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out contracts involving Contracts Nos. A601446 and A60155 (sic), despite the fact that Safic had properly raised the issue on

its appeal, and the evidence and the law support Safic's position that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it did not

declare that IVO's President, Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –

Section 3. Powers and Duties of the President. - The President shall be

elected by the Board of Directors from their own number .

He shall have the following duties:

x x x x x x x x x

[g] Have direct and active management of the business and operation of the corporation, conducting the same according to, the orders,

resolutions and instruction of the Board of Directors and according to his own discretion whenever and wherever the same is not expressly limited

by such orders, resolutions and instructions.

It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances when

he was authorized to act according to his discretion, that discretion must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986 contracts6 and that it did

not authorize Monteverde to enter into speculative contracts.7 In fact, Monteverde had earlier proposed that the company engage in such

transactions but the IVO Board rejected his proposal.8 Since the 1986 contracts marked a sharp departure from past IVO transactions, Safic should have obtained from Monteverde the prior authorization of the IVO Board. Safic

can not rely on the doctrine of implied agency because before the controversial 1986 contracts, IVO did not enter into identical contracts with Safic. The basis

for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.9 In the case of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the rule on

dealing with an agent thus:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make

such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons

dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the

principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the

burden of proof is upon them to establish it.11

The most prudent thing petitioner should have done was to ascertain the extent of the authority of Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a supposed agency.

Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of

his authority do not bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that when the third person

knows that the agent was acting beyond his power or authority, the principal can not be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover

damages from the agent, unless the latter undertook to secure the principal's ratification.13

There was no such ratification in this case. When Monteverde entered into the

speculative contracts with Safic, he did not secure the Board's approval.14 He also did not submit the contracts to the Board after their consummation so there was, in fact, no occasion at all for ratification. The contracts were not

reported in IVO's export sales book and turn-out book.15 Neither were they reflected in other books and records of the corporation.16 It must be pointed out that the Board of Directors, not Monteverde, exercises corporate power.17

Clearly, Monteverde's speculative contracts with Safic never bound IVO and Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of Directors

did not set limitations on the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in this regard that a question that was never raised in the courts below can not be allowed to be raised for the first time on

appeal without offending basic rules of fair play, justice and due process.18 Such an issue was not brought to the fore either in the trial court or the

appellate court, and would have been disregarded by the latter tribunal for the reasons previously stated. With more reason, the same does not deserve consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of Directors did

not set limitations on Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo Monteverde, who succeeded Dominador Monteverde as IVO President, testified that the IVO Board had set down the

policy of engaging in purely physical trading thus:

Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?

A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the corporation, although I was at the time already a

stockholder, I think IVO is engaged in trading oil. Q. As far as you know, what kind of trading was IVO engaged with? A. It was purely on physical trading.

Q. How did you know this? A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant and from my observation, as I have to

supervise and monitor purchases of copras and also the sale of the same, I observed that the policy of the corporation is for the company to

engaged (sic) or to purely engaged (sic) in physical trading. Q. What do you mean by physical trading? A. Physical Trading means - we buy and sell copras that are only

available to us. We only have to sell the available stocks in our inventory. Q. And what is the other form of trading?

Atty. Fernando No basis, your Honor.

Atty. Abad

Well, the witness said they are engaged in physical trading and what I am saying [is] if there are any other kind or form of trading.

Court

Witness may answer if he knows. Witness

A. Trading future[s] contracts wherein the trader commits a price and to deliver coconut oil in the future in which he is yet to acquire the stocks in the future.

Atty. Abad Q. Who established the so-called physical trading in IVO? A. The Board of Directors, sir.

Atty. Abad. Q. How did you know that?

A. There was a meeting held in the office at the factory and it was brought out and suggested by our former president, Dominador Monteverde, that the company should engaged (sic) in future[s]

contract[s] but it was rejected by the Board of Directors. It was only Ador Monteverde who then wanted to engaged (sic) in this future[s] contract[s].

Q. Do you know where this meeting took place? A. As far as I know it was sometime in 1985. Q. Do you know why the Board of Directors rejected the proposal of

Dominador Monteverde that the company should engaged (sic) in future[s] contracts? Atty. Fernando

Objection, your Honor, no basis. Court

Why don't you lay the basis? Atty. Abad

Q. Were you a member of the board at the time? A. In 1975, I am already a stockholder and a member.

Q. Then would [you] now answer my question? Atty. Fernando

No basis, your Honor. What we are talking is about 1985.

Atty. Abad Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the future[s] contract[s], were you already a member of

the Board of Directors at that time? A. Yes, sir.

Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in future[s] contract[s] was rejected by the Board of Directors?

A. Because this future[s] contract is too risky and it partakes of gambling.

Q. Do you keep records of the Board meetings of the company? A. Yes, sir. Q. Do you have a copy of the minutes of your meeting in 1985?

A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988, and despite [the] request of our office for us to be furnished a copy he was not able to furnish us a copy.19

x x x x x x x x x Atty. Abad

Q. You said the Board of Directors were against the company engaging in future[s] contracts. As far as you know, has this policy of the Board of Directors been observed or followed?

Witness A. Yes, sir. Q. How far has this Dominador Monteverde been using the name of I.V.0.

in selling future contracts without the proper authority and consent of the company's Board of Directors?

A. Dominador Monteverde never records those transactions he entered into in connection with these future[s] contracts in the company's books of accounts.

Atty. Abad Q. What do you mean by that the future[s] contracts were not entered

into the books of accounts of the company? Witness A. Those were not recorded at all in the books of accounts of the

company, sir.20 x x x x x x x x x

Q. What did you do when you discovered these transactions?

A. There was again a meeting by the Board of Directors of the corporation and that we agreed to remove the president and then I was made to

replace him as president. Q. What else?

A. And a resolution was passed disowning the illegal activities of the former president.21

Petitioner next argues that there was actually no difference between the 1985 physical contracts and the 1986 futures contracts.

The contention is unpersuasive for, as aptly pointed out by the trial court and

sustained by the appellate court –

Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and 1986 contracts, both of which groups of contracts

were signed or authorized by IVO's President, Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly with their 1985 predecessors, forward sales contracts in which IVO had undertaken to

deliver the crude coconut oil months after such contracts were entered into. The lead time between the closing of the deal and the delivery of the

oil supposedly allowed the seller to accumulate enough copra to mill and to build up its inventory and so meet its delivery commitment to its foreign buyers. SAFIC concludes that the 1986 contracts were equally

binding, as the 1985 contracts were, on IVO.

Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable distinctions between the 1985 and 1986 contracts. x x x

1. The 1985 contracts were performed within an average of two months from the date of the sale. On the other hand, the 1986 contracts were to be performed within an average of eight and a half months from the

dates of the sale. All the supposed performances fell in 1987. Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the execution of the contract. These pattern (sic) belies plaintiffs

contention that the lead time merely allowed for milling and building up of oil inventory. It is evident that the 1986 contracts constituted trading

in futures or in mere expectations. In all likelihood, the coconuts that were supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the crude oil to SAFIC.

2. The mode of payment agreed on by the parties in their 1985 contracts

was uniformly thru the opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyer's letter of credit guarantees payment to the seller

as soon as the latter is able to present the shipping documents covering the cargo, its opening usually mark[s] the fact that the transaction would

be consummated. On the other hand, seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon presentation of

the shipping documents. Unlike the letter of credit, a mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's

compliance with its contracts. This fact lends an uncertain element in the 1986 contracts.1âwphi1.nêt

3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully complied with Central Bank Circular No. 151

dated April 1, 1963, requiring a coconut oil exporter to submit a Report of Foreign Sales within twenty-four (24) hours "after the closing of the

relative sales contract" with a foreign buyer of coconut oil. But with respect to the disputed 1986 contracts, the parties stipulated during the hearing that none of these contracts were ever reported to the Central

Bank, in violation of its above requirement. (See Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore suspect.

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts

were never recorded either in the 1986 accounting books of IVO or in its annual financial statement for 1986, a document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1). Emelita Ortega,

formerly an assistant of Dominador Monteverde, testified that they were strange goings-on about the 1986 contract. They were neither recorded in the books nor reported to the Central Bank. What is more, in those

unreported cases where profits were made, such profits were ordered remitted to unknown accounts in California, U.S.A., by Dominador

Monteverde. x x x x x x x x x

Evidently, Dominador Monteverde made business or himself, using the

name of IVO but concealing from it his speculative transactions.

Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not able to prove its claim for damages. Petitioner

first points out that its wash out agreements with Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts was proof enough and, second, that it presented purchases of coconut oil it made

from others during the period of IVO's default.

We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not binding on IVO. Furthermore, such agreements did not prove

Safic's actual losses in the transactions in question. The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO through

Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to deliver, Safic suffered damages to the extent that they had to buy the same commodity from others at higher prices.

The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises several questions, to wit: 1.] Did Safic commit to deliver the

quantity of oil covered by the 1986 contracts to its own buyers? Who were these buyers? What were the terms of those contracts with respect to quantity,

price and date of delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic have to procure the equivalent oil from other sources? If so, who were these sources? Where were their contracts and what were the

terms of these contracts as to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the trial court, IVO filed an amended motion22 for production and inspection of the following documents: a.] contracts of resale of coconut oil that Safic bought

from IVO; b.] the records of the pooling and sales contracts covering the oil from such pooling, if the coconut oil has been pooled and sold as general oil; c.]

the contracts of the purchase of oil that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of IVO; d.] all other contracts, confirmations, invoices, wash out agreements and other documents

of sale related to (a), (b) and (c). This amended motion was opposed by Safic.23 The trial court, however, in its September 16, 1988 Order ,24 ruled that:

From the analysis of the parties' respective positions, conclusion can

easily be drawn therefrom that there is materiality in the defendant's move: firstly, plaintiff seeks to recover damages from the defendant and these are intimately related to plaintiffs alleged losses which it attributes

to the default of the defendant in its contractual commitments; secondly, the documents are specified in the amended motion. As such, plaintiff

would entertain no confusion as to what, which documents to locate and produce considering plaintiff to be (without doubt) a reputable going concern in the management of the affairs which is serviced by

competent, industrious, hardworking and diligent personnel; thirdly, the desired production and inspection of the documents was precipitated by the testimony of plaintiffs witness (Donald O'Meara) who admitted, in

open court, that they are available. If the said witness represented that the documents, as generally described, are available, reason there would

be none for the same witness to say later that they could not be produced, even after they have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages, the production and inspection of the desired documents would be of

tremendous help in the ultimate resolution thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of US$391,593.62

which, certainly, is a huge amount in terms of pesos, and which defendant disputes. As the defendant cannot be precluded in taking exceptions to the correctness and validity of such claim which plaintiffs

witness (Donald O'Meara) testified to, and as, by this nature of the plaintiffs claim for damages, proof thereof is a must which can be better

served, if not amply ascertained by examining the records of the related sales admitted to be in plaintiffs possession, the amended motion for

production and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full disclosure by the parties on both sides of all documents related to the

transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents, prompting the court a quo to assume that if produced, the documents would have been adverse to Safic's cause. In its efforts to

bolster its claim for damages it purportedly sustained, Safic suggests a substitute mode of computing its damages by getting the average price it paid

for certain quantities of coconut oil that it allegedly bought in 1987 and deducting this from the average price of the 1986 contracts. But this mode of computation if flawed .because: 1.] it is conjectural since it rests on average

prices not on actual prices multiplied by the actual volume of coconut oil per contract; and 2.] it is based on the unproven assumption that the 1987

contracts of purchase provided the coconut oil needed to make up for the failed 1986 contracts. There is also no evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts and that Safic had to

buy such oil from others to meet the requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with third parties do not match the quantities of oil provided

under the 1986 contracts. Had Safic produced the documents that the trial court required, a substantially correct determination of its actual damages would have been possible. This, unfortunately, was not the case. Suffice it to

state in this regard that "[T]he power of the courts to grant damages and attorney's fees demands factual, legal and equitable justification; its basis cannot be left to speculation and conjecture."25

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of

merit.

SO ORDERED.

G.R. No. 122452 January 29, 2001 TAM WING TAK, petitioner,

vs. HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 35) and ZENON DE GUIA (in his

capacity as Chief State Prosecutor), respondents. QUISUMBING, J.:

This is a petition for review on certiorari of the decision of the Regional Trial Court of Manila, Branch 35, dated September 14, 1995, which dismissed

herein petitioner's special civil action for mandamus and sustained the Letter-Order of respondent Chief State Prosecutor. The latter dismissed petitioner's

appeal from the resolution of the City Prosecutor of Quezon City, which, in turn, dismissed petitioner's complaint against Vic Ang Siong for violation of the Bouncing Checks Law or B.P. Blg. 22.

The factual background of this case is as follows:

On November 11, 1992, petitioner, in his capacity as director of Concord-World

Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavit-complaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong

with violation of B.P. Blg. 22. Docketed by the Prosecutor as I.S. No. 93-15886, the complaint alleged that a check for the amount of P83,550,000.00, issued by Vic Ang Siong in favor of Concord, was dishonored when presented for

encashment.

Vic Ang Siong sought the dismissal of the case on two grounds: First, that petitioner had no authority to file the case on behalf of Concord, the payee of

the dishonored check, since the firm's board of directors had not empowered him to act on its behalf. Second, he and Concord had already agreed to amicably settle the issue after he made a partial payment of P19,000,000.00 on

the dishonored check.1âwphi1.nêt

On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-15886 on the following grounds: (1) that petitioner lacked the requisite authority to initiate

the criminal complaint for and on Concord's behalf; and (2) that Concord and Vic Ang Siong had already agreed upon the payment of the latter's balance on the dishonored check.

A copy of the City Prosecutor's resolution was sent by registered mail to

petitioner in the address he indicated in his complaint-affidavit. Notwithstanding that petitioner was represented by counsel, the latter was not

furnished a copy of the resolution.

On June 27, 1994, petitioner's counsel was able to secure a copy of the resolution dismissing I.S. No. 93-15886. Counting his 15-day appeal period from said date, petitioner moved for reconsideration on July 7, 1994.

On October 21, 1994, the City Prosecutor denied petitioner's motion for

reconsideration. Petitioner's counsel received a copy of the denial order on November 3, 1994.

On November 7, 1994, petitioner's lawyer filed a motion to extend the period to

appeal by an additional 15 days counted from November 3, 1994 with the Chief

State Prosecutor. He manifested that it would take time to communicate with petitioner who is a Hong Kong resident and enable the latter to verify the

appeal as procedurally required.

On November 8, 1994, petitioner appealed the dismissal of his complaint by the City Prosecutor to the Chief State Prosecutor. The appeal was signed by

petitioner's attorney only and was not verified by petitioner until November 23, 1994.

On December 8, 1994, the Chief State Prosecutor dismissed the appeal for having been filed out of time. Petitioner's lawyer received a copy of the letter-

resolution dismissing the appeal on January 20, 1995.

On January 30, 1995, petitioner moved for reconsideration.

On March 9, 1995, respondent Chief State Prosecutor denied the motion for reconsideration.

Petitioner then filed Civil Case No. 95-74394 for mandamus with the Regional

Trial Court of Quezon City to compel the Chief State Prosecutor to file or cause the filing of an information charging Vic Ang Siong with violation of B.P. Blg. 22.

On September 14, 1995, the trial court disposed of the action as follows:

WHEREFORE, for utter lack of merit, the petition for mandamus of petitioner is DENIED and DISMISSED.

SO ORDERED.1

Petitioner moved for reconsideration, but the trial court denied this motion in its order dated October 24, 1995.

Hence, the instant petition.

Before this Court, petitioner claims respondent judge committed grave errors of law in sustaining respondent Chief State Prosecutor whose action flagrantly contravenes: (1) the established rule on service of pleadings and orders upon

parties represented by counsel; (b) the basic principle that except in private crimes, any competent person may initiate a criminal case; and (3) the B.P. Blg. 22 requirement that arrangement for full payment of a bounced check

must be made by the drawer with the drawee within five (5) banking days from notification of the check's dishonor.2

We find pertinent for our resolution the following issues:

(1) Was there valid service of the City Prosecutor's resolution upon petitioner?

(2) Will mandamus lie to compel the City Prosecutor to file the necessary

information in court?

In upholding respondent Chief State Prosecutor, the court a quo held:

It is generally accepted principle in the service of orders, resolutions, processes and other papers to serve them on the party or his counsel,

either in his office, if known, or else in the residence, also if known. As the party or his counsel is not expected to be present at all times in his

office or residence, service is allowed to be made with a person in charge of the office, or with a person of sufficient discretion to receive the same in the residence.

In the case under consideration, it is not disputed that the controverted

Resolution dismissing the complaint of the petitioner against Vic Ang Siong was served on the former by registered mail and was actually

delivered by the postmaster on April 9, 1994 at said petitioner's given address in the record at No. 5 Kayumanggi Street, West Triangle, Quezon City. The registered mail was in fact received by S. Ferraro. The service

then was complete and the period for filing a motion for reconsideration or appeal began to toll from that date. It expired on April 24, 1994. Considering that his motion for reconsideration was filed only on July 7,

1994, the same was filed beyond the prescribed period, thereby precluding further appeal to the Office of the respondent.3

Petitioner, before us, submits that there is no such "generally accepted

practice" which gives a tribunal the option of serving pleadings, orders, resolutions, and other papers to either the opposing party himself or his counsel. Petitioner insists that the fundamental rule in this jurisdiction is that

if a party appears by counsel, then service can only be validly made upon counsel and service upon the party himself becomes invalid and without effect.

Petitioner relies upon Rule 13, Section 2 of the Rules of Court4 and our ruling in J.M. Javier Logging Corp. v. Mardo, 24 SCRA 776 (1968) to support his stand. In the J.M. Javier case, we held:

[W]here a party appears by attorney, notice to the former is not a notice in law, unless service upon the party himself is ordered by the court…5

The Solicitor General, for respondents, contends that the applicable rule on service in the present case is Section 2 of the Department of Justice (DOJ)

Order No. 223,6 which allows service to be made upon either party or his counsel. Respondents argue that while a preliminary investigation has been

considered as partaking of the nature of a judicial proceeding,7 nonetheless, it

is not a court proceeding and hence, falls outside of the ambit of the Rules of Court.

We agree with petitioner that there is no "generally accepted practice" in the

service of orders, resolutions, and processes, which allows service upon either the litigant or his lawyer. As a rule, notice or service made upon a party who is

represented by counsel is a nullity,8 However, said rule admits of exceptions, as when the court or tribunal order service upon the party9 or when the technical defect is waived.10

To resolve the issue on validity of service, we must make a determination as to

which is the applicable rule – the on service in the Rules of Court, as petitioner insists or the rule on service in DOJ Order No. 223?

The Rules of Court were promulgated by this Court pursuant to Section 13,

Article VII of the 1935 Constitution11 (now Section 5 [5], Article VIII of the Constitution)12 to govern "pleadings, practice and procedure in all courts of the Philippines." The purpose of the Rules is clear and does not need any

interpretation. The Rules were meant to govern court (stress supplied) procedures and pleadings. As correctly pointed out by the Solicitor General, a

preliminary investigation, notwithstanding its judicial nature, is not a court proceeding. The holding of a preliminary investigation is a function of the Executive Department and not of the Judiciary.13 Thus, the rule on service

provided for in the Rules of Court cannot be made to apply to the service of resolutions by public prosecutors, especially as the agency concerned, in this

case, the Department of Justice, has its own procedural rules governing said service.

A plain reading of Section 2 of DOJ Order No. 223 clearly shows that in preliminary investigation, service can be made upon the party himself or

through his counsel. It must be assumed that when the Justice Department crafted the said section, it was done with knowledge of the pertinent rule in the Rules of Court and of jurisprudence interpreting it. The DOJ could have just

adopted the rule on service provided for in the Rules of Court, but did not. Instead, it opted to word Section 2 of DOJ Order No. 223 in such a way as to

leave no doubt that in preliminary investigations, service of resolutions of public prosecutors could be made upon either the party or his counsel.

Moreover, the Constitution provides that "Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the

Supreme Court."14 There is naught in the records to show that we have disapproved and nullified Section 2 of DOJ Order No. 223 and since its validity

is not an issue in the instant case, we shall refrain from ruling upon its validity.

We hold that there was valid service upon petitioner pursuant to Section 2 of DOJ Order No. 223.

On the issue of whether mandamus will lie. In general, mandamus may be

resorted to only where one's right is founded clearly in law and not when it is doubtful.15 The exception is to be found in criminal cases where mandamus is

available to compel the performance by the public prosecutor of an ostensibly discretionary function, where by reason of grave abuse of discretion on his part, he willfully refuses to perform a duty mandated by law.16 Thus,

mandamus may issue to compel a prosecutor to file an information when he refused to do so in spite of the prima facie evidence of guilt.17

Petitioner takes the stance that it was grave abuse for discretion on the part of

respondent Chief State Prosecutor to sustain the dismissal of I.S. No. 93-15886 on the grounds that: (1) Vic Ang Siong's obligation which gave rise to the bounced check had already been extinguished by partial payment and

agreement to amicably settle balance, and (2) petitioner had no standing to file the criminal complaint since he was neither the payee nor holder of the bad

check. Petitioner opines that neither ground justifies dismissal of his complaint.

Petitioner's stand is unavailing. Respondent Chief State Prosecutor in refusing to order the filing of an information for violation of B.P. Blg. 22 against Vic Ang

Siong did not act without or in excess of jurisdiction or with grave abuse of discretion.

First, with respect to the agreement between Concord and Victor Ang Siong to

amicably settle their difference, we find this resort to an alternative dispute settlement mechanism as not contrary to law, public policy, or public order. Efforts of parties to solve their disputes outside of the courts are looked on with

favor, in view of the clogged dockets of the judiciary.

Second, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is

Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under

Section 36 of the Corporation Code18, read in relation to Section 23,19 it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or turstees.20 Note that petitioner failed to show any proof

that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor And Siong for and on behalf of the firm. Clearly,

petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to prosper, it is required that the

minority stockholder suing for and on behalf of the corporation must allege in

his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join

him in the suit.21 There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear legal

right which would warrant the overturning of the decision of public respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office, is under no compulsion to file a criminal

information where no clear legal justification has been shown, and no sufficient evidence of guilt nor prima facie case has been presented by the petitioner.22 No

reversible error may be attributed to the court a quo when it dismissed petitioner's special civil action for mandamus.1âwphi1.nêt

WHEREFORE, the instant petition is DISMISSED for lack of merit. Costs

against petitioner. SO ORDERED.

G.R. No. L-48237 June 30, 1987 MADRIGAL & COMPANY, INC., petitioner,

vs.

HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL

OFFICE EMPLOYEES UNION, respondents. No. L-49023 June 30, 1987

MADRIGAL & COMPANY, INC., petitioner,

vs. HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE

EMPLOYEES UNION, respondents.

SARMIENTO, J.:

These are two petitions for certiorari and prohibition filed by the petitioner, the Madrigal & Co., Inc. The facts are undisputed.

The petitioner was engaged, among several other corporate objectives, in the management of Rizal Cement Co., Inc. 1 Admittedly, the petitioner and Rizal

Cement Co., Inc. are sister companies. 2 Both are owned by the same or practically the same stockholders. 3 On December 28, 1973, the respondent,

the Madrigal Central Office Employees Union, sought for the renewal of its collective bargaining agreement with the petitioner, which was due to expire on February 28, 1974. 4 Specifically, it proposed a wage increase of P200.00 a

month, an allowance of P100.00 a month, and other economic benefits. 5 The petitioner, however, requested for a deferment in the negotiations.

On July 29, 1974, by an alleged resolution of its stockholders, the petitioner reduced its capital stock from 765,000 shares to 267,366 shares. 6 This was

effected through the distribution of the marketable securities owned by the petitioner to its stockholders in exchange for their shares in an equivalent

amount in the corporation. 7

On August 22, 1975, by yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366 shares to 110,085 shares, again, through the same scheme. 8

After the petitioner's failure to sit down with the respondent union, the latter,

on August 28, 1974, commenced Case No. LR-5415 with the National Labor Relations Commission on a complaint for unfair labor practice. 9 In due time,

the petitioner filed its position paper, 10 alleging operational losses. Pending the resolution of Case No. LR-5415, the petitioner, in a letter dated November 17, 1975, 11 informed the Secretary of Labor that Rizal Cement Co., Inc., "from

which it derives income" 12 "as the General Manager or Agent" 13 had "ceased operating temporarily." 14 "In addition, "because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. due to lack

of business incentives and prospects, and in order to prevent further losses," 15 it had to reduce its capital stock on two occasions "As the situation,

therefore, now stands, the Madrigal & Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of retrenchment, of its employees and operations." 16 The petitioner then requested that it "be allowed

to effect said reorganization gradually considering all the circumstances, by phasing out in at least three (3) stages, or in a manner the Company deems

just, equitable and convenient to all concerned, about which your good office will be apprised accordingly." 17 The letter, however, was not verified and neither was it accompanied by the proper supporting papers. For this reason,

the Department of Labor took no action on the petitioner's request.

On January 19, 1976, the labor arbiter rendered a decision 18 granting, among other things, a general wage increase of P200.00 a month beginning March 1, 1974 plus a monthly living allowance of P100.00 monthly in favor of

the petitioner's employees. The arbiter specifically found that the petitioner "had been making substantial profits in its operation" 19 since 1972 through

1975. The petitioner appealed.

On January 29, 1976, the petitioner applied for clearance to terminate the services of a number of employees pursuant supposedly to its retrenchment program. On February 3, 1976, the petitioner applied for clearance to

terminate 18 employees more. 20 On the same date, the respondent union went to the Regional Office (No. IV) of the Department of Labor (NLRC Case No. R04-

2-1432-76) to complain of illegal lockout against the petitioner. 21 Acting on this complaint, the Secretary of 22 Labor, in a decision dated December 14, 1976, 22 found the dismissals "to be contrary to law" 23 and ordered the

petitioner to reinstate some 40 employees, 37 of them with backwages. 24 The petitioner then moved for reconsideration, which the Acting Labor Secretary,

Amado Inciong, denied. 25

Thereafter, the petitioner filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Legal Affairs, affirmed with

modification the Labor Department's decision, thus:

xxx xxx xxx

1. Eliseo Dizon, Eugenio Evangelista and Benjamin Victorio are excluded from the order of reinstatement.

2. Rogelio Meneses and Roberto Taladro who appear to have voluntarily retired and paid their retirement pay, their cases are

left to the judgment of the Secretary of Labor who is in a better position to assess appellant's allegation as to their retirement.

3. The rest are hereby reinstated with six (6) months backwages,

except Aleli Contreras, Teresita Eusebio and Norma Parlade who are to be reinstated without backwages.

SO ORDERED. 26

xxx xxx xxx

On May 15, 1978, the petitioner came to this court. (G.R. No. 48237.)

Meanwhile, on May 25, 1977, the National Labor Relations Commission

rendered a decision affirming the labor arbiter's judgment in Case No. LR-5415. 27 The petitioner appealed to the Secretary of Labor. On June 9, 1978, the Secretary of Labor dismissed the appeal. 28 Following these successive

reversals, the petitioner came anew to this court. (G.R. No. 49023.)

By our resolution dated October 9, 1978, we consolidated G.R. No. 48237 with G.R. No. 49023. 29 We likewise issued temporary restraining orders. 30

In G.R. No. 48237, the petitioner argues, that.

xxx xxx xxx

I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE WAS NO VALID

COMPLIANCE WITH THE CLEARANCE REQUIREMENT.

II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT THERE IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION, MUCH LESS FOR UNION-

BUSTING PURPOSES.

III. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN ORDERING THE REINSTATEMENT OF THE REST OF AFFECTED MEMBERS OF RESPONDENT

UNION WITH SIX (6) MONTHS BACKWAGES, EXCEPT ALELI CONTRERAS, TERESITA EUSEBIO AND NORMA PARLADE WHO ARE TO BE REINSTATED WITHOUT BACKWAGES.

IV. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN LEAVING TO THE

JUDGMENT OF RESPONDENT SECRETARY THE CASES OF ROGELIO MENESES AND ROBERTO TALADRO WHO HAD VOLUNTARILY RETIRED AND

PAID THEIR RETIREMENT PAY. 31

xxx xxx xxx

while in G.R. No. 49023, it submits that:

xxx xxx xxx

1. RESPONDENT MINISTER ERRED IN AFFIRMING THE DECISION EN BANC OF THE NATIONAL LABOR RELATIONS COMMISSION DESPITE CLEAR

INDICATIONS IN THE RECORD THAT THE AWARD WAS PREMATURE IN THE ABSENCE OF A DEADLOCK IN NEGOTIATION AND THE FAILURE ON THE PART OF THE LABOR ARBITER TO RESOLVE THE MAIN IF NOT ONLY ISSUE

OF REFUSAL TO BARGAIN, THEREBY DEPRIVING PETITIONER OF ITS RIGHT TO DUE PROCESS.

2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK IN NEGOTIATION, RESPONDENT MINISTER ERRED NEVERTHELESS IN NOT

FINDING THAT THE ECONOMIC BENEFITS GRANTED IN THE FORM OF SALARY INCREASES ARE UNFAIR AND VIOLATIVE OF THE MANDATORY

GUIDELINES PRESCRIBED UNDER PRESIDENTIAL DECREE NO. 525 AND IGNORING THE UNDISPUTED FACT THAT PETITIONER HAD VIRTUALLY CEASED OPERATIONS AFTER HAVING TWICE DECREASED ITS CAPITAL

STOCKS AND, THEREFORE, NOT FINANCIALLY CAPABLE TO ABSORB SUCH AWARD OF BENEFITS. 32

xxx xxx xxx

There is no merit in these two (2) petitions.

As a general rule, the findings of administrative agencies are accorded not only

respect but even finality. 33 This is especially true with respect to the Department of Labor, which performs not only a statutory function but carries

out a Constitutional mandate as well. 34 Our jurisdiction, as a rule, is confined to cases of grave abuse of discretion. 35 But for certiorari to lie, there must be

such arbitrary and whimsical exercise of power, or that discretion was exercised despotically. 36

In no way can the questioned decisions be seen as arbitrary. The decisions

themselves show why.

Anent Case No. R04-2-1432-76 (G.R. No. 48237), we are satisfied with the correctness of the respondent Presidential Assistant for Legal Affairs' findings. We quote:

xxx xxx xxx

In urging reversal of the appealed decision, appellant contends that

(1) its letter dated November 17, 1975, constitute "substantial compliance with the clearance requirement to terminate;" and (2)

individual appellees' dismissal had no relation to any union activities, but was the result of an honest-to-goodness retrenchment policy occasioned by loss of income due to cessation

of operation.

We find the first contention to be without merit. Aside from the fact that the controversial letter was unverified, with not even a single

document submitted in support thereof, the same failed to specify the individual employees to be affected by the intended retrenchment. Not only this, but the letter is so vague and

indefinite regarding the manner of effecting appellant's retrenchment plan as to provide the Secretary of (sic) a reasonable

basis on which to determine whether the request for retrenchment was valid or otherwise, and whether the mechanics in giving effect thereto was just or unjust to the employees concerned. In fact, to

be clearly implied from the letter is that the implementary measures needed to give effect to the intended retrenchment are

yet to be thought of or concretized in the indefinite future, measures about which the office of the Secretary "will be apprised accordingly." All these, and more, as correctly found by the Acting

Secretary, cannot but show that the letter is insufficient in form and substance to constitute a valid compliance with the clearance requirement. That being so, it matters little whether or not

complainant union or any of its members failed to interpose any opposition thereto.

It cannot be over-emphasized that the purpose in requiring a prior

clearance by the Secretary of Labor, in cases of shutdown or dismissal of employees, is to afford said official ample opportunity

to examine and determine the reasonableness of the request. This is made imperative in order to give meaning and substance to the

constitutional mandate that the State must "afford protection to labor," and guarantee their "security of tenure." Indeed, the rules

require that the application for clearance be filed ten (10) days before the intended shutdown or dismissal, serving a copy thereof to the employees affected in order that the latter may register their

own individual objections against the grant of the clearance. But how could this requirement of notice to the employees have been complied with, when, as observed by the Acting Secretary in his

modificatory decision dated June 30, 1977 "the latter of November 17, 1975 does not even state definitely the employees involved"

upon whom service could be made.

With respect to appellant's second contention, we agree with the Acting Secretary's findings that individual appellee's dismissal was an offshoot of the union's demand for a renegotiation of the then

validly existing collective bargaining Agreement.

xxx xxx xxx

The pattern of appellant's acts after the decision of the Labor Arbiter in Case No. LR-5415 has convinced us that its sole

objective was to render moot and academic the desire of the union to exercise its right to bargain collectively with management, especially so when it is considered in the light of the fact that

under the said decision the demand by the union for wage increase and allowances was granted. What renders appellant's motive

suspect was its haste in terminating the services of individual appellees, without waiting the outcome of its appeal in Case No. LR-5415. The amount involved by its offer to pay double separation

could very well have been used to pay the salaries of those employees whose services were sought to be terminated, until the resolution of its appeal with the NLRC, since anyway, if its planned

retrenchment is found to be justifiable and done in good faith, its only liability is to answer for the separation pay provided by law.

By and large, therefore, we agree with the Acting Secretary that, under the circumstances obtaining in this case, "respondent's action [was] a systematic and deliberate attempt to get rid of

complainants because of their union activities.

We now come to the individual cases of Aleli Contreras, Teresita Eusebio and Norma Parlade. It is appellant's claim that these three

(3) should not be reinstated inasmuch as they have abandoned their work by their continued absences, and moreover in the case of Contreras, she failed to oppose the application for clearance filed

against her on October 24, 1975. However, appellant's payrolls for December 16-31, 1975, January 1-15, 1976 and January 16-31,

1976, show that the three (3) were "on leave without pay." As correctly appreciated by the Acting Secretary, these "payrolls

prove, first, that "leave" has been granted to these employees, and, second, that it is a practice in the company to grant "leaves without pay" without loss of employment status, to those who have

exhausted their authorized leaves." As regards, Norma Parlade, the records show that she "truly incurred illness and actually underwent surgery in Oct., 1975." As to Aleli Contreras, there is no

showing that the Secretary of Labor or appellant ever acted on the clearance. If we were to follow the logic of appellant, Contreras

should not have been included in the application for clearance filed on Feb. 3, 1976. The fact that she was included shows that up to that time, she was still considered as a regular employee. It was for

these reasons, coupled with the length of service that these employees have rendered appellant, that the Acting Secretary

ordered their reinstatement but without backwages. 37

xxx xxx xxx

With respect Lo Case No. LR-5415 (G.R. No. 49023), we are likewise content with the findings of the National Labor Relations Commission. Thus:

xxx xxx xxx

Appellant now points that the only issue certified to compulsory arbitration is "refusal to bargain" and it is, therefore, premature to

dictate the terms of the CBA on the assumption that there was already a deadlock in negotiation. Appellant further contends that,

assuming there was deadlock in negotiation, the economic benefits granted are unreasonable and violative of the guideline prescribed by P.D. 525.

On the other hand, it is the union's stance that its economic

demands are justified by, the persistent increase in the cost of living and the substantial earnings of the company from 1971 to

1975.

It bears to stress that although the union's petition was precipitated by the company's refusal to bargain, there are glaring circumstances pointing out that the parties also submitted

"deadlock" to arbitration. The petition itself is couched in general terms, praying for arbitration of the union's "dispute" with the

respondent concerning proposed changes in the collective bargaining agreement." It is supported with a copy of the proposed

changes which just goes to show that the union, aside from the issue concerning respondent's refusal to bargain, sought

determination of the merit of its proposals. On the part of the appellant company, it pleaded financial incapacity to absorb the

proposed economic benefits during the initial stage of the proceedings below. Even the evidence and arguments proferred below by both parties are relevant to deadlock issue. In the face of

these factual environment, it is our view that the Labor Arbiter below did not commit a reversible error in rendering judgment on the proposed CBA changes. At any rate, the minimum

requirements of due process was satisfied because as heretofore stated, the appellant was given Opportunity, and had in fact,

presented evidence and argument in avoidance of the proposed CBA changes.

We do not also subscribe to appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations.

On the contrary, whatever may be the reason behind such reductions, it is indicative of an intention to keep the company a

going concern. So much so that until now almost four (4) years later, it is still very much in existence and operational as before.

We now come to the question concerning the equitableness of the economic benefits granted below. It requires no evidence to show

that the employees concerned deserve some degree of upliftment due to the unabated increase in the cost of living especially in

Metro Manila. Of course the company would like us to believe that it is losing and is therefore not financially capable of improving the present CBA to favor its employees. In support of such assertion,

the company points that the profits reflected in its yearly Statement of Income and Expenses are dividends from security holdings. We, however, reject as puerile its suggestion to dissociate

the dividends it received from security holdings on the pretext that they belong exclusively to its stockholders. The dividends received

by the company are corporate earnings arising from corporate investment which no doubt are attended to by the employees involved in this proceedings. Otherwise. it would not have been

reflected as part of profits in the company's yearly financial statements. In determining the reasonableness of the economic grants below, we have, therefore, scrutinized the company's

Statement of Income and Expenses from 1972 to 1975 and after equating the welfare of the employees with the substantial

earnings of the company, we find the award to be predicated on valid justifications.

The salary increase we herein sanction is also in keeping with the rational that made imperative the enactment of the Termination

Pay Law since in case the respondent company really closes down, the employees will receive higher separation pay or retirement

benefits to tide them over while seeking another employment. 38

What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business operations but confronted with the demand of the union for wage increases, decided to evade its responsibility towards the

employees by a devised capital reduction. While the reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members, who, by then, had agitated for wage

increases. In the face of the petitioner company's piling profits, the unionists had the right to demand for such salary adjustments.

That the petitioner made quite handsome profits is clear from the records. The

labor arbiter stated in his decision in the collective agreement case (Case No. LR-5415):

xxx xxx xxx

A clear scrutiny of the financial reports of the respondent [herein

petitioner] reveals that it had been making substantial profits in the operation.

In 1972, when it still had 765,000 common shares, of which 305,000 were unissued and 459,000 outstanding capitalized at

P16,830,000.00, the respondent made a net profit of P2,403,211.58. Its total assets were P70,821,317.81.

In 1973, based on the same capitalization, its profit increased to

P2,724,465.33. Its total assets increased to P83,240,473.73.

In 1974, although its capitalization was reduced from P16,830,000.00 to P11,230,459.36, its profits were further increased to P2,922,349.70. Its assets were P78,842,175.75.

The reduction in its assets by P4,398,297.98 was due to the fact

that its capital stock was reduced by the amount of P5,599,540.54.

In 1975, for the period of only six months, the respondent reported a net profit of P547,414.72, which when added to the surplus of

P5,591.214.19, makes a total surplus of P6,138,628.91 as of June 30, 1975. 39

xxx xxx xxx

The petitioner would, however, have us believe that it in fact sustained losses. Whatever profits it earned, so it claims were in the nature of dividends

"declared on its shareholdings in other companies in the earning of which the employees had no participation whatsoever." 40 "Cash dividends," according to

it, "are the absolute property of the stockholders and cannot be made available for disposition if only to meet the employees' economic demands." 41

There is no merit in this contention. We agree with the National Labor Relations Commission that "[t]he dividends received by the company are

corporate earnings arising from corporate investment." 42 Indeed, as found by the Commission, the petitioner had entered such earnings in its financial statements as profits, which it would not have done if they were not in fact

profits. 43

Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the reach of the petitioner's creditors since the petitioner had

received them as compensation for its management services in favor of the companies it managed as a shareholder thereof. As such shareholder, the dividends paid to it were its own money, which may then be available for wage

increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property

of the stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the right to a share in such dividends, by way of salary increases, may not be denied its

employees.

Accordingly, this court is convinced that the petitioner's capital reduction efforts were, to begin with, a subterfuge, a deception as it were, to camouflage

the fact that it had been making profits, and consequently, to justify the mass layoff in its employee ranks, especially of union members. They were nothing but a premature and plain distribution of corporate assets to obviate a just

sharing to labor of the vast profits obtained by its joint efforts with capital through the years. Surely, we can neither countenance nor condone this. It is an unfair labor practice.

As we observed in People's Bank and Trust Company v. People's Bank and Trust Co. Employees Union: 44

xxx xxx xxx

As has been held by this Court in Insular Lumber Company vs.

CA, et al., L-23875, August 29, 1969, 29 SCRA 371, retrenchment can only be availed of if the company is losing or meeting financial reverses in its operation, which certainly is not the case at bar.

Undisputed is the fact, that the Bank "at no time incurred losses. " As a matter of fact, "the net earnings of the Bank would be in the

average of P2,000,000.00 a year from 1960 to 1969 and, during this period of nine (9) years, the Bank continuously declared

dividends to its stockholders." Thus the mass lay-off or dismissal of the 65 employees under the guise of retrenchment policy of the

Bank is a lame excuse and a veritable smoke-screen of its scheme to bust the Union and thus unduly disturb the employment tenure of the employees concerned, which act is certainly an unfair labor

practice. 45

Yet, at the same tune, the petitioner would claim that "the phasing out of its operations which brought about the retrenchment of the affected employees was mainly dictated be the necessity of its stockholders in their capacity as

heirs of the late Don Vicente Madrigal to partition the estate left by him." 46 It must be noted, however, that the labor cases were tried on the theory of losses

the petitioner was supposed to have incurred to justify retrenchment. The petitioner cannot change its theory in the Supreme Court. Moreover, there is nothing in the records that will substantiate this claim. But what is more

important is the fact that it is not impossible to partition the Madrigal estate — assuming that the estate is up for partition — without the petitioner's business

closing shop and inevitably, without the petitioner laying off its employees.

As regards the question whether or not the petitioner's letter dated November 17, 1975 47 was in substantial compliance with legal clearance requirements, suffice it to state that apart from the Secretary of Labor's valid observation that

the same "did not constitute a sufficient clearance as contemplated by law, " 48 the factual circumstances show that the letter in question was itself a part of

the "systematic and deliberate attempt to get rid of [the union members] because of their union activities." 49 Hence, whether or not the said letter complied with the legal formalities is beside the point since under the

circumstances, retrenchment was, in all events, unjustified. Parenthetically, the clearance required under Presidential Decree No. 850 has been done away with by Batas Blg. 130, approved on August 21, 1981.

During the pendency of these petitions, the petitioner submitted manifestations

to the effect that certain employees have accepted retirement benefits pursuant to its retrenchment scheme. 50 This is a matter of defense that should be raised

before the National Labor Relations Commission.

To do away with the protracted process of determining the earnings acquired by the employees as a result of ad interim employment, and to erase any doubt as to the amount of backwages due them, this court, in line with the precedent

set in Mercury Drug Co., Inc. v. Court of Industrial Relations, 51 affirmed in a long line of decisions that came later, 52 hereby fixes the amount of backwages

at three (3) years pay reckoned at the increased rates decreed by the labor arbiter in Case No. LR-5415 without deduction or qualification.

WHEREFORE, the petitions are hereby DISMISSED. Subject to the modification as to the amount of backwages hereby awarded, the challenged

decisions are AFFIRMED. The temporary restraining orders are LIFTED. With costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

SO ORDERED.

G.R. No. 117897 May 14, 1997

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION, petitioners,

vs.

COURT OF APPEALS and IGLESIA NI CRISTO, respondents.

HERMOSISIMA, JR., J.:

The subject of this petition for review is the Decision of the public respondent Court of Appeals, 1 dated October 28, 1994, setting aside the portion of the

Decision of the Securities and Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and

between private respondent Iglesia Ni Cristo (INC, for short) and the Islamic Directorate of the Philippines, Inc., Carpizo Group, (IDP, for short).

The following facts appear of record.

Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of

all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic

Center in Quezon City for the construction of a "Mosque (prayer place), Madrasah (Arabic School), and other religious infrastructures" so as to

facilitate the effective practice of Islamic faith in the area. 2

Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652

square meters, was covered by two titles: Transfer Certificate of Title Nos. RT-26520 (176616) 3 and RT-26521 (170567), 4 both registered in the name of IDP.

It appears that in 1971, the Board of Trustees of the IDP was composed of the

following per Article 6 of its Articles of Incorporation:

Senator Mamintal Tamano 5 Congressman Ali Dimaporo

Congressman Salipada Pendatun Dean Cesar Adib Majul

Sultan Harun Al-Rashid Lucman Delegate Ahmad Alonto Commissioner Datu Mama Sinsuat

Mayor Aminkadra Abubakar 6

According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of

Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political

persecution.

Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly,

on October 3, 1986, the SEC, in a suit between these two contending groups, came out with a Decision in SEC Case No. 2687 declaring the election of both

the Carpizo Group and the Abbas Group as IDP board members to be null and void. The dispositive portion of the SEC Decision reads:

WHEREFORE, judgment is hereby rendered declaring the elections of both the petitioners 7 and respondents 8 as null and void for being violative of the Articles of Incorporation of petitioner corporation. With the nullification of the election of the respondents, the approved by-laws which they certified to this Commission as members of the Board of Trustees must necessarily be likewise declared null and void. However, before any election of the members of the Board of Trustees could be conducted, there must be an approved by-laws to govern the internal government of the association including the

conduct of election. And since the election of both petitioners and respondents have been declared null and void, a vacuum is created

as to who should adopt the by-laws and certify its adoption. To remedy this unfortunate situation that the association has found itself in, the members of the petitioning corporation are hereby

authorized to prepare and adopt their by-laws for submission to the Commission. Once approved, an election of the members of the Board of Trustees shall immediately be called pursuant to the

approved by-laws.

SO ORDERED. 9

Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986 Decision, and, thus, no valid election of the members of the

Board of Trustees of IDP was ever called. Although the Carpizo Group 10 attempted to submit a set of by-laws, the SEC found that, aside from Engineer

Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void.

On April 20, 1989, without having been properly elected as new members of

the Board of Trustee of IDP, the Carpizo Group caused to be signed an alleged Board Resolution 11 of the IDP, authorizing the sale of the subject two parcels

of land to the private respondent INC for a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale 12 dated April 20, 1989.

On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the

SEC, docketed as SEC Case No. 4012, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group

of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.

Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial

Court of Quezon City, docketed as Civil Case No. Q-90-6937, to compel said group to clear the property of squatters and deliver complete and full physical

possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner's duplicate copy of TCT Nos. RT-26521 and

RT-26520 covering the aforementioned two parcels of land, so that the sale in INC's favor may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed in her

favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group.

The IDP-Tamano Group, on June 11, 1991, sought to intervene in Civil Case

No. Q-90-6937 averring, inter alia:

xxx xxx xxx

2. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. Farouk Carpizo, et. al.,

who, through false schemes and machinations, succeeded in executing the Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the

subject of the case at bar;

3. That the said case before the SEC is docketed as Case No. 04012, the main issue of which is whether or not the aforesaid

Deed of Sale between IDP and the Iglesia ni Kristo is null and void, hence, Intervenor's legal interest in the instant case. A copy of the

said case is hereto attached as Annex "A";

4. That, furthermore, Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic Directorate of the Philippines;

xxx xxx xxx 13

Private respondent INC opposed the motion arguing, inter alia, that the issue

sought to be litigated by way of intervention is an intra-corporate dispute which falls under the jurisdiction of the SEC. 14

Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City,

denied petitioner's motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way

of intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC. 15

Apprised of the pendency of SEC Case No. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said

case, Judge Reyes, on September 12, 1991, rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of

delivering the actual possession thereof to INC. 16

Thereupon, Judge Reyes in another Order, dated March 2, 1992, pertaining also to Civil Case No. Q-90-6937, treated INC as the rightful owner of the real

properties and disposed as follows:

WHEREFORE, Leticia P. Ligon is hereby ordered to produce and/or surrender to plaintiff 17 the owner's copy of RT-26521 (170567) and RT-26520 (176616) in open court for the registration of the

Deed of Absolute Sale in the latter's name and the annotation of the mortgage executed in her favor by herein defendant Islamic

Directorate of the Philippines on the new transfer certificate of title to be issued to plaintiff.

SO ORDERED. 18

On April 6, 1992, the above Order was amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. RT-26521 (170567)

and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2, 1992." 19

Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari, docketed as CA-G.R No. SP-27973, assailing the foregoing Orders of Judge Reyes. The appellate court dismissed her petition on October 28, 1992. 20

Undaunted, Ligon filed a petition for review before the Supreme Court which

was docketed as G.R. No. 107751.

In the meantime, the SEC, on July 5, 1993, finally came out with a Decision in SEC Case No. 4012 in this wise:

1. Declaring the by-laws submitted by the respondents 21 as

unauthorized, and hence, null and void.

2. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni

Kristo and the Islamic Directorate of the Philippines, Inc. 22 null and void;

3. Declaring the election of the Board of Directors, 23 of the corporation from 1986 to 1991 as null and void;

4. Declaring the acceptance of the respondents, except Farouk

Carpizo and Musnib Buat, as members of the IDP null and void.

No pronouncement as to cost.

SO ORDERED. 24

Private respondent INC filed a Motion for Intervention, dated September 7, 1993, in SEC Case No. 4012, but the same was denied on account of the fact

that the decision of the case had become final and executory, no appeal having been taken therefrom. 25

INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil action for certiorari, docketed as CA-G.R SP No. 33295. On

October 28, 1994, the court a quo promulgated a Decision in CA-G.R. SP No. 33295 granting INC's petition. The portion of the SEC Decision in SEC Case

No. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals.

Thus, the IDP-Tamano Group brought the instant petition for review, dated

December 21, 1994, submitting that the Court of Appeals gravely erred in:

1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale;

2) Encouraging multiplicity of suits; and

3) Not applying the principles of estoppel and laches. 26

While the above petition was pending, however, the Supreme Court rendered

judgment in G.R. No. 107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated June 1, 1995, denied the Ligon petition and affirmed the October 28, 1992 Decision of the Court of Appeals in CA-G.R. No. SP-27973

which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of

Absolute Sale in INC's favor may be properly registered.

Before we rule upon the main issue posited in this petition, we would like to point out that our disposition in G.R. No. 107751 entitled, "Ligon v. Court of Appeals," promulgated on June 1, 1995, in no wise constitutes res judicata such that the petition under consideration would be barred if it were the ease.

Quite the contrary, the requisites or res judicata do not obtain in the case at bench.

Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of

res judicata in actions in personam, to wit:

Effect of judgment. — The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

xxx xxx xxx

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and

their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their

successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so

adjudged, or which was actually and necessarily included therein or necessary thereto.

Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c) is referred to as "conclusiveness of

judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second case where such judgment is invoked,

there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the

first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no identity of

cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed "conclusiveness of

judgment." 27

Neither of these concepts of res judicata find relevant application in the case at bench. While there may be identity of subject matter (IDP property) in both

cases, there is no identity of parties. The principal parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP, as represented by the 1971 Board of Trustees or

the Tamano Group, was only made an ancillary party in G.R. No. 107751 as intervenor. 28 It was never originally a principal party thereto. It must be noted

that intervention is not an independent action, but is merely collateral, accessory, or ancillary to the principal action. It is just an interlocutory proceeding dependent on or subsidiary to the case between the original

parties. 29 Indeed, the IDP-Tamano Group cannot be considered a principal party in G.R. No. 107751 for purposes of applying the principle of res judicata

since the contrary goes against the true import of the action of intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere

subordinate party in the main case whose right may be said to be only in aid of the right of the original party. 30 It is only in the present case, actually, where the IDP-Tamano Group became a principal party, as petitioner, with the Iglesia

Ni Cristo, as private respondent. Clearly, there is no identity of parties in both cases.

In this connection, although it is true that Civil Case No. Q-90-6937, which

gave rise to G.R. No. 107751, was entitled, "Iglesia Ni Kristo, Plaintiff v. Islamic Directorate of the Philippines, Defendant," 31 the IDP can not be considered

essentially a formal party thereto for the simple reason that it was not duly represented by a legitimate Board of Trustees in that case. As a necessary consequence, Civil Case No. Q-90-6937, a case for Specific Performance with

Damages, a mere action in personam, did not become final and executory insofar as the true IDP is concerned since petitioner corporation, for want of

legitimate representation, was effectively deprived of its day in court in said

case. Res inter alios judicatae nullum allis praejudicium faciunt. Matters adjudged in a cause do not prejudice those who were not parties to it. 32

Elsewise put, no person (natural or juridical) shall be affected by a proceeding to which he is a stranger. 33

Granting arguendo, that IDP may be considered a principal party in Ligon, res judicata as a "bar by former judgment" will still not set in on the ground that the cause of action in the two cases are different. The cause of action in G.R.

No. 107751 is the surrender of the owner's duplicate copy of the transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present case is the validity of the Carpizo Group-INC Deed of Absolute

Sale.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that any mention at all in Ligon as to the validity of the disputed

Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC has the

better right of possession over the owner's duplicate copy of the TCTs covering the IDP property? G.R. No. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was

not the principal thrust of Ligon. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the sale, thru a

legitimate Board of Trustees.

In any case, while it is true that the principle of res judicata is a fundamental component of our judicial system, it should be disregarded if its rigid application would involve the sacrifice of justice to technicality. 34

The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SEC's Decision in SEC Case No. 4012 which declared the sale of two (2) parcels of land in Quezon City

between the IDP-Carpizo Group and private respondent INC null and void?

We rule in the affirmative.

There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the legitimate Board of

Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnership or associations, who are the grantees of primary franchises and/or a license or permit

issued by the government to operate in the Philippines . . . .

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,

partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

c) Controversies in the selection or appointment of directors,

trustees, officers, or managers of such corporations, partnerships or associations. . . . .

If the SEC can declare who is the legitimate IDP Board, then by parity of

reasoning, it can also declare who is not the legitimate IDP Board. This is precisely what the SEC did in SEC Case No. 4012 when it adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and

void. 35 By this ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. Consequently,

the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or disposition of ID property.

It must be noted that SEC Case No. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the Carpizo Group. As far back

as October 3, 1986, the SEC, in Case No. 2687, 36 in a suit between the Carpizo Group and the Abbas Group, already declared the election of the

Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation. 37 Nothing thus becomes more settled than that the IDP-Carpizo Group with whom private respondent

INC contracted is a fake Board.

Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a

legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of contracts:

There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

All these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. As succinctly put by

Tolentino, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. 38 In this case, the IDP, owner

of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated consent, but

one where consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

The Carpizo Group-INC sale is further deemed null and void ab initio because

of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the

corporation:

Sec. 40. Sale or other disposition of assets. — Subject to the provisions of existing laws on illegal combinations and monopolies,

a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon terms and conditions and for such consideration, which may be money, stocks, bonds or other

instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem

expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose. Written notice of the proposed action

and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the

books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under

the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation

would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

xxx xxx xxx

The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all

the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority

vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These

twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham

Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to

be. Apparently, there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees. 39

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio.

Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction, the same not being an intra-corporate dispute.

The resolution of the question as to whether or not the SEC had jurisdiction to

declare the subject sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP,

owner of the subject property. No end of substantial justice will be served if we reverse the SEC's conclusion on the matter, and remand the case to the regular courts for further litigation over an issue which is already determinable based

on what we have in the records.

It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case. No. Q-90-6937, a

case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. The legitimate IDP Board could have been granted ample opportunity before the regional trial court to shed

light on the true status of the Carpizo Board and settled the matter as to the validity of the sale then and there. But INC, wanting to acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the

civil suit, argued for the denial of the motion averring, inter alia, that the issue sought to be litigated by the movant is intra-corporate in nature and outside

the jurisdiction of the regional trial court. 40 As a result, the motion for intervention was denied. When the Decision in SEC Case No. 4012 came out nullifying the sale, INC came forward, this time, quibbling over the issue that it

is the regional trial court, and not the SEC, which has jurisdiction to rule on the validity of the sale. INC is here trifling with the courts. We cannot put a

premium on this clever legal maneuverings of private respondent which, if countenanced, would result in a failure of justice.

Furthermore, the Court observes that the INC bought the questioned property from the Carpizo Group without even seeing the owner's duplicate copy of the

titles covering the property. This is very strange considering that the subject lot is a large piece of real property in Quezon City worth millions, and that under

the Torrens System of Registration, the minimum requirement for one to be a good faith buyer for value is that the vendee at least sees the owner's duplicate copy of the title and relies upon the same. 41 The private respondent,

presumably knowledgeable on the aforesaid workings of the Torrens System, did not take heed of this and nevertheless went through with the sale with undue haste. The unexplained eagerness of INC to buy this valuable piece of

land in Quezon City without even being presented with the owner's copy of the titles casts very serious doubt on the rightfulness of its position as vendee in

the transaction.

WHEREFORE, the petition is GRANTED. The Decision of the public respondent Court of Appeals dated October 28, 1994 in CA-G.R. SP No. 33295 is SET ASIDE. The Decision of the Securities and Exchange Commission dated July 5,

1993 in SEC Case No. 4012 is REINSTATED. The Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in

the name of respondent Iglesia Ni Cristo, if one has already been made. If new titles have been issued in the name of Iglesia Ni Cristo, the Register of Deeds is hereby ordered to cancel the same, and issue new ones in the name of

petitioner Islamic Directorate of the Philippines. Petitioner corporation is ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest, if the same

was actually received by IDP. Otherwise, INC may run after Engineer Farouk Carpizo and his group for the amount of money paid.

SO ORDERED.

G.R. No. 51765 March 3, 1997

REPUBLIC PLANTERS BANK, petitioner, vs.

HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents.

HERMOSISIMA, JR., J.:

This is a petition for certiorari seeking the annulment of the Decision 1 of the

then Court of First Instance of Rizal 2 for having been rendered in grave abuse of discretion. Private respondents Robes-Francisco Realty and Development

Corporation (hereafter, "the Corporation") and Adalia F. Robes filed in the court a quo, an action for specific performance to compel petitioner to redeem 800

preferred shares of stock with a face value of P8,000.00 and to pay 1% quarterly interest thereon as quarterly dividend owing them under the terms and conditions of the certificates of stock.

The court a quo rendered judgment in favor of private respondents; hence, this

instant petition.

Herein parties debate only legal issues, no issues of fact having been raised by them in the court a quo. For ready reference, however, the following narration

of pertinent transactions and events is in order:

On September 18, 1961, private respondent Corporation secured a loan from petitioner in the amount of P120,000.00. As part of the proceeds of the loan,

preferred shares of stocks were issued to private respondent Corporation,

through its officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full

amount of the loan, which is P120,000.00, petitioner lent such amount partially in the form of money and partially in the form of stock certificates

numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes and Carlos F. Robes,

who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions:

The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit:

1. Of the right to receive a quarterly dividend of One Per Centum

(1%), cumulative and participating.

xxx xxx xxx

2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after two (2) years from the date of issue

at the option of the Corporation. . . .

On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint anchored on private respondents' alleged rights to collect dividends under the preferred shares in question and to have petitioner redeem

the same under the terms and conditions of the stock certificates. Private respondents attached to their complaint, a letter-demand dated January 5,

1979 which, significantly, was not formally offered in evidence.

Petitioner filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive

law; and (3) that the action was barred by the statute of limitations and/or laches.

Petitioner's Motion to Dismiss was denied by the trial court in an Order dated

March 16, 1979. 4 Petitioner then filed its Answer on May 2, 1979. 5 Thereafter, the trial court gave the parties ten (10) days from July 30, 1979 to submit their respective memoranda after the submission of which the case would be deemed

submitted for resolution. 6

On September 7, 1979, the trial court rendered the herein assailed decision in favor of private respondents. In ordering petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly

interest thereon until full payment, the trial court ruled:

There being no issue of fact raised by either of the parties who filed their respective memoranda delineating their respective

contentions, a judgment on the pleadings, conformably with an earlier order of the Court, appears to be in order.

From a further perusal of the pleadings, it appears that the

provision of the stock certificates in question to the effect that the plaintiffs shall have the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating, clearly and

unequivocably [sic] indicates that the same are "interest bearing stocks" which are stocks issued by a corporation under an

agreement to pay a certain rate of interest thereon (5 Thompson, Sec. 3439). As such, plaintiffs become entitled to the payment thereof as a matter of right without necessity of a prior declaration

of dividend.

On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and

conditions in said stock certificates clearly allows the same.

To allow the herein defendant not to redeem said preferred shares of stock and/or pay the interest due thereon despite the clear import of said provisions by the mere invocation of alleged Central

Bank Circulars prohibiting the same is tantamount to an impairment of the obligation of contracts enshrined in no less than

the fundamental law itself.

Moreover, the herein defendant is considered in estoppel from taking shelter behind a General Banking Act provision to the effect that it cannot buy its own shares of stocks considering that the

very terms and conditions in said stock certificates allowing their redemption are its own handiwork.

As to the claim by the defendant that plaintiffs' cause of action is

barred by prescription, suffice it to state that the running of the prescriptive period was considered interrupted by the written extrajudicial demands made by the plaintiffs from the defendant. 7

Aggrieved by the decision of the trial court, petitioner elevated the case before

us essentially on pure questions of law. Petitioner's statement of the issues that it submits for us to adjudicate upon, is as follows:

A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO PAY RESPONDENT

ADALIA F. ROBES THE AMOUNT OF P8213.69 AS INTERESTS FROM 1961 TO 1979 ON HER PREFERRED SHARES.

B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO REDEEM

RESPONDENT ADALIA F. ROBES' PREFERRED SHARES FOR P8,000.00.

C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF

JURISDICTION IN DISREGARDING THE ORDER OF THE CENTRAL BANK TO PETITIONER TO DESIST FROM REDEEMING

ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS THEREON . . . .

D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT DOES NOT STATE A CAUSE OF ACTION.

E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM

OF RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR LACHES. 8

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to provide

an overview on the nature of preferred shares and the redemption thereof, considering that these issues lie at the heart of the dispute.

A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of common stock. The

preferences are designed to induce persons to subscribe for shares of a corporation. 9 Preferred shares take a multiplicity of forms. The most common

forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former is a share which gives the holder thereof preference in the distribution of the assets of the corporation in case of

liquidation; 10 the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all

are paid to the holders of common stock. 11 There is no guaranty, however, that the share will receive any dividends. Under the old Corporation Law in force at the time the contract between the petitioner and the private respondents was

entered into, it was provided that "no corporation shall make or declare any dividend except from the surplus profits arising from its business, or distribute its capital stock or property other than actual profits among its members or

stockholders until after the payment of its debts and the termination of its existence by limitation or lawful dissolution." 12 Similarly, the present

Corporation Code 13 provides that the board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings. 14 The Code,

in Section 43, adopting the change made in accounting terminology, substituted the phrase "unrestricted retained earnings," which may be a more

precise term, in place of "surplus profits arising from its business" in the former law. Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings, as the case may

be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter.

Dividends are thus payable only when there are profits earned by the corporation and as a general rule, even if there are existing profits, the board of

directors has the discretion to determine whether or not dividends are to be declared. 15 Shareholders, both common and preferred, are considered risk takers who invest capital in the business and who can look only to what is left

after corporate debts and liabilities are fully paid. 16

Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either issuing

corporation, or the stockholder, or both at a certain redemption price. 17 A redemption by the corporation of its stock is, in a sense, a repurchase of it for cancellation. 18 The present Code allows redemption of shares even if there are

no unrestricted retained earnings on the books of the corporation. This is a new provision which in effect qualifies the general rule that the corporation cannot purchase its own shares except out of current retained earnings. 19

However, while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings, this is subject to the condition that the

corporation has, after such redemption, assets in its books to cover debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the corporation is insolvent or if such redemption will cause insolvency

or inability of the corporation to meet its debts as they mature. 20

We come now to the merits of the case. The petitioner argues that it cannot be compelled to redeem the preferred shares issued to the private respondent. We

agree. Respondent judge, in ruling that petitioner must redeem the shares in question, stated that:

On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and

conditions in said stock certificates clearly allows the same. 21

What respondent judge failed to recognize was that while the stock certificate does allow redemption, the option to do so was clearly vested

in the petitioner bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the

stockholder is without right to either compel or refuse the redemption of its stock. 22 Furthermore, the terms and conditions set forth therein use

the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a

mandatory effect. We fail to see how respondent judge can ignore what, in his words, are the "very wordings of the terms and conditions in said stock certificates" and construe what is clearly a mere option to be his

legal basis for compelling the petitioner to redeem the shares in question.

The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central Bank made a finding that said petitioner has been suffering from chronic reserve deficiency, 23 and that such finding resulted in a

directive, issued on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the petitioner bank

prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. 24 Redemption of preferred shares was prohibited for

a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of

a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a

corporate entity, may thus be considered as an exercise of police power. The respondent judge insists that the directive constitutes an impairment of the obligation of contracts. It has, however, been settled that the Constitutional

guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the state, the reason being that public welfare is superior

to private rights. 25

The respondent judge also stated that since the stock certificate granted the private respondents the right to receive a quarterly dividend of One Per Centum

(1%) cumulative and participating, it "clearly and unequivocably (sic) indicates that the same are "interest bearing stocks" or stocks issued by a corporation under an agreement to pay a certain rate of interest thereon. As such, plaintiffs

(private respondents herein) become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend." 26 There is

no legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-

thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus.

Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is

legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. 27 Clearly, the respondent judge, in compelling

the petitioner to redeem the shares in question and to pay the corresponding dividends, committed grave abuse of discretion amounting to lack or excess of

jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law.

Anent the issue of prescription, this Court so holds that the claim of private

respondent is already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides that a right of action that is founded upon a written contract prescribes in ten (10) years. The letter-demand made by the private

respondents to the petitioner was made only on January 5, 1979, or almost eighteen years after receipt of the written contract in the form of the stock certificate. As noted earlier, this letter-demand, significantly, was not formally

offered in evidence, nor were any other evidence of demand presented. Therefore, we conclude that the only time the private respondents saw it fit to

assert their rights, if any, to the preferred shares of stock, was after the lapse of almost eighteen years. The same clearly indicates that the right of the private respondents to any relief under the law has already prescribed. Moreover, the

claim of the private respondents is also barred by laches. Laches has been defined as the failure or neglect, for an unreasonable length of time, to do that

which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or

declined to assert it. 28

Considering that the terms and conditions set forth in the stock certificate clearly indicate that redemption of the preferred shares may be made at any

time after the lapse of two years from the date of issue, private respondents should have taken it upon themselves, after the lapse of the said period, to inquire from the petitioner the reason why the said shares have not been

redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional sixteen years passed before the private respondents saw it fit to demand their right. The petitioner, at the time it issued said preferred shares to

the private respondents in 1961, could not have known that it would be suffering from chronic reserve deficiency twelve years later. Had the private

respondents been vigilant in asserting their rights, the redemption could have been effected at a time when the petitioner bank was not suffering from any financial crisis.

WHEREFORE, the instant petition, being impressed with merit, is hereby

GRANTED. The challenged decision of respondent judge is set aside and the complaint against the petitioner is dismissed.

Costs against the private respondents.

SO ORDERED.

G.R. No. 59114 March 18, 1991 JOSE G. RICAFORT, CONRADO T. CALALANG, NATIONWIDE

DEVELOPMENT CORPORATION and AGUINALDO DEVELOPMENT

CORPORATION, petitioners, vs.

HON. FELIX L. MOYA, Judge, CFI, Davao, Br. II, BLACK MOUNTAIN, INC., TETRA MANAGEMENT CORPORATION and the ENERGY CORPORATION,

respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners. Reymundo P.G. Villarica and Siguion Reyna, Montecillo & Ongsiako for private respondents.

NARVASA, J.:p

With this judgment, the Court writes finis to a controversy principally involving two (2) groups of individuals, which has given rise to no less than eleven (11) actions and proceedings: three (3) in the Court of First Instance, two (2) in the

Securities and Exchange Commission, and six (6) in this Court.

The roots of the controversy go as far back as 1978, to a deed of sale executed on April 18 of that year by Daniel R. Aguinaldo and D.R. Aguinaldo Corporation

(DRACOR), as vendors, and Jose Ricafort and Conrado Calalang, as vendees. By that deed:

1) Aguinaldo and DRACOR sold to Jose Ricafort and Conrado Calalang all their

shares of stock and subscriptions in three (3) corporations, namely:

a) ADECOR (Aguinaldo Development Corporation ),

b) MARBLECORP (Philippine Marble Corporation), and

c) NADECOR (Nationwide Development Corporation);

2) Aguinaldo bound himself to convey nine (9) parcels of rice land in Saug, Davao del Norte, held in trust by him, to the real or beneficial owner, ADECOR;

3) As security for payment of the balance of the price (a down payment having

been made on execution of the deed of sale) Ricafort and Calalang bound themselves:

1) To pledge to Aguinaldo all the shares of stock in the three (3) corporations, subject of the sale; and

2) To mortgage to Aguinaldo the nine (9) "Saug lots."

The pledge of the stock certificates was effected on the same day, April 18, 1978.

On August 18, 1980, at the stockholders' meeting of NADECOR, Daniel R. Aguinaldo, Dominador Aytona, Conrado Calalang, Jose G. Ricafort, and five (5)

others were elected directors. These directors later elected Aytona, Aguinaldo, and Romeo H. Borsoto as, respectively, Chairman, President and Secretary.

A month later, or on September 26, 1980, Aguinaldo executed the Deed of

Reconveyance of the nine "Saug lots" in favor of ADECOR, as called for by the Deed of Sale of April 18, 1978, supra. But the related stipulation—that Ricafort and Calalang cause the mortgage of those lots in Aguinaldo's favor as security

for the payment of the balance of the price fixed in the sale of April 18, 1978—was not complied with. Ricafort and Calalang refused to fulfill that prestation

because, according to them, the deed of reconveyance of the "Saug lots" executed by Aguinaldo in favor of ADECOR dated September 26, 1980, was fatally defective as it did not bear the signature of Aguinaldo's wife, Helen

Leontovich. For some undisclosed reason, the latter never saw fit to remedy the omission until very, very much later, after the controversy between the parties

had worsened and spawned bitter litigation in various courts, as will now be briefly narrated.

CIVIL CASE No. 38117, CFI, Rizal

The first case was commenced on October 6, 1980. On that day Civil Case No. 38117 was instituted by Ricafort and Calalang in the then Court of First Instance of Rizal. The stated cause: breach of the contract of sale of April 18,

1978 by Aguinaldo's failure to make a valid transfer of the nine "Saug lots;" the prayer: that Aguinaldo's obligation to make the conveyance be deemed waived and correspondingly, that Ricafort and Calalang, as vendees, be deemed

discharged from their own obligation to pay the balance of the price, and the pledge of the stock purchased by them be considered discharged and released.

Aguinaldo reacted by instructing a Notary Public, Wilfred Neis, to conduct the

auction sale of the pledged stock (of DRACOR; ADECOR and NADECOR, supra). Atty. Neis scheduled the sale on October 10, 1980. This gave rise to the

second litigation between the parties.

CIVIL CASE NO. 135262, Manila

On October 8, 1980, Ricafort and Calalang brought suit against Aguinaldo and Notary Public Neis in the Court of First Instance of Manila, which was docketed

as Civil Case No. 135262. They asked that the latter be stopped from proceeding with the auction sale of the stock in question on October 10, 1980, or at any other time thereafter. They also applied for a preliminary injunction

pending determination of the merits of the action.

Ricafort and Calalang later amended the complaint to incorporate their cause of action in Civil Case No. 38117 of the Court of First Instance at Pasig, supra.

Case No. 38117 thus became functus officio. Consequently, Ricafort and Calalang caused its dismissal by filing with the Pasig Court a notice to that effect dated November 6, 1980, in accordance with Section 1, Rule 17 of the

Rules of Court. 1

Temporary Restraining Order

On October 8, 1980, a temporary restraining order was issued by Judge Tomas Maddela, to whose sala Civil Case No. 135262 had been raffled, enjoining the

auction sale of the pledged stock subject of the contract of sale of April 18, 1978.

Three more amendments of the complaint were thereafter sought by Ricafort

and Calalang through separate motions.

The first amendment sought to add a plea:

a) for reformation of the contract of sale of April 18, 1978 to include all of the shares of stock in NADECOR of Aguinaldo,

DRACOR and all their nominees (totaling 67% of the outstanding stock in NADECOR); and

b) for a preliminary injunction against Aguinaldo to prohibit him

from representing himself as the controlling stockholder of NADECOR and attempting to sell that corporation's so-called "Kingking Mining Claims" in Pantukan, Davao del Norte.

The amendment was allowed by Order dated April 20, 1981.

The second amendment impleaded NADECOR as additional defendant, and prayed that it also be enjoined from offering the Kingking Mining Claims for sale. The amendment was admitted by Order issued on June 25, 1981.

These mining claims, by the way, are embraced in nine (9) Lode Lease

Contracts docketed as LLC-V-908 to V-910; V-935, V-948, V-949, V-966, V-1074 and V-1075; 2 and there is evidence on record that said claims constitute

practically all the assets of NADECOR.

The third amendment added averments of fraud relative to the transfer by Aguinaldo to himself of ADECOR shares in a foreign company, Sawyer-Adecor International, Inc. (SAICOR). This amendment was approved by Order dated

February 5, 1982.

Preliminary Injunctions by Manila CFI (CC 135262) Re Kingking Mining Claims, etc.

Several injunctive orders were thereafter issued against Aguinaldo and his

group by the Trial Court mainly as regards the Kingking Mining Claims in Davao del Norte. These resulted mainly from an Operating Agreement involving

said Kingking Claims executed on March 25, 1981 between Aguinaldo, in representation of NADECOR, on the one hand, and a consortium made up of Black Mountain, Inc., Tetra Management Corporation, and Energy Corporation,

on the other. On March 30, 1981 the Court enjoined the NADECOR Board from ratifying that Operating Agreement of March 25, 1981.

On April 20, 1981, the Court stopped (a) the auction sale of the pledged shares

of stock which had been re-scheduled by Notary Public Wilfred Neis at Aguinaldo's instance, and (b) Aguinaldo from representing himself as the controlling stockholder of NADECOR and offering its Kingking Claims for sale.

On June 29, 1981, the Court issued another Order (a) declaring Aguinaldo and the NADECOR directors guilty of contempt of court for having, despite the injunction of March 30, 1981, approved and confirmed the Operating

Agreement involving the Kingking Claims entered into by NADECOR with Black Mountain, etc., administering an admonition on them, and (b) NULLIFYING

said Operating Agreement.

And on September 15, 1981 yet another Order was rendered by the Trial Court, prohibiting Aguinaldo from voting or selling the ADECOR shares in Sawyer-

Adecor International Corporation (SAICOR), which he had caused to be transferred to his name.

At about this time, Ricafort and Calalang perceived what they believed to be a plot by the Aguinaldo-Aytona group to exclude them and SAICOR from the

management of NADECOR. It appears that Aguinaldo and his group had refused to convoke the stockholders of NADECOR for the annual meeting for

the year 1981 which, under the by-laws 3 should have been called on the third Monday of August. So on August 17, 1981, the Ricafort Group, and the President of SAICOR, Carol Garvice, who was in the country at the time, went

to the main offices of NADECOR, and proceeded to hold a meeting for the declared purpose of electing the directors for the incoming year, and otherwise

transacting corporate business. Dominador Aytona, Daniel Aguinaldo's colleague and counsel, moved to postpone the meeting, drawing attention to a temporary restraining order supposedly issued by the Superior Court of

California dated August 14, 1981. The majority of the stockholders then present however voted against the postponement, opining inter alia that the

restraining order of the California Court was not enforceable in the Philippines. Aytona then questioned Garvice's qualification to take part in the stockholders' meeting. He was reminded that as early as May, 1981, he already knew Garvice

to be the President of SAICOR. When the majority of the stockholders expressed their firm wish to continue with the meeting, Aguinaldo and Aytona walked out.

The stockholders then elected as directors, Conrado Calalang, Jose Ricafort and five (5) others. The stockholders also rejected the aforesaid operating agreement of March 25, 1981 between NADECOR, represented by the

Aguinaldo-Aytona Group, and the consortium of Black Mountain, Inc., Energy Corporation, and Tetra Management Corporation. The stockholders instead approved the proposed operating agreement with Benguet Corporation. The

directors-elect then organized the NADECOR Board: they elected the corporate officers headed by Calalang as chairman and president. The Secretary's

Certificate attesting to these events was in due course filed with the Securities and Exchange Commission.

On that day, too, NADECOR, represented by the new officers, entered into an Operating Agreement with Benguet Corporation for the operation by the latter

of the company's KINGKING MINES. This was the second such agreement involving the Kingking Mines . 4

Litigation in Securities & Exchange Commission

The area of conflict now widened, to include litigation in the Securities and Exchange Commission. Two (2) cases were instituted in that quasi-judicial

agency: SEC Case No. 2143, in 1981 and SEC Case No. 2878, in 1984.

SEC Case No. 2143

SEC Case No. 2143 was commenced by complaint dated September 24, 1981 of NADECOR, represented by its newly elected directors and officers (the Ricafort-

Calalang Group), against Aguinaldo, Aytona and a certain Romeo H. Borsoto. The complaint alleged that despite the election of the new officers at the

stockholders' meeting of August 17, 1981, the defendants continued to fraudulently represent themselves as the legitimate officers of NADECOR and to exclude said officers-elect from the exercise of their rights. The complaint

also adverted to the defendants' allegedly malicious refusal to perform their ministerial duty to issue notices of the annual stockholders' meeting, supra.

Acting on the application for preliminary injunction contained in the complaint,

an order was issued on September 28, 1981 by SEC Director and Hearing Officer Sixto Villanueva (a) prohibiting the defendants "from acting and representing themselves as officers of NADECOR until further orders," and (b)

setting the hearing on the preliminary injunction on October 7, 1981.

On October 7, 1981 and various dates thereafter, the complainants presented evidence in substantiation of their plea for a preliminary injunction.

Defendants refused to adduce proof of their own. They contented themselves with presenting their Answer to the Complaint, and an opposition to the application for preliminary injunction. And instead of submitting countervailing

evidence, they filed various motions to lift the temporary restraining order of September 28, 1981. They also attempted to present Calalang and Ricafort as

hostile witnesses at the injunction hearing and caused issuance of subpoena towards this end. Those processes were however quashed by the Hearing Officer who ordered said defendants instead to submit a proposal for a

stipulation or a request for admission of the facts as to which examination of Calalang and Ricafort was being sought. The defendants ignored the order and

renewed their attempts to have Calalang and Ricafort testify as their hostile witnesses.

Then, without awaiting resolution of the application for preliminary injunction by the Hearing Officer (who was still waiting for the defendants to submit their

evidence), said defendants brought the matter up to the Securities and Exchange Commission en banc (by filing with that body a petition for certiorari and mandamus, with application for preliminary injunction). The Hearing Officer, Director Villanueva, thereafter denied the defendants' motions to lift

the restraining order of September 28, 1981. The defendants thereupon filed a

supplemental petition with the Commission en banc, asking that the Healing Officer's own restraining order of September 28, 1981 be itself restrained. They

later moved to be allowed to continue exercising functions as officers of NADECOR.

CIVIL CASE NO. 143, CFI, DAVAO

Still another action was begun at about this time. On November 6, 1981, the

consortium of Black Mountain, Inc., Energy Corporation and Tetra Management Corporation filed a complaint in the Court of First Instance of

Davao, which was docketed as Civil Case No. 143. Named defendants were Benguet Corporation, NADECOR, and the directors of NADECOR, including Ricafort and Calalang. The complaint sought to enjoin them from interfering

with Black Mountain's possession of NADECOR's Kingking mines and recover damages. The Trial Court issued a temporary restraining Order to this effect on

November 11, 1981.

Ricafort and his co-defendants moved to dismiss the complaint for failure to state a cause of action. They argued that the complaint contained no averment—in any case, it was an uncontroverted fact—that NADECOR's

agreement with Black Mountain, Inc., et al. for the operation of the Kingking Mining Claims had never been approved by the NADECOR stockholders owning

the majority of the capital stock, although such approval was required by Section 44 of the Corporation Code for any contract, such as the one in

question, "whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise . . .,"

and it appearing that the agreement with Black Mountain embraced 93.5% of the total number and area of NADECOR's mining claims and NADECOR had no other mining properties or business.

The Trial Court denied the motion to dismiss in an Order dated December

15,1981.

All the foregoing actions in turn generated proceedings in the Supreme Court.

PROCEEDINGS INSTITUTED IN SUPREME COURT

G.R. No. 60376 (Aguinaldo, et al. v. Hon. T.P. Maddela, et al. [RTC No. 135262])

On November 20, 1981, Aguinaldo, Neis and NADECOR filed with this Court a petition for certiorari and prohibition with application for preliminary

injunction, assailing Manila CFI Judge Maddela's alleged failure to act on Civil Case No. 135262. This was docketed as G.R. No. 60376.

Petitioners Aguinaldo, et al., later filed on June 15, 1982, a supplemental petition:

(1) to annul and enjoin enforcement of Judge Maddela's temporary restraining

order dated March 30, 1981—stopping the NADECOR Board (then controlled by the Aguinaldo-Aytona Group) from approving the Operating Agreement with

Black Mountain, Inc. involving the Kingking Mines; and

(2) to nullify and set aside other adverse orders, dated April 20, 1981, June 25, 1981, June 26, 1981, and Sept. 15, 1981.

G.R. No. 59114 (Ricafort, et al. v. Hon. Felix Moya, et al. [Davao RTC CC 143])

For their part, Ricafort and Calalang, together with NADECOR and ADECOR,

filed with this Court on December 17, 1981 a petition for certiorari, against Judge Felix L. Moya of the Davao CFI (Branch II), Black Mountain, Inc., Tetra Management Corporation and Energy Corporation. The petition was later

amended on January 26, 1982. The petitioners sought annulment of three orders of Judge Moya, to wit:

(1) the temporary restraining order issued on November 11, 1981;

(2) the order of December l5, 1981, denying the petitioners' motion to dismiss

the action (on the ground that the Operating Agreement of Black Mountain, Inc., et al. with NADECOR had not been approved by stockholders holding the majority of the capital stock as required by the Corporation Code, supra); and

(3) the order of January 20, 1982, denying their motion to quash the contempt charges against them.

Due Course to G.R. Nos. 60376 & 59114

Both petitions in G.R. Nos. 60376 and 59114 were given due course in virtue of

a Resolution of this Court dated August 23, 1982.

After Black Mountain, Inc., filed on September 9, 1982, a motion alleging chiefly that G.R. No. 59114 had been rendered moot by Letter of Instructions No. 1349 issued by former President Marcos on August 1, 1983, both "Kingking Claims Cases," G.R. No. 59114 and G.R. No. 60376, lay fallow for some three years.

A word about said Letter of Instructions No. 1349. It advised the consortium of

Black Mountain, Inc., Energy Corporation, and Tetra Management Corporation to implement the operating agreement involving the NADECOR's Kingking

mining property in Pantukan, Davao. It superseded Letter of Instructions Nos. 1210, dated March 9, 1982, directing that said property be immediately put

into production and that a company called "North Davao Mining Corporation" undertake the development of said Kingking mining property. 5

G.R. No. 61377 (Aguinaldo, Aytona, Borsoto v. SEC, Ricafort, et al. [RE SEC

Case. No. 2143])

A third certiorari action involving substantially the same parties was commenced in this Court on August 13, 1982. That action, docketed as G.R.

No. 61377, concerned SEC Case No. 2143 in which, it will be recalled, the Aguinaldo-Aytona Group had presented to the Commission en banc a petition

and supplemental petition impugning certain actuations of the Hearing Officer including the latter's temporary restraining Order. In this Court the Aguinaldo-Aytona Group complained of the alleged inaction of the Securities and

Exchange Commission en banc on their petition to nullify the same which had resulted to their disadvantage, and prayed for invalidation of said Hearing

Officer's restraining order.

G.R. Nos. 88895 and 88095

Still another proceeding in connection with SEC Case No. 2143 was instituted in this Court by the Aytona Group, although much, much later, in 1988. That

stemmed from a motion submitted by the Aytona Group in said SEC Case No. 2143 for a preliminary injunction to stop the Ricafort-Calalang Group from calling and holding the annual stockholders' meeting of NADECOR on August

15, 1988 pursuant to the By-Laws. When that motion was denied, Aytona went to the Court of Appeals which, however, sustained the SEC's denial of the preliminary injunction. Aytona then appealed to this Court, his petitions being

docketed here as G.R. Nos. 88895 and 88095. Later, Aytona moved to withdraw and dismiss that appeal, but the appeal was instead denied by this Court for

failure to comply with the requisites of the Rules of Court.

G.R. Nos. 77274-75 (Dominador R. Aytona, as Executor of the Estate of Deceased Daniel R. Aguinaldo vs. Conrado T. Calalang, et al. [RE CC Q-45704])

One more proceeding on appeal involving the same parties was added to this Court's docket sometime in 1987. This was G.R. Nos. 77274-75. It had its

origin in yet another action filed by Aytona, this time with the Regional Trial Court at Quezon City, on August 15, 1985. He filed the case as a stockholder of

NADECOR and as executor of the estate of Daniel R. Aguinaldo, who had died in the meantime. Named as defendants were Conrado T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de Castro, (as officers

of NADECOR), and Sawyer-Adecor International, Inc. (SAICOR) and Benguet Corporation. The suit was chiefly grounded on an order of preliminary

injunction of the Superior Court of California enjoining several specified stockholders of NADECOR from voting a large bloc of NADECOR shares owned by SAICOR, pending judicial determination of ownership of 1.2 million SAICOR

shares of stock, registered in the name of the late D.R. Aguinaldo. The Quezon City Court issued a temporary restraining order on August 16, 1985 enjoining

defendants from voting the SAICOR shares at the annual stockholders' meeting set on August 19, 1985, and all other meetings.

The defendants, the Ricafort-Calalang Group, promptly moved to dismiss the

action on the ground of (1) lack of jurisdiction of the Court over of the subject-matter; (2) non-enforceability of the foreign order of injunction, hence, failure of the complaint founded thereon to state a cause of action; and (3) failure of

plaintiffs counsel to indicate his IBP number. The motion was denied by Order dated October 25, 1985; and a writ of preliminary injunction subsequently issued against the defendants on November 5, 1975. Ricafort and his co-

defendants challenged that order of denial before the Court of Appeals by way of a petition for certiorari and prohibition. SAICO filed a separate petition for

certiorari and prohibition against the same order also before the Court of Appeals. The cases were consolidated; and judgment was rendered thereon in

due course on November 28, 1986, annulling and setting aside the Order of the Court a quo of October 25, 1985 and the order for a preliminary injunction of November 5, 1985. Aytona's motion for reconsideration was later denied by the

Court of Appeals, in a Resolution dated January 23, 1987.

Aytona appealed to this Court. His appeal was docketed as G.R. Nos. 77274-75 (Dominador R. Aytona, as Executor of the Estate of Deceased Daniel R.

Aguinaldo vs. Conrado T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de Castro, and Sawyer- Adecor International, Inc.)

G.R. No. 75098 (Ricafort, et al. v. Hon. T. Maddela, et al. [Case No. 135262])

One more proceeding in this Court has to be mentioned: G.R. No. 75098, which

was an appeal by certiorari by Ricafort and Calalang against the Order of Judge Maddela of June 10, 1986 in Civil Case No. 135262. Said order was issued by Judge Maddela in connection with hearings that this Court instructed him to

conduct, on a motion of the Aytona Group that the auction sale of the pledged stock should proceed in view of certain recent developments. The instruction

was contained in a Resolution dated July 8, 1985 in G.R. No. 60376.

G.R. No. 75098 was later consolidated with G.R. No. 60376 by this Court's Resolution of November 5, 1986.

Intervention by the Office of the President

It appears that the Office of the President of the Philippines took some interest

in the Kingking mining property of' NADECOR and issued two letters of instructions concerning it. The first, LOI No. 1210, dated March 9, 1982, directed that the mining property be immediately put into production and that

a firm known as "North Davao Mining Corporation" undertake its development.

The second, LOI No. 1349, dated August 1, 1983, advised Black Mountain, Inc., the Energy Corporation, and the Tetra Management Corporation to

implement their operating agreement involving said Kingking mining property in Pantukan, Davao. 6

FINAL DISPOSITION OF SUPREME COURT AND SEC CASES

G.R. NOS. 60376 AND 75058 (Judgment on Compromise)

A compromise was arrived at by the parties in G.R. Nos. 60376 and 75098. It

was embodied and approved in a Resolution dated March 16, 1988, dictated at a hearing presided over by the Chairman of the First Division, in the presence

of the parties and their counsel. Basically the compromise provided for the consummation of the deed of sale of April 18, 1978 through the compliance by the parties with their yet unfulfilled prestations as well as the obligations

thereto related. The Resolution approving said compromise declared that those contractual and related commitments should be fulfilled on March 21, 1988, and that thereupon, "G.R. Nos. 60376 and 75098, as well as the case thereto

related, Civil Case No. 135262 of the Regional Trial Court of Manila, shall be ordered dismissed, closed, and terminated."

On March 23, 1988, this Court promulgated another Resolution declaring the

compromise approved by the Resolution of March 16, 1988 to have been fully executed to all the parties' satisfaction. It also ordered the Register of Deeds of Davao to cancel the transfer certificates of title covering the nine (9) "Saug lots"

still in the name of Daniel R. Aguinaldo and to issue new ones in the name of ADECOR. Finally, the Resolution declared "G.R. No. 75098 DISMISSED,

CLOSED AND TERMINATED, and G.R. No. 60376 and Civil Case No. 135262 DISMISSED only insofar as they involve the subject matter of this compromise agreement." Later, however, the parties having reached a complete settlement,

the case was ordered dismissed by this Court, by Resolution of August 14, 1989. (Rollo, G.R. Nos. 60376 and 75098, p. 2298)

G.R. Nos. 77274-75

Decision was rendered in G.R. Nos. 77274-75 (Dominador R. Aytona, as

Executor of the Estate of Deceased Daniel R. Aguinaldo vs. Conrado T. Calalang, Jose G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao, Edgar de

Castro, and Sawyer-Adecor International, Inc.) on June 20, 1988. 7 This Court ruled that QC RTC Case Q-45704 involved a controversy arising out of intra-corporate relations between and among stockholders and thus fell within the

original and exclusive jurisdiction of the Securities and Exchange Commission; moreover, there was as yet no foreign judgment to be enforced by Philippine Courts, the petitioners' action in the Regional Trial Court being founded on a

mere interlocutory order.

G.R. No. 61377

Decision was also promulgated by the Court in G.R. No. 61377 on June 30,

1988, dismissing the petition. 8 It held that the challenged temporary restraining order of the Hearing Officer in SEC Case No. 2143, like those issued by Regional Trial Courts, lapsed after twenty (20) days; that the Securities and

Exchange Commission still had jurisdiction and indeed the obligation to proceed with the hearing on the merits of Case No. 2143 and issue appropriate orders pursuant thereto, subject to review by the Court of Appeals and the

Supreme Court; and that since petitioners (defendants) had not yet finished presenting evidence on such matters affecting the corporate affairs of

NADECOR as the validity of proxy votes, alleged usurpation of corporate powers, claims of majority status, issuance of notices—evidentiary issues the resolution of which is primarily lodged with the Securities and Exchange

Commission, the latter ought to continue to hear and then decide the respective lights of parties in NADECOR.

SEC Case No. 2143

On July 31, 1989, a Joint Manifestation was presented by the Ricafort Group

and the Aytona Group in SEC Case No. 2143, briefly to the following effect:

1) the Aytona Group will no longer question the 1989 NADECOR annual stockholders' meeting and the election of directors on that occasion, as well as

the organizational meeting of the board of directors;

2) both groups waive any and all claims for damages they may have against each other in the case;

3) the Aytona Group will not move for reconsideration, appeal, or in any way question the decision which may be rendered in the case pursuant to the joint

manifestation.

Acting thereon, Hearing Officer Alberto P. Atas rendered an Order on August 9, 1989, ruling that

1. (The Commission had decided to) . . . recognize and affirm the validity of the

annual stockholders' meeting of Nationwide Development Corporation held on August 17, 1981, the election of petitioners as directors of the Corporation in that meeting, and the validity of the organizational meeting of such board

electing the officers of the corporation; . . .

2. . . . all claims for damages of the parties against each other related to this action are hereby considered waived," and

3. Case No. 2143 was "considered CLOSED."

SEC Case No. 2878

To complete the picture, mention must be made of one other action in the

Securities and Exchange Commission between the same parties, SEC. Case No. 2878. That case was filed by the Ricafort-Calalang Group to enjoin the Aytona Group from continuing to act and represent themselves as Directors and/or

officers of NADECOR. The Ricafort Group alleged that they were duly elected as directors of NADECOR at the annual stockholders' meeting on August 20, 1984, and later, elected as officers of the firm by the directors; that the meeting

was adjourned by Calalang, as Chairman, in view of the objections by Aytona (presenting TRO by RTC, QC) to the voting of SAICO's 7,000 shares at the

election of directors; that after adjournment, however, Aytona and his group elected themselves officers of NADECOR. A temporary restraining order was issued by Hearing Officer Emmanuel Sison, followed, after presentation of

evidence, by a preliminary injunction, against the Aytona Group. Aytona moved for reconsideration of the Order of injunction, dated October 14, 1985, but his

motion was denied by order dated January 17, 1986.

On May 25, 1989, the decision in said SEC Case No. 2878 was handed down by Hearing Officer Felipe S. Tongco. Tongco ruled that the only issue concerned the validity of the adjournment of the meeting of August 20, 1984 by Calalang;

that as to the question regarding the election of Aytona, et al. as directors after said adjournment, the same had been mooted by the subsequent and indisputably valid election of Calalang and his group in 1986 and 1987; that

the validity of the acts of the Aytona Group as pseudo directors and officers had to be determined; that the evidence sufficiently established that the annual

stockholders' meeting of August 20, 1984 had been validly adjourned by Calalang; that the election of the Aytona Group as directors following the adjournment was therefore void ab initio; and that group's acts as directors and

officers of NADECOR were also null and void.

Remaining Proceedings and Resolution Thereof

Thus, the only proceedings left undecided are Civil Case No. 143 of the Regional Trial Court of Davao, and G.R. No. 59114, related to Case No. 143.

The main issue in these two (2) cases is the validity of the Operating Agreement

relative to the Kingking Mines entered into on March 25, 1981 between NADECOR, then represented by the Aguinaldo-Aytona Group, and the

consortium composed of Black Mountain, Inc., Tetra Management Corporation, and Energy Corporation.

The facts and considerations hereunder summarized, developed beyond

dispute in the various legal proceedings above surveyed, dictate a declaration of the invalidity of said Agreement of March 25, 1981.

1. On March 30, 1981, in Civil Case No. 135262, the Manila Trial Court enjoined the NADECOR Board (controlled by the Aguinaldo-Aytona Group) from

ratifying this Operating Agreement.

2. On April 20, 1981, the same Court inter alia stopped Aguinaldo from representing himself as the controlling stockholder of NADECOR and offering

its Kingking Claims for sale.

3. On June 29, 1981, the Court issued another Order (a) declaring Aguinaldo and the NADECOR directors guilty of contempt of court for having, despite the

injunction of March 30, 1981, approved and confirmed the Operating Agreement involving the Kingking Claims entered into by NADECOR with Black Mountain, etc., administering an admonition on them, and (b) NULLIFYING

said Operating Agreement.

4. The Ricafort-Calalang Group validly elected directors at the annual stockholders meeting of NADECOR on August 17, 1981; and said directors

thereafter validly elected the officers of the corporation at the organizational meeting of the board.

5. The same group (Ricafort-Calalang) had been validly re-elected since then, in 1985, 1986, 1987. An attempt of the Aguinaldo-Aytona group to have its

members elected as directors at the stockholders' meeting of August 19, 1985 was declared null and void.

6. At the annual meeting of August 17, 1981, too, the NADECOR stockholders

rejected the operating agreement executed on March 25, 1981 by NADECOR, then acting through the Aguinaldo-Aytona Group, and the Black Mountain Consortium, supra. The stockholders also approved the proposed Agreement

with Benguet Corporation for the operation by the latter of the company's KINGKING MINES. The agreement with Benguet Corporation was subsequently

signed and executed.

7. On January 22, 1987, President Corazon C. Aquino issued Memorandum Order No. 69, entitled "RESCINDING LETTER OF INSTRUCTION NOS. 1210

AND 1349, DATED MARCH 9, 1982 AND AUGUST 1, 1983," treating directly of the "approved operating agreement involving the Kingking mining property in Pantukan, Davao" of the consortium composed of Black Mountain, Inc., Energy

Corporation, and Tetra Management Corporation . 9 The memorandum reads as follows:

Letter of Instructions Nos. 1210, dated March 9, 1982, directing

that the Kingking mining property in Pantukan, Davao, covered by mining lease contracts issued in the name of the Nationwide Development Corporation be immediately put into production and

that the North Davao Mining Corporation undertake the

development of the Kingking mining property; and Letter of Instructions No. 1349, dated August 1, 1983, advising the Black

Mountain, Inc., the Energy Corporation, and the Tetra Management Corporation to implement the approved operating

agreement involving the Kingking mining property in Pantukan, Davao, are hereby rescinded and revoked.

This Memorandum Order takes effect immediately.

This memorandum Order was sent on February 18, 1987, by Presidential Staff Director Melquiades T. de la Cruz to Director Benjamin Gonzales of the Bureau

of Mines and Geo-Sciences, and Carlos G. Dominguez, Secretary of Natural Resources, evidently for implementation. These acts, according to Ricafort and

Calalang , 10 "rectified the "great prejudice" caused to . . . (them) by the 'unjust awards by then President Marcos of the operation of the Kingking mines to "crony" North Davao Mining Corporation which had no operating agreement

from the claim owners and then to "cronies" Black Mountain, Inc., et al. which had a spurious operating agreement from Aguinaldo with a court-cancelled board of directors' ratification and no stockholders' approval . . ."

It was evidently on account of Memorandum Order No. 69 of President Aquino that NADECOR (the Ricafort-Calalang Group) finally succeeded in getting possession of the mines; this, sometime in December, 1989, NADECOR was

granted authority by the Secretary of Natural Resources "to enter the area" and "proceed with exploration and development activities" subject to certain specified conditions, one of which was that NADECOR itself shall conduct said

exploration and development activities and not contract said activities to an operator . . ."

8. As admitted by the respondents, Black Mountain, Inc. "ceased operations

and became bankrupt years before Marcos was booted out of office."

9. The Operating Agreement with the Black Mountain Consortium of March 25, 1981 was never ratified by the NADECOR stockholders; indeed, it was explicitly rejected by said stockholders. Considering that the Kingking Mines comprise

all or substantially all the assets of NADECOR, the operating agreement of March 25, 1981 had to be ratified by the stockholders in order to be valid and

effective. This, in accordance with Section 44 of the Corporation Code. 11 That no such ratification was ever given constitutes yet another reason to invalidate the same.

Under these circumstances—the agreement executed on March 25, 1981 was

entered into in defiance of valid orders of a court of competent jurisdiction and was in fact subsequently nullified by it; it was entered into against the wishes

of the majority of the stockholders and directors and in truth, was not only not ratified by the majority of said stockholders as required by the Corporation

Code, but explicitly rejected and disowned by them at a meeting duly convoked, said stockholders thereafter approving an operating agreement with Benguet

Corporation; the agreement was sought to be vindicated and enforced by individuals who no longer represented the majority of the stockholders of

NADECOR, over the objection and against the wishes of the legitimate majority; the authority granted to the consortium (Black Mountain, Inc., Energy Corporation, and Tetra Management Corporation) to implement the agreement

of March 25, 1981 was rescinded and revoked by the Office of the President of the Philippines; and one of the companies in said consortium is now, admittedly, no longer capable on account of bankruptcy of complying with its

contractual commitments—it is impossible to accord the agreement any validity or effect whatsoever.

It thus clearly appears, not only that upon purely legal considerations, the

operating agreement of March 25, 1981 is, if not outrightly void, unenforceable for want of requisite valid ratification and conferred upon private respondents no actionable, vindicable rights, but also that, from a practical standpoint, any

issue about said respondents' rights under the agreement has been mooted by supervening events effectively precluding their exercise in any case.

WHEREFORE, the petition is GRANTED. Civil Case No. 143 of the Regional

Trial Court of Davao is DISMISSED, and the restraining order of November 11, 1981 issued therein, if still extant, is DISSOLVED. Costs against private respondents.

SO ORDERED.

G.R. No. 129459 September 29, 1998

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs.

COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND

DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:

May corporate treasurer, by herself and without any authorization from the board of directors, validly sell a parcel of land owned by the corporation?. May

the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us, assailing the March 18, 1997

Decision 1 of the Court of Appeals 2 in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati,

Metro Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the appealed decision is

AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant

the downpayment of P100,000.00 which she received from plaintiff-appellant. There is no pronouncement as to costs. 4

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5

The Facts

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

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-

appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro

Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in

the Agreement of 14 February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2,

1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee

Motorich Sales Corporation requesting for a computation of the balance to be paid: that said letter was coursed through defendant-appellee's broker. Linda Aduca, who wrote the computation of the

balance: that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee

Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the

office of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter

disregard of its commitments had refused to execute the Transfer

of Rights/Deed of Assignment which is necessary to transfer the certificate of title; that defendant ACL Development Corp. is

impleaded as a necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while

defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales Corporation:

that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject

property; that by reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales

Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees Nenita

Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of

Assignment, plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a

result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal deed

of sale in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary damages in the sum of One Hundred

Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter

lost the opportunity to construct a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita Lee Gruenberg and

Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been constrained

to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court hearings.

In its answer, defendants-appellees Motorich Sales Corporation

and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the

agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other

signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this from the

very beginning as it was presented a copy of the Transfer of Rights

(Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed; that plaintiff-appellant itself

drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting,

the enforceability of the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989); that it was the understanding between Mrs.

Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at

a bank designated by plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-

appellant informed Mrs. Gruenberg of the alleged availability of the check, by phone, only after banking hours.

On the basis of the evidence, the court a quo rendered the

judgment appealed from[,] dismissing plaintiff-appellant's complaint, ruling that:

The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of

absolute sale in accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage.

As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant corporation. Motorich Sales,

to dispose of that property covered by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation. Motorich Sales, then its disposition

should be governed by the requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to

wit:

Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination and

monopolies, a corporation may by a majority vote of its board of directors . . .

sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets including its

goodwill . . . when authorized by the vote of the stockholders representing at least

two third (2/3) of the outstanding capital stock . . .

No such vote was obtained by defendant Nenita Lee

Gruenberg for that proposed sale[;] neither was there evidence to show that the supposed transaction was

ratified by the corporation. Plaintiff should have been on the look out under these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated

August 16, 1993, p. 3) which makes him knowledgeable on corporation matters.

Regarding the question of damages, the Court likewise,

does not find substantial evidence to hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by

the corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8).

In the light of the foregoing, the Court hereby renders

judgment DISMISSING the complaint at instance for lack of merit.

"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with principal office address at 5510

South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila, represented herein by its

Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;

— and —

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by

virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio

Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to as

the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City,

Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS

between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:

1. That the purchase price shall be at FIVE

THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter; subject to the following terms:

a. Earnest money amounting to ONE

HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon the execution of this agreement and shall form

part of the total purchase price;

b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of

February 1989 shall be for the account of the Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of the

Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens

and/or encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor of the Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in

favor of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro

Manila, Philippines.

MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS

TRANSFEROR TRANSFEREE

[SGD.] [SGD.]

By. NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President

Signed In the presence of:

[SGD.] [SGD.]

————————————— ——————————— 6

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

1. Appellant is entitled to compel the appellees to

execute a Deed of Absolute Sale in accordance with the Agreement of February 14, 1989,

2. Plaintiff is entitled to damages. 7

As stated earlier, the Court of Appeals debunked petitioner's arguments and

affirmed the Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us.

8

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case

II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower

court

III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent

corporation

IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the transcript of stenographic note[s].

V. Whether or not respondents are liable for damages

and attorney's fees 9

The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner

and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?

3. Is the alleged alteration of Gruenberg's testimony as

recorded in the transcript of stenographic notes material to the disposition of this case?

4. Are respondents liable for damages and attorney's fees?

The Court's Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corporation, which was

in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract

they both consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding on the two corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales Corporation was purportedly

sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders

or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of

directors. 10 Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides;

Sec. 23. The Board of Directors or Trustees. — Unless otherwise

provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the

board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of

the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or

agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject

to the articles of incorporation, bylaws, or relevant provisions of law. 11 Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the

authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the

powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the

corporation has caused persons dealing with the officer or agent to believe that it has conferred." 12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed agency be a general or special one

bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case

either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. 14

In the case at bar, Respondent Motorich categorically denies that it ever

authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land. 15

Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner

failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such authority. 16 It has not shown any provision of said

respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent

the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has been described

as "to receive and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly

authorized officers." 17

Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising business. 18 Unmistakably,

its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority.

Art. 1874 and 1878 of the Civil Code of the Philippines provides:

Art. 1874. When a sale of a piece of land or any interest therein is

through an agent, the authority of the latter shall be in writing: otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following

case:

xxx xxx xxx

(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

xxx xxx xxx.

Petitioner further contends that Respondent Motorich has ratified said contract

of sale because of its "acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their

authority are binding on the corporation. But when these officers exceed their

authority, their actions "cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them." 20

In this case, there is a clear absence of proof that Motorich ever authorized

Nenita Gruenberg, or made it appear to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any

proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it

bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract:

"(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established." As found by the trial court 21 and affirmed by the Court of Appeals, 22 there is no

evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding on this Court. 23 As the consent of the seller was not

obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.

Because Motorich had never given a written authorization to Respondent

Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract

cannot be ratified. 24

Second Issue: Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be

pierced, because the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be

accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the

company can treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly, 27 not having

done so during the trial, but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said issue at this late

stage of the proceedings. It is well-settled the points of law, theories and arguments not brought to the attention of the trial court need not be, and

ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal. 29 Allowing petitioner to change horses in

midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.

Second, even if the above mentioned argument were to be addressed at this

time, the Court still finds no reason to uphold it. True, one of the advantages of a corporate form of business organization is the limitation of an investor's liability to the amount of the investment. 30 This feature flows from the legal

theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only

for legitimate purposes. 31 On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a

mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation. 32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a

means of perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the

veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals." 33

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is essentially,

then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the

purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or

inequity at the expense of third persons like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as follows:

Sec. 96. Definition and Applicability of Title. — A close corporation,

within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record

by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this

Title; and (3) The corporation shall not list in any stock exchange

or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a

close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation

which is not a close corporation within the meaning of this Code. . . . .

The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20,

or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that

Respondent Motorich is not a close corporation. 35 Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned

99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate

personalities." 36 So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein

the Court ruled that ". . . petitioner corporation is classified as a close corporation and, consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for

the action of its president." 38 But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real property was contracted by the

president of a close corporation with the knowledge and acquiescence of its board of directors. 39 In the present case, Motorich is not a close corporation,

as previously discussed, and the agreement was entered into by the corporate treasurer without the knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be considered as a

binding corporate act and a board action as nothing more than a mere formality." 40 The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost

99.866%" of Respondent Motorich. 41 Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich is to be disregarded, the

subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being

no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have agreed to a different property regime, their property relations would be governed by conjugal partnership of gains. 42 As a

consequence, Nenita Gruenberg could not have effected a sale of the subject lot

because "[t]here is no co-ownership between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor

of another his or interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of the properties before the partnership

has been legally dissolved." 43

Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid. Under this regime, "alienation of community property must have the written consent

of the other spouse or he authority of the court without which the disposition or encumbrance is void." 44 Both requirements are manifestly absent in the

instant case.

Third Issue: Challenged Portion of TSN Immaterial

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

Q Did you ever represent to Mr. Co that you were

authorized by the corporation to sell the property?

A Yes, sir. 45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent Respondent

Motorich in the sale of its immovable property. Said excerpt be understood in the context of her whole testimony. During her cross-examination. Respondent

Gruenberg testified:

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

[A] Yes, sir.

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

A Yes, sir.

Q You stated on direct examination that you did not

represent that you were authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the property, you did not tell that to

Mr. Co, is that correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the president who [was]

also authorized to sign on behalf of the corporation.

Q You did not say that you were not authorized nor did you say that you were authorized?

A Mr. Co was very interested to purchase the property

and he offered to put up a P100,000.00 earnest money at that time. That was our first meeting. 47

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her testimony demonstrates that

the president of Petitioner Corporation, in his great desire to buy the property, threw caution to the wind by offering and paying the earnest money without

first verifying Gruenberg's authority to sell the lot.

Fourth Issue: Damages and Attorney's Fees

Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith, respondents attempted and succeeded in

impressing on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt

issued by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the

contract [was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." 48 Assuming that Respondent

Motorich was not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent

[C]orporation." 49

As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The amount paid as "earnest

money" was not proven to have redounded to the benefit of Respondent

Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich, because "it was deposited with the account of Aren

Commercial c/o Motorich Sales Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as follows:

Q You voluntarily accepted the P100,000.00, as a

matter of fact, that was encashed, the check was encashed.

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

Q In your account?

A Yes, sir. 51

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

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of Petitioner Corporation for more than

ten years and has also served as chief executive of two other corporate entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate

treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to

persuade the Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money, as "no one shall enrich himself at the expense of another." 54 a principle

embodied in Article 2154 of Civil Code. 55 Although there was no binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich. 56 Article 2155 of Civil

Code provides that "[p]ayment by reason of a mistake in the contruction or application of a difficult question of law may come within the scope of the

preceding article."

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

SO ORDERED.

G.R. No. 117604 March 26, 1997 CHINA BANKING CORPORATION, petitioner,

vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC.,

respondents.

KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities and

Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly impugned is the

Court of Appeals' resolution dated 4 September 1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a

stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for brevity). 1

On 16 September 1974, petitioner wrote VGCCI requesting that the

aforementioned pledge agreement be recorded in its books. 2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's favor was duly noted in its corporate

books. 3

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the aforestated pledge agreement still existing between Calapatia and petitioner. 4

Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985,

filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the

pledged stock. 5

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books.

However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of Calapatia's unsettled accounts with the club. 6

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00

for the pledged stock. Consequently, petitioner was issued the corresponding certificate of sale. 7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment

of his overdue account in the amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the same amount 9 and another notice dated 22 November 1986 for P23,483.24. 10

On 4 December 1986, VGCCI caused to be published in the newspaper Daily

Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own

share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. 11

On 5 May 1989, petitioner advised VGCCI that it is the new owner of

Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be

issued in its name. 12

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share

of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a

new stock certificate in its name. 14

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for

reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's

stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision

in favor of VGCCI, stating in the main that "(c)onsidering that the said share is

delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of

delinquency." 15 Consequently, the case was dismissed. 16

On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission

issued an order reversing the decision of its hearing officer. It declared thus:

The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of pledgor's failure

to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The auction sale

conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is

ordered to issue another membership certificate in the name of appellant-petitioner bank.

SO ORDERED. 18

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on

ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as

follows:

In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the following

relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners,

members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or

license to operate is concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The

establishment of any of the relationship mentioned will not

necessarily always confer jurisdiction over the dispute on the Securities and Exchange Commission to the exclusion of the

regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or

distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of

the question that is the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323).

Indeed, the controversy between petitioner and respondent bank

which involves ownership of the stock that used to belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not any of those mentioned in the

aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and Exchange

Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over

the subject matter of the case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is

DISMISSED. No pronouncement as to costs in this instance.

SO ORDERED. 20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. 21

Hence, this petition wherein the following issues were raised:

II

ISSUES

WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former

Eighth Division) GRAVELY ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND

WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION

OVER THE SUBJECT MATTER OF THE CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04, 1993

DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP

CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC.

P. D. No. 902-A conferred upon the SEC the following pertinent powers:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a

license or permit issued by the government to operate in the Philippines, and in the exercise of its authority, it shall have the

power to enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm, association or person.

xxx xxx xxx

Sec. 5. In addition to the regulatory and adjudicative functions of

the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as

expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the

board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public

and/or of the stockholders, partners, members of associations or organizations registered with the

Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or

all of them and the corporation, partnership or association of which they are stockholders, members

or associates, respectively; and between such

corporation, partnership or association and the State insofar as it concerns their individual franchise or

right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such

corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,

partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting

them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the

Management Committee created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 22 and in the recent

cases of Mainland Construction Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus:

. . . .The better policy in determining which body has jurisdiction

over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy.

Applying the foregoing principles in the case at bar, to ascertain which tribunal

has jurisdiction we have to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the controversy between petitioner and private respondent corporation is intra-corporate.

As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of

the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September

1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in

its corporate books. 25 In addition, Calapatia, the original owner of the subject share, has not contested the said transfer.

By virtue of the afore-mentioned sale, petitioner became a bona fide

stockholder of VGCCI and, therefore, the conflict that arose between petitioner

and VGCCI aptly exemplies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

An important consideration, moreover, is the nature of the controversy between

petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which

provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that VGCCI also sold the subject share at public

auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-

laws, a subject which irrefutably calls for the special competence of the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in

corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause

strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held

that under the "sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not determine a controversy involving a question which is within the jurisdiction of

an administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the regulatory statute administered.

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge,

experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become

well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court,

the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice

should fall on [an administrative agency.]'" The Court in the earlier

case of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to

award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts,

"evidently, . . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits,

splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim."

In this case, the need for the SEC's technical expertise cannot be over-

emphasized involving as it does the meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The

SEC, therefore, took proper cognizance of the instant case.

VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil Case No.

90-1112) that there is no intra-corporate relations between itself and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court

which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply because it made a

mistake before in the choice of the proper forum. . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to dismiss) that the case between itself and

petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case

to the Court of Appeals, this Court likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.

It must be underscored that petitioner did not confine the instant petition for

review on certiorari on the issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the

issues raised by petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie v. Court of Appeals, 29 citing Escudero v.

Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals. 31

In the interest of the public and for the expeditious administration of justice the issue on infringement shall be resolved by the court

considering that this case has dragged on for years and has gone from one forum to another.

It is a rule of procedure for the Supreme Court to strive to settle

the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of an issue in a case is

remanded to the trial court only to have its decision raised again to the Court of Appeals and from there to the Supreme Court.

We have laid down the rule that the remand of the case or of an

issue to the lower court for further reception of evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where the ends of

justice would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample authority to review matters, even those not raised on appeal if it finds that their

consideration is necessary in arriving at a just disposition of the case.

In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32

this Court, through Mr. Justice Ricardo J. Francisco, ruled in this wise:

At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court, none of the substantial

issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a

rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist

the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below,

should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file

have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to enable us to render a sound judgment

and since only questions of law were raised (the proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and

rule on the merits of the case.

The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the same was null and void for lack of

consideration because the pledge agreement was entered into on 21 August 1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August 1983. 34

VGCCI's contention is unmeritorious.

A careful perusal of the pledge agreement will readily reveal that the

contracting parties explicitly stipulated therein that the said pledge will also stand as security for any future advancements (or renewals thereof) that

Calapatia (the pledgor) may procure from petitioner:

xxx xxx xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts, bills or exchange,

discounts, and all other obligations of every kind which have heretofore been contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in

favor of the PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further

endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided, plus the costs,

losses, damages and expenses (including attorney's fees) which PLEDGEE may incur in connection with the collection thereof. 35 (Emphasis ours.)

The validity of the pledge agreement between petitioner and Calapatia cannot

thus be held suspect by VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a

renewal of the first promissory note covered by the same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that

VGCCI began sending notices of delinquency to Calapatia after it was informed

by petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has

been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as the pledgee of

Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as

pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith.

In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:

The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third

persons have actual or constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by

Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto,

i.e., on May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual

knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. Since the by-laws

was already binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said share subject to the right of the private

respondent to sell the said share for reasons of delinquency and the right of private respondent to have a first lien on said shares as

these rights are provided for in the by-laws very very clearly. 36

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created

by said by-law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights

as a purchaser.

An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty

days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part

in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)

When no restriction is placed by public law on the transfer of

corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has

assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is

not bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)

A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while

it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made

available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis ours.)

In order to be bound, the third party must have acquired knowledge of the

pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-

laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name. Petitioner's belated notice of said by-

laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the

corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In

other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and

control of its affairs, in whole or in part, in the management and control of its affairs and activities. (9 Fletcher 4166, 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties

of the members towards the corporation and among themselves. They are

self-imposed and, although adopted pursuant to statutory authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco,

47 Phil. 584, the Supreme Court held that the by-law restricting the transfer of shares cannot have any effect on the transferee of the shares

in question as he "had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by the by-law between the shareholder . . . and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the

opinion that said case is applicable to the present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-

respondent's by-laws. It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge agreement was duly noted in the club's books there was no mention of the

shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus, appellant-petitioner was in good faith

when the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the general accepted rule that third persons are not bound by by-laws to be

applicable and binding upon the pledgee, knowledge of the provisions of the VGCI By-laws must be acquired at the time the pledge agreement

was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is also of

the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the certificate, their

cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully protected against a subsequent purchaser who would be charged with constructive notice that the certificate

is covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount due on the debt

secured. In other words, the pledgee has the right to resort to its collateral for the payment of the debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new

certificate to a third person who purchased the same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its collateral for the payment of the debt. The pledgor or

his representative or registered stockholders has no right to require a return of the pledged stock until the debt for which it was

given as security is paid and satisfied, regardless of the length of time which have elapsed since debt was created. (12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or

liens in favor either of the corporation or of third persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or

claims that may subsequently arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the pledgee on the corporate books has been made. (12-A

Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws

because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not

applicable:

In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by

virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who

takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive.

It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid accounts and the restrictive

provisions in VGCCI's by-laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be

transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid

subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." 40 In the case at

bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. 41 What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted

provision does not apply.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June 1993 is

hereby AFFIRMED.

SO ORDERED.

G.R. No. 76801 August 11, 1995 LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners,

vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR

RELATIONS COMMISSION, respondents.

PUNO, J.:

The controversy at bench arose from a complaint filed by private respondents, 1

namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their

employer Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits. 2 The case was docketed as NLRC-NCR Case No. 2-2176-82.

Lopez Realty, Inc., is a corporation engaged in real estate business, while

petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows:

1 Asuncion Lopez Gonzales 7831 shares

2 Teresita Lopez Marquez 7830 shares

3 Arturo F. Lopez 7830 shares

4 Rosendo de Leon 4 shares

5 Benjamin Bernardino 1 share

6 Leo Rivera 1 share

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors.

As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez

submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The

proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain

with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a

special meeting of the board of directors held on April 17, 1978.

It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6,

Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of

money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980.

Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died.

On August 17, 1981, except for Asuncion Lopez Gonzales who was then

abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a

special meeting and passed a resolution which reads:

Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows:

(a) Those who will be laid off be given the full amount of gratuity;

(b) Those who will be retained will receive 25% of their gratuity (pay)

due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis

supplied)

Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents

requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant, portion of the minutes of the said board meeting reads:

In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those

remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end

of November, 1981 of their respective gratuity.

At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by

the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder

Arturo F. Lopez.

Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the

gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation.

Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto

Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales.

Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa

Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated

demands for their gratuity pay, corporation refused to pay the same. 4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents. 5

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal focused on

the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual

Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to

Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the

employees' retirement.

On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion of which

states: 6

We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quo committed abuse of discretion in his

decision.

Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and

effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting

gratuities to complainants.

On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . .

Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February

8, 1982, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could not be given

credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves

respondents' argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh.

C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis

supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized (sic) due to

"power struggle" which was evident between Arturo Lopez and Asuncion Gonzales.

The respondents' (petitioners') contention of a mistake to have been

committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The

record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic).

With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed

decision.

We affirm.

WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of

merit.

SO ORDERED.

Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that

petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied

by the Second Division on July 24, 1986.

On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a Minute Resolution dated November 19, 1986. 8

Hence, the petition. As prayed for, we issued a Temporary Restraining Order, 9 enjoining public respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82. 10

The sole issue is whether or not public respondent acted with grave

abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated

August 17, 1951 and September 1, 1981.

Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the ground that petitioner Asuncion Lopez

Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders

of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the

retained employees or those who voluntarily resigned from their posts.

At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in

their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had

affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the issue of lack of notice to Asuncion

Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed

by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment.

In their comment, 11 private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence,

petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a

subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved

by the board of directors of petitioner corporation, including petitioner Asuncion Lopez Gonzales. 12

Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by

the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot, be raised for the first

time on appeal. 13 Hence, petitioners may not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions.

We now come to petitioners' argument that the resolutions passed by the

board of directors during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack of notice.

The general rule is that a corporation, through its board of directors,

should act in the manner and within the formalities, if any, prescribed by its charter or by the general law. 14 Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws,

otherwise, any action taken therein may be questioned by any objecting director or shareholder. 15

Be that as it may, jurisprudence 16 tells us that an action of the board of

directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct.

Thus, in one case, 17 it was held:

. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated:

Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the

directors at a subsequent legal meeting, or by the corporations course of conduct. . .

Fletcher, supra, further states in sec. 762, at page 1073-1074:

Ratification by directors may be by an express

resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of

the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not

necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification.

In American Casualty Co., v. Dakota Tractor and Equipment Co.,

234 F. Supp. 606, 611 (D.N.D. 1964), the court stated:

Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by

conduct implying approval and adoption of the act in question. Such ratification may be express or may be

inferred from silence and inaction.

In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the

gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said

resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated

October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha. 18

We hold, therefore, that the conduct of petitioners after the passage of

resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions.

Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17, 1981 and

September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance,

"ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not

necessary or incidental in the exercise of the powers so conferred. 19

The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the

corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the

issuance the subject resolutions. 20

We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded from

receiving their gratuity pay. Pursuant to board resolutions dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation

obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982. Hence, at the time the aforenamed private

respondents tendered their resignation, the aforementioned private respondents were already entitled to receive their gratuity pay.

Petitioners try to convince us that the subject resolutions had no force

and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section

40 of the Corporation Code). We are not persuaded.

The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the

corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record.

It will be observed that, except far Arturo Lopez, the stockholders of

petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and superfluous to

require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay.

IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9, 1987 is

LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. This

decision is immediately executory. Costs against petitioners. SO ORDERED.

G.R. No. L-20333 June 30, 1967 EMILIANO ACUÑA, plaintiff-appellant,

vs. BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC.,

JUSTINO GALANO, TEODORO NARCISO, PABLO BACTIN, (DR.) EMMANUEL

BUMANGLAG, VENANCIO DIRIC, MARCOS ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN ROSSINI, RAYMUNDO BATALLONES,

PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees. Marquez and Marquez for plaintiff-appellant. Estanislao A. Fernandez for defendants-appellees. MAKALINTAL, J.:

Appeal taken from the order dated September 10, 1962 of the Court of First Instance of Rizal, Branch V (Quezon City) dismissing plaintiff's complaint on

the ground that it states no cause of action, and discharging the writ of preliminary attachment issued therein.

On August 9, 1962, plaintiff Emiliano Acuña filed a complaint, which was later amended on August 13, against the defendant Batac Producers Cooperative

Marketing Association, Inc., hereinafter called the Batac Procoma, Inc., or alternatively, against all the other defendants named in the caption. The

complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and defendant Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would seek and obtain the

sum of not less, than P20,000.00 to be advanced to the defendant Batac Procoma, Inc., to be utilized by it as additional funds for its Virginia tobacco

buying operations during the current redrying season; that plaintiff would be constituted as the corporation's representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the

redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such shipments; that for his services plaintiff would be paid a remuneration at the rate of P0.50 per kilo of tobacco;

that said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma Inc., and on May 6, 1962 all the defendants

named above, who constituted the entire Board of Directors of said corporation (except Leon Q. Verano, who was its Manager), together with defendants Justino Galano and Teodoro Narciso, as President and Vice-President,

respectively, unanimously authorized defendant Leon Q. Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of

the corporation, for the purpose of securing additional funds for the corporation, as well as to secure the services of such person or entity, in the

collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration; giving and conferring upon the

Manager, full and complete authority to bind the corporation with such person or entity in any agreement, and under such considerations, which the said Manager may deem expedient and necessary for that purpose; that plaintiff

was made to understand by all of said defendants that the original understanding between him and defendant Leon Q. Verano was acceptable to the corporation, except that the remuneration for the plaintiff's services would

be P0.30 per kilo of tobacco; that on May 10, 1962, the formal "Agreement" was executed between plaintiff and defendant Leon Q. Verano, as Manager of the

defendant corporation, duly authorized by its Board of Directors for such purpose, and signed by defendants Justino Galano and Dr. Emmanuel Bumanglag as instrumental witnesses and acknowledged by Atty. Fernando

Alcantara, the Secretary and Legal Counsel of the defendant corporation; that upon plaintiff's inquiry, he was assured by these defendants that a formal

approval of said "Agreement" by the Board was no longer necessary, as it was a mere "formality" appended to its authorizing resolution and as all the members of the Board had already agreed to the same; that on the same date, May 10,

1962, plaintiff gave and turned over to the defendant corporation, thru its treasurer, Dominador T. Cocson the sum of P20,000.00, in the presence of defendants Leon Q. Verano, Justino Galano, Dr. Emmanuel Bumanglag and

Atty. Fernando Alcantara, for which said treasurer issued to plaintiff its corresponding Official Receipt No. 130852; that from then on, plaintiff

diligently and religiously kept his part of the "Agreement;" that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three thousand (3,000) sacks which it utilized in the shipment of its

tobacco costing P6,000.00 and that plaintiff had personally advanced out of his own personal funds the total sum of P5,000.00 with the full knowledge, acquiescence and consent of all the individual defendants; that after the

defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help, assistance and

intervention of plaintiff, for which the said corporation collected from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board of Directors on June 6, 1962. Upon the foregoing allegations plaintiff prays: (a)

that an order of attachment be issued against the properties of defendant corporation; (b) that after due trial, judgment be rendered condemning

defendant corporation, or alternatively, all the other individual defendants, jointly and severally, to comply with their contractual obligations and to pay plaintiff the sum of P300,000.00 for his services, plus P31,000.00 for cash

advances made by him and P25,000.00 for attorney's fees.

On August 14, 1962, the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the

following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court.1äwphï1.ñët

On August 22, 1962, the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the preliminary attachment on the ground that it was improperly or irregularly issued. In

support of the motion defendants alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of defendant Batac Procoma, Inc., and

that on the basis of plaintiff's pleadings the contract is void and unenforceable. Defendants further denied the fact that plaintiff had performed his part of the

contract, alleging that he had not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation.

On August 25, 1962, plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment.

On September 10, 1962, the trial court sustained defendants' motion and

issued the following order:

In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio.

IN VIEW OF THE FOREGOING, the amended complaint filed in this case

is hereby ordered DISMISSED, without special pronouncement as to costs. Consequently, the writ of preliminary attachment issued herein is

ordered discharged. However, it is of record that the defendants has (sic) deposited the Court the amount of P20,400.00 representing the amount of money invested by the plaintiff plus the corresponding interest

thereon. Plaintiff, by virtue of this order, may withdraw the same in due time, if he so desires, upon proper receipt therefor.

From the foregoing order plaintiff interposed the present appeal.

Appellant has assigned four errors, which we shall consider seriatim:

The first assignment reads: "As the defendants' motion to dismiss the

complaint and to discharge the preliminary attachment was based on the specific ground that the complaint states no cause of action (Sec. 1 [f], Rule 8, Rules of Court), the lower court should not have gone beyond, and it should

have limited itself, to the facts alleged in the complaint in considering and resolving said motion to dismiss.

It is a settled principle that when a motion to dismiss is based on the ground

that the complaint does not state a cause of action (Rule 8, Section 1, par. 7 of the old Rules; Rule 16, Section 1., par. [g] of the Revised Rules) the averments

in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. If said

motion assails directly or indirectly the veracity of the allegations, it is improper to grant the motion upon the assumption that the averments therein

are true and those of the complaint are not (Carreon vs. Prov. Board of Pampanga, 52 O.G. 6557.) The sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint, and no

other. If these allegations show a cause of action, or furnish sufficient basis by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses that may be averred by the defendants. (Josefa de

Jesus, et al. vs. Santos Belarmino, 50 O.G. 3004-3068; Verzosa vs. Rigonan, G.R. No. L-6459, April 23, 1954; Dimayuga vs. Dimayuga, 51 O.G. 2397-2400.)

The first ground upon which the order of dismissal issued by the lower court is

predicated is that the Board of Directors of defendant corporation did not approve, the agreement in question — in fact disapproved it by a resolution passed on June 6, 1962 — and that as a consequence the "suspensive

condition" attached to the agreement was never fulfilled. The specific stipulation referred to by the Court as a suspensive condition states: "provided,

however that the contract entered into by said manager to carry out the purposes above-mentioned shall be subject to the approve by the Board."

A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. On the first point

we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted the entire Board of

Directors) and discussed with them extensively the tentative agreement and he was made to understand that it was acceptable to them, except as to plaintiff's remuneration; that it was finally agreed between plaintiff and all said Directors

that his remuneration would be P0.30 per kilo (of tobacco); and that after the agreement was formally executed he was assured by said Directors that there would be no need of formal approval by the Board. It should be noted in this

connection that although the contract required such approval it did not specify just in what manner the same should be given.

On the question of ratification the complaint alleges that plaintiff delivered to

the defendant corporation the sum of P20,000.00 as called for in the contract; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a cost of P6,000.00 and advanced to it the further

sum of P5,000.00; and that he did all of these things with the full knowledge, acquiescence and consent of each and all of the individual defendants who

constitute the Board of Directors of the defendant corporation. There is abundant authority in support of the proposition that ratification may be express or implied, and that implied ratification may take diverse forms, such

as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.

Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It refers to plaintiff's

failure to comply with certain promises he had made, as well as to his interpretation of the contract with respect to his remuneration which,

according to the Board, was contrary to the intention of the parties. The resolution then proceeds to "disapprove and/or rescind" the said contract. The idea of conflicting interpretation, or rescission on the ground that one of the

parties has failed to fulfill his obligation under the contract, is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board of Directors.

Appellants' second assignment of error reads: "Assuming that in resolving the

defendants' motion to dismiss the lower court could consider the new facts alleged therein and the documents annexed thereto it committed an error in

extending such consideration beyond ascertaining only if an issue of fact has been presented and in actually deciding instead such fact in issue."

The assignment is well taken, and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a cause of

action addresses itself to the averments in the complaint and, admitting their veracity, merely questions their sufficiency to make out a case on which the

court can grant relief. Affidavits, such as those presented by defendants in support of the motion, can only be considered for the purpose of ascertaining whether an issue of fact is presented, but not as a basis for deciding the factual

issue itself. This should await the trial on the merits.

The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be maintained

thereon because its object was illegal and therefore void. Specific reference was made by said court to an affidavit executed by appellant on May 10, 1962 which reads:

That I, EMILIANO ACUA, the party of the Second Part in the contract

entered into with the Batac Procoma, Inc., the party of the First Part in same contract declares that the amount of P0.30 per kilo is referred to

upgraded tobacco only as delivered. This supplements paragraph three of the contract referred to. Deliveries downgraded or maintained at the redrying plant are deemed not included.

The lower court, in its order of dismissal, held that "the upgrading of tobaccos

is clearly prohibited under our laws," and hence the contract cannot be validly ratified. Evidently the court had in mind a fraudulent upgrading of tobacco by

appellant as part of the services called for under the contract. This conclusion, however, is squarely traversed by appellant in another affidavit attached to his reply and opposition to the motion to dismiss, in which he explained the

circumstances which led to the execution of the one relied upon by the court, and the real meaning of the word "upgraded" therein. It is therein stated:

That after the execution of the agreement (Annex "B" to the amended complaint

in said Civil Case No. Q-6547), Messrs. Verano, Galano and Dr. Bumanglag of the defendant Corporation indicated to me that if the price of P0.30 per kilo

stipulated there to be paid to me were to be indiscriminately applied to all deliveries of tobaccos, the Corporation would be placed in a disadvantageous and losing position, and they proceeded to explain to me the following, —

(a) that when the farmers sell their tobaccos to the Facoma, they do so in

bunches of assorted qualities which may belong either to Class A, B, C, D and E, and upon such purchase they are initially given an arbitrary

classification of any of such classes as the case may be, the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as possible, and this is what is termed

"downgrading;"

(b) that after the tobaccos have been purchased by the Facoma from the farmers, they are then reassorted and re-classified in accordance with

their actual quality or grade as found by the officials of the Facoma, — thus in a bunch which are purchased as Class C, D or E, upon reclassification those found to belong to Class A are separated from Class

B, those belonging to Class B are separated from Class C, and so on, and these bunches so reclassified necessarily have a higher grade than the farmers, and this is what is termed "upgrading" upon delivery original

arbitrary classification given when purchased from the which was used in the addendum;

(c) the Facoma, in turn, delivers these properly re-classified tobaccos to

the redrying plant, and there, a group of officials composed of a representative of the redrying plant, the Bureau of Internal Revenue, the General Auditing Office, the PVTA and the Facoma representative, then

examines and grades the tobaccos, and if the classification given by the Facoma is found correct and not changed, then and only then would or

should be entitled to collect the P0.30 per kilo, and this they said is what is termed "grade maintained" — on the other hand, if these officials found the classification incorrect and lowers the classification given by

the Facoma, thus class A to B, or from B to C, then the tobaccos are considered or said to be "downgraded" and in that event I should not receive any centavo for such deliveries, and it is in this sense that I was

made to understand the term;

Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal, I agreed readily and Atty. Fernando

Alcantara, Legal Counsel and Secretary of the defendant Corporation forthwith

prepared, drafted and typed the "addendum" in question in their own typewriter of the Corporation; and as I am not a lawyer and was not well versed

with the usage, customs and phraseology usually used in tobacco trading, I relied in absolute good faith that, as explained by the defendants, there was

nothing wrong nor illegal in the use of the words "upgrading" and "downgrading" used in said addendum, which Atty. Alcantara unfortunately used in the same;

Apart from the above, defendants knew the physical impossibility of

"upgrading" the tobaccos at the redrying plant, because at the time of the transaction, only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery area for tobaccos

at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually make the grading of tobaccos

delivered, are the (1) American representative of the redrying plant (PTFC & RC), (2) the PVTA, (3) the BIR, and (4) the General Auditing Office in the presence of the representative of the FACOMA, and since the redrying plant is

compelled to purchase 41% of all tobaccos delivered and redried under their negotiated management contract, it is highly improbable that the

representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or tally sheet, would allow the "upgrading" of tobaccos, aside from the fact that stringent

measures had been devised under the present administration to prevent the "upgrading" of tobaccos by any party. Certainly, an impossible condition could not have been contemplated by me and the defendants; (Record on Appeal, pp.

171-175).

The foregoing explanation, on its face, is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it by the lower

court. To be sure, whether the allegations in this subsequent affidavit are true or not is a question of fact; but it is precisely for this reason that they can neither be summarily admitted nor rejected for purposes of a motion to

dismiss. Due process demands that they be the subject of proof and considered only after trial on the merits.

The other errors assigned by appellant are merely incidental to those already

discussed, and require no separate treatment.

Wherefore, the order appealed from is set aside and the case is remanded to the court a quo for further proceedings, without prejudice to, the right of

plaintiff-appellant to ask for another writ of attachment in said court, as the circumstances may warrant. Costs against defendants-appellees.

G.R. No. 91478 February 7, 1991 ROSITA PEÑA petitioner,

vs.

THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES,

SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents.

Cesar L. Villanueva for petitioner. Martin N. Roque for private respondents. GANCAYCO, J.:p

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

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

A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT

Nos. 4314, 4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the amount of P935,000.00. This mortgage was

foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Peña

as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon

payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh. G).

On November 19, 1974, the board of directors of PAMBUSCO,

through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of

Assignment for and in behalf of PAMBUSCO in favor of any interested party . . ." (Exh. 24). Consequently, on March 18, 1975,

Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh. 25). The latter then redeemed the said properties

and a certificate of redemption dated August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one

hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office of the Provincial Sheriff of Pampanga (Exh. 26).

A day after the aforesaid certificate was issued, Enriquez executed

a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina

Lugue, for the sum of P140,000.00 (Exh. F).

On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was also

annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310)

in which the registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Peña, the

resolution of the PAMBUSCO's board of directors assigning its redemption rights to any interested party, the deed of assignment

PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of absolute sale of the subject lots executed by

Enriquez in favor of the plaintiffs-appellants were all annotated on the same certificates of title likewise on August 18, 1975. Also, on

the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed defendant-appellee by registered mail "that the properties under TCT Nos. 4314, 4315 and 4316 . . . . were all

redeemed by Mr. Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may now get her money at the Sheriffs Office (Exh. J

and J-1).

On September 8, 1975, Peña wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of

assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh. 27).

On Sept. 10, 1975, the CFI Branch III, Pampanga in the

aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pampanga .

. . to desist from registering or noting in his registry of property . . . any of the following documents under contract, until further

orders:

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

(b) A Certificate of Redemption issued by defendant Deputy Sheriff

Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15, 1975;

(c) Deed of Sale dated August 16, 1975 executed by defendant

Marcelino Enriquez in favor of defendant Rising Yap. (Original Record, p. 244)

On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that "the levy on attachment in

favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the

name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved" (Exh. G).

Meanwhile, defendant Peña, through counsel, wrote the Sheriff

asking for the execution of a deed of final sale in her favor on the ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;" hence she

"will now refuse to receive the redemption money . . . (Exh. 28).

On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking payment of back rentals in the amount of P42,750.00 "for the use

and occupancy of the land and house located at Sta. Lucia, San

Fernando, Pampanga," and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face

an eviction cum collection suit (Exh. D).

In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of

the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied Trading. The LRC Resolution No. 1029 allowing the

conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16,

1978 and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the same date.

No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed without

prejudice.

Despite the foregoing, defendant-appellee Peña remained in possession of the lots in question hence, the spouses Yap were

prompted to file the instant case. 1

The antecedents of the present petition are as follows:

Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R,

148985-R. In the complaint filed on December 15, 1978, appellants sought to recover possession over the subject lands

from defendants Rosita Peña and Washington Distillery on the ground that being registered owners, they have to enforce their right to possession against defendants who have been allegedly in

unlawful possession thereof since October 1974 "when the previous owners assigned (their) right to collect rentals . . . in favor

of plaintiffs" (Record, p. 5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December

1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a month from January 1979 until the defendants finally vacate the . . . premises in question with interest at the legal rate

(Record, p. 61).

In their answer, defendants Rosita Peña and Washington Distillery denied the material allegations of the complaint and by way of an

affirmative and special defense asserted that Peña is now the legitimate owner of the subject lands for having purchased the

same in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid redemption having been effected

within the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties

under a deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on

August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The

defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an

ultra vires act of its board of directors and, for being without any valuable consideration, it could not have had any legal effect;

hence, all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect.

Further, it was alleged in the same Answer that plaintiffs are

buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their

names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his

registry of property . . . any of the above-mentioned documents under contest, until further orders. (Record, p. 11).

For its part, defendant Washington Distillery stated that it has

never occupied the subject lots hence they should not have been impleaded in the complaint.

The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino

Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of

these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these

parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding certificates of title over these same parcels

be issued in the name of defendant Rosita Peña.

Thereafter, the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as members of the

Board of Directors of PAMBUSCO), Marcelino Enriquez, and

Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, how ever, were declared as in default for failure to file

their answer, except Edgardo Zabat who did file his answer but failed to appear at the pre-trial.

After trial, a decision was rendered by the court in favor of the

defendants-appellees, to wit:

WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and

declaring as null and void the following:

(a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974

assigning the PAMBUSCO's right of redemption concerning the parcels involved herein

(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to

the resolution referred to in the preceding paragraph;

(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of

Marcelino Enriquez concerning these parcels;

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

(e) TCT Nos. 148983-R, 148984-R and 148985-R of the

Register of Deeds of Pampanga in the name of the plaintiffs also covering these parcels.

Third-party defendant Edgardo Zabat, in his capacity

as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Peña the corresponding certificate of final sale involving the parcels bought by

her in the auction sale of October 25, 1974 for which a certificate of sale had been issued to her.

Finally, the third-party defendants herein except

Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney's fees

plus costs. 2

Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was

rendered on June 20, 1989, the dispositive part of which reads as follows:

WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Peña is hereby

ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of P1,500.00 per month up to December, 1978 and the amount of

P2,000.00 per month thereafter, until appellee finally vacate (sic) the premises with interest at the legal rate.

SO ORDERED. 3

A motion for reconsideration filed by the appellee was denied in a resolution

dated December 27, 1989.

Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors:

First Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING

THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS.

Second Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES

OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.

Third Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF

REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN

FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN NOT

HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED

UNDER THE LAW FOR DONATIONS.

Sixth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH

AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS

YAP WERE PURCHASERS IN BAD FAITH.

Seventh Assignment of Error

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

The petition is impressed with merit.

First, the preliminary issues.

The respondent court ruled that the trial court has no jurisdiction to annul the

board resolution as the matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void.

In Philex Mining Corporation vs. Reyes, 5 this Court held that it is the fact of

relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear and decide intra-corporate disputes; that unless

the controversy has arisen between and among stockholders of the corporation, or between the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is

neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC.

In Union Glass & Container Corporation vs. Securities and Exchange Commission, 6 this Court defined the relationships which are covered within

"intra-corporate disputes" under Presidential Decree No. 902-A, as amended, as follows:

Otherwise stated, in order that the SEC can take cognizance of a

case, the controversy must pertain to any of the following relationships (a) between the corporation, partnership or

association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or

association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves.

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

respondents Yap may be resolved only by the regular courts.

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

question their validity.

In Teves vs. People's Homesite and Housing Corporation, 7 this Court held:

We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or

subsidiarily under the deed, but because she has an interest that is affected by the deed. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention, Indeed, in the case now before Us,

the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and between defendant PHHC and defendant Melisenda L. Santos. We

believe that the plaintiff should be given a chance to present evidence to establish that she suffered detriment and that she is

entitled to relief. (Emphasis supplied.)

There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses adversely affected the rights of petitioner to the said

properties. Consequently, petitioner has the legal standing to question the validity of said resolution and transactions.

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

respondent PAMBUSCO, provides as follows:

Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days

before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the

President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor

of any special meeting; Provided at least four Directors are present. (Emphasis supplied.) 8

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

On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared invalid it having been approved in a meeting attended by only 3 of

the 5 members of the Board of Directors of PAMBUSCO which attendance is short of the number required by the by-laws of the corporation.

xxx xxx xxx

In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo,

Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom.

As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the members of the Board of Directors who were the only ones present

at the said meeting, the deed of assignment subsequently executed in favor of Marcelino Enriquez pursuant to this resolution also becomes null and void. . . . 9

However, the respondent court overturning said legal conclusions of the trial

court made the following disquisition:

It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-laws would apply only in case of a

failure to notify the members of the board of directors on the holding of a special meeting . . . .

In the instant case, however, there was no proof whatsoever, either

by way of documentary or testimonial evidence, that there was such a failure or irregularity of notice as to make the aforecited

provision apply. There was not even such an allegation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board of

directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the board

resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the Answer did not touch upon the said failure of attendance. Therefore, the

judgment declaring the nullity of the subject board resolution must be set aside for lack of proof.

Moreover, there is no categorical declaration in the by-laws that a

failure to comply with the attendance requirement in a special meeting should make all the acts of the board therein null and void ab initio. A cursory reading of the subject provision, as

aforequoted, would show that its framers only intended to make voidable a board meeting held without the necessary compliance

with the attendance requirement in the by-laws. Just the use of the word "invalidate" already denotes a legal imputation of validity to the questioned board meeting absent its invalidation in the

proceedings prescribed by the corporation's by-laws and/or the general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it

does not follow that the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity of

the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid. Considering that the subject special board meeting has not been declared void

in a proper proceeding, nor even in the trial by the court below, there is no reason why the acts of the board in the said special

meeting should be treated as void AB. initio. . . . 10

The Court disagrees.

The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into

the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply. 11

Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior

notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at

least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO.

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the

majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any

act therein would not bind the corporation; all that the attending directors could do is to adjourn. 12

Moreover, the records show that respondent PAMBUSCO ceased to operate as

of November 15, 1949 as evidenced by a letter of the SEC to said corporation dated April 17, 1980. 13 Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group of three (3) individuals

representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of

a former corporate officer.

As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of respondent PAMBUSCO

filed with the SEC dated 18 March 1951. 14 Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show

that the said alleged directors were among the stockholders of respondent PAMBUSCO. 15

Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a

corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of an and/or substantially all properties of the corporation requires,

in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned

resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement

is found in Section 40 of the present Corporation Code.

It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset

was its right of redemption over the subject properties. Since the disposition of

said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stockholders under the

law, the said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption,

should be struck down as null and void.

Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former

corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in

order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter

case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments. 16

Non-compliance with this requirement renders the donation null and void. 17 Since undeniably the deed of assignment dated March 8, 1975 in

question, 18 shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio

and of no force and effect.

WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution dated

December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the trial court.

SO ORDERED.

G.R. No. L-32991 June 29, 1972 SALVADOR P. LOPEZ, President of the University of the Philippines;

BOARD OF REGENTS, University of the Philippines; and OSEAS DEL ROSARIO, Officer-in-Charge, College of Education, University of the

Philippines, petitioners, vs.

HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal,

Branch XVIII (Quezon City), and DR. CONSUELO S. BLANCO, respondents. Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General Jaime M. Lantin and Special Counsel Jose Espinosa for petitioners. Sison, Dominguez & Magno for respondents. MAKALINTAL, J.:p

This case presents the question of whether or not respondent Dr. Consuelo S. Blanco was duly elected Dean of the College of Education, University of the

Philippines, in the meeting of the Board of Regents on July 9, 1970, at which her ad interim appointment by University President Salvador P. Lopez, one of

the petitioners here, was submitted for consideration.

The question was originally ventilated in a petition for certiorari filed by Dr. Blanco in the Court of First Instance of Quezon City, presided by respondent

Judge Vicente Ericta, who decided the question affirmatively on December 3, 1970. The dispositive portion of the decision was amended three days later, or

on December 6, to read as follows:

WHEREFORE, the Court renders judgment:

(1) Declaring petitioner, CONSUELO S. BLANCO, the duly elected Dean of the College of Education, University of the Philippines, and as such entitled to occupy the position with a three-year term of

office from May 1, 1970 to April 30, 1973;

(2) Declaring null and void the appointment of respondent Oseas A. del Rosario as Officer-in-Charge of the College of Education,

University of the Philippines; and

(3) Issuing a permanent injunction (a) commanding respondent Oseas A. del Rosario to desist from further exercising the functions and duties pertaining to the Office of the Dean of the College of

Education, University of the Philippines, and (b) commanding respondent Board of Regents from further proceeding in the matter

of the appointment or election of another person as Dean of said college.

xxx xxx xxx

The case is before this Court on appeal by certiorari taken by the President and

the Board of Regents of the University and by Oseas A. del Rosario, respondents below, the last as officer-in-charge appointed to discharge the duties and functions of the office of Dean of the College of Education. 1 The

petition for review was filed on January 5, 1971. On January 11, 1971 this Court, pursuant to its resolution of January 7, issued a writ of preliminary injunction to stop the immediate execution of the judgment appealed from, as

ordered by respondent Judge.

The facts and circumstances surrounding the ad interim appointment of Dr. Consuelo S. Blanco and the action taken thereon by the Board of Regents have

a material bearing on the question at issue. The first such appointment was extended on April 27, 1970, "effective May 1, 1970 until April 30, 1971, unless

sooner terminated and subject to the appproval of the Board of Regents and to

pertinent University regulations." Pursuant thereto Dr. Blanco assumed office as ad interim Dean on May 1, 1970.

The only provisions of the U.P. Charter (Act No. 1870) which may have a bearing on the question at issue read as follows:

SEC. 7. A quorum of the Board of Regents shall consist a majority of all the members holding office at the time the meeting of the

Board is called. All processes against the Board of Regents shall be served on the president or secretary thereof.

SEC. 10. The body of instructors of each college shall constitute its

faculty, and as presiding officer of each faculty, there shall be a dean elected from the members of such faculty by the Board of Regents on nomination by the President of the University.

Article 78 of the Revised Code of the University provides:

Art. 78. For each college or school, there shall be a Dean or Director who shall be elected by the Board of Regents from the members of the faculty of the University unit concerned, on

nomination by the President of the University.

The Board of Regents met on May 26, 1970, and President Lopez submitted to it the ad interim appointment of Dr. Blanco for reconsideration. The minutes of

that meeting disclose that "the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw (Senator Eva Estrada Kalaw) based on the petition against the appointment, addressed to the Board, from a

majority of the faculty and from a number of alumni ..." The "deferment for further study" having been approved, the matter was referred to the Committee

on Personnel, which was thereupon reconstituted with the following composition: Regent Ambrosio F. Tangco, chairman; Regent Pio Pedrosa and Regent Liceria B. Soriano, members. The opinion was then expressed by the

Chairman of the Board that in view of its decision to defer action, Dr. Blanco's appointment had lapsed, but (on the President's query) that there should be no objection to another ad interim appointment in favor of Dr. Blanco pending

final action by the Board.

Accordingly, on the same day, May 26, 1970, President Lopez extended another ad interim appointment to her, effective from May 26, 1970 to April 30, 1971,

with the same conditions as the first, namely, "unless sooner terminated, and subject to the approval of the Board of Regents and to pertinent University

regulations."

The next meeting of the Board of Regents was held on July 9, 1970. The minutes show:

xxx xxx xxx

2. Deanship of the College, the President having issued an ad interim

appointment for Dr. Consuelo Blanco as Dean effective May 26, 1970:

Note: The Personnel Committee, to which this case was referred, recommended that the Board request the President of the University to review his nomination for the Deanship of the College

of Education in the light of the testimonies received and discussions held during the Commitee's meeting on June 4 and June 11, 1970 on this matter.

Chairman Tangco asked that the documents received by the Committee on the matter be entered in the official record, the same attached hereto as Appendix "A" pages 57 to 179.

Board action: Following some discussion on what Regent Tangco

explained to be the rationale or intention (i.e., that the President would discuss with Dr. Consuelo S. Blanco a proposal to withdraw

her appointment as Dean) behind the wording of the Personnel Committee's recommendation and in view of some uncertainty over whether the Board would be acting upon the recommendation as

"diplomatically" stated in the agenda or as really intended according to Regent Tangco's explanation, the Personnel Committee withdrew its recommendation as stated in the Agenda.

The Chairman took a roll-call vote on the appointment of Dr. Blanco as Dean. The Chairman having ruled that Dr. Blanco had

not obtained the necessary number of votes, the Board agreed to expunge the result of the voting, and, on motion of Regent Agbayani duly seconded, suspended action on the ad interim

appointment of Dr. Blanco. The Chair stated that this decision of the Board would in effect render the case subject to further

thinking and give the Board more time on the question of the deanship the of the College of Education, and, since the Board had not taken action on the appointment of Dr. Blanco either adversely

or favorably, her ad interim appointment as Dean effective May 26, 1970 terminated as of July 9, 1970.

The roll-call voting on which the Chairman of the Board of Regents based his

ruling aforesaid gave the following results: five (5) votes in favor of Dr. Blanco's ad interim appointment, three (3) votes against, and four (4) abstentions — all

the twelve constituting the total membership of the Board of the time. 2 The next day, July 10, 1970, Dr. Blanco addressed a letter to the Board requesting "a reconsideration of the interpretation made by the Board as to the legal effect

of the vote of five in favor, three against and four abstentions on my ad interim appointment." On August 18, 1970 Dr. Blanco wrote the President of the

University, protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of the College of Education. Neither communication having elicited any

official reply, Dr. Blanco went to the Court of First Instance of Quezon City on a petition for certiorari and prohibition with preliminary injunction, the decision

wherein is the subject of the present appeal.

Considerable arguments have been adduced by the parties on the legal effect and implications of the 5-3-4 vote of the Board of Regents. Authorities, mostly judicial precedents in the American jurisdictions, are cited in support of either

side of the belabored question as to whether an abstention should be counted as an affirmative or as a negative vote or a particular proposition that is being

voted on. Thus it is submitted, on the part of the petitioners, that if the abstentions were considered as affirmative votes a situation might arise wherein a nominee (for the office of Dean as in this case) is elected by only one

affirmative vote with eleven members of the Board abstaining; and, on the part of the respondent, that according to the prevailing view "an abstention vote

should be recorded in the affirmative on the theory that refusal to vote indicates acquiescence in the action of those who vote;" ... that "the silence of the members present, but abstaining, is construed to be acquiescence so far as

any construction is necessary." A logician could make a creditable case for either proposition. It does seem absurd that a minority — even only one — of the twelve members of the Board of Regents who are present could elect a Dean

just because the others abstain. On the other hand, there is no lack of logic either in saying that a majority vote of those voting will be sufficient to decide

an issue on the ground that if construction is at all necessary the silence of the members who abstain should be construed as an indication of acquiescence in the action of those who vote affirmatively. This apparent dichotomy, indeed,

accounts for the conflict in the American court decisions, from which both parties here have drawn extensively in support of their respective positions.

In the present case, however, this Court does not find itself confronted with an

ineluctable choice between the two legal theories. It should be noted that an abstention, according to the respondents' citations, is counted as an affirmative vote insofar as it may be construed as an acquiescence in the action of those

who vote affirmatively. This manner of counting is obviously based on what is deemed to be a presumption as to the intent of the one abstaining, namely, to

acquiesce in the action of those who vote affirmatively, but which presumption, being merely prima facie, would not hold in the face of clear evidence to the contrary. It is pertinent, therefore, to inquire into the facts and circumstances

which attended the voting by the members of the Board of Regents on the ad interim appointment of Dr. Blanco in order to determine whether or not such a

construction would govern. The transcript of the proceedings in the meeting of July 9, 1970 show the following statements by the Regents who participated in

the discussion:

Regent Tangco: Mr. Chairman, I would like to put on record that this statement here is a compromise statement. The Committee, after hearing

the testimonies and going over the materials presented to the Committee, was in favor of recommending to the Board that the nomination of

Professor Blanco cannot be accepted by the Board, but it was felt that it should be presented in a more diplomatic way to avoid any embarrassment on the part of both the appointee and the President. And so means were studied as to how it could be done and it was felt that it could be done in such a way that the appointee could request relief from the appointment, that it would be the best to save embarrassment all around. And so the final decision was to ask the President to review the

matter, but with the understanding that he will talk this over with Dean Blanco and for the appointment to be withdrawn. So actually although

this statement here is not in that light, again that is the decision of the Committee. Inasmuch as apparently either the meaning of the decision

was not made clear or maybe was not understood very well, I would like to put that on the record.

Regent Kalaw: I would like to take note of the comments of Dr. Tangco

here on a previous agreement. I understand that while the Committee recommended the disapproval of the appointment of Dr. Blanco, the Committee felt that it was more tactful and diplomatic to present the

motion to this level but premised by the findings of the Committee that the President would make an agreement with Dean Blanco to make a withdrawal…

Regent Tangco: Mr. Chairman, I wish to just make a correction that the decision was to ask the President for her to request relief and not to

consult. I want to put that on record now. It was only that we wanted to avoid anything on this on the record of the Board to save embarrassment. But inasmuch as that statement has been made, I want to make it of record that the agreement was for the President to ask her to submit or better ask her to the withdrawal.

Regent Pedrosa: Mr. Chairman, in order to cut this matter once and for all, may I suggest that the members of the Committee inhibit themselves

from voting in this matter. I don't think it would affect the majority vote or whatever the rest of the members of the Board decide.

Regent Tangco: Mr. Chairman, I was going to inhibit myself from the start.

Regent Pedrosa: And I am inhibiting myself . We are only two members

now; Dr. Soriano is not here, so that we leave the votation on this matter to the other members of the Board.

Regent Kalaw: Mr. Chairman, what is the votation for?

Chairman: The question before this Board is the Comittee recommendation. Incidentally, if the Board accepts the Committee

recommendation it is also a lack of confirmation of the ad interim appointment of Dean Blanco ... .

xxx xxx xxx

Chairman: There is only one more question before this Board to discuss fully, I believe. The question is, the Chairman asks the Board to vote on

the Committee action in the form of a recommendation as presented in the Agenda. Regent Tangco, the Chairman of that Committee, says that this is merely a polite cover, a diplomatic cover, according to Regent

Kalaw, for the reaction of the Committee, and Regent Tangco requests that we act not on the Committee recommendation in this form as presented in the Agenda but in terms of the gentleman's agreement.

Chairman: In brief, Regent Tangco informs the Board of the action that the Committee was to request the President to call Dr. Blanco and prevail upon her to withdraw.

Regent Escobar: On what basis?

Regent Tangco: On the testimonies presented to us and also to avoid further embarrassment on the part of the appointee. The decision of the Committee was to ask Dean Blanco because there will be too much embarrassment which I think is not going to gain any matter one way or

the other.

Chairman: We have to make a ruling. I think that we cannot act on the gentlemen's agreement because we do not have that gentlemen's

agreement before us.

Regent Pedrosa: Mr. Chairman, may I interrupt you. In view of the fact that I have announced that I would desist from participating in the Board and Regent Tangco has done likewise then I presume the President will

not also participate. Why doesn't the Board proceed to the decision of whether ...

Chairman: Yes, I am saying, Mr. Regent, there is a ruling that this Board

will have to act on the Committee recommendation presented here, unless the Committee withdraws this recommendation.

Regent Tangco: The Committee is so doing, Mr. Chairman.

Chairman: The Committee will widthdraw this recommendation, in which case the issue is simply we only have to act on the issue of to confirm or not to confirm the ad interim appointment issued to Dr. Blanco.

xxx xxx xxx

Chairman: The Committee is withdrawing this recommendation.

Regent Silva: Per se, as it is written. But I think the Committee, if I get it

right, is actually putting a recommendation for non-confirmation.

Regent Kalaw: Since the Committee is withdrawing the recomendation and the Board would act on it per se, I think Regent Silva is right.

(Emphasis supplied)

The voting which followed shows the following result:

Affirmative votes:

Regent Fonacier " Escobar

" Barican " Lopez " Agbayani

Negative votes:

Regent Kalaw

" Silva " Corpuz

Abstentions:

Regent Tangco

" Leocadio (Substituting for Regent Soriano) " Pedrosa " Virata

Regent Leonides Virata, who was not a member of the Personnel Committee, made the following explanation before casting his vote:

A. I abstain, but I want to say this. There must be some other way of solving this problem. I am at sea in this, because although I have been

reading all these documents here, but a decision is being asked now that I am not ready myself.

After the result of the voting was known the Board Chairman Secretary Corpuz, announced that "the vote is not a majority ... (and that) there is no ruling in the

Code of the University on the counting of votes and the treatment of abstention."

What transpired immediately afterwards appears in the transcript of the

proceedings, as follows:

Regent Agbayani: Mr. Chairman, could I ask for another one minute recess?

(ONE-MINUTE RECESS AT THIS POINT)

Chairman: The meeting is resumed. Mr. Regent? (Addressing Regent Agbayani)

Regent Agbayani: Mr. Chairman, I move that we do not proceed with the action now on this matter.

Chairman: To suspend in effect the action of the Board?

Regent Agbayani: The result brings us back to the previous status, that

no action has been taken.

Chairman: There is a motion to suspend action; that is to say, to suspend the voting of the Board on this matter with the effect, first, to return the case to its original status — to render the case subject to further thinking — and second, that the Board has not confirmed the appointment. The appointment, in other words, will be good from May 26 up to today.

Regent Agbayani: Mr. Chairman, the Board did not confirm exactly. It

cannot be said that the Board confirmed or did not confirm, but the appointment terminates. The ad interim appointment terminates when the

Board meets, just like in Congress, where the ad interim appointment is good only up to the first day of the session.

Chairman: So in effect, suspending action on this matter now, the Board in effect gives itself time to study the question not of Dean Blanco but the question of the deanship of the College, and the Board has not taken

action on the confirmation either adversely or favorably, but that the ad interim appointment has terminated today.

Regent Escobar: Mr. Chairman, does it mean that all the deliberations regarding to this matter should be erased from the record? Because the record of the voting is there.

Chairman: Well, it follows.

Regent Escobar: It follows suit, because we are now asking for a

reconsideration of any deliberations to the effect that if there was a voting it should be banned from appearing in the record.

Regent Silva: We have made statements here today.

Chairman: The record of the voting, which is incomplete by the way because there was no circulation to consider, will not appear in the

record.

Regent Silva: The result of the votes; the deliberations regarding this matter.

Regent Agbayani: I have no objection.

Chairman: The record of the voting will not appear. Any objection to the

motion for reconsideration? No objection, approved.

From the foregoing record of the meeting of the Board of Regents it is very clear: (1) that the Personnel Committee, to which the matter of Dr. Blanco's

appointment had been referred for study, was for recommending that it be rejected; (2) that, however, the rejection should be done in a diplomatic way "to avoid any embarrassment on the part of both the appointee and the President;"

and (3) that the "final decision" of the committee was to ask the President of the University to talk to Dr. Blanco "for the appointment to be withdrawn." That

decision, as announced by Regent Tangco, Chairman of the Personnel Committee, was restated and clarified by Regent Kalaw, and then reiterated first by Regent Tangco and then by the Chairman. On that note Regent Pedrosa

suggested that the members of the Personnel Committee, as well as the President, should inhibit themselves from voting. When the matter was actually submitted to a vote, however, the definition of the issue became somewhat

equivocal. Regent Tangco announced that the committee was withdrawing its recommendation, whereupon the Chairman stated that the issue was "to

confirm or not to confirm the ad interim appointment issued to Dr. Blanco." This was then followed by a remark from Regent Silva that the withdrawal by the committee referred to the recommendation " per se, as it is written," but

that the committee, he thought, was "actually putting a recommendation for non-confirmation." Regent Kalaw thereupon expressed her concurrence with

Regent Silva's opinion.

The votes of abstention, viewed in their setting, can in no way be construed as votes for confirmation of the appointment. There can be no doubt whatsoever

as to the decision and recommendation of the three members of the Personnel Committee: it was for rejection of the appointment. If the committee opted to

withdraw the recommendation it was on the understanding (also referred to in the record as gentlemen's agreement) that the President would talk to Dr.

Blanco for the purpose of having her appointment withdrawn in order to save them from embarrassment. No inference can be drawn from this that the

members of the Personnel Committee, by their abstention, intended to acquiesce in the action taken by those who voted affirmatively. Neither, for that matter, can such inference be drawn from the abstention that he was

abstaining because he was not then ready to make a decision.

All arguments on the legal question of how an abstention should be treated, all authorities cited in support of one or the other position, become academic and purposeless in the face of the fact that respondent Dr. Blanco was clearly not

the choice of a majority of the members of the Board of Regents, as unequivocally demonstrated by the transcript of the proceedings. This fact

cannot be ignored simply because the Chairman, in submitting the question to the actual vote, did not frame it as accurately as the preceding discussion called for, such that two of the Regents present (Silva and Kalaw) had to make

some kind of clarification.

In any event, in the same meeting of July 9, 1970, before it adjourned, the Board of Regents resolved, without a vote of dissent, to cancel the action which

had been taken, including the result of the voting, and "to return the case to its original status — to render the case subject to further thinking." In effect, as announced by the Chairman, "the Board has not acted on the confirmation

either adversely or favorably, but that the ad interim appointment has terminated." Indeed the formal decision of the Board was that all deliberations

on the matter should not appear in the record. And it cannot be seriously argued that the Board had no authority to do what it did: the meeting had not yet been adjourned, the subject of the deliberations had not yet been closed,

and as in the case of any deliberative body the Board had the right to reconsider its action. No title to the office of Dean of the College of Education

had yet vested in respondent Blanco at the time of such reconsideration.

One of the prayers of Dr. Blanco in her petition below is that she be declared duly elected as Dean of the College of Education and, as such, legally entitled to the said position with a 3-year tenure of office as provided in the Revised

Code of the University of the Philippines (Art. 79, Ch. 6, Title Two). Obviously this prayer is not in order inasmuch as she has not been elected to said position. On the other hand, Dr. Blanco does not ask that she be recognized as

Dean by virtue of her ad interim appointment dated May 26, 1970, effective up to April 30, 1971. Aside from the fact that the point has become moot, since

the tenure has expired, it is seriously to be doubted whether such an appointment is authorized under the law and regulations. It should be noted

that both under the Charter (See. 10) and under the Revised Code of the University (Art. 78) the Dean of a college is elected by the Board of Regents on nomination by the President of the University. In other words the President's

function is only to nominate, not to extend an appointment, even if only ad interim; and the power of the Board of Regents is not merely to confirm, but to

elect or appoint. At any rate the ad interim appointment extended to Dr. Blanco on May 26, 1970, although made effective until April 30, 1971, was subject to

the following condition: "unless sooner terminated and subject to the approval of the Board of Regents." The Board, as has been shown, not only did not elect

Dr. Blanco in its meeting of July 9, 1970, but declared the appointment terminated as of that day.

WHEREFORE, the decision appealed from is reversed and set aside; the petition of respondent Consuelo S. Blanco for certiorari and prohibition before

respondent Court is ordered dismissed; and the writ of preliminary injunctton issued by this Court is made permanent, without pronouncement as to costs.

G.R. No. 113032 August 21, 1997 WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS,

petitioner, vs.

RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO

PARIAN, respondents.

HERMOSISIMA, JR., J.:

Up for review on certiorari are: (1) the Decision dated September 6, 1993 and

(2) the Order dated November 23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The judgment acquitted the

private respondents of both charges, but petitioners seek to hold them civilly liable.

Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-

Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the

operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the

principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of the Board including one of the petitioners

Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to be held on June 1, 1986 included Item

No. 6 which states:

Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation. 1

In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman —

P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate

Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees.

This shall amend and superceed (sic) any previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the

Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief.

(Sgd) ANTONIO S. SALAS

Corporate Secretary 2

A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor

of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code

and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for

falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the

disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually

passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The

Information for falsification of a public document states:

The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS (whose dates and places of birth cannot

be ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code, committed as follows:

That on or about the 10th day of June, 1986, in the City of

Iloilo, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and

Trustee (who later became Secretary), respectively, of the board of trustees of the Western Institute of Technology, Inc.,

a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another, to better realized

(sic) their purpose, did then and there wilfully, unlawfully and criminally prepare and execute and subsequently cause

to be submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year 1985-1986, the same being required to be submitted every

end of the corporation fiscal year by the aforesaid Commission, and therefore, a public document, including therein the disbursement of the retroactive compensation of

accused corporate officers in the amount of P186,470.70, by then and there making it appear that the basis thereof

Resolution No. 4, Series of 1986 was passed by the board of trustees on March 30, 1986, a date covered by the corporation's fiscal year 1985-1986 (i.e., from May 1, 1985 to

April 30, 1986), when in truth and in fact, as said accused well knew, no such Resolution No. 48, Series of 1986 was

passed on March 30, 1986.

CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 3 [Emphasis ours].

The Information, on the other hand, for estafa reads:

The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR

T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the Revised Penal Code,

committed as follows:

That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the

Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively; of the

Board of Trustees of Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating

together and mutually helping one another to better realize their purpose, did then and there wilfully, unlawfully and

feloniously defraud the said corporation (and its stockholders) in the following manner, to wit: herein accused, knowing fully well that they have no sufficient,

lawful authority to disburse — let alone violation of applicable laws and jurisprudence, disbursed the funds of the corporation by effecting payment of their retroactive

salaries in the amount of P186,470.00 and subsequently paying themselves every 15th and 30th of the month starting

June 15, 1986 until the present, in the amount of P19,500.00 per month, as if the same were their own, and when herein accused were informed of the illegality of these

disbursements by the minority stockholders by way of objections made in an annual stockholders' meeting held on

June 14, 1986 and every year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders) in the total sum of

P1,453,970.79 as of November 15, 1991.

CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 4 [Emphasis ours]

Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge Porfirio

Parian handed down a verdict of acquittal on both counts 5 dated September 6, 1993 without imposing any civil liability against the accused therein.

Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC

Decision which was, however, denied in an Order dated November 23, 1993. 7

Hence, the instant petition.

Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by Western Institute of Technology, Inc.,

supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing the petition.

Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January 16, 1995. 8

Petitioners would like us to hold private respondents civilly liable despite their

acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of

P186,470.70 representing retroactive compensation as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the

subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal complaints against them on March 1991. Petitioners maintain that this grant of compensation to private

respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with interest.

We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:

Sec. 30. Compensation of directors — In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any

compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation (other than per diems)

may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special

stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

[Emphasis ours]

There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than

the usual and ordinary duties of their office. This rule is founded upon a

presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without

compensation. 9 Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from

reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to

give it to them.

This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not

receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to

compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the

board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees. 10 In the case at bench, Resolution No. 48, s. 1986 granted

monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of

Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs.

Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman —

P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate Secretary — P3,500.00/month, retroactive June 1, 1985 and

the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees.

This shall amend and superceed (sic) any previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March

30, 1986 is true and correct to the best of my knowledge and belief.

(Sgd) ANTONIO S. SALAS Corporate Secretary 11 [Emphasis

ours]

Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which provides:

. . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. (Emphasis ours]

does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as board members.

Petitioners assert that the instant case is a derivative suit brought by them as

minority shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.

We are unpersuaded. A derivative suit is an action brought by minority

shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. 12 It is a remedy designed by equity and has been the principal defense of the minority shareholders against

abuses by the majority. 13 Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098

filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must

allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. 14 This is necessary to vest jurisdiction upon the

tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the

subject matter and nature of the action. 15 This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant

petition which, in part, merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098" 16 since the trial court's judgment of

acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the

civil aspect of a criminal case be treated as a derivative suit.

Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible for having been

wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The ease should have been filed with the Securities and Exchange

Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A:

In addition to the regulatory and adjudicative functions of the Securities

and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction

to hear and decide cases involving:

xxx xxx xxx

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between

such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity;

xxx xxx xxx

[Emphasis ours]

Once the case is decided by the SEC, the losing party may file a petition for

review before the Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. 17 It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on certiorari under

Rule 45 raising only pure questions of law. 18 Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying to short-circuit the

entire process which we cannot here sanction.

As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition truly is, we have

to deny the petition just the same. It will be well to quote the respondent court's ratiocinations acquitting the private respondents on both counts:

The prosecution wants this Court to believe and agree that there is falsification of public document because, as claimed by the prosecution,

Resolution No. 48, Series of 1986 (Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the Board of Trustees of the

Western Institute of Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same board of trustees.

This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the complete minutes of the regular

meeting of the Board of Trustees on March 30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of the said minutes.

Had the complete minutes (Exh. "1") consisting of five (5) pages, been submitted, it can be readily seen and understood that Resolution No. 48, Series of 1986 (Exh. "1-E-1") giving compensation to corporate officers,

was indeed included in Other Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The mere fact of existence of Exh. "C" also proves that it was passed on March 30, 1986 for Exh. "C" is

part and parcel of the whole minutes of the Board of Trustees Regular Meeting on March 30, 1986. No better and more credible proof can be

considered other than the Minutes (Exh. "1") itself of the Regular Meeting of the Board of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor passed on March 30, 1986

because the matter regarding compensation was not specifically stated or written in the Agenda and that the words "possible implementation of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of the Board on June 1, 1986, is simply an implication. This

evidence by implication to the mind of the court cannot prevail over the Minutes (Exh. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions.

This Court finds that under the Eleventh Article (Exh. "3-D-1") of the

Articles of Incorporation (Exh. "3-B") of the Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the

officers of the corporation shall receive such compensation as the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the corporation and their

corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation (Exh. "4-A") which was adopted on May 31, 1957. According to Sec. 6, Art. III of the

same By-Laws, all officers shall receive such compensation as may be fixed by the Board of Directors.

It is the perception of this Court that the grant of compensation or salary

to the accused in their capacity as officers of the corporation, through Resolution No. 48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both the Articles of Incorporation and the By-Laws of the

corporation. To state otherwise is to depart from the clear terms of the said articles and by-laws. In their defense the accused have properly and

rightly asserted that the grant of salary is not for directors, but for their being officers of the corporation who oversee the day to day activities and operations of the school.

xxx xxx xxx

. . .[O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is

perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority granted by the Articles

and By-Laws of the corporation are not tainted with abuse of confidence. The money they received belongs to them and cannot be said to have been converted and/or misappropriated by them.

xxx xxx xxx 19

[Emphasis ours]

From the foregoing factual findings, which we find to be amply substantiated

by the records, it is evident that there is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111 on the New

Rules on Criminal Procedure provides:

Sec. 2. Institution of separate civil action.

xxx xxx xxx

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final

judgment that the fact from which the civil might arise did not exist. [Emphasis ours]

Likewise, the last paragraph of Section 2, Rule 120 reads:

Sec. 2. Form and contents of judgment.

xxx xxx xxx

In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment shall make a finding on the civil liability of the accused in favor of the offended party. [Emphasis ours]

The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on

reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant to the above

rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts

imputed to them. 20

WHEREFORE, the instant petition is hereby DENIED with costs against petitioners.

SO ORDERED.

G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner,

vs.

SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN

MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.

De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T Capulong for respondent Eduardo R. Visaya. ANTONIO, J.:

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

SEC CASE NO 1375

On October 22, 1976, petitioner, as stockholder of respondent San Miguel

Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of

certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The

petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC

Case No. 1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their

authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share

and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a

total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the

power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not

less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961

authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders.

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

Board ceased to exist.

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

(6) new directors.

As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent

corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending

the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and void. 1

As additional causes of action, it was alleged that corporations have no

inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr.

and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was allowed because the questioned amendment gave the Board itself

the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended bylaws

which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and

that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of

Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive.

It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual

respondents be made to pay damages, in specified amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production

and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by

petitioner for production of certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their

authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the management contract between San Miguel Corporation and A. Soriano

Corporation (ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent

corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest.

The "Urgent Motion for Production and Inspection of Documents" was opposed

by respondents, alleging, among others that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the

materiality or relevance of the evidence sought cannot be determined until the issues are joined, that it fails to show good cause and constitutes continued harrasment, and that some of the information sought are not part of the

records of the corporation and, therefore, privileged.

During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their

answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid and legal

because the power to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that contrary to petitioner's claim, "the vote requirement for a

valid delegation of the power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the

delegation of said power is made, not when the Board opts to exercise said delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of

the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that

petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made

on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing

law; that respondent corporation should not be precluded from adopting

protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation;

that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as

amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed

that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition

to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina

Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the

Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in

September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in

behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC

interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his

bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner

nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as

afore-stated.

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

Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This

was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors

and they accordingly filed their oppositions-intervention to the petition.

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

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

ordered:

1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John

Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said

corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant entry in the principal office of the

respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the

rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this

Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and

any inspection thereof shall require the prior permission of this Commission;

2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or

remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its

successors-in- interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent

right to inspect said documents;

3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A.

Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same, the Commission

takes note thereof; and

4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of

respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-

entitled case.

This Order is immediately executory upon its approval. 2

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

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the

purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask

respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private respondents admitted

the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary

Restraining Order", praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's

motion for summary judgment, a temporary restraining order be issued, restraining respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents.

On February 10, 1977, respondent Commission issued an order denying the

motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the special stockholders' meeting wherein the

amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for

summary judgment was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant

petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved.

In view of the fact that the annul stockholders' meeting of respondent

corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the

position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding

petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By

reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private

respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent

Commission to act, petitioner was not heard prior to the date of the stockholders' meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the

part of the SEC to act hence petitioner came to this Court.

SEC. CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses

outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M.

Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments

and to answer for damages.

On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner.

Despite the fact that said motions were filed as early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents'

motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977.

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

6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes

other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto.

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an

urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual

stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and

reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act,

petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion

when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his

rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC

to act on collateral incidents pending before it.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for

ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or

from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a

restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders:

(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's

motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a

temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt

and to nullify the stockholders' meeting;

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity

of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and

(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's

motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing

the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process

when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite

petitioner's request to have the same calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights

as a stockholder, warranting immediate judicial intervention.

It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow

petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits.

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M.

Soriano filed their comment, alleging that the petition is without merit for the following reasons:

(1) that the petitioner the interest he represents are engaged in business

competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation,

which corporations are engaged in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in

which SMC has substantial investments. Further, when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present

danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans;

(2) that the amended by law were adopted to preserve and protect respondent

SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its

business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant

disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade;

(3) that by laws are valid and binding since a corporation has the inherent right

and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself;

(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and

1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing.

It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on

May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate

dispatch", and

(5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending

incidents, complained of. It was, therefore, prayed that the petition be dismissed.

On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among

others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel

Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the

Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the

case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature.

Petitioner filed a reply to the aforesaid comments, stating that the petition

presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a

derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and

confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives

him of his vested rights.

Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court

and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375.

In answer to the allegation in the supplemental petition, it states that Order

No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an

urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is

within the authority of the corporation as well as falling within the sphere of

stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are

the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic.

On September 29,1977, petitioner filed a second supplemental petition with

prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now

before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.)

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

(1) whether or not the provisions of the amended by-laws of respondent

corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable;

(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel

International, Inc., a fully owned subsidiary of San Miguel Corporation; and

(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders'

Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law.

I

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

It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the

amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question.

There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and

approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly

shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid;

and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice."

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that

this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the

entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation", citing Gayong v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the

validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties

concerned and, more importantly, by this Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal.

It is only the Solicitor General who contends that the case should be remanded

to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate

controversies.

It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving nor root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice

would not be subserved by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this Court, finding that the main

issue is one of law, resolved to decide the case on the merits "because public interest demands an early disposition of the case", and in Republic v. Central Surety and Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in similar situations resolved to decide the cases on the merits, instead

of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demand an

early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is

settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be

determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the

Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially

for that purpose, the amended by-laws were ratified by more than 80% of the

stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the

San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel

Corporation were ratified by the stockholders.

II

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

The validity or reasonableness of a by-law of a corporation in purely a question

of law. 9 Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore

unlawful is a question of law. 10 This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be

warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable

because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as

director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the

Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel

Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of

the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel

Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not

vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over

the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina Corporation — 738,647

shares; (c) CFC Corporation — 658,313 shares, or a total of 1,403,285 shares.

Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00,

the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended

that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal

Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS

AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board

Resolution dated April 28, 1978, thus:

Product Line Estimated Market Share Total 1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0%

Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of

SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors.

It is further asserted that in 1977, the CFC-Robina group was in direct

competition on product lines which, for SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the

sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly

also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition

between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million.

According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754

shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized

the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he

by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders,

representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning

27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480

shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner.

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

Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the

election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution,

therefore, is the issue — whether or not respondent San Miguel Corporation could, as a measure of self- protection, disqualify a competitor from nomination and election to its Board of Directors.

It is recognized by an authorities that 'every corporation has the inherent

power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. 12 At common

law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it

is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of

any specific enabling provision in its charter or in general law, such power of self-government being essential to enable the corporation to accomplish the

purposes of its creation. 13

In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a

qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of

the capital stock of the stock corporation of which he is a director ... " In Government v. El Hogar, 14 the Court sustained the validity of a provision in the

corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law

expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good

practice. "

NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR

Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." 15 To this extent, therefore, the stockholder may be

considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the

corporation, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed ... by any

act of the former which is authorized by a majority ... ." 16

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object

thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore,

that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the

prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. 17

It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is

whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority.

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

Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that

of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the

collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust relationship of directors of a corporation and stockholders", according to Ashaman v. Miller, 19

"is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and

hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *.

Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of

fiduciary obligation of the directors of corporations, thus:

A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself first and his

cestuis second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate

entity violate the ancient precept against serving two masters ... He cannot utilize his inside information and strategic position for his

own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly though the

corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that

power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the

equitable limitation that it may not be exercised for the aggrandizement, preference or advantage of the fiduciary to the exclusion or detriment of the cestuis.

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

... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if personally interested in the cause. No more can a director. Human nature is

too weak -for this. Take whatever statute provision you please giving power to stockholders to choose directors, and in none will

you find any express prohibition against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by mere implication the existence of

such a salutary power

... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to

disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his

suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as

selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and

affection. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. ... . 22

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

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

It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of

Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid." 24 This is

based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other.

Such an amendment "advances the benefit of the corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification, and therefore

the corporation was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a

corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct

competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise

which cripples or injures the business of the corporation of which he is an officer or director. 26

It is also well established that corporate officers "are not permitted to use their

position of trust and confidence to further their private interests." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival

business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard

the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of

his misconduct to the exclusion of his principal. 28

The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests

fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. 30

It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and

diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director

of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San

Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director,

if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his

personal concerns.

Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents,

nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus:

... A bank director has access to a great deal of information

concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was

reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra,

specifically recognizes protection against rivals and others who might acquire information which might be used against the

interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a

firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of

inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors

determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed.

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

as follows:

(1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which

competes with the subject corporation.

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

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

(4) A director shall be of good moral character as an essential

qualification to holding office.

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

These are not based on theorical abstractions but on human experience — that

a person cannot serve two hostile masters without detriment to one of them.

The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be

discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from

such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership — which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would

be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by Oleck: 31 "The law win not tolerate the

passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to

control and supervise the day to day business activities of the company or to

promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may

be said to have fulfilled their duty of fealty to the corporation."

Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require

that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem

manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director.

Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for

advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage. 32

There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of

Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed."

Article 186 of the Revised Penal Code also provides:

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

imposed upon:

1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a

trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market.

2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or

persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any

other artifice to restrain free competition in the market.

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any

merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine,

conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with

any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or any

such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any

article in the manufacture of which such manufactured, produced, processed, or imported merchandise or object of commerce is used.

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

Basically, these anti-trust laws or laws against monopolies or combinations in

restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. These laws are

designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the

highest quality ... ." 34 they operate to forestall concentration of economic power. 35 The law against monopolies and combinations in restraint of trade is

aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. 36

The terms "monopoly", "combination in restraint of trade" and "unfair

competition" appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the

detriment of the public. 37 In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not

that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired. 38 Further, it must be considered that the Idea of monopoly is now understood to include a condition

produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the qualification of

interest or management, or it may be thru agreement and concert of action. It is, in brief, unified tactics with regard to prices. 39

From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the Board of

respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence of a combination or

conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the defendants conformed to the arrangements, 41 and

what is to be considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by

virtue of their business and location of operation, competitors so that the elimination of competition between them would constitute violation of any

provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. A common director of

two or more competing corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another, thereby stifling

competition. This situation has been aptly explained by Travers, thus:

The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. Indeed, if

a director, for example, is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy

by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without

depriving A of his best judgment. If the firms really do compete — in the sense of vying for economic advantage at the expense of the other — there can hardly be any reason for an interlock between

competitors other than the suppression of competition. 43 (Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S.

Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations ... to the detriment of the

small ones dependent upon them and to the injury of the public. 44

Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories

may lead to control of production for the purpose of controlling prices.

Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming

public would be frustrated, The competitor could so manipulate the prices of

his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a

substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion

that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and

thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. CFC-Robina can

segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every

market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free

competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices.

Finally, considering that both Robina and SMC are, to a certain extent,

engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more

than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the

purpose of bringing about or attempting to bring about a combination to exercise control of incorporations ... ."

Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be

applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a

discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before

petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore,

support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable.

In the absence of any legal prohibition or overriding public policy, wide latitude

may be accorded to the corporation in adopting measures to protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ,

a court would not be warranted in substituting its judgment instead of the

judgment of those who are authorized to make by-laws and who have expressed their authority. 45

Although it is asserted that the amended by-laws confer on the present Board

powers to perpetua themselves in power such fears appear to be misplaced. This power, but is very nature, is subject to certain well established limitations.

One of these is inherent in the very convert and definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not

Identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to

secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of

an isolated or non-characteristics activity. 47 It is, therefore, obvious that not every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of business, Identity of products and area

of competition should be taken into consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same

markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence

that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the

fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48 Pursuant to this obligation

and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed

by the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a settled

principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste,

dissipation or misapplication of the corporation assets, a court of equity has the power to grant appropriate relief. 50

III

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

Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC

"was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit:

(1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting

of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a

listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and (7)

copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not

objected to by petitioner.

Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San

Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a

foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends

received by SMC from SMI since 1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings

having been used in line with a program for the setting up of breweries by SMI

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

Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any

meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours."

The stockholder's right of inspection of the corporation's books and records is

based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial

ownership, or a ownership. 52 This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the

right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 53 In other

words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held

that "the right to examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for

specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes. The weight of judicial opinion appears to be, that on

application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the right given by

statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation." 57 But the "impropriety of purpose such as will defeat enforcement must be set up the

corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of

showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. 58 It appears to be the general rule that stockholders are entitled to full information as to the management of the

corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being

mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." 59

While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such

stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.

Some state courts recognize the right under certain conditions, while others do

not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct

corporate entities may be disregarded and the books, papers and documents of all the corporations may be required to be produced for examination, 60 and that a writ of mandamus, may be granted, as the records of the subsidiary

were, to all incontents and purposes, the records of the parent even though subsidiary was not named as a party. 61 mandamus was likewise held proper

to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. 62

On the other hand, mandamus at the suit of a stockholder was refused where

the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to

the control of the parent company, although it owned a vast majority of the stock of the subsidiary. 63 Likewise, inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of

the subsidiary has been refused on the ground that the stockholder was not within the class of "persons having an interest." 64

In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation

included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York."

In the Bailey case, 66 stockholders of a corporation were held entitled to inspect

the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors.

In his "Urgent Motion for Production and Inspection of Documents" before

respondent SEC, petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some

documents which for some reason or another, respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm

would be caused thereby to the corporation." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial

condition of the corporation, and generally take an account of the stewardship of the officers and directors. 68

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would

be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of

the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control.

IV

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

Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the

stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders.

Respondent SEC's position is that submission of the investment to the

stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged.

Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds

in any other corporation or business or for any purpose other than the main

purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares

entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the

approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to

exercise at least two-thirds of the voting power is necessary. 69

As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market

beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong

(Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization.

Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an investment made by Manao Sugar Central Co., Inc., without prior

resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the

manufacture of sugar bags. The lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to

require authority of the stockholders would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the

matter and, quoting Prof. Sulpicio S. Guevara, said:

"j. Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by

the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence

of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established

by the Corporations law; namely, (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that

such holdings shall be solely for investment and not for the

purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation Law

by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.)

40. Power to invest corporate funds. — A private corporation has the power to invest its corporate funds "in any other corporation or

business, or for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of

stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose

at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259).

Assuming arguendo that the Board of Directors of SMC had no authority to

make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the

questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate

powers, but which is defective from a supported failure to observe in its execution the. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting

power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect

which it may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not illegal and void ab initio, but are not merely

within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders.

Besides, the investment was for the purchase of beer manufacturing and

marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be

construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically

submitting for the gratification of their stockholders the acts of their directors, officers and managers.

WHEREFORE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel

International, Inc., as specified by him.

On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio,

Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to

run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities

and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless disqualified in the manner herein provided, the prohibition

in the afore-mentioned amended by-laws shall not apply to petitioner.

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

corporation as moot.

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

Justice Fernando reserved his vote on the validity of subject amendment to the

by-laws but otherwise concurs in the result.

Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the

questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of

respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of

Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court.

In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books

and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the

ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs.

G.R. No. 108710 September 14, 1999 ARMANDO T. DE ROSSI, petitioner,

vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), MATLING

INDUSTRIAL AND COMMERCIAL CORPORATION AND RICHARD K. SPENCER, respondents.

R E S O L U T I O N

QUISUMBING, J.:

This petition for certiorari, under Rule 65 of the Rules of Court, assails the Decision 1 of the National Labor Relations Commission (NLRC) which ruled that jurisdiction over a complaint by a corporate executive and management officer for illegal dismissal rests with the Securities and Exchange Commission, and

not the Labor Arbiter and the NLRC. Said Decision reversed and set aside the holding of the Labor Arbiter 2 who sustained petitioner's claim for

reinstatement and damages.1âwphi1.nêt

The antecedent facts are as follows:

An Italian citizen, petitioner was the Executive Vice-President and General Manager of private respondent, Matling Industrial and Commercial Corporation

(MICC). He started work on July 1, 1985. On August 10, 1988, MICC terminated his employment.

Aggrieved, petitioner filed with the NLRC, National Capital Region on September 21, 1989, a complaint 3 for illegal dismissal with corresponding

damages.

MICC based petitioner's dismissal on the ground that the petitioner failed to secure his employment permit, grossly mismanaged the business affairs of the

company, and misused corporate funds. However, petitioner argued that it was the duty of the company to secure his work permit during the term of his office, and that his termination was illegal for lack of just cause.

On November 27 1991, Labor Arbiter Asuncion rendered a decision in favor of

petitioner, disposing as follows:

WHEREFORE, respondents, Matling Industrial and Commercial Corporation and Richard K. Spencer, are jointly and severally ordered:

1. To reinstate the complainant Armando T. de Rossi to his former positions as Executive Vice-President and General Manager,

without loss of seniority rights, and other privileges and with full backwages, from the date his salary was withheld until he is

actually reinstated. His reinstatement is immediately executory;

2. To pay the complainant the sum of P800,000 as moral damages, and another P700,000.00 as exemplary damages.

3. To pay Attorney's fee equivalent to 10% of the total amount awarded.

SO ORDERED. 4

MICC appealed the decision of the labor arbiter to the NLRC (First Division) on

the ground that Asuncion committed grave abuse of discretion amounting to lack of jurisdiction in reinstating the petitioner and awarding him backwages

and damages, because the termination of petitioner was for a valid cause.

On January 6, 1992, petitioner filed a motion for issuance of writ of execution, 5 stating that the reinstatement order is immediately executory, even pending appeal pursuant to Article 223 of the Labor Code.

On January 16, 1992, respondents opposed the said motion. On February 6, 1992, petitioner filed a manifestation reiterating his request for reinstatement.

On February 26, 1992, and March 12, 1992, respectively, private respondents filed a counter manifestation and motion; they reiterated their vehement

objection thereto as already signified in their opposition. Further, they contended that the position of executive vice-president is an elective post, specifically provided by the corporate's by-laws. Thus, the dismissal of the

petitioner was an intra-corporate matter within the jurisdiction of the Securities and Exchange Commission (SEC) and not with the Labor Arbiter nor

the NLRC. Therein, private respondents cited several cases decided by the Court in support of their contention, among them: Dy vs. National Labor Relations Commission, 145 SCRA 211, Fortune Cement Corp. vs. National Labor

Relations Commission, 193 SCRA 258, PSBA vs. Leano, 127 SCRA 778.

On July 7, 1992, OIC and Executive Labor Arbiter Lita Aglibut issued a writ of execution. Aglibut directed Sheriff Max Lago to collect the backwages of

petitioner de Rossi, in the amount of six hundred seventy five thousand (P675,000.00) pesos from MICC. Further, she gave MICC the option to reinstate

de Rossi physically or constructively through payroll reinstatement until the final resolution of the case by the NLRC.

On August 5, 1992, private respondents filed a motion for reconsideration of the writ of execution, reiterating their argument that the SEC and not the

NLRC has original and exclusive jurisdiction over the subject matter which involves the removal of a corporate officer.

On October 30, 1992, the NLRC rendered its decision dismissing the case by

virtue of Section 5, paragraph (c), of P.D. No. 902-A. However, the Commission stated that, although in its view it has jurisdiction over the case, it must yield to the Supreme Court's decisions recognizing SEC's jurisdiction over such a

case, to wit:

It is our view that notwithstanding the provisions of Presidential Decree No. 902-A, we in this Commission, have jurisdiction over this case. The

reason being, Article 217 of the Labor Code was amended on March 21, 1989 by Section 9, Republic Act 6715, viz.:

xxx xxx xxx

On the other hand, we are mindful of a rule in this jurisdiction (geared

towards stability of jurisprudence) that:

If a judge of a lower court feels, in the fulfillment of his mission of deciding cases, that the application of a doctrine promulgated by his superiority is against his way of reasoning, or against his

conscience, he may state his opinion on the matter, but rather than disposing of the case in accordance with his personal views, he must first think that it is his duty to apply the law as interpreted by the highest court of the land, and that any deviation from a principle laid down by the latter would unavoidably cause, as a cause sequel, unnecessary inconveniences, delay and expenses to the litigants. (emphasis by NLRC, People vs. Santos, 56 O.G. 3546)

Guided by the above mandate, we thus have stated our "opinion on

the matter, but rather than disposing of the case in accordance with our views, we cannot but apply the law as interpreted by the highest court of the land", and rule that jurisdiction here is not

with us but with the Securities and Exchange Commission.

WHEREFORE, the appealed decision is hereby set aside, and this case is dismissed for want of jurisdiction.

SO ORDERED. 6

In his petition for certiorari dated February 11, 1993, petitioner contends that:

I. THE NATIONAL LABOR RELATIONS COMMISSION COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION OR ACTED IN EXCESS OF ITS JURISDICTION IN HOLDING THAT THE SECURITIES AND EXCHANGE COMMISSION HAS

JURISDICTION OVER THE COMPLAINT FOR ILLEGAL DISMISSAL FILED BY PETITIONER.

II. THE ISSUES RAISED IN THE COMPLAINT FOR ILLEGAL DISMISSAL ARE RIPE FOR ADJUDICATION BY THIS HONORABLE COURT. 7

Petitioner asserts that even managerial employees are entitled to the protection

of labor laws. He states that his case is peculiar, and not similar to those cited by private respondents. Petitioner claims that he was neither elected to the

post nor stockholder of MICC. Furthermore, petitioner avers that during the proceedings before the Labor Arbiter, private respondents never questioned the issue of jurisdiction; it would be too late to raise it now.

Respondent NLRC argues that under the Corporation Code, there is no

requirement that an executive vice-president of a corporation should be a stockholder or a member of the Board of Directors. Further, as observed by the

Solicitor General, Section 5 of P.D. 902-A did not limit the jurisdiction of the SEC to controversies in the election or appointment of directors and trustees, but also included officers or managers of such corporations, partnerships or

associations.

On this score, we are in agreement with the public respondent's submission through the Solicitor General. In a string of cases 8 this Court has consistently held that the SEC, and not the NLRC, has original and exclusive jurisdiction

over cases involving the removal of corporate officers. Section 5, paragraph (c) of P.D. 902-A unequivocally provides that SEC has jurisdiction over intra-

corporate affairs regarding the election or appointment of officers of a corporation, to wit:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,

partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have

original and exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

(c) Controversies in the election or appointments of directors,

trustees, officers or managers of such corporation, partnership or association.

We have earlier pronounced that an "office" is created by the charter of the corporation under which a corporation is organized, and the officer is elected

by the directors or stockholders. 9 In the present case, private respondents aver that the officers and their terms of office are prescribed by the corporation's by-

laws, which provide as follows:

BY-LAW NO. III Directors and Officers

xxx xxx xxx

The officers of the corporation shall be the President, Executive Vice President, Secretary and Treasurer, each of whom may hold his

office until his successor is elected and qualified, unless sooner removed by the Board of Directors; Provided, That for the

convenience of the corporation the office of the Secretary and Treasurer may be held by one and the same person. Officers shall be designated by the stockholders' meeting at the time they elect

the members of the Board of Directors. Any vacancy occurring among the officers of the Corporation on account of removal or resignation shall be filled by a stockholder's meeting. Stockholders

holding one half, or more of the subscribed capital stock of the corporation may demand and compel the resignation of any officer

at any time. 10

The by-laws being in force, clearly petitioner is considered an officer of MICC, elected and/or designated by its board of directors. Following Section 5(c) of P.D. No. 902-A, the SEC exercises exclusive jurisdiction

over controversies regarding the election and/or designation of directors, trustees, officers or managers of a corporation, partnership or

association. This provision is indubitably applicable to the petitioner's case. Jurisdiction here is not with the Labor Arbiter nor the NLRC, but with the SEC.

Note that a corporate officer's removal from his office is a corporate act. If such

removal occasions an intra-corporate controversy, its nature is not altered by the reason or wisdom, or lack thereof, with which the Board of Directors might

have in taking such action. 11 When petitioner, as Executive Vice-President allegedly diverted company funds for his personal use resulting in heavy financial losses to the company, this matter would amount to fraud. Such

fraud would be detrimental to the interest not only of the corporation but also of its members. 12 This type of fraud encompasses controversies in a

relationship within the corporation covered by SEC jurisdiction. 13 Perforce, the matter would come within the area of corporate affairs and management, and such a corporate controversy would call for the adjudicative expertise of the

SEC, not the Labor Arbiter or the NLRC.1âwphi1.nêt

Petitioner maintains that MICC can not question now the issue of jurisdiction of the NLRC, considering that MICC did not raise this matter until after the

case had been brought on appeal to the NLRC. However, it has long been established as a rule, that jurisdiction of a tribunal, agency, or office, is

conferred by law, and its lack of jurisdiction may be questioned at any time even on appeal. 14 In La Naval Drug Corporation vs. Court of Appeals, 236 SCRA 78, 90, 15 this Court said:

Lack of jurisdiction over the subject matter of the suit is yet another

matter. Whenever it appears that the court has no jurisdiction over the subject matter, the action shall be dismissed. This defense may be

interposed at any time, during appeal or even after final judgment. Such is understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to themselves determine or

conveniently set aside.

Hence, lack of jurisdiction on the part of the Labor Arbiter first, and of the NLRC on appeal, is fatal to petitioner's cause.

WHEREFORE, the instant petition is hereby DENIED, and the respondent

NLRC's dismissal of the complaint for lack of jurisdiction, is hereby AFFIRMED, with costs against petitioner. SO ORDERED.

G.R. No. 121143 January 21, 1997 PURIFICACION G. TABANG, petitioner,

vs. NATIONAL LABOR RELATIONS COMMISSION and PAMANA GOLDEN CARE

MEDICAL CENTER FOUNDATION, INC., respondents. REGALADO, J.:

This is a petition for certiorari which seeks to annul the resolution of the National Labor Relations Commission (NLRC), dated June 26, 1995, affirming in toto the order of the labor arbiter, dated April 26, 1994, which dismissed

petitioner's complaint for illegal dismissal with money claims for lack of jurisdiction.

The records show that petitioner Purificacion Tabang was a founding member,

a member of the Board of Trustees, and the corporate secretary of private respondent Pamana Golden Care Medical Center Foundation, Inc., a non-stock corporation engaged in extending medical and surgical services.

On October 30, 1990, the Board of Trustees issued a memorandum appointing

petitioner as Medical Director and Hospital Administrator of private respondent's Pamana Golden Care Medical Center in Calamba, Laguna.

Although the memorandum was silent as to the amount of remuneration for the position, petitioner claims that she received a monthly retainer fee of five

thousand pesos (P5,000.00) from private respondent, but the payment thereof was allegedly stopped in November, 1991.

As medical director and hospital administrator, petitioner was tasked to run

the affairs of the aforesaid medical center and perform all acts of administration relative to its daily operations.

On May 1, 1993, petitioner was allegedly informed personally by Dr. Ernesto Naval that in a special meeting held on April 30, 1993, the Board of Trustees

passed a resolution relieving her of her position as Medical Director and Hospital Administrator, and appointing the latter and Dr. Benjamin Donasco

as acting Medical Director and acting Hospital Administrator, respectively. Petitioner averred that she thereafter received a copy of said board resolution.

On June 6, 1993, petitioner filled a complaint for illegal dismissal and non-payment of wages, allowances and 13th month pay before the labor arbiter.

Respondent corporation moved for the dismissal of the complaint on the

ground of lack of jurisdiction over the subject matter. It argued that petitioner's position as Medical Director and Hospital Administrator was interlinked with

her position as member of the Board of Trustees, hence, her dismissal is an intra-corporate controversy which falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC).

Petitioner opposed the motion to dismiss, contending that her position as

Medical Director and Hospital Administrator was separate and distinct from her position as member of the Board of Trustees. She claimed that there is no

intra-corporate controversy involved since she filed the complaint in her capacity as Medical Director and Hospital Administrator, or as an employee of private respondent.

On April 26, 1994, the labor arbiter issued an order dismissing the complaint

for lack of jurisdiction. He ruled that the case falls within the jurisdiction of the SEC, pursuant to Section 5 of Presidential Decree No. 902-A. 1

Petitioner's motion for reconsideration was treated as an appeal by the labor arbiter who consequently ordered the elevation of the entire records of the case to public respondent NLRC for appellate review. 2

On appeal, respondent NLRC affirmed the dismissal of the case on the

additional ground that "the position of a Medical Director and Hospital Administrator is akin to that of an executive position in a corporate ladder structure." hence, petitioner's removal from the said position was an intra-

corporate controversy within the original and exclusive jurisdiction of the SEC. 3

Aggrieved by the decision, petitioner filed the instant petition which we find,

however, to be without merit.

We agree with the findings of the NLRC that it is the SEC which has jurisdiction over the case at bar. The charges against herein private respondent

partake of the nature of an intra-corporate controversy. Similarly, the determination of the rights of petitioner and the concomitant liability of private respondent arising from her ouster as a medical director and/or hospital

administrator, which are corporate offices, is an intra-corporate controversy subject to the jurisdiction of the SEC.

Contrary to the contention of petitioner, a medical director and a hospital

administrator are considered as corporate officers under the by-laws of respondent corporation. Section 2(i), Article I thereof states that one of the powers of the Board of Trustees is "(t)o appoint a Medical Director,

Comptroller/Administrator, Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and duties." 4

The president, vice-president, secretary and treasurer are commonly regarded

as the principal or executive officers of a corporation, and modern corporation statutes usually designate them as the officers of the corporation. 5 However, other offices are sometimes created by the charter or by-laws of a corporation,

or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. 6 It has been held that an "office'' is created by the charter of the corporation and the officer is elected by

the directors or stockholders. 7 On the other hand, an "employee" usually occupies no office and generally is employed not by action of the directors or

stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. 8

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by respondent corporation's Board of Trustees in its

memorandum of October 30, 1990, 9 she is deemed an officer of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which

provides that the SEC exercises exclusive jurisdiction over controversies in the election appointment of directors, trustees, officers or managers of corporations, partnerships or associations, applies in the present dispute.

Accordingly, jurisdiction over the same is vested in the SEC, and not in the Labor Arbiter or the NLRC.

Moreover, the allegation of petitioner that her being a member of the Board of

Trustees was not one of the considerations for her appointment is belied by the tenor of the memorandum itself. It states: "We hope that you will uphold and

promote the mission of our foundation," 10 and this cannot be construed other than in reference to her position or capacity as a corporate trustee.

A corporate officer's dismissal is always a corporate act, or an intra-corporate

controversy, and the nature is not altered by the reason or wisdom with which the Board of Directors may have in taking such action. 11 Also, an intra-

corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies

between stockholders and corporations. 12

With regard to the amount of P5,000,00 formerly received by herein petitioner every month, the same cannot be considered as compensation for her services

rendered as Medical Director and Hospital Administrator. The vouchers 13 submitted by petitioner show that the said amount was paid to her by PAMANA, Inc., a stock corporation which is separate and distinct from herein

private respondent. Although the payments were considered advances to Pamana Golden Care, Calamba branch, there is no evidence to show that the Pamana Golden Care stated in the vouchers refers to herein respondent

Pamana Golden Care Medical Center Foundation, Inc.

Pamana Golden Care is a division of Pamana, Inc., while respondent Pamana Golden Care Medical Center Foundation, Inc. is a non-stock, non-profit

corporation. It is stated in the memorandum of petitioner that Pamana, Inc. is a stock and profit corporation selling pre-need plan for education, pension and health care. The health care plan is called Pamana Golden Care Plan and the

holders are called Pamana Golden Care Card Holders or, simply, Pamana Members. 14

It is an admitted fact that herein petitioner is a retained physician of Pamana,

Inc., whose patients are holders of the Pamana Golden Care Card. In fact, in her complaint 15 filed before the Regional Trial Court of Calamba, herein petitioner is asking among others, for professional fees and/or retainer fees

earned for her treatment of Pamana Golden Care card holders. 16 Thus, at most, said vouchers can only be considered as proof of payment of retainer fees

made by Pamana, Inc. to herein petitioner as a retained physician of Pamana Golden Care.

Moreover, even assuming that the monthly payment of P5,000.00 was a valid claim against respondent corporation, this would not operate to effectively

remove this case from the jurisdiction of the SEC. In the case of Cagayan de Oro Coliseum, Inc. vs. Office of the Minister of Labor and Employment, etc., et al., 17 we ruled that "(a)lthough the reliefs sought by Chavez appear to fall under the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other remunerations for services rendered, a close scrutiny thereof shows that

said claims are actually part of the perquisites of his position in, and therefore

interlinked with, his relations with the corporation. In Dy, et al., vs. NLRC, et al., the Court said: "(t)he question of remuneration involving as it does, a

person who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a

matter that comes within the area of corporate affairs and management and is in fact a corporate controversy in contemplation of the Corporation Code."

WHEREFORE, the questioned resolution of the NLRC is hereby AFFIRMED,

without prejudice to petitioner's taking recourse to and seeking relief through the appropriate remedy in the proper forum. SO ORDERED.

G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs.

HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC.,

respondents. GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos.

802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the

dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering as it is hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all

persons claiming under her to:

a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley Springs

Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential house until the same is vacated;

c) Remove the unfinished building erected on the land of the

plaintiff within ninety (90) days from receipt of this decision;

d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is removed

from the land of the plaintiff; and

e) Pay the costs.

2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:

a) Immediately vacate the residential house near the tennis court

located within the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from

September 10, 1983, for his occupancy of the said residential house until the same is vacated; and

c) Pay the costs. (Rollo, p. 36)

In two (2) separate complaints for recovery of possession filed with the Regional

Trial Court of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden

Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.

In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the

respondent corporation alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the

tolerance of the respondent corporation.

In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a house which was

built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was

converted for the residential use of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation.

In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for them to vacate the buildings.

In their separate answers, the petitioners traversed the allegations in the

complaint by stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises.

The cases were consolidated and tried jointly.

At the pre-trial, the parties limited the issues as follows:

1) whether plaintiff is entitled to recover the questioned premises;

2) whether plaintiff is entitled to reasonable rental for occupancy of

the premises in question;

3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a defense in an accion publiciana;

4) whether the defendants are truly builders in good faith, entitled

to occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises;

6) whether the defendants are entitled to their counterclaim to

recover moral and exemplary damages as well as attorney's fees in the two cases;

7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or impairs plaintiff's

operation of Hidden Valley Springs Resort; and

8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of the premises in

questioned (sic) is unjust enrichment. (Original Records, 486)

Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting

himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases.

For failure of the petitioners (defendants below) and their counsel to attend the

October 22, 1986 hearing despite notice, and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order

considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the presentation of its evidence.

The evidence of the respondent corporation upon which the lower court based

its decision is as follows:

To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas Villarta as well as Exhibits "A"

to "M-3".

The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated, was incorporated on December

4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in

1971, was amended to allow it to engage in the resort business (Exh. "C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of the same family, with

Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion of

its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and among them were cottages, houses or

buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by

Rebecca B. Roxas was originally intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house

presently being occupied by Rebecca B. Roxas was built from corporate funds; that the construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto

Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended as a recreation hall but later

converted as a residential house; that this house was built also from corporate funds; that the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized

iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that the conversion from a recreation

hall to a residential house was with the knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building into a

residential house came from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse Now"; that Coppola left the materials as part of his payment for rents of the rooms that he occupied

in the resort; that after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and occupied the

same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting;

that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this time, Eriberto Roxas

was the restaurant and wine concessionaire of the resort; that after the

death of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas

in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion and normal

operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing of criminal cases in court; that cases

were even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the defendants violated the resolution and orders of the Ministry of Tourism dated July

28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist

from and to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of

Domestic Trade dated October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the

plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises occupied by them; that on September 1, 1983, demand letters were sent to

Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they occupy; and that the dispute between the plaintiff and the defendants was brought

before the barangay level and the same was not settled (Exhs. "E" and "E-l"). (Original Records, pp. 454-456)

The petitioners appealed the decision to the Court of Appeals. However, as

stated earlier, the appellate court affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied.

Hence, this petition.

In a resolution dated February 5, 1992, we gave due course to the petition.

The petitioners now contend:

I Respondent Court erred when it refused to pierce the veil of corporate fiction

over private respondent and maintain the petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private respondent. Besides, private

respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or stockholders.

II The respondent Court erred in not holding that petitioners were in fact

denied due process or their day in court brought about by the gross negligence of their former counsel.

III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case No. 802-84-C,

when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18)

Were the petitioners denied due process of law in the lower court?

After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of

Branch 37 the following events transpired:

On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a copy of the

Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260)

On motion of the respondent corporation's counsel, the lower court issued an

Order dated July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate

copies of the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)

A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an Order dated August 8,

1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-279)

At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for

the respondent corporation appeared. Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit:

O R D E R

When these cases were called for continuation of trial, Atty. Benito P.

Fabie appeared before this Court, however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today

failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived.

The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants are also given ten (10)

days from receipt of such formal offer of evidence to file their objection thereto.

In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel

on the following dates „1¤7 Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on

September 19, 1986. (Original Records, pp. 288-290)

On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation

in its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the petitioners

and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428).

The scheduled hearing on September 29, 1986 did not push through as the

petitioners and their counsel were not present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for

decision. The lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the petitioners and their counsel failed to appear on

the next scheduled hearing, the court shall consider the cases submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and

431)

Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1,

1986. (Original Records, pp. 429-430)

Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie representing the respondent

corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p. 436)

On November 14, 1986, the respondent corporation, filed a "Manifestation",

stating that ". . . it is submitting without further argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject incident." (Original Records, p. 442)

On December 16, 1986, the lower court issued an Order, to wit:

O R D E R

Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in the above-entitled cases,

the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and received by the Court on November 14, 1986.

(Original Records, p. 446)

On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459)

On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached thereto, a motion for reconsideration of

the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for

the petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused

the service of a copy to the respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a

miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an envelope for the messenger to file the same in court but the messenger

thought that it was the secretary who would file it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for reconsideration was due to excusable neglect

and/or accident. The motion for reconsideration contained the following allegations: that on the date set for hearing (October 22, 1986), he was on his

way to Calamba to attend the hearing but his car suffered transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original

Records, pp. 460-469)

On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the motion because

the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the

motion on February 3, 1987. (Original Records, p. 476-A)

On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the copy of the motion

for reconsideration only today (February 4, 1987), hence they prayed for the postponement of the hearing. (Original Records, pp. 478-479)

On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received the motion for

reconsideration late. Copies of this Order were sent separately to the

petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that

Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was

received. (Original Records, pp. 481-483)

At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration.

(Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on

February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-490)

The records are not clear as to whether or not the scheduled hearing on March

6, 1987 was held. Nevertheless, the records reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration.

The well-settled doctrine is that the client is bound by the mistakes of his

lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640

[1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is

not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due process

of law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:

In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows:

Procedural technicality should not be made a bar to the vindication of a legitimate grievance. When such technicality deserts from being an aid to Justice, the courts are justified in excepting from

its operation a particular case. Where there was something fishy and suspicious about the actuations of the former counsel of petitioners in the case at bar, in that he did not give any

significance at all to the processes of the court, which has proven prejudicial to the rights of said clients, under a lame and flimsy

explanation that the court's processes just escaped his attention, it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to petition for relief from judgment

despite the lapse of the reglementary period for filing said period for filing said petition.

In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding

that the counsel's blunder in procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following

disquisition:

Petitioners contend, through their new counsel, that the judgment rendered against them by the respondent court was null and void, because they were therein deprived of their day in court and

divested of their property without due process of law, through the gross ignorance, mistake and negligence of their previous counsel.

They acknowledge that, while as a rule, clients are bound by the mistake of their counsel, the rule should not be applied automatically to their case, as their trial counsel's blunder in

procedure and gross ignorance of existing jurisprudence changed their cause of action and violated their substantial rights.

We are impressed with petitioner's contentions.

xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client

will suffer consequences of the negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity, exceptions may be made to such rule, in accordance with the facts

and circumstances of each case. Adherence to the general rule would, in the instant case, result in the outright deprivation of

their property through a technicality.

In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence of the then counsel for petitioners when he failed to file the proper motion to

dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the

court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioners in default. In all these

instances the appellate court found said counsel negligent but his acts were held to bind his client, petitioners herein, nevertheless.

The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This was

compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by asking him to file

a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of petitioner in that after he

received a copy of the adverse judgment of the appellate court, he did not do anything to save the situation or inform his client of the

judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day

in court. (at pp. 426-427)

The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too, were victims of the gross negligence of their counsel.

The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the

parties received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be

submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation moved that the cases be submitted for decision for failure of the

petitioners and their counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.

Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued

to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of their

counsel resulting in their denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled:

In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken appropriate steps for his replacement before it was altogether too late. He did not. On the

contrary, he continued to retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through such counsel's "ineptitude" and, let it be added, the clients'

forbearance. The petitioner's reverses should have cautioned him that his lawyer was mishandling his case and moved him to seek the help of

other counsel, which he did in the end but rather tardily.

Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed property on the justification

that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner's new counsel should know. Otherwise, all a defeated party

would have to do to salvage his case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment. There

would be no end to litigation if these were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel who, if he is also found wanting, would likewise be disowned by

the same client through another counsel, and so on ad infinitum. This would render court proceedings indefinite, tentative and subject to

reopening at any time by the mere subterfuge of replacing counsel. (at pp. 357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their ownership of an

aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced,

considering the circumstances under which the respondent corporation was formed.

Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the petitioners herein,

decided to form a corporation „1¤7 Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as capital of the

corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in

1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are located.

These facts, however, do not justify the position taken by the petitioners.

The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon

Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano

Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also

show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent

corporation. Regarding properties owned by a corporation, we stated in the

case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):

xxx xxx xxx

. . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the

corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an

aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity

(Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation

(Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-

owner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)

The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of petitioner Rebecca

Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of

Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner

Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the authority

thus given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of the private respondent and/or its board of directors for they impliedly but no leas

explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12)

Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts its business

only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever authority these officers or agents may have is derived from the board of directors or other governing body unless conferred

by the charter of the corporation. An officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a

delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority stockholder,

consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a

residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when

the Board of Directors approved a Resolution ejecting the petitioners, to wit:

R E S O L U T I O N No. 83-12

RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their occupancy of the

Hidden Valley Springs compound on which their houses have been constructed and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to

the Corporation's expansion and improvement program and obviate prejudice to the operation of the Hidden Valley Springs Resort by their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to

do so. (Original Records, p. 327)

We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino

Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The

petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the

absence of any existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at any time it

wishes for the benefit and interest of the respondent corporation.

The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or

illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra

and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated

categories.

In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder in good faith.

The construction of the unfinished building started when Eriberto Roxas,

husband of Rebecca Boyer-Roxas, was still alive and was the general manager of the respondent corporation. The couple used their own funds to finance the

construction of the building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was within the property of the corporation.

Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts.

Article 453 of the Civil Code provides:

If there was bad faith, not only on the part of the person who built,

planted or sown on the land of another but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.

In such a case, the provisions of Article 448 of the Civil Code govern the

relationship between petitioner Rebecca-Boyer-Roxas and the respondent corporation, to wit:

Art. 448 „1¤7 The owner of the land on which anything has been built,

sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or

planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if

its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the buildings or trees after proper indemnity. The

parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

WHEREFORE, the present petition is partly GRANTED. The questioned

decision of the Court of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the

decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No.

802-84-C. The questioned decision is affirmed in all other respects. SO ORDERED.

G.R. No. 119310 February 3, 1997

JULIETA V. ESGUERRA, petitioner, vs.

COURT OF APPEALS and SURESTE PROPERTIES, INC., respondents PANGANIBAN, J.:

May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate secretary's

certification of the shareholders' and directors resolution authorizing such sale sufficient, or does the buyer need to go behind such certification and investigate further the truth and veracity thereof?

These questions are answered by this Court as it resolves the instant petition challenging the Decision 1 in CA-G.R. SP No. 33307 promulgated May 31, 1994 by the respondent Court, 2 reversing the judgment of the trial court.

The Antecedent Facts

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

On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a

complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial)

court. The said complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants (Annex "C", p. 23, Rollo).

The parties entered into a compromise agreement which was submitted to the court.' On the basis of the said agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and

(herein petitioner) and the other as between the latter and VECCI (Annex "F" and "G", pp. 26-27, Rollo). The compromise agreement between

(herein petitioner) and VECCI provides in part:

"Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their respective counsels, submitted to this Court on January 11, 1990 a "Joint Motion for

Partial Judgment Based on Compromise Agreement", pertinent provisions of which reads as follows:

"1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall

sell/alienate/transfer or dispose of in any lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders, all

the following properties:

* real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila;

* real estate and building located at 104 Amorsolo Street, Legaspi

Village, Makati, Metro Manila;

* real estate and improvements located at Barangay San Jose, Antipolo, Rizal;

* real estate and improvements located at Barangay San Jose,

Antipolo, Rizal;

* real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and

* real estate and improvements located at Barangay Malaatis, San

Mateo, Rizal.

2. After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds are realized therefrom, and after all the financial obligations of defendant

VECCI (those specified in the enabling resolutions and such other obligations determined to be due and will become due) are

completely paid and/or settled, defendant VECCI shall cause to be paid and/or remitted to the plaintiff such amount/sum equivalent to fifty percent (50%) of the (net) resulting balance of such funds.

By virtue of said agreement, Esguerra Bldg. I located at 140

Amorsolo St., Legaspi Village was sold and the net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St.,

Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus,

on 7 August 1990, (herein petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be sold

(p. 28, id.). VECCI opposed said motion (p. 31, Rollo).

On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was affirmed by this court in

a decision dated 17 May 1991 in CA-G.R. SP. No. 2380. VECCI resorted to the Supreme Court which on 4 May 1992 in G.R. No.

100441 affirmed this court's decision the fallo of which reads:

"The petition is without merit. As correctly found by the respondent Court of Appeals, it can, be deduced

from the terms of the Compromise Agreement and from the nature of the action in the court a quo that

the basis of the equal division of the proceeds of any sale or disposition of any of the subject properties is

the acknowledged ownership of private respondent over one-half of the said assets. Considering that the other building has yet to be sold, it is but logical that

pending its disposition and conformably with her one-half interest therein, private respondent should be entitled to half of its rentals which forms part of her

share in the fruits of the assets. To accord a different interpretation of the Compromise Agreement would be

prejudicial to the established rights of private respondent." (p. 36, Rollo).

Meanwhile, Esguerra Bldg. II was sold to (herein private

respondent Sureste Properties. Inc.) for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the

ground that VECCI is not the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms

and conditions of the sale (p. 37, Rollo).

Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioner's) motion to declare the sale void ab initio. In its Manifestation

(Sureste) points out that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her express consent to

the sale of the said building (p. 38, Rollo).

On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now Associate Justice of this

court) issued an Omnibus Order denying among others, (Sureste's) motion, to which a motion for reconsideration was filed. 3

After trial on the merits, the Regional Trial Court of Makati, Branch 133, 4 rendered its order, the dispositive portion of which reads:

WHEREFORE, the Court resolves as it is resolved that:

1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that:

a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at

Amorsolo St., Legaspi Village, Makati, Metro Manila is

delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and,

b. The sale of Esguerra Bldg. II to Sureste Properties,

Inc. is declared valid with respect to one-half of the value thereof but ineffectual and unenforceable with

respect to the other half as the acknowledged owner of said portion was not consulted as to the terms and conditions of the sale.

The other provisions of said Omnibus Order remain undisturbed

and are now deemed final and executory.

2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well

as plaintiffs tenants at Esguerra Bldg. II;

3. Plaintiffs Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic.

4. Plaintiff is hereby directed to bring to Court, personally or

through counsel, the subject shares of stocks on February 15, 1994 at 10:30 in the morning for the physical examination of defendant or counsel.

SO ORDERED. 5

From the foregoing order, herein private respondent Sureste Properties, Inc.

interposed an appeal with the Court of Appeals which ruled in its favor, viz.:

From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property unenforceable

with respect to one-half.

WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET ASIDE. No pronouncement

as to cost.

SO ORDERED. 6

Julieta Esguerra's Motion for Reconsideration 7 dated June 15, 1994 was denied by the respondent Court in the second assailed Resolutions 8 promulgated on February 23, 1995.

Hence this petition.

The Issues

Petitioner submits the following assignment of errors:

. . . (I)n issuing the Decision (Annex "A" of the petition) and the Resolution (Annex "B" of the petition), the Court of Appeals decided

questions of substance contrary to law and applicable jurisprudence and acted without jurisdiction and/or with grave

abuse of discretion when:

It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of the acknowledged co-owner thereof and in contravention of the terms of the compromise

agreement as well as the Resolution of this Honorable Court in G.R. No. 100441 wherein this Honorable Court recognized herein

petitioner's 'acknowledged ownership of — one-half of the subject property; and,

It held that the trial court acted without jurisdiction and!or abused its discretion when it held that the questioned sale of the property

is ineffectual and unenforceable as to herein petitioner's one-half (1/2) ownership/interest in the property since the sale was made

without her knowledge and consent.

BECAUSE:

A. No proper corporate action of VECCI was made to effect such sale as required under the compromise agreement;

B. The sale of the subject property was made in violation of the terms of the compromise agreement in that it was not made with

the approval/consent of the acknowledged owner of 1/2 of the said asset;

C. The prior sale of another property (the Esguerra Building I as

distinguished from the subject property which is the Esguerra Building II) included in the said compromise agreement was made only after the prior approval/consent of petitioner and this

procedure established a precedent that applied in the subsequent sale of the Esguerra Building II; and

D. Respondent Sureste as purchaser pendente lite of the subject

property covered by a notice of lis pendens was in law deemed to have been duly notified of the aforesaid conditions required for a

valid sale of the subject property as well as of petitioner's

"acknowledged ownership — over one-half" of the Esguerra Building II. 9

Simply put, petitioner (1) assails VECCI's sale of Esguerra Building II to private

respondent as unenforceable to the extent of her one-half share, and (2) accuses the appellate court of "acting without jurisdiction or with grave abuse

of discretion" in reversing the trial court's finding to that effect.

The Court's Ruling

The petition has no merit.

First Issue: Is the Contract of Sale Unenforceable?

The Civil Code provides that a contract is unenforceable when it is ". . . entered into in the name of another person by one who has been given no authority or

legal representation, or who has acted beyond his powers." 10 And that "(a) contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be

unenforceable, . . ." 11 After a thorough review of the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste

Properties, Inc. valid. The sale was expressly and clearly authorized under the judicially-approved compromise agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus, petitioner's contention that the

sale is unenforceable as to her share for being unauthorized is plainly incongruous with the express authority granted by the compromise agreement to VECCI, which specified no condition that the latter shall first consult with

the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court:

The compromise agreement entered between private respondent

(Julieta Esguerra) and VECCI, which was approved by the court, expressly provides, among others, that the latter shall sell or otherwise dispose of certain properties, among them, Esguerra

Bldgs. I and II, and fifty (50%) percent of the net proceeds thereof to be given to the former. Pursuant to said agreement, VECCI sold

the buildings. . . .

xxx xxx xxx

. . . The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition that the sale be in a lawful and convenient manner and under the terms and conditions

recited in the enabling resolutions of its Board of Directors and stockholders. There is nothing in the said agreement requiring

VECCI to consult the private respondent (Julieta Esguerra) before

any sale (can be concluded). Thus, when VECCI sold the property to (Sureste Properties, Inc.) as agreed upon, it need not consult the

private respondent. 2

Moreover, petitioner's contention runs counter to Article 1900 of the Civil Code which provides that:

So far as third persons are concerned, an act is deemed to have

been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according

to an understanding between the principal and the agent.

Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because it was executed in

accordance with the compromise agreement, authorized not only by the parties thereto, who became co-principals in a contract of agency created thereby, but by the approving court as well. Consequently, the sale to Sureste Properties,

Inc. of Esguerra Building II cannot in any manner or guise be deemed unenforceable, as contended by petitioner.

Consultation in the Sale of Esguerra Building I Not a Binding Precedent

The petitioner further argues that VECCI's consulting her on the terms and conditions of its sale of Esguerra Building I set a binding precedent to be followed by the latter on subsequent sales. She adds that in failing to consult

her on the sale of Esguerra Building II, VECCI "acted unfairly and unjustly" as evidenced by (a) the sale of said building for only P160,000,000.00 instead of

P200,000,000.00, which is "the best price obtainable in the market," (b) payment of real estate broker's commission of 5% instead of just 2% as in the sale of Esguerra 1 building, and (c) the denial of petitioner's right of first

refusal when her offer to purchase her one-half share for P80,000,000.00 as ordered by the trial court was totally ignored. 13

The Court is not persuaded. Petitioner's argument is debunked by the very nature of a compromise agreement. The mere fact that petitioner Julieta

Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly

spelled out in the judicially-approved compromise agreement because "a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of

consent or forgery." 14 Hence, "a decision on a compromise agreement is final and executory, . . . 15

Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been obtained. This is plainly without legal basis

since she already consented to the compromise agreement which authorized VECCI to sell the properties without the requirement of prior consultation with

her. "It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts

have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments." 16 It is a truism that "a compromise agreement entered into by

party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is the law between the parties

themselves. It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud or illegality is the law between the parties who are duty bound to abide by it and observe strictly its terms and conditions 17 as

in this case. Incidentally, private respondent Sureste Properties, Inc. submits that the petitioner offered to buy her one-half share for only P75,000,000.00,

not P80,000,000.00. 18 She therefore valued the whole building only at P150,000,000.00 which amount is P10,000,000.00 less than the price of P160,000,000.00 paid by private respondent, the highest offer the market has

produced in two and a half years the building was offered for sale. Even the 5% real estate broker's commission was not disparate with the standard practice in the real estate industry. Thus, the respondent Court aptly stated that:

. . . In affixing her signature on the compromise agreement, private

respondent (Julieta Esguerra) has demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly

her consent to all acts that may be performed pursuant thereto. She can not later on repudiate the effects of her voluntary acts simply because it does not fit her. Her contention that she was not

consulted as to the terms of the sale has no leg to stand on. 19

Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Besides, such previous

consultation — even assuming arguendo that it was a binding precedent — cannot bind private respondent Sureste which was not a party thereto. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste

Properties, Inc. and to undermine public faith in court decisions approving compromise agreements.

Right of First Refusal Waived

The argument of petitioner that she was denied her right of first refusal is

puerile. This alleged right, like other rights, may be waived 20 as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses' judicial compromise agreement necessitated the sale

of the spouses' co-owned properties and its proceeds distributed fifty percent to each of them which, therefor, resulted in its partition.21 If petitioner wanted to

keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For her failure to do so, she must live with its

consequences.

VECCI'S Sale of Esguerra Building II A Valid Exercise of Corporate Power

Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made "under the terms and conditions

recited in the enabling resolutions of its Board of Directors and stockholders. 22 She rues that no shareholders' or directors' meeting, wherein these resolutions

were passed, was actually held. She thus bewails this sale as improper for not having complied with the requirements mandated by Section 40 of the Corporation Code. 23

Petitioner's contention is plainly unmeritorious. The trial court's partial

decision dated January 11, 1990 approving the compromise agreement clearly showed that the "enabling resolutions of its (VECCI's) board of directors and

stockholders" referred to were those then already existing; to wit: (1) "the resolution of the stockholders of VECCI dated November 9, 1989, (where) the

stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for such consideration as the board of directors may deem expedient." 24 (2) the

"resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property

and assets of the corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenient under the circumstances, and authorized the President Vicente B. Esguerra. Jr. to negotiate. contract, execute and sign such sale for and in behalf of the

corporation." 25 VECCI's sale of all the properties mentioned in the judicially-approved compromise agreement was done on the basis of its Corporate Secretary's Certification of these two resolutions. The partial decision did not

require any further board or stockholder resolutions to make VECCI's sale of these properties valid. Being regular on its face, the Secretary's Certification

was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously

slow and unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra Building II to private respondent was not ultra vires but a valid execution of the

trial court's partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code.

Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCI's corporate action in selling Esguerra Building II on the basis

of said resolutions and certification because she never raised this issue in VECCI's prior sales of the other properties sold including the Esguerra Building

I. 26 The same identical resolutions and certification were used in such prior sales.

Notice of Lis Pendens

"Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any subsequent transaction

affecting the same, would have to be subject to the outcome" 27 of the suit. In other words, "a purchaser who buys registered land with full notice of the fact

that it is in litigation between the vendor and a third party . . . stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation . . . 28 In the present case, the purchase made by private

respondent Sureste Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the private respondent's

purchase remains subject to our decision in the instant case. The former is likewise deemed notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise agreement. However,

petitioner's inference that the private respondent is also deemed to have been notified that the manner of the sale of the properties contained in the

compromise agreement should be "made only upon prior consent/conformity of the herein petitioner" is non sequitur. Nowhere in the compromise agreement was this inference expressly or impliedly stated. In the final analysis, the

determination of this issue ultimately depends on this Court's disposition of this case.

Appealed Decision Consistent with Previous Court of Appeals and Supreme Court Decisions

Petitioner maintains that the trial court's ruling that "the sale of Esguerra Building II to Sureste is unenforceable to the extent of one-half share of petitioner in the property" is based on the Court of Appeals' decision in G.R. SP

No. 23780 dated May 17, 1991, and the Supreme Court's decision in G.R. No. 100441 dated May 4, 1992 which both acknowledged petitioner's one-half

ownership of said building. 29 She reasons that "(a)s co-owner her consent or conformity to the sale was necessary for the validity or effectivity thereof insofar as her 1/2 share/ownership was concerned." 30 The Court disagrees. As

discussed previously, this repetitive contention is negated by her consent to the compromise agreement that authorized VECCI to sell the building without need

of further consultation with her. Her co-ownership in the building was not inconsistent with her authorizing another, specifically VECCI, to sell her share in this property via an agency arrangement. As correctly stated by the

respondent Court of Appeals, the only import of this Court's ruling in G.R. No. 100441 was as follows:

the only issue involved is whether or not private respondent is

entitled to one-half of the rentals of the subject property pending its sale. The rulings of the courts is (sic) therefore limited only to

the issue of rental, there being no provision in the compromise agreement approved by the court for the rentals earned from the building pending its sale. Nowhere in the said rulings did it

question nor assail the authority granted to VECCI to sell the said building. In fact, the decisions affirmed the authority granted to

VECCI to sell the said building which invoked the compromise agreement of the parties as a basis of the decision (Manifestation, p. 38,. Rollo). 31

Second Issue: Did the Appellate Court Act Without Jurisdiction or With Grave Abuse of Discretion?

In the case of Alafriz vs. Nable, 32 this Court defined the phrases "without

jurisdiction" and "grave abuse of discretion" as follows:

"Without jurisdiction" means that the court acted with absolute want of jurisdiction. . . . "Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to

lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount

to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

Contrary to petitioner's asseverations, the Court finds that the respondent

Court of Appeals judiciously, correctly and certainly acted within its jurisdiction in reversing the trial court's decision. As discussed, its decision is consistent with law and existing jurisprudence.

Let it be emphasized that Rule 45 of the Rules of Court, under which the

present petition was filed, authorizes only reversible errors of the appellate court as grounds for review, and not "grave abuse of discretion" which is

provided for by Rule 65. It is basic that where Rule 45 is available, and in fact availed of as a remedy -- as in this case — recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal.

Finally, "(c)ourts as a rule may not impose upon the parties a judgment

different from their compromise agreement. It would be an abuse of discretion." 33 Hence, in this case, it is the trial court's decision which is tainted

with grave abuse of discretion for having injudiciously added "prior

consultation" to VECCI's authority to sell the properties, a condition not contained in the judicially-approved compromise agreement.

WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible

error having been committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

G.R. No. L-31339 January 31, 1978 VILLA REY TRANSIT, INC., and HON. JESUS P. MORFE, in his capacity as

Judge of the Court of First Instance of Manila, petitioners, vs.

FAR EAST MOTOR CORPORATION and THE HONORABLE COURTS OF APPEALS, respondents.

Marcial C. Reyes for petitioners. Jaime S. Linsangan & Associates for private respondent.

GUERRERO, J.:

Appeal by certiorari from the Derision of the Court of Appeals 1 and its Resolution denying petitioner's Motion for Reconsideration of said Decision in

CA-G.R. No. 43144-R, entitled "Far East Motor Corporation, Petitioner, vs. Hon. Jesus P. Morfe Judge of the Court of First Instance of Manila, et al., Respondents."

On April 25, 1968, respondent Far East Motor Corporation sued petitioner Villa Rey Transit, Inc. for various sums of money before the Court of First Instance of Manila, Branch XIII.

Summons was issued to petitioner and per return of the Sheriff, the summons was served on petitioner on June 16, 1968, the sheriff certifying. "Served thru Atty. Virgilio A. Reyes, Assistant General Mgr., but refused to sign."

Claiming failure of the petitioner to file answer within the reglementary period,

respondent corporation filed on August 13, 1968 an ex-parte motion to declare the petitioner in default, which was granted on August 21, 1968.

On the other hand, late receipt of the summons by its main office, petitioner

filed an Urgent Motion to Extend Time to Answer, which was denied on October 2, 1968, the order of denial being served on petitioner's counsel on October 7, 1968.

Pursuant to the order of default, respondent Far East Motor Corporation then

presented its evidence ex-parte, and based on the said evidence, the lower court adjudicated various sums of money to the respondent Far East Motor

Corporation. Copy of the decision was received by the petitioner on October 25, 1968.

On November 6, 1968, petitioner then filed a Motion to Quash Service of Summons, to Lift the Order of Default, and to Set Aside Judgment, on the

following grounds:

a. The service of summons upon defendant was not in accordance with law and therefor this Honorable Court had not acquired a

valid jurisdiction over said defendant;

b. Assuring for the sake of argument only that a valid substituted service of summons was made, failure of defendant to answer with the reglementary peirod was due to failure of Sheriff ot propertly

serve summons and/or due to excusable negligence on the part of defendant's employee; and

c. Considering the huge claims of plaintiff which are incorrect and against which defendant has valid and genuine defense, it is in the

interest of justice and truth to lift the order of deafult which defandant has not received, and to set aside judgment already

rendered.

Petitioner's motion was denied on November 19, 1968 and copy of the denial was received by the corporation on November 21, 1968.

Hence, on December 3, 1968, respondent Far East Motor Corporation filed a Motion for Execution of the decision. Upon receipt of its copy of the said

motion, petitioner Villa Rey Transit filed a motion dated December 5, 1968 asking for reconsideration of the court's order denying its Motion to Set Aside

on the following grounds: (a) the sheriff's return is null and void and hence, the court has not acquired jurisdiction over it, and (b) defendant has valid defenses which will alter the decision rendered ex-parte if the defendant is given the

opportunity to file its answer and present evidence in support thereof. The motion was set for hearing on December 14, 1968.

Acting on these last two motions, the lower court on December 27, 1968 denied

plaintiff's motion for execution; granted defendant's motionfor reconsideration; set aside its order of November 19, 1967; quashed the service of summons; and set aside the judgment already rendered.

On the claim that the judgment had already become final and unappealable on

December 9, 1968, respondent moved to reconsider the above order of December 9, 1968 but was denied.

Respondent then filed a petition for certiorari, mandamus and prohibition

before the Supreme Court. However, on the ground that the remedy sought in the petition was in aid of the appellate jurisdictionof the Court of Appeals, the case was certified to the appellate court whose decision, sustaining the petition

and ordering the lower court to issue the writ of execution upon the judgement, i now subject of this appeal.

Emphasis is on the jurisdictional issue of service of summons.

To recount the facts surrounding the service of summons: Sometime in June,

1968, Deputy Sheriff Salita went to petitioner's sub-station at 853 M. Earnshaw St., Sampaloc, Manila; he handed some papers to Atty. Virgilio A. Reyes, Assistant General Manager for Operations: after reading the contents of

the same, and noting that they were copies of a complaint filed by Far East Motor corporation against petitioner involving some transactions made by him with the complainant as the then president of petitioner corporation, he

suggested that service of the complaint made by him with the complainant as the then president of petitioner corporation, he suggested that service of the

complaint and the corresponding summons be made directly on De. Jose M. Villarama, the present President and General Manager, at their main office at

Ricarfor Street, corner Sta. Elena Street, Tondo, Manila; instead, the sheriff left the papers with one of their night tellers, Juanito Vince Cruz; due to volume

and pressure of his work, Cruz forgot all about the papers; hence, the papers were delivered to their main office only on September 27, 1968.

Based on the above facts, petitioner claims that service of summons on its mere Assistant General Manager holding office at ists sub-station is not a valid

service; thus, the court did not acquire jurisdiction over tis person.

We find the claim untenable. Service of process on a corporation is controll ed by Section 13, Rule 14 of the Revised Rules of Court, thus —

Sec. 13. Service upon private domestic corporation for partnership.

— If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its

directors.

Petitioner claims that the foregoing enumeration is exclusive and service of summons is without force and effect unless made upon any one of them. The

focus of inquiry then is whether an Assistant General Manager for Operations may properly be within the terms manager or agent.

Petitioner relies on the Litton Mills case 2 where this Court held that a branch manager (sales manager) does not come within the enumeration in Sec. 13,

Rule 14 of the Revised Rules of Court, all of whom are top officers whose duties extend generally to overall transactions of the corporation, not merely to a

particular branch or department thereof.

The above cases without application here.

Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former President and General Manager of the petitioner corporation. As his present title implies, Atty. Virgilio A. Reyes is not one of the lesser officers of

the petitioner corporation upon whom service of Summons is not authorized by law. That he is in charge of Operations, which "includes the incoming and

outgoing buses, the arrangement of schedule, the appointment of drivers and conductors, the following of highway troubles, and generally affecting the running of buses, 3 does not make him a mere branch manager so insistently

pointed out by petitioner. We take the opposite view, for precisely, as the Assistant General Manager for Operations, he is in charge of the main bulk of

the corporate business of the petitioner transit corporation. "Operations" is the main concern, if not all, of a transit corporation.

More, We find petitioner's claim that Attorney. Virgilio A. Reyes, holding office at their M. Earnshaw sub-station, is not the proper person upon whom

summons may be seized inconsistent with their own admission that Atty. Reyes customarily receives summons at the same sub-station in behalf of the

petitioner. To quote part of petitioner's motion for reconsideration of the CFI's denial of its motion to set aside judgment: "Records will show that Atty. Reyes has been receiving summon issued in cases wherein the Villa Rey Transit, Inc.

is a defendant, before and after June 18, 1968, the alleged date when the deputy sheriff allegedly served the summons and complaint in the above case. In all these occasions, Atty. Reyes signed having received said summons and in

no occasion had he refused to sign. However, in connection with the service of summons in the above case, it is not true that Atty. Reyes refused to sign.

What he did was to instruct the deputy sheriff to serve the same directly to Dr. Jose M. Villarama who is the President and General Manager of the Villa Rey Transit Inc. and having offices at the Villa Rey Transit main compound located

at Ricafort (corner Sta. Elena Street), Tondo, Manila. There was reason for Atty. Reyes to make such request upon the deputy sheriff because the promissory

notes (Annexes B, C. D, E, F and G to complaint) were signed by him in his former capacity as President of the Villa Rey Transit, Inc. while in other cases, the attention of Dr. Villarama may not be imperative." 4 That the transactions

alleged in the complaint involved him personally is no reason for his refusal to receive this particular summons. Indeed, with more reason that he should have received the summons because as the signatory to the promissory notes, he

had an interest therein.

According to jurisprudence, the rationale of all rules for service of process on corporation is that service must be made on a representative so integrated with

the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. 5 Based on the particular facts of this case, service of summons upon

Atty. Virgilio A. Reyes has served the purpose of the law. And as he refused to receive the summons, tender unto him was sufficient to confer jurisdiction over

the petitioner.

Since petitioner failed to answer within the reglementary period, even after denial of its motion to extend time to answer, the order of default was proper. So also with the hearing on the merits ex-parte resulting in the judgment by

default. The decision was appealable, and as receipt of the same by petitioner was on October 25, 1968, the 30-day appeal period commenced from that date

on. On November 6, 1968, petitioner filed a Motion to Quash Service of Summons, To Lift Order of Defeat and To Set Aside Judgment, and from that day on, the appeal period was deemed suspended, the remaining 18 days

beginning to run again upon receipt of the denial of the motion. Receipt of such denial was on November 21, 1968; hence, by mathematical computation, the

30-day appeal period expired on December 9, 1968. There being no appeal increased by the petitioner from the judgment of default on or before December

9, 1968, the lower court lost its jurisdiction to hear on December 14, 1968 petitioner's Motion for Reconsideration dated December 5, 1968, the judgment

by default having become final and executory.

Of course, petitioner insists that on December 5, 1968 it filed a Motion for Reconsideration of the order denying its Motion to Quash, Lift Order of Default

and to Set Aside Judgment taking the position that it should have suspended the period to appeal We do not agree. The records clearly show that there were no new arguments presented against the judgment on the merits, perforce the

motion is pro forma and did not suspend the running of the period to appeal.

Petitioner then insists that the above motion should be considered a petition for relief. This again is untenable. As correctly pointed out by the apellate

court, a petition for relief presupposes a final and unappealable judgment. In this case, judgment has not yet become final and unappealable at the time of the filing of the motion on December 5, 1968.

WHEREFORE, the decision appealed from is affirmed. Let execution issue on

the lower court's judgment by default, Costs against petitioner. SO ORDERED.

G.R. No. 136426 August 6, 1999

E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs.

HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC,

Branch 132, Makati City and IMPERIAL DEVELOPMENT CORPORATION, respondent.

GONZAGA-REYES, J.:

Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction seeking to annul and set aside the Orders dated August 5, 1998 and November

20, 1998 of the public respondent Judge Herminio I. Benito of the Regional Trial Court of Makati City, Branch 132 and praying that the public respondent court be ordered to desist from further proceeding with Civil Case No. 98-824.

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan Luna St., Davao City and with branch

offices at 2492 Bay View Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City. Petitioner and private respondent

executed a Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land located at Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of

low cost housing units. They further agreed that in case of litigation regarding any dispute arising therefrom, the venue shall be in the proper courts of Makati.

On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach

of Contract and Damages against petitioner, as defendant, before the Regional Trial Court of Makati allegedly for failure of the latter to comply with its

contractual obligation in that, other than a few unfinished low cost houses, there were no substantial developments therein.1

Summons, together with the complaint, were served upon the defendant, through its Branch Manager Engr. Wendell Sabulbero at the stated address at

Kolambog, Lapasan, Cagayan de Oro City2 but the Sheriff's Return of Service3 stated that the summons was duly served "upon defendant E.B. Villarosa &

Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5, 1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the

summons.1âwphi1.nêt

On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss4 alleging that on May 6, 1998, "summons intended for defendant" was

served upon Engr. Wendell Sabulbero, an employee of defendant at its branch office at Cagayan de Oro City. Defendant prayed for the dismissal of the complaint on the ground of improper service of summons and for lack of

jurisdiction over the person of the defendant. Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was

improperly served upon its employee in its branch office at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of summons may be made.

Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in

Default5 alleging that defendant has failed to file an Answer despite its receipt allegedly on May 5, 1998 of the summons and the complaint, as shown in the

Sheriffs Return.

On June 22, 1998, plaintiff filed an Opposition to Defendant's Motion to Dismiss6 alleging that the records show that defendant, through its branch manager, Engr. Wendell Sabulbero actually received the summons and the

complaint on May 8, 1998 as evidenced by the signature appearing on the copy

of the summons and not on May 5, 1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in the motion to dismiss; that defendant has

transferred its office from Kolambog, Lapasan, Cagayan de Oro to its new office address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of

the rule is to bring home to the corporation notice of the filing of the action.

On August 5, 1998, the trial court issued an Order7 denying defendant's Motion to Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant was given ten (10) days within which to file a responsive pleading.

The trial court stated that since the summons and copy of the complaint were in fact received by the corporation through its branch manager Wendell Sabulbero, there was substantial compliance with the rule on service of

summons and consequently, it validly acquired jurisdiction over the person of the defendant.

On August 19, 1998, defendant, by Special Appearance, filed a Motion for

Reconsideration8 alleging that Section 11, Rule 14 of the new Rules did not liberalize but, on the contrary, restricted the service of summons on persons enumerated therein; and that the new provision is very specific and clear in

that the word "manager" was changed to "general manager", "secretary" to "corporate secretary", and excluding therefrom agent and director.

On August 27, 1998, plaintiff filed an Opposition to defendant's Motion for

Reconsideration9 alleging that defendant's branch manager "did bring home" to the defendant-corporation the notice of the filing of the action and by virtue of which a motion to dismiss was filed; and that it was one (1) month after receipt

of the summons and the complaint that defendant chose to file a motion to dismiss.

On September 4, 1998, defendant, by Special Appearance, filed a Reply10

contending that the changes in the new rules are substantial and not just general semantics.

Defendant's Motion for Reconsideration was denied in the Order dated November 20, 1998.11

Hence, the present petition alleging that respondent court gravely abused its

discretion tantamount to lack or in excess of jurisdiction in denying petitioner's motions to dismiss and for reconsideration, despite the fact that the trial court

did not acquire jurisdiction over the person of petitioner because the summons intended for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil Procedure.

Private respondent filed its Comment to the petition citing the cases Kanlaon Construction Enterprises Co., Inc. vs. NLRC12 wherein it was held that service upon a construction project manager is valid and in Gesulgon vs. NLRC13 which

held that a corporation is bound by the service of summons upon its assistant manager.

The only issue for resolution is whether or not the trial court acquired

jurisdiction over the person of petitioner upon service of summons on its Branch Manager.

When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of

Civil Procedure was already in force.14

Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:

When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. (emphasis supplied).

This provision revised the former Section 13, Rule 14 of the Rules of Court which provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of the Philippines or

a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors. (emphasis

supplied).

Petitioner contends that the enumeration of persons to whom summons may be served is "restricted, limited and exclusive" following the rule on statutory construction expressio unios est exclusio alterius and argues that if the Rules of

Court Revision Committee intended to liberalize the rule on service of summons, it could have easily done so by clear and concise language.

We agree with petitioner.

Earlier cases have uphold service of summons upon a construction project

manager15; a corporation's assistant manager16; ordinary clerk of a corporation17; private secretary of corporate executives18; retained counsel19;

officials who had charge or control of the operations of the corporation, like the assistant general manager20; or the corporation's Chief Finance and Administrative Officer21. In these cases, these persons were considered as

"agent" within the contemplation of the old rule.22 Notably, under the new Rules, service of summons upon an agent of the corporation is no longer

authorized.

The cases cited by private respondent are therefore not in point.

In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure, summons on the respondent shall be served personally or by registered mail on

the party himself; if the party is represented by counsel or any other authorized representative or agent, summons shall be served on such person. In said case,

summons was served on one Engr. Estacio who managed and supervised the construction project in Iligan City (although the principal address of the corporation is in Quezon City) and supervised the work of the employees. It was

held that as manager, he had sufficient responsibility and discretion to realize the importance of the legal papers served on him and to relay the same to the president or other responsible officer of petitioner such that summons for

petitioner was validly served on him as agent and authorized representative of petitioner. Also in the Gesulgon case cited by private respondent, the summons

was received by the clerk in the office of the Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old rule), summons may be made upon the clerk who is regarded as agent within the contemplation of the

rule.

The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly

specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states "general manager" instead of only "manager"; "corporate secretary" instead of "secretary"; and "treasurer" instead of "cashier." The phrase "agent,

or any of its directors" is conspicuously deleted in the new rule.

The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice Florenz Regalado, thus:23

. . . the then Sec. 13 of this Rule allowed service upon a defendant

corporation to "be made on the president, manager, secretary, cashier, agent or any of its directors." The aforesaid terms were obviously ambiguous and susceptible of broad and sometimes illogical interpretations, especially the word "agent" of the corporation. The Filoil case, involving the litigation lawyer of the corporation who precisely

appeared to challenge the validity of service of summons but whose very appearance for that purpose was seized upon to validate the defective service, is an illustration of the need for this revised section with limited

scope and specific terminology. Thus the absurd result in the Filoil case necessitated the amendment permitting service only on the in-house

counsel of the corporation who is in effect an employee of the corporation, as distinguished from an independent practitioner.

(emphasis supplied).

Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision Committee, stated that "(T)he rule must be strictly observed. Service must be made to one named in (the) statute . . . .24

It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure, strict compliance with the rules has been enjoined. In the case of

Delta Motor Sales Corporation vs. Mangosing,25 the Court held:

A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom

service is made must be one who is named in the statute; otherwise the service is insufficient. . . .

The purpose is to render it reasonably certain that the corporation will

receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers

served on him. In other words, "to bring home to the corporation notice of the filing of the action." . . . .

The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation. . . . . (emphasis supplied).

Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has been held as improper.26 Even under the old rule, service

upon a general manager of a firm's branch office has been held as improper as summons should have been served at the firm's principal office. In First Integrated Bonding & Inc. Co., Inc. vs. Dizon,27 it was held that the service of summons on the general manager of the insurance firm's Cebu branch was

improper; default order could have been obviated had the summons been served at the firm's principal office.

And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et al.28 the Court succinctly clarified that, for the guidance of the

Bench and Bar, "strictest" compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of service and filing) is

mandated and the Court cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in order to obviate delay in the

administration of justice.

Accordingly, we rule that the service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro, instead of upon the general manager at its principal office at Davao City is improper. Consequently, the

trial court did not acquire jurisdiction over the person of the petitioner.

The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person. There is no question that the defendant's

voluntary appearance in the action is equivalent to service of summons.29 Before, the rule was that a party may challenge the jurisdiction of the court

over his person by making a special appearance through a motion to dismiss and if in the same motion, the movant raised other grounds or invoked

affirmative relief which necessarily involves the exercise of the jurisdiction of the court.30 This doctrine has been abandoned in the case of La Naval Drug Corporation vs. Court of Appeals, et al.,31 which became the basis of the adoption of a new provision in the former Section 23, which is now Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that "the inclusion in a

motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance." The

emplacement of this rule clearly underscores the purpose to enforce strict enforcement of the rules on summons. Accordingly, the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized agent

or attorney, precisely objecting to the jurisdiction of the court over the person of the defendant can by no means be deemed a submission to the jurisdiction

of the court. There being no proper service of summons, the trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. Any proceeding undertaken by the trial court will consequently be

null and void.32

WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public respondent trial court are ANNULLED and SET ASIDE. The public

respondent Regional Trial Court of Makati, Branch 132 is declared without jurisdiction to take cognizance of Civil Case No. 98-824, and all its orders and issuances in connection therewith are hereby ANNULLED and SET

ASIDE.1âwphi1.nêt

SO ORDERED.

G.R. No. L-48930 February 23, 1944 ANTONIO VAZQUEZ, petitioner,

vs. FRANCISCO DE BORJA, respondent.

x---------------------------------------------------------x G.R. No. L-48931 February 23, 1944

FRANCISCO DE BORJA, petitioner, vs.

ANTONIO VAZQUEZ, respondent. OZAETA, J.:

This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First, that in or about the month of January, 1932, the

defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of February, 1932, the said defendants having subsequently received from the

plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff during the months of February, March, and April,

1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. Second, that because of defendants' refusal to deliver to the

plaintiff the said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000. And, third, that on account of

the agreement above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay their value

amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the sum of P150.

The defendant Antonio Vazquez answered the complaint, denying having

entered into the contract mentioned in the first cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000

cavans of palay and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-Vasquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the Philippines, of which

the defendant Antonio Vazquez was the acting manager at the time the transaction took place. By way of counterclaim, the said defendant alleged that

he suffered damages in the sum of P1,000 on account of the filing of this action against him by the plaintiff with full knowledge that the said defendant had nothing to do whatever with any and all of the transactions mentioned in the

complaint in his own individual and personal capacity.

The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal

interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation) from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of

Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent

resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and ordered that the case be remanded to the

court of origin for further proceedings. The defendant Vazquez, not being agreeable to that result, filed the present petition for certiorari (G.R. No. 48930)

to review and reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original judgment was set aside and the case was ordered remanded to the

court of origin for further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals.

The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows:

Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio 2,583

cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor es el de

P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70,

con sus intereses legales desde el 1.o de marzo de 1932 hasta su completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto condenando a Antonio Vazquez a pagar al demandante la

cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y

al demandante de la reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntado como principal error el de que el

habia sido condenado personalmente, y no la corporacion por el representada.

Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja de los 4,000 cavanes de palay fue

en su capacidad de Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1,

que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto que en

los mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la Hacienda

Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios

para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo

testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la Natividad-

Vazquez Sabani Development Co., Inc.

Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co., Inc., que quedo insolvente y dejo de existir. El

Juez sentenciador declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no

dicha cantidad existia en las bodegas de la corporacion.

Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy

1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante no solamente obro con negligencia, sino interviniendo culpa de

su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objecto de la demanda.

En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay que dejo de entregar

al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la interposicion de la

demanda y las costas de ambas instancias.

Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la misma que cuando el apelante

vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho extremo suficientemente discutido y probado, y pudiendo variar el resultado del

asunto, dejamos sin efecto nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que reciba pruebas al

efecto y dicte despues la decision correspondiente.

Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the resolution of December

22, 1942, be reconsidered: Considering that said resolution remanding the case to the lower court is for the benefit of the plaintiff-appellee to

afford him opportunity to refute the contention of the defendant-appellant Antonio Vazquez, motion denied.

The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the defendant Antonio Vazquez in his

personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals found that according to the preponderance of

the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation Natividad-Vazquez Sabani Development Co., Inc." That

finding of fact is final and, it resolving the only issue involved, should be determinative of the result.

The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to determine whether the corporation had

sufficient stock of palay at the time appellant sold, 1500 cavans of palay to Kwong Ah Phoy. First, if that point was material to the issue, it should have

been proven during the trial; and the statement of the court that it had not been sufficiently discussed and proven was no justification for ordering a new trial, which, by the way, neither party had solicited but against which, on the

contrary, both parties now vehemently protest. Second, the point is, in any event, beside the issue, and this we shall now discuss in connection with the

original judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain.

The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the contract is the Natividad-Vazquez Sabani

Development Co., Inc. which is not a party herein, the complaint should have been dismissed. Counsel for the plaintiff, in his brief as respondent, argues

that altho by the preponderance of the evidence the trial court and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president of the corporation and altho it was the latter, thru Vazquez, with

which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo alegado en la demanda

de que la misma persona de Vasquez fue la que contrato con Borja y que la misma persona de Vasquez fue quien recibio la suma de P8,400." But such

argument is invalid and insufficient to show that the president of the corporation is personally liable on the contract duly and lawfully entered into by him in its behalf.

It is well known that a corporation is an artificial being invested by law with a

personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its

personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf. The legal

fiction by which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may exists and no corporate

business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent

purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of

sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no

legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily.

The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that account. On the other hand,

the Court of Appeals found that he "no solamente obro con negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103

y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed to distinguish

a contractual from an extracontractual obligation, or an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and

negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfullfillment of a contractual obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana of the

civil law, homologous but not identical to tort of the common law, which gives rise to an obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia.

Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the corporation, acting thru Vazquez as its manager, was

guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or

to any other cause, made the corporation and not its agent liable.

On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the plaintiff, he would be liable to the latter under

article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary, as

the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by virtue

of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case to the

trial court to try and decide such issue.

It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain his counterclaim for damages

against the respondent Borja arising from the bringing of this action. The lower

courts having sustained plaintiff's action. The finding of the Court of Appeals that according to the preponderance of the evidence the defendant Vazquez

celebrated the contract not in his personal capacity but as acting president and manager of the corporation, does not warrant his contention that the suit

against him is malicious and tortious; and since we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that a

a matter of moral justice we ought to state here that the indignant attitude adopted by the defendant towards the plaintiff for having brought this action against him is in our estimation not wholly right. Altho from the legal point of

view he was not personally liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting president and

manager, we think it was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price of which it

had already received. Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances he not

only has no cause of action against the plaintiff for damages but is not even entitled to costs.

The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to costs.