G.R. No. 141947       July 5, 2001ISMAEL V. SANTOS, ALFREDO G. ARCE and HILARIO M. PASTRANA, petitioners, vs.COURT OF APPEALS, PEPSI COLA PRODUCTS PHILS., INC., LUIS P. LORENZO, JR. and FREDERICK DAEL, respondents.BELLOSILLO, J.:This petition for review seeks to annul the Resolution1 of the Court of Appeals in CA-G.R. SP No. 54853 dated 28 September 1999 which summarily dismissed petitioners' special civil action for cer-tiorari for failing to execute properly the required verification and certification against forum shopping and to specify the material dates from which the timeliness of the petition may be determined.Private respondent Pepsi Cola Products Phils., Inc. (PEPSI) is a domestic corporation engaged in the production, distribution and sale of beverages. At the time of their termination, petitioners Is-mael V. Santos and Alfredo G. Arce were employed by PEPSI as Complimentary Distribution Specialists (CDS) with a monthly salary of P 7,500.00 and P10,000.00, respectively, while Hilario M. Pastrana was employed as Route Manager with a monthly salary of P 7 ,500.00.In a letter dated 26 December 1994,2 PEPSI informed its employ-ees that due to poor performance of its Metro Manila Sales Opera-tions it would restructure and streamline certain physical and sales distribution systems to improve its warehousing efficiency. Certain positions, including that of petitioners, were declared redundant and abolished. Consequently, employees with affected positions were terminated.On 15 January 1995 petitioners left their respective positions, ac-cepted their separation pays and executed the corresponding re-leases and quitclaims. However, before the end of the year, peti-tioners learned that PEPSI created new positions called Account Development Managers (ADM) with substantially the same duties and responsibilities as the CDS. Aggrieved, on 15 Apri1 1996, pe-titioners filled a complaint with the Labor Arbiter for illegal dis-missal with a prayer for reinstatement, back wages, moral and ex-emplary damages and attorney's fees.In their complaint, petitioners alleged that the creation of the new positions belied PEPSI's claim of redundancy. They further alleged that the qualifications for both the CDS and ADM positions were similar and that the employees hired for the latter positions were even less qualified than they were.3 Likewise taking note of possi-ble procedural errors, they claimed that while they were notified of their termination, PEPSI had not shown that the Department of La-bor and Employment (DOLE) was also notified as mandated by Art. 283 of the Labor Code which states-Art. 283. Closure of Establishment and Reduction of Personnel. The employer may also terminate the employment of any em-ployee due to the installation of labor-saying devices, redundancy, retrenchment to prevent losses or the closing or cessation of oper-ation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title, by serving a written notice on the worker and the Ministry of Labor and Em-ployment: at least one (1) month before the intended date thereof xxxx (italic supplied).PEPSI, on the other hand, maintained that termination due to re-dundancy was a management prerogative the wisdom and sound-ness of which were beyond the discretionary review of the courts. Thus, it had the right to manage its affairs and decide which posi-tion was no longer needed for its operations. It further maintained that the redundancy program was made in good faith and was not implemented to purposely force certain employees out of their em-ployment. It also claimed that a close perusal of the job descrip-tions of both the CDS and ADM positions would show that the two (2) were very different in terms of the nature of their functions, ar-eas of concerns, responsibilities and qualifications.4

On 18 June 1997, Labor Arbiter Romulus S. Protacio dismissed the complaint for lack of merit. Furthermore, he ruled that the one (1)-month written notice prior to termination required by Art. 283 was complied with.On appeal, the National Labor Relations Commission (NLRC) af-firmed the ruling of the Labor Arbiter. However, in its Decision5

dated 5 March 1999 it found that the Establishment Termination Report was submitted to the DOLE only on 5 April 1995 or two "(2) months after the termination had already taken place6 and thus ef-fectively reversing the finding of the Labor Arbiter that the required one (1)-month notice prior to termination was complied with. None-theless, the NLRC dismissed the appeal, citing International Hardware, Inc. v. NLRC,7 which held -x x x x if an employee consented to his retrenchment or voluntarily applied for retrenchment with the employer due to the installation of labor-saving devices, redundancy, closure or cessation of oper-ation or to prevent financial losses to the business of the employer, the required previous notice to the DOLE is not necessary as the employee thereby acknowledged the existence of a valid cause for termination of his employment x x x x (italics supplied).On 10 September 1999, petitioners filed a special civil action for certiorari with the Court of Appeals.8 The Court of Appeals in the assailed Resolution dismissed the petition outright for failure to comply with a number of requirements mandated by Sec. 3, Rule 46, in relation to Sec. 1, Rule 65, of the 1997 Rules of Civil Proce-dure. Respondent appellate court found that the verification and certification against forum shopping were executed merely by peti-tioners' counsel and not by petitioners. The petition also failed to specify the dates of receipt of the NLRC Decision as well as the fil-ing of the motion for reconsideration.9 Under the aforecited Rules,

failure of petitioners to comply with any of the requirements was sufficient ground for the dismissal of the petition.Petitioners now present the sole issue of whether there was failure to comply with the requirements of the Rules in filing their petition for certiorari.We find no manifest error on the part of the Court of Appeals; hence we affirm.It is true that insofar as verification is concerned, we have held that there is substantial compliance if the same is executed by an attor-ney it being presumed that facts alleged by him are true to his knowledge and belief.10 However the same does not apply as re-gards the requirement of a certification against forum shopping. Section 3, Rule 46 of the 1997 Rules of Civil Procedure explicitly requires -x x x x The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding he must state the status of the same; and if he should thereafter learn that a sim-ilar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom x x x xIt is clear from the above-quoted provision that the certification must be made by petitioner himself and not by counsel since it is petitioner who is in the best position to know whether he has previ-ously commenced any similar action involving the same issues in any other tribunal or agency.11

Petitioners argue that while it may be true that they are in the best position to know whether they have commenced an action or not this information may be divulged to their attorney and there is nothing anomalous or bizarre about this disclosure.12 They further maintain that they executed a Special Power of Attorney specifi-cally to authorize their counsel to execute the certification on their behalf.We are aware of our ruling in BA Savings Bank v. Sia13 that a certi-fication against forum shopping may be signed by an authorized lawyers who has personal knowledge of the facts required to be disclosed in such document. However, BA Savings Bank must be distinguished from the case at bar because in the former, the com-plainant was a corporation, and hence, a juridical person. There-fore, that case made an exception to the general rule that the certi-fication must be made by the petitioner himself since a corporation can only act through natural persons. In fact, physical actions, e.g., signing and delivery of documents, may be performed on behalf of the corporate entity only by specifically authorized individuals. In the instant case, petitioners, are all natural persons and there is no showing of any reasonable cause to justify their failure to person-ally sign the certification.14 It is noteworthy that PEPSI in its Com-ment stated that it was petitioners themselves who executed the verification and certification requirements in all their previous pleadings. Counsel for petitioners argues that as a matter of pol-icy, a Special Power of Attorney is executed to promptly and effec-tively meet any contingency relative to the handling of a case. This argument only weakens their position since it is clear that at the outset no justifiable reason yet existed for counsel to substitute pe-titioners in signing the certification. In fact, in the case of natural persons, this policy serves no legal purpose. Convenience cannot be made the basis for a circumvention of the Rules.Neither are we convinced that the out-right dismissal of the petition would defeat the administration of justice. Petitioners argue that there are very important issues such as their livelihood and the well being and future of their families.15 Every petition filed with a judicial tribunal is sure to affect, even tangentially, either the well being and future of petitioner himself or that of his family. Unfortu-nately, this does not warrant disregarding the Rules.Moreover, the petition failed to indicate the material dates that would show the timeliness of the filing thereof with the Court of Ap-peals. There are three (3) essential dates that must be stated in a petition for certiorari brought under Rule 65. First, the date when notice of the judgment or final order or Resolution was received; second, when a motion for new trial or reconsideration was filed; and third, when notice of the denial thereof was received. Petition-ers failed to show the first and second dates, namely, the date of receipt of the impugned NLRC Decision as well as the date of filing of their motion for reconsideration. Petitioners counter by stating that in the body of the petition for certiorari filed in the Court of Ap-peals, it was explicitly stated that the, NLRC Resolution dated 11 May 1999 was received by petitioners through counsel on 30 July 1999. They even reiterate this contention in their Reply.The requirement of setting forth the, three(3) dates in a petition for certiorari under Rule 65 is for the purpose of determining its timeli-ness. Such a petition is required to be filed not later than sixty (60) days from notice of the judgment, order or Resolution sought to be assailed.16 Therefore, that the petition for certiorari was filed forty-one (41) days from receipt of the denial of the motion for reconsid-eration is hardly relevant. The Court of Appeals was not in any po-sition to determine when this period commenced to run and whether the motion for reconsideration itself was filed on time since the material dates were not stated. It should not be assumed that in no event would the motion be filed later than fifteen (15) days. Technical rules of procedure are not designed to frustrate the ends of justice. These are provided to effect the proper and or-derly disposition of cases and thus effectively prevent the clogging

of court dockets. Utter disregard of the Rules cannot justly be ra-tionalized by harking on the policy of liberal construction. 17

But even if these procedural lapses are dispensed with, the instant petition, on the merits, must still fail. Petitioners impute grave abuse of discretion on the part of the NLRC for holding that the CDS and ADM positions were dissimilar, and for concluding that the redundancy program of PEPSI was undertaken in good faith and that the case of International Hardware v. NLRC18 was appli-cable.This Court is not a trier of facts. The question of whether the duties and responsibilities of the CDS and ADM positions are similar is a question properly belonging to both the Labor Arbiter and the NLRC. In fact, the NLRC merely affirmed the finding of the Labor Arbiter on this point and further elaborated on the differences be-tween the two (2). Thus it ruled -x x x x We cannot subscribe to the complainants' assertions that the positions have similar job descriptions. First CDS report to a CD Manager, whereas the ADMs do not report to the CD Man-ager, leading us to believe that the organizational setup of the sales department has been changed.Second, CDS are filed personnel who drive assigned vehicles and deliver stocks to "dealers" who, under the job description are those who sell and deliver the same stocks to smaller retail outlets in their assigned areas. The ADMs are not required to drive trucks and they do not physically deliver stocks to wholesale dealers. In-stead, they help "dealers" market the stocks through retail. This conclusion is borne out by the fact (that) ADMs are tasked to en-sure that the stocks are displayed in the best possible locations in the dealer's store, that they have more shelf space and that deal-ers participate in promotional activities in order to sell more prod-ucts.It is clear to us that while CDS are required to physically deliver, sell and collect payments for softdrinks, they do so not primarily to retail outlets but to wholesale dealers who have retail customers of their own. They are not required to assist the dealers they deliver to in selling the softdrinks more effectively whereas ADMs sell soft-drinks to big retail outlets (groceries and malls who have shelves and display cases and who require coolers and other parapherna-lia). They do not only sell but they have to effectively market the products or put them in the best and most advantageous light so that the dealers who sell the softdrinks retails can sell more soft-drinks. The main thrust of the ADMs job is to ensure that the soft-drinks products ordered from them are marketed in a certain man-ner ("Pepsi-Way standards") in keeping with the promotional thrust of the company.Factual findings of the NLRC, particularly when they coincide with those of the Labor Arbiter, are accorded respect, even finality, and will not be disturbed for as long as such findings are supported by substantial evidence,19 defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclu-sion.20 In this case, there is no doubt that the findings of the NLRC are supported by substantial evidence. The job descriptions sub-mitted by PEPSI are replete with information and is an adequate basis to compare and contrast the two (2) positions.Therefore, the two (2) positions being different, it follows that the redundancy program instituted by PEPSI was undertaken in good faith. Petitioners have not established that the title Account Devel-opment Manager was created in order to maliciously terminate their employment. Nor have they shown that PEPSI had any ill mo-tive against them. It is therefore apparent that the restructuring and streamlining of PEPSI's distribution and sales systems were an honest effort to make the company more efficient.Redundancy exists when the service capability of the work force is in excess of what is reasonably needed to meet the demands of the enterprise.21 A redundant position is one rendered superfluous by a number of factors, such as overhiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company or phasing out of a service previ-ously undertaken by the business.22

Based on the fact that PEPSI's Metro Manila Sales Operations were not meeting its sales targets,23 and on the fact that new posi-tions were subsequently created, it is evident that PEPSI wanted to restructure its organization in order to include more complex po-sitions that would either absorb or render completely unnecessary the positions it had previously declared redundant. The soundness of this business judgment of PEPSI has been assailed by petition-ers, arguing that it is more logical to implement new procedures in physical distribution, sales quotas, and other policies aimed at im-proving the performance of the division rather than to reduce the number of employees and create new positions.24

This argument cannot be accepted. While it is true that manage-ment may not, under the guise of invoking its prerogative, ease out employees and defeat their constitutional right to security of ten-ure, the same must be respected if clearly undertaken in good faith and if no arbitrary or malicious action is shown.Similarly, in Wiltshire File Co., Inc. v. NLRC25 petitioner company effected some changes in its organization by abolishing the posi-tion of Sales Manager and simply adding the duties previously dis-charged by it to the duties of the General Manager to whom the Sales Manager used to report. In that case, we held that the char-acterization of private respondent's services as no longer neces-sary or sustainable, and therefore properly terminable, was an ex-ercise of business judgment on the part of petitioner company. The wisdom or soundness of such characterization or decision is not subject to discretionary review on the part of the Labor Arbiter or of the NLRC so long as no violation of law or arbitrary and malicious action is indicated.

In the case at bar, no such violation or arbitrary action was estab-lished by petitioners. The subject matter being well beyond the dis-cretionary review allowed by law, it behooves this Court to steer clear of the realm properly belonging to the business experts.We agree with the NLRC in its application of International Hardware v. NLRC that the mandate one (1) month notice prior to termination given to the worker and the DOLE is rendered unnec-essary by the consent of the worker himself. Petitioners assail the voluntariness of their consent by stating that had they known of PEPSI's bad, faith they would not have agreed to their termination, nor would they have signed the corresponding releases and quit-claims.26 Having established private respondent's good faith in un-dertaking the assailed redundancy program, there is no need to rule on this contention.Finally, in a last ditch effort to plead their case, petitioners would want us to believe that their termination was illegal since PEPSI did not employ fair and reasonable criteria in implementing its re-dundancy program. This issue was not raised before the Labor Ar-biter nor with the NLRC. As it would be offensive to the basic rules of fair play and justice to allow a party to raise a question which has not been passed upon by both administrative tribunals,27 it is now too late to entertain it.1âwphi1.nêtWHEREFORE, in the absence of any reversible error on the part of the Court of Appeals, the petition is DENIED. The assailed Res-olution dated 28 September 1999 which summarily dismissed peti-tioner's special civil action for certiorari for non-compliance with Sec. 13, Rule 46, in relation to Sec. 1, Rule 65, of the 1997 Rules of Civil Procedure is AFFIRMED.SO ORDERED.

VOL. 151, JUNE 30, 1987355Madrigal & Company, Inc. vs. ZamoraNo. L-48237. June 30, 1987.*MADRIGAL & COMPANY, INC., petitioner, vs. HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AF-FAIRS, 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.Evidence; Findings of administrative agencies are accorded not only respect but even finality.—As a general rule, the find-ings of administrative agencies are accorded not only respect but even finality. This is especially true with respect to the De-partment of Labor, which performs not only a statutory func-tion but carries out a Constitutional mandate as well. Our ju-risdiction, as a rule, is confined to cases of grave abuse of discretion. But for certiorari to lie, there must be such arbi-trary and whimsical exercise of power, or that discretion was exercised despotically.Labor Law; Dividends received by the company are corporate earnings arising from corporate investment.—The petitioner would, however, have us believe that it in fact sustained losses. Whatever profits it earned, so it claims were in the na-ture of dividends “declared on its shareholdings in other companies in the earning of which the employees had no par-ticipation whatsoever.” “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.” 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 earn-ings arising from corporate investment.” 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. Moreover, it is incorrect to say that such profits—in the form of dividends—are be-yond the reach of the petitioner’s_______________

* FIRST DIVISION.356

356SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamoracreditors since the petitioner had received them as compen-sation 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 corpora-tion 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 it-self, and in that case, the right to a share in such dividends, by way of salary increases, may not be denied its employees.Same; Unfair Labor Practice; Reduction of capital to evade employees demand for salary adjustments, mass lay-off of employees under the guise of retrenchment policy constitute unfair labor practice.—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 jus-

tify the mass lay off in its employee ranks, especially of union members. They were nothing but a premature and plain distri-bution 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: xxx xxx xxx As has been held by this Court in Insular Lumber Company vs. CA, et al., L-23875, Au-gust 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 layoff or dis-missal 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 dis-turb the employment tenure of the employees concerned, which act is certainly an unfair labor practice.PETITIONS for certiorari and prohibition to review the deci-sion of the Secretary of Labor.

The facts are stated in the opinion of the Court.357

VOL. 151, JUNE 30, 1987357Madrigal & Company, Inc, vs. ZamoraSARMIENTO, J.:

These are two petitions for certiorari and prohibition filed by the petitioner, the Madrigal & Co., Inc, The facts are undis-puted.The petitioner was engaged, among several other corporate objectives, in the management of Rizal Cement Co., Inc.1 Ad-mittedly, the petitioner and Rizal Cement Co., Inc. are sister companies.2 Both are owned by the same or practically the same stockholders.3On December 28, 1973, the respondent, the Madrigal Central Office Employees Union, sought for the renewal of its collec-tive 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 P1 00,00 a month, and other economic benefits.5 The petitioner, how-ever, 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 stock-holders in exchange for their shares in an equivalent amount in the corporation.7On August 22, 1975, by yet another alleged stockholders’ ac-tion, the petitioner reduced its authorized capitalization from 267,366 shares to 110,085 shares, again, through the same scheme.8After 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_______________

1 Rollo, G.R. No. 48237, 10, 18, 20–21.2 Id., 10.3 Id., 20.4 Id., 21.5 Id., 29,6 Id., 18, 30.7 Id.8 Id.358

358SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamoraon a complaint for unfair labor practice.9 In due time, the peti-tioner 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 in-come”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 Madri-gal & 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 sub-stantial 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 re-organization 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 con-cerned, about which your good office will be apprised accord-ingly.”17 The letter, however, was not verified and neither was it accompanied by the proper supporting papers. For this rea-

son, the Department of Labor took no action on the peti-tioner’s request.On January 19, 1976, the labor arbiter rendered a decision18 granting, among other things, a general wage increase of P200.00 a month beginning March 1, 1974 plus a monthly liv-ing 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._______________

9 Rollo, G.R. No. 49023, 4.10 Id., 25–29.11 Id., G.R. No. 48237, 18–20.12 Id., 18.13 Id.14 Id.15 Id.16 Id.17 Id.18 Id., G.R. No. 49023, 32–37.19 Id., 34.359

VOL. 151, JUNE 30, 1987359Madrigal & Company, Inc. vs. ZamoraOn 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 em-ployees more.20 On the same date, the respondent union went to the Regional Office (No. IV) of the Department of La-bor (NLRC Case No. R04–2–1432–76) to complain of illegal lockout against the petitioner.21 Acting on this complaint, the Secretary of 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.25Thereafter, the petitioner filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Le-gal Affairs, affirmed with modification the Labor Department’s decision, thus:x x x                x x x                x x x1. 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 re-tirement.3. The rest are hereby reinstated with six (6) months back-wages, except Aleli Contreras, Teresita Eusebio and Norma Parlade who are to be reinstated without backwages.SO ORDERED.26x x x                x x x                x x xOn May 15, 1978, the petitioner came to this court. (G.R._______________

20 Id., G.R. No. 48237, 3, 84.21 Id.22 Id., 20–28.23 Id., 27.24 Id., 28.25 Id., 29–36.26 Id., 60–61.360

360SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. ZamoraNo. 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 La-bor dismissed the appeal.28 Following these successive re-versals, 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.30In G.R. No. 48237, the petitioner argues, that.x x x                x x x                x x xI. 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.31x x x                x x x                x x x_______________

27 Id., G.R. No. 49023, 64–76.28 Id., 78–80.29 Id., 86-A1.30 Id., 85–86; id., G.R. No. 48237, 77–78.31 Id., G.R. No. 48237, 6.361

VOL. 151, JUNE 30, 1987361Madrigal & Company, Inc. us. Zamorawhile in G.R. No. 49023, it submits that.     x x x                x x x                x x x1. 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     x x x                x x x                x x xThere 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 espe-cially true with respect to the Department of Labor, which per-forms not only a statutory function but carries out a Constitu-tional mandate as well.34 Our jurisdiction, as a rule, is con-fined to_______________

32 Id., G.R. No. 49023, 8.33 Special Events & Central Shipping Office Workers Union San Miguel Corp., Nos. L-51002–06, May 30, 1983, 122 SCRA 557 (1983), citing International Hardwood and Veneer Co. of the Phil. v. Leogardo, No. L-57429, October 28, 1982, 117 SCRA 967 (1982), Genconsu Free Workers Union v. Inciong, No. L-48687, July 2, 1979, 91 SCRA 311 (1979), and Dy Keh Beng v. International Labor, No. L-32245, May 25, 1979, 90 SCRA 161 (1979).34 Int’l. Hardwood and Veneer Co. of the Phil. v. Leogardo, supra.362

362SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. us, Zamoracases 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.36In 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 satis-fied with the correctness of the respondent Presidential As-sistant for Legal Affairs’ findings. We quote:x x x                x x x                x x xIn urging reversal of the appealed decision, appellant con-tends that (1) its letter dated November 17, 1975, constitute “substantial compliance with the clearance requirement to terminate;” and (2) individual appellees’ dismissal had no re-lation to any union activities, but was the result of an honest-to-goodness retrenchment policy occasioned by loss of in-come 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 ap-pellant’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 cleary 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_______________

35 Special Events & Central Shipping Office Workers Union v. San Miguel Corp., supra, citing Consolidated Farms, Inc. v. Noriel, No. L-47752, July 31, 1978, 84 SCRA 469 (1970), Scott v. Inciong, No. L-38868, December 29, 1975, 68 SCRA 473 (1975), and San Miguel Corp. v. Secretary of Labor, No. L-39195, May 26, 1975, 64 SCRA 56 (1975).36 Busier v. Leogardo, Jr., No. L-63316, July 31, 1984, 131 SCRA 151 (1984), citing Palma and Ignacio v. Q & S, Inc., No. L20366, May 19, 1966, 17 SCRA 97 (1966) and Philippine Vir-ginia Tobacco Administration v. Lucero, No. L-32550, October 27, 1983, 125 SCRA 337 (1983).363

VOL. 151, JUNE 30, 1987363Madrigal & Company, Inc. vs. Zamorafound 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 shut-down or dismissal of employees, is to afford said official am-ple opportunity to examine and determine the reasonableness of the request. This is made imperative in order to give mean-ing 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 applica-tion for clearance be filed ten (10) days before the intended shutdown or dismissal, serving a copy thereof to the employ-ees affected in order that the latter may register their own in-dividual 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 Secre-tary in his modificatory decision dated June 30, 1977 “the lat-ter 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 dis-missal was an offshoot of the union’s demand for a renegotia-tion of the then validly existing collective bargaining Agree-ment.x x x                x x x                x x xThe pattern of appellant’s acts after the decision of the Labor Arbiter in Case No. LR-5415 has convinced us that its sole ob-jective was to render moot and academic the desire of the union to exercise its right to bargain collectively with man-agement, 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,364

364SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamora“respondent’s action [was] a systematic and deliberate at-tempt to get rid of complainants because of their union activi-ties.We now come to the individual cases of Aleli Contreras, Tere-sita 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 appre-ciated by the Acting Secretary, these “payrolls prove, first, that ‘leave’ has been granted to these employees, and, sec-ond, that it is a practice in the company to grant ‘leaves with-out 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 Contr-eras, there is no showing that the Secretary of Labor or appel-lant 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 re-instatement but without backwages.37x x x                x x x                x x xWith respect to Case No. LR-5415 (G.R. No. 49023), we are likewise content with the findings of the National Labor Rela-tions Commission. Thus:x x x                x x x                x x xAppellant now points that the only issue certified to compul-sory arbitration is “refusal to bargain” and it is, therefore, pre-mature 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_______________

37 Id., G.R. No. 48237, 55–57, 58–59.365

VOL. 151, JUNE 30, 1987365Madrigal & Company, Inc. vs. Zamoraand the substantial earnings of the company from 1971 to 1975.It bears to stress that although the union’s petition was pre-cipitated by the company’s refusal to bargain, there are glar-ing circumstances pointing out that the parties also submit-ted “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 col-lective 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 in-capacity 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 f ace of these factual environment, it is our view that the Labor Arbiter below did not commit a re-versible 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 ap-pellant was given opportunity, and had in fact, presented evi-dence and argument in avoidance of the proposed CBA changes.We do not also subscribe to appellant’s argument that by re-ducing its capital, it is made evident that it is phasing out its operations. On the contrary, whatever may be the reason be-hind such reductions, it is indicative of an intention to keep the company a going concern, 80 much so that until now al-most 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 evi-dence 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 fi-nancially 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 be-long exclusively to its stockholders. The dividends received by the company are corporate earnings arising from corpo-rate investment which no doubt are attended to by the em-ployees 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 reason366

366SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamoraableness of the economic grants below, we have, therefore, scrutinized the company’s Statement of Income and Ex-penses 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 Termi-nation 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 an-other employment.38What clearly emerges from the recorded facts is that the peti-tioner, 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 col-lective agreement case (Case No. LR-5415):x x x                x x x                x x xA 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 P1 1,230,459.36, its profits were further in-creased to P2,922,349.70. Its assets were P78,842,175.75._______________

38 Id., G.R. No 49023, 65–67.367

VOL. 151, JUNE 30, 1987367Madrigal & Company, Inc. vs. ZamoraThe 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 re-ported 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, 1975.39x x x                x x x                x x xThe 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 can-not be made available for disposition if only to meet the em-ployees’ economic demands.”41There is no merit in this contention. We agree with the Na-tional Labor Relations Commission that “[t]he dividends re-ceived by the company are corporate earnings arising from corporate investment.”42 Indeed, as found by the Commis-sion, the petitioner had entered such earnings in its financial statements as profits, which it would not have done if they were not in fact prof fits.43Moreover, it is incorrect to say that such profits—in the form of dividends—are beyond the reach of the petitioner’s credi-tors since the petitioner had received them as compensation for its management services in favor of the companies it man-aged as a shareholder thereof. As such shareholder, the divi-dends paid to it were its own money, which may then be avail-able for wage increments. It is not a case of a corporation dis-tributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property of the stock-holders and hence, out of reach by creditors of the corpora-tion. Here, the petitioner was acting as stockholder itself,_______________

39 Id., 34–35.40 Id., 53.41 Id.42 Id., 67.43 Id.368

368SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamoraand 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 capi-tal reduction efforts were, to begin with, a subterfuge, a de-ception as it were, to camouflage the fact that it had been making profits, and consequently, to justify the mass lay off in its employee ranks, especially of union members, They were nothing but a premature and plain distribution of corpo-rate assets to obviate a just sharing to labor of the vast prof-its 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. Peo-ple’s Bank and Trust Co. Employees Union:44x x x                x x x                x x xAs has been held by this Court in Insular Lumber Company vs. CA, et al., L-23875, August 29, 1969, 29 SCRA 371, re-trenchment 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 earn-ings 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 stock-

holders.” Thus the mass lay-off or dismissal of the 65 employ-ees 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 ten-ure of the employees concerned, which act is certainly an un-fair labor practice,45Yet, at the same time, the petitioner would claim that “the phasing out of its operations which brought about the re-trenchment 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_______________

44 Nos. L-39598 and 39603, January 13, 1976, 69 SCRA 10 (1976).45 Supra, 25–26.369

VOL. 151, JUNE 30, 1987369Madrigal & Company, Inc. vs. Zamorahim.”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, 197547 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 at-tempt to get rid of [the union members] because of their union activities.”49 Hence, whether or not the said letter com-plied with the legal formalities is beside the point since under the circumstances, retrenchment was, in all events, unjusti-fied. Parenthetically, the clearance required under Presiden-tial 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 submit-ted 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 af-_______________

46 Id., G.R. No. 48237, 144.47 Id., 18–19.48 Id., 25.49 Id., 26.50 Id., 118–122, 141–145.51 No. L-23557, April 30, 1974, 56 SCRA 694 (1974).370

370SUPREME COURT REPORTS ANNOTATEDMadrigal & Company, Inc. vs. Zamorafirmed in a long line of decisions that came later,52 hereby fixes the amount of backwages at three (3) years pay reck-oned at the increased rates decreed by the labor arbiter in Case No. LR5415 without deduction or qualification._______________

52 Manila Hotel Corporation v. NLRC, No. L-53453, January 22, 1986, 141 SCRA 169 (1986); Akay Printing Press v. Minis-ter of Labor and Employment, No. L-59651, December 6, 1985, 140 SCRA 381 (1985); Magtoto v. National Labor Relations Commission, No. L63370, November 18, 1985, 140 SCRA 58 (1985); Panay Railways, Inc. v. National Labor Relations Com-mission, No. L-69416, July 11, 1985, 137 SCRA 480 (1985); Lepanto Consolidated Mining Company v. Encarnacion, Nos. L-67002–03, April 30, 1985, 136 SCRA 256 (1985); Medical Doctors, Inc. (Makati Medical Center) v. NLRC, No. L-56633, April 24, 1985, 136 SCRA 1 (1985); Insular Life Assurance Co., Ltd. v. NLRC, No. L-49071, April 17, 1985, 135 SCRA 697 (1985); Flexo Manufacturing Corp. v. NLRC, No. L-55971, Feb-ruary 28, 1985, 135 SCRA 145 (1985); Philippine Airlines, Inc. v. NLRC, No. L-64809, November 29, 1983, 126 SCRA 223 (1983); Associated Anglo American Tobacco Corporation v. Lazaro, No. L-63779, October 27, 1983, 125 SCRA 463 (1983); Capital Garment Corporation v. Ople, No. L-53627, September 10, 1982, 117 SCRA 473 (1982); Litex Employees Association v. CIR, No. L-39154, September 9, 1982, 116 SCRA 459 (1982); Yucoco v. Inciong, No. L-49061, March 29, 1982, 113 SCRA 245 (1982); People’s Industrial and Commercial Employees and Workers Org. (FFLU) v. People’s Industrial and Commer-cial Corp., No. L-37687, March 15, 1982, 112 SCRA 440 (1982);

Kapisanan ng Manggagawa sa Camara Shoes v. Camara Shoes, No. L-50985, January 30, 1982, 111 SCRA 477 (1982); Pepito v. Secretary of Labor, No, L-49418, February 29,1980, 96 SCRA 454 (1980); Citizens’ League of Free-Workers v. CIR, No. L-38293, February 21, 1980, 96 SCRA 225 (1980); Liberty Cotton Mills Workers Union v. Liberty Cotton Mills, Inc., No. L-33987, May 31, 1979, 90 SCRA 391 (1979); Dy Keh Beng v. In-ternational Labor, supra; Bachrach Motor Co., Inc. v. Court of Industrial Relations, No. L-26136, October 30, 1978, 86 SCRA 27 (1978); L.R. Aguinaldo & Co., Inc. v. Court of Industrial Re-lations, No. L-31909, April 3, 1978, 82 SCRA 309 (1978); Danao Development Corporation v. NLRC, Nos. L40706 & 40700, Feb-ruary 16, 1978, 81 SCRA 487 (1978); Monteverde v. Court of In-dustrial Relations, No. L-32975, September 30, 1977, 79 SCRA 259 (1977); Insular Life Assurance Co., Ltd. Employees Asso-ciation-Natu v. Insular Life Assurance Co., Ltd., No. L-25291, March 10, 1977, 76 SCRA 50 (1977); People’s Bank and Trust Com371

VOL. 161, JUNE 30, 1987371Madrigal & Company, Inc. vs. ZamoraWHEREFORE, the petitions are hereby DISMISSED. Subject to the modification as to the amount of backwages hereby awarded, the challenged decisions are AFFIRMED. The tem-porary restraining orders are LIFTED. With costs against the petitioner.This decision is IMMEDIATELY EXECUTORY.SO ORDERED.     Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Feliciano and Gancayco, JJ., concur.Petitions dismissed Decisions affirmed with modification. Or-ders lifted.Notes.—Labor must be represented by a union that can ex-press its collective will. (Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas vs. Noriel, 72 SCRA 24.)Terms and conditions of collective bargaining contract con-stitute the law between the parties. (Batangas-LagunaTayabas Bus Company vs. Court of Appeals, 71 SCRA 470.)Refusal by employer to comply with provisions of collective bargaining agreement is an unfair labor practice. (MRR Yard Crew Union vs. Philippine National Railways, 72 SCRA 88.)——o0o——

_______________

pany v. People’s Bank and Trust Co. Employees Union, supra; Luzon Stevedoring v. Court of Industrial Relations, No. L-34300, November 22, 1974, 61 SCRA 154 (1974); Feati Univer-sity Faculty Club (Paflu) v. Feati University, No. L-31503, Au-gust 25, 1974, 58 SCRA 395 (1974).372 [Madrigal & Company, Inc. vs. Zamora, 151 SCRA 355(1987)]

VOL. 193, FEBRUARY 7, 1991717Peña vs. Court of AppealsG.R. No. 91478. February 7, 1991.*ROSITA PENA, petitioner, us. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SAL-VADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents.Corporation Law; By-laws; Quorum; Three (3) out of five (5) members of the board of directors present in the special meeting of respondent PAMBUSCO do not constitute a quo-rum to validly transact business. Section 4 of its amended by-laws requires at least four (4) members present to constitute a quorum in a special meeting of its board of directors.—The by-laws of a corporation are its own private laws which sub-stantially 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. 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 con-stitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO.Same; Board of Directors; Only persons who own at least one (1) share in their own right may qualify to be directors of a corporation.—As a matter of fact, the three (3) alleged direc-tors 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. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were_______________

* FIRST DIVISION.

718

718SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appealsamong the stockholders of respondent PAMBUSCO. Under Section 30 of the then applicable Corporation Law, only per-sons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Sec-tion 28 1/2 ofthe said law, the sale or disposition of all and/or substantially all properties of the corporation requires, in ad-dition 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 pur-pose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the pur-pose 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.Same; Deed of Assignment; Civil Law; Donation; Liberality as a consideration in the deed of assignment of the respondent PAMBUSCO in favor of its former corporate officer for ser-vices rendered is not just an ordinary deed of assignment but a donation.—Respondent court, in upholding the questioned deed of assignment, which appears to be without any consid-eration at all, held that the consideration thereof is the liberal-ity of the respondent PAMBUSCO in favor of its former corpo-rate officer, respondent Enriquez, for services rendered. As-suming this to be so, then as correctly argued by petitioner, it is not just an ordinary, deed of assignment, but is in fact a do-nation. 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 sepa-rate 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. Non-compliance with this require-ment renders the donation null and void. Since undeniably the deed of assignment dated March 8, 1975 in question, shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assign-ment is thus void ab initio and of no force and effect.PETITION for certiorari to review the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.     Cesar L. Villanueva for petitioner.     Martin N. Roque for private respondents.719

VOL. 193, FEBRUARY 7, 1991719Peña vs. Court of AppealsGANCAYCO, J.:

The validity of the redemption of a foreclosed real property is the center of this controversy.The facts as found by the respondent court are not disputed.“A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the De-velopment 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 Pena as highest bidder. A certificate of sale was is-sued in her favor by the Senior Deputy Sheriff of Pamapanga, 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 PAM-BUSCO, 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 exe-cute and sign a Deed of Assignment for and in behalf of PAM-BUSCO in favor of any interested party xxx’ (Exh. 24). Conse-quently, on March 18, 1975, Briones executed a Deed of As-signment 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 thou-sand, four hundred seventy four pesos P140,474.00) to the Of-fice of the Provincial Sheriff of Pampanga (Exh. 26).“A day after the aforesaid certificate was issued, Enriquez ex-ecuted a deed of absolute sale of the subject properties in fa-vor 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 con-sulta was also annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al. vs. PAM-BUSCO (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 PAM-BUSCO’s board of directors assigning its redemption rights720

720SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appealsto 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 anno-tated 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-ap-pellee by registered mail ‘that the properties under TCT Nos. 4314, 4315 and 4316 x x x x x x xxx were all redeemed by Mr. Marcelino B. Enriquez on August 15,1975 xxx xxx xxx;’ and that she may now get her money at the Sheriffs Office (Exh. J and J-1).“On September 8, 1975, Pena 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 afore-mentioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pam-panga xxx to desist from registering or noting in his registry of property xxx any of the following documents under con-tract, until further orders:‘(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolu-tion 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 En-riquez dated August 15, 1975;‘(c) Deed of Sale dated August 16,1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap.’ (Origi-nal Record, p. 244)‘On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that ‘the levy on at-tachment 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 Sher-iff 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 exer-cised;’ hence she ‘will now refuse to receive the redemption money xxx’ (Exh. 28).On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking721

VOL. 193, FEBRUARY 7, 1991721Peña vs. Court of Appealspayment of back rentals in the amount of P42,750.00 ‘for the use and occupancy of the land and house located at Sta. Lu-cia, San Fernando, Pampanga,’ and informing her of an in-crease 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 dis-missed 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.”1The 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, appel-lants sought to recover possession over the subject lands from defendants Rosita Pena 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 x x x 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 Jan-

uary 1979 until the defendants finally vacate the xxx premises in question; with interest at the legal rate’ (Record, p. 6).“In their answer, defendants Rosita Pena and Washington Distillery denied the material allegations of the complaint and by way of an_______________

1 Pages 38 to 40, Rollo.722

722SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appealsaffirmative and special defense asserted that Perla is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP xxx against PAMBUSCO xxx and no valid redemption having been effected within the period provided by law. It was con-tended 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 ques-tion by redeeming the same on August 18, 1975 (Exh. 26) un-der an allegedly] void deed of assignment executed in his fa-vor 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 En-riquez was void ab initio for being an ultra vires act of its board of directors and, for being without any valuable consid-eration, 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, Pam-panga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from regis-tering or noting in his registry of property xxx any of the above-mentioned documents under contest, until further or-ders. (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 dis-missed; 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 de-clared 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, correspond-ing 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, Je-sus Domingo, Joaquin Briones, Salvador Bernardez (as mem-bers of the Board of Directors of PAMBUSCO), Marcelino En-riquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, how-723

VOL. 193, FEBRUARY 7, 1991723Peña vs. Court of Appealsever, were declared as in default for failure to file their an-swer, 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 plain-tiffs 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 re-ferred to in the preceding paragraph;‘(c) The certificate of redemption dated August 15, 1975 is-sued 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 Kegis-ter 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 Pena 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 is-sued to her.

‘Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defen-dants/ third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney’s fees plus costs.’ ”2Thus, an appeal from said judgment of the trial court was in-terposed 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:_______________

2 Pages 35 to 38, Rollo.724

724SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appeals“WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Pena 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.”3A 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 follow-ing 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 HOLD-ING 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._______________

3 Page 52, Rollo.725

VOL. 193, FEBRUARY 7, 1991725Peña vs. Court of AppealsFourth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLD-ING 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 RE-QUIRED 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 REVERS-ING THE DECISION OF THE TRIAL COURT.”4The petition is impressed with merit.First, the preliminary issues.The respondent court ruled that the trial court has no jurisdic-tion 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 deter-mines the proper and exclusive jurisdiction of the SEC to hear and_______________

4 Pages 12 to 13, Rollo.

5 118 SCRA 602 (1982).726

726SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appealsdecide intra-corporate disputes; that unless the controversy has arisen between and among stockholders of the corpora-tion, or between the stockholders and the officers of the cor-poration, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is neither a stock-holder or officer of the corporation, the same is not within the jurisdiction of the SEC.In Union Glass & Container Corporation vs. Securities and Ex-change 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 as-sociation and the public; (b) between the corporation, partner-ship or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or asso-ciation and the state in so far as its franchise, permit or li-cense to operate is concerned; and (d) among the stockhold-ers, 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 re-spondents 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 princi-pally 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_______________

6 126 SCRA 31, 38 (1983).7 23 SCRA 1141, 1147 (1968).727

VOL. 193, FEBRUARY 7, 1991727Peña vs. Court of Appealsor 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 suf-fered 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 res-olution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses ad-versely 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 re-spondent PAMBUSCO adopted on November 19, 1974, Sec-tion 4, Article III of the amended by-laws of respondent PAM-BUSCO, 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 regu-lar 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 invali-date 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 sup-plied.)8The 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 meet-ing attended by only 3 of the 5 members of the Board of Di-rectors of PAMBUSCO which attendance is short of the num-ber required by the By-Laws of the corporation._______________

8 Exhibit “4-A”.728

728SUPREME COURT REPORTS ANNOTATED

Peña vs. Court of Appealsx x x.“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 re-maining 2 others, namely: Judge Pio Marcos and Alfredo Ma-muyac 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 fa-vor of Marcelino Enriquez pursuant to this resolution also be-comes null and void, x x x”9However, the respondent court overturning said legal conclu-sions 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, x x x.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 al-legation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) mem-bers of the board cf 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 declar-ing 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 provi-sion, as aforequoted, would show that its framers only in-tended 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_______________

9 Pages 92 to 93, Rollo.729

VOL. 193, FEBRUARY 7, 1991729Peña vs. Court of Appealsmeeting 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 sub-ject special meeting is itself declared void, it does not follow that the acts of the board therein are ipso facto void and with-out 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. Con-sidering 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, x x x.”10The Court disagrees.The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corpora-tion. 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.11Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on Novem-ber 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, un-der Section 4 of the amended by-laws hereinabove repro-duced, at least four (4) members must be present to consti-tute 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.12Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as evidenced by a_______________

10 Pages 44 to 45, Rollo.11 8 Fletcher Cyclopedia of the Law of Private Corporations, Perm, Ed., pages 750 to 751.12 Citing Ballantine, page 130.730

730SUPREME COURT REPORTS ANNOTATEDPeña vs. Court of Appealsletter 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 re-maining asset of the corporation in favor of a former corpo-rate officer.As a matter of fact, the three (3) alleged directors who at-tended 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.15Under 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 Sec-tion 28 1/2 of the said law, the sale or disposition of all and/ or substantially all properties of the corporation requires, in ad-dition 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 pur-pose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the pur-pose 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 redemp-tion right of respondent PAMBUSCO by virtue of the ques-tioned resolution was not approved by the required number of stock-_______________

13 Exhibit 19.14 Exhibit 7.15 Exhibit 8.731

VOL. 193, FEBRUARY 7, 1991731Peña vs. Court of Appealsholders under the law, the said resolution, as well as the sub-sequent 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 as-signment, 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 offi-cer, 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 ac-ceptance must be made in the same or in a separate instru-ment. In the latter case, the donor shall be notified of the ac-ceptance in an authentic form and such step must be noted in both instruments.16Non-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 doc-ument, the said deed of assignment is thus void ab initio and of no force and effect.WHEREFORE, the petition is GRANTED. The questioned deci-sion of the respondent Court of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby RE-VERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the trial court.SO ORDERED.     Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur.Petition granted. Decision and resolution annulled and set aside._______________

16 Article 749, Civil Code.17 Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92 Phil. 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969).18 Exhibit 25.732

732SUPREME COURT REPORTS ANNOTATEDNabus vs. Court of AppealsNote.—Purpose of the formal requirements is to insure that the acceptance of the donation is duly communicated to the donor. (Pajarillo vs. Intermediate Appellate Court, 176 SCRA 340.)

——o0o—— [Peña vs. Court of Appeals, 193 SCRA 717(1991)]

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION, petition-ers, vs.COURT OF APPEALS and IGLESIA NI CRISTO, respon-dents.G.R. No. 117897, 14 May 1997.

HERMOSISIMA, JR., J.:

1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated  with the primary purpose of establishing a mosque, school, and other religious infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520 (176616) and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the members of the 1971 Board of Trustees ("Tamano Group")flew to the Middle East to escape political persecution.

Thereafter, two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and Abbas group.

In a suit between the two groups, SEC rendered a decision in 1986 declaring both groups to be null and void. SEC recommeded that the a new by-laws be approved and a new election be con-ducted upon the approval of the by-laws. However, the SEC rec-ommendation was not heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was eventually executed.

In 1991, the Tamano Group filed a petition before the SEC ques-tioning the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against the Carpizo group. INC also moved to compel  a certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title.

The Tamano group sought to intervene, but the intervention was denied despite being informed of the pending SEC case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land, and ordered Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but her appeals were denied.

In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.

MAIN ISSUE: W/N the sale between the Carpizo group and INC is null and void.

RULING: YES.

Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered into with INC is likewise void. Without a valid consent of a contracting party, there can be no valid con-tract.

In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the disputed Deed of Absolute Sale exe-cuted in favor of INC. Therefore, this is a case not only of vitiated consent, but one where consent on the part of one of the sup-posed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

Further, the Carpizo group failed to comply with Section 40 of the Corporation Code, which provides that: " ... a corporation may, by a majority vote of its board of directors or trustees, sell, lease, ex-change, mortgage, pledge or otherwise dispose of all or substan-tially all of its property and assets... when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the out-standing 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...."

The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP. 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 in the case at bar.

ANCILLARY ISSUE: W/N The Ligon ruling constitutes res judi-cata.

RULING: NO.

Section 49(b), Rule 39 enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c), Rule 39 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 mat-ter 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 sec-ond case, only as to those matters actually and directly contro-verted and determined, and not as to matters merely involved therein. This is what is termed "conclusiveness of judgment."

Neither applies to the case at bar. There is no "bar by former judg-ment" since while there may be identity of subject matter (IDP property) in both cases, there is no identity of parties.  The princi-pal parties in the first case were Ligon and the Iglesia Ni Cristo. The IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly represented by a legiti -mate Board of Trustees.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that the primary issue in the first case is the possession of the titles, and not the sale of the land, as in this case.

Corporate Law Case Digest: Datu Tagoranao Benito V. Sec (1983)Download jQuery ControlsDownload jQuery/HTML5 Controls as part of the ULTI-MATE Developer tool

G.R. No. L-56655 July 25, 1983Lessons Applicable: Preemptive Rights (Sec. 39) (Corporate Law)

FACTS:

February 6, 1959: Articles of Incorporation (AIC) of Jamiatul Philippine-Al Islamia, Inc. (Jamiatul) (originally Kamilol Is-lam Institute, Inc.) were filed with the SECDecember 14, 1962: approved AICThe corporation had an authorized capital stock of P200K di-vided into 20K shares at a par value of P10 each. Of the au-thorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid forDatu Tagoranao Benito subscribed to 460 shares worth P4,600October 28, 1975: filed a certificate of increase of its capital stock from P200K to P1MNovember 25, 1975: stockholders meeting was held were P191,560.00 worth of shares were represented

P110,980 worth of shares were subsequently is-sued by the corporation from the unissued portion of the authorized capital stock of P200,000

Of the increased capital stock of P1M0, P160K worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.November 18, 1976: Datu Tagoranao filed with SEC a peti-tion alleging that the additional issue (worth P110,980) was made in violation of his pre-emptive right to said additional issue and that the increase in the authorized capital stock was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agendaSEC: 

issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholdersdirected Jamiatul to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto

ISSUES: W/N the issuance of the P110,980 of authorized capital stock of P200,000 is in violation of pre-emptive right - NOW/N the issuance of the increase in the authorized capital stock is in violation of pre-emptive right

HELD: Dismissed for lack of merit

NOGR: pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares

Theory: when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue

original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized sharesWhen the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.

     2.  NOstockholders' meeting was held which included the increase of its capital stock from P200,000.00 to P1,000,000.00 

he was not notified of said meeting and that he never attended the same as he was out of the coun-try at the time

administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not sup-ported by substantial evidence

G.R. No. L-19761             January 29, 1923PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval Filipina," plaintiff-appellee, vs.MARCIANO RIVERA, defendant-appellant.Araneta and Zaragoza for appellant.Ross and Lawrence for appellee.STREET, J.:This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by the Philippine Trust Company, as as-signee in insolvency of La Cooperativa Naval Filipina, against Mar-ciano Rivera, for the purpose of recovering a balance of P22,500, alleged to be due upon defendant's subscription to the capital stock of said insolvent corporation. The trial judge having given judgment in favor of the plaintiff for the amount sued for, the defen-dant appealed.It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par value of P100 each. Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other persons. The articles of incorporation were duly registered in the Bureau of Commerce and Industry on October 30 of the same year.In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as assignee in bank-ruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid.The reason given for the failure of the defendant to pay the entire subscription is, that not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in ex-cess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half of his subscription. It does not appear that the formalities prescribed in section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in corporations were ob-served, and in particular it does not appear that any certificate was at any time filed in the Bureau of Commerce and Industry, showing such reduction.His Honor, the trial judge, therefore held that the resolution relied upon the defendant was without effect and that the defendant was still liable for the unpaid balance of his subscription. In this we think his Honor was clearly right.It is established doctrine that subscription to the capital of a corpo-ration constitute a find to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release an original sub-scriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner an under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary (14 C. J., 498, 620).In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective sub-scriptions was an attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ulti-mately to rely and, having been effected without compliance with the statutory requirements, was wholly ineffectual.The judgment will be affirmed with cost, and it is so ordered.

540SUPREME COURT REPORTS ANNOTATEDBoman Environmental Dev't. Corp. vs. Court of AppealsNo. L-77860. November 22, 1988.*BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS and NILCAR Y. FAJI-LAN, respondents.Corporation Law; Jurisdiction of the SEC; Intra-corporate Contro-versy; A suit filed by a stockholder against the corporation to en-force the latter's promissory note or to compel the corporation to pay for his shareholdings is cognizable by the SEC alone.—Faji-lan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cog-nizable by the SEC alone which shall determine whether such pay-ment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive_______________

12 Perez vs. Ong Chua, 116 SCRA 732 (1982).13 Ramos, et al. vs. Ramos, et al., supra, citing 90 C.J.S. 887-889; 54 Am. Jur. 449-450.* FIRST DIVISION.541

VOL. 167, NOVEMBER 22, 1988541Boman Environmental Dev't. Corp. vs. Court of Appealssupervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code.Same; Corporations; Trust Fund Doctrine; There can be no distri-bution of assets among stockholders without first paying the corpo-rate creditors.—The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property and other assets of a corpo-ration are regarded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are pre-ferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. "Cred-itors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of directors will not use the assets of the corporation to purchase its own stock ..." (Steinberg vs. Velasco, 52 Phil. 953.)Contracts, Interpretation of; Provisions of existing laws are deemed incorporated in a valid contract without the parties' making express reference to it.—These provisions of the Corporation Code should be deemed written into the agreement between the corporation and the stockholders even if there is no express refer-ence to them in the promissory note. The principle is well settled that an existing law enters into and forms part of a valid contract without need for the parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA 437).PETITION for certiorari to review the decision of the Court of Ap-peals.The facts are stated in the opinion of the Court.     Lim, Duran & Associates for petitioner.     Renato J. Dilag for private respondent.GRIÑO-AQUINO, J.:

The only issue in this case is whether or not a suit brought by a withdrawing stockholder against the corporation to enforce pay-ment of the balance due on the consideration (evidenced by542

542SUPREME COURT REPORTS ANNOTATEDBoman Environmental Dev't. Corp. vs. Court of Appealsa corporate promissory note) for the surrender of his shares of stock and interests in the corporation, involves an intra-corporate dispute. The resolution of that issue will determine whether the Se-curities and Exchange Commission (SEC) or a regular court has jurisdiction over the action.On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of peti-tioner, Boman Environmental Development Corporation (BE-DECO), and to sell to the company all his shares, rights, and inter-ests therein for P300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. The letter-offer (Exh. A-1) reads as follows:"07 May l984

"THE BOARD OF DIRECTORS, BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION 2nd Floor, AGS Building, 466 EDSA, Makati, Metro ManilaGentlemen:."With deepest regrets, I am tendering my resignation as member of the Board of Directors and President of the Company effective as soon as my shares and interests thereto are sold and fully paid.

"It is really painful to leave the Company which we painstakingly labored and nortured for years to attain its success today, how-ever, family interests and other considerations dictate me other-wise."Thank you for your interest of buying my shares and other inter-ests on the Company. It is really my intention to divest myself of these investments and sell them all for PESOS: THREE HUN-DRED THOUSAND (P300,000) payable in cash in addition to the Isuzu pick up I am presently using for and in behalf of the Com-pany."Thank you. NILCAR Y. FAJILAN Director/President" (p. 239, Rollo.)

At a meeting of the Board of Directors of BEDECO on June 14,1984, Fajilan's resignation as president was accepted and new officers were elected. Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay543

VOL. 167, NOVEMBER 22, 1988543Boman Environmental Dev't. Corp. vs. Court of Appealsfor them on a staggered basis from July 15, 1984 to December 15, 1984(Annex B).The resolution of the Board was communicated to Fajilan in the following letter-agreement dated June 25, 1984 to which he affixed his conformity (Annex C):"June 25,1984"Mr. Nilcar Y. Fajilan No. 159 Aramismis Street Project 7, Quezon City"Dear Mr. Fajilan:"Please be informed that after due deliberation the Board of Direc-tors has accepted your offer to sell your share and interest in the company at the price of P300,000.00, inclusive of your unpaid salary from February 1984 to May 31,1984, loan principal, interest on loan, profit sharing and share on book value of the corporation as at May 31,1984. Payment of the P300,000.00 shall be as fol-lows:"July 15, 1984—P100,000.00September 15, 1984—P 75,000.00October 15, 1984—P 62,500.00December 15, 1984—P 62,500.00      P300,000.00."To assure you of payment of the above amount on respective due dates, the company will execute the necessary promissory note."In addition to the above, the Ford Courier Pick-up will belong to you subject to your assumption of the outstanding obligation thereof with Fil-Invest. It is understood that upon your full payment of the pick-up, arrangement will be made and negotiated with Fil-Invest regarding the transfer of the ownership of the vehicle to your name."If the above meets your requirements, kindly signify your conform-ity/approval by signing below.Very truly yours,(SGD) JAMES C. PERALTACorporate Secretary"CONFORME: (SGD) NILCAR Y. FAJILAN544

544SUPREME COURT REPORTS ANNOTATEDBoman Environmental Dev't. Corp. vs. Court of AppealsNoted:

(SGD) ALFREDO S. PANGILINAN(SGD) MAXIMO R. REBALDO(SGD) BENEDICTO M. EMPAYNADO""SUBSCRIBED AND SWORN TO before me, this 3rd day of July, 1984, Alfredo S. Pangilinan exhibiting to me his Residence Certifi-cate No. 1696224 issued at Makati, Metro Manila on January 24, 1984, in his capacity as President of Boman Environmental Devel-opment Corporation with Corporate Residence Certificate No. 207911 issued at Makati, Metro Manila on March 26,1984."(SGD) ERNESTO B. DURANNOTARY PUBLICUntil December 31,1984PTR No. 8582861 Issuedon January 24,1984 atMakati, Metro ManilaDoc. No. 392 Page No. 80 Book No. X Series of 1984." (p. 245, Rollo.)

A promissory note dated July 3, 1984, was signed by BEDECO'S new president, Alfredo Pangilinan, in the presence of two direc-tors, committing BEDECO to pay him P300,000 over a six-month period from July 15, 1984 to December 15, 1984. The promissory note (Exh. D) provided as follows:

"PROMISSORY NOTE

Makati, Metro ManilaJuly 3, 1984     "FOR VALUE RECEIVED, BOMAN ENVIRONMENTAL DEVEL-OPMENT CORPORATION, a domestic corporation duly registered with the Securities and Exchange Commission, with office at Rm. 608, Metro Bank Bldg., Ayala Blvd., Makati, Metro Manila, promise to pay NILCAR Y. FAJILAN of 17 Aramismis St., Project 7, Que-zon City, the sum of PESOS: THREE HUNDRED THOUSAND (P300,000.00), Philippine Currency payable as follows:"P1 00,000.00—July 15, 198475,000.00—Sept. 15, 198462,500.00—October 15, 198462,500.00—Dec. 15, 1984P300,000.00  545

VOL. 167, NOVEMBER 22, 1988545Boman Environmental Dev't. Corp. vs. Court of Appeals BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION By: (SGD)ALFREDO S. PANGILINAN                    President"Signed in the presence of: (SGD) MAXIMO R. REBALDO (SGD) BENEDICTO M. EMPAYNADO" (Annex D, p. 247, Rollo.) However, BEDECO paid only P50,000 on July 15, 1984 and an-other P50,000 on August 31, 1984 and defaulted in paying the bal-ance of P200,000.On April 30,1985, Fajilan filed a complaint in the Regional Trial Court of Makati for collection of that balance from BEDECO.In an order dated September 9,1985, the trial court, through Judge Ansberto Paredes, dismissed the complaint for lack of jurisdiction. It ruled that the controversy arose out of intracorporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide it.His motion for reconsideration of that order having been denied, Fajilan filed a "Petition for Certiorari, and Mandamus with Prelimi-nary Attachment" in the Intermediate Appellate Court.In a decision dated March 2, 1987, the Court of Appeals set aside Judge Paredes' order of dismissal and directed him to take cog-nizance of the case. BEDECO's motion for reconsideration was denied in a resolution dated March 24,1987 of the Court of Ap-peals.In its decision, the Appellate Court characterized the case as a suit for collection of a sum of money as Fajilan "was merely suing on the balance of the promissory note" (p. 4, Decision; p. 196, Rollo) which BEDECO failed and refused to pay in full. More particularly, the Court of Appeals held:"While it is true that the circumstances which led to the execution of the promissory note by the Board of Directors of respondent corporation was an intra-corporate matter, there arose no contro-546

546SUPREME COURT REPORTS ANNOTATEDBoman Environmental Dev't. Corp. vs. Court of Appealsversy as to the sale of petitioner's interests and rights as well as his shares as Member of the Board of Directors and President of respondent corporation. The intra-corporate matter of the resigna-tion of petitioner as Member of the Board of Directors and Presi-dent of respondent corporation has long been settled without is-sue. "The Board of Directors of respondent corporation has like-wise long settled the sale by petitioner of all his shares, rights and interests in favor of the corporation. No controversy arose out of this transaction. The jurisdiction of the Securities and Exchange Commission therefore need not be invoked on this matter." (p. 196, Rollo.)The petition is impressed with merit.Section 5(b) of P.D. No. 902-A, as amended, grants the SEC origi-nal and exclusive jurisdiction to hear and decide cases involving—"b) Controversies arising out of intra-corporate or partnership rela-tions, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or as-

sociation of which they are stockholders, members or associates, respectively; x x x" (Italics supplied.)This case involves an intra-corporate controversy because the par-ties are a stockholder and the corporation. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan's participation and interests in BEDECO and the execution of the promissory note for payment of the price of the sale did not re-move the dispute from the coverage of Section 5(b) of P.D. No. 902, as amended, for both the said agreement (Annex C) and the promissory note (Annex D) arose from intra-corporate relations. In-deed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an intra-cor-porate transaction, hence, this suit is an intra-corporate contro-versy.Fajilan's offer to resign as president and director "effective as soon as my shares and interests thereto (sic) are sold and fully paid" (Annex A-1, p. 239, Rollo) implied that he would remain a stock-holder until his shares and interests were fully paid for, for one cannot be a director or president of a corporation unless he is also a stockholder thereof. The fact that he was replaced as president of the corporation did not necessar-547

VOL. 167, NOVEMBER 22, 1988547Boman Environmental Dev't. Corp. vs. Court of Appealsily mean that he ceased to be a stockholder considering how the corporation failed to complete payment of the consideration for the purchase of his shares of stock and interests in the goodwill of the business. There has been no actual transfer of his shares to the corporation. In the books of the corporation he is still a stock-holder.Fajilan's suit against the corporation to enforce the latter's promis-sory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sec-tions 41 and 122 of the Corporation Code, which reads as follows:"SEC. 41. Power to acquire own shares.—A stock corporation shall have the.power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unre-stricted retained earnings in its books to cover the shares to be purchased or acquired;"1. To eliminate fractional shares arising out of stock dividends;"2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and"3. To pay dissenting or withdrawing stockholders entitled to pay-ment for their shares under the provisions of this Code,""Sec. 12. Corporate liquidation. xxx.x x x      x x x      x x x"Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or prop-erty except upon lawful dissolution and after payment of all its debts and liabilities, (77a, 89a, 16a)."These provisions of the Corporation Code should be deemed writ-ten into the agreement between the corporation and the stockhold-ers even if there is no express reference to them in the promissory note. The principle is well settled that an548

548SUPREME COURT REPORTS ANNOTATEDBoman Environmental Dev't. Corp. vs. Court of Appealsexisting law enters into and forms part of a valid contract without need for the parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA 437).The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property and other assets of a corporation are re-garded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first pay-ing corporate creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. "Creditors of a corpo-ration have the right to assume that so long as there are outstand-ing debts and liabilities, the board of directors will not use the as-sets of the corporation to purchase its own stock . . ."(Steinberg vs. Velasco, 52 Phil. 953.)WHEREFORE, the petition for certiorari is granted, The decision of the Court of Appeals is reversed and set aside. The order of the trial court dismissing the complaint for lack of jurisdiction is hereby reinstated. No costs.SO ORDERED.     Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.Petition granted. Decision set aside.Note.—Disputes involving controversies between and among stockholders fall within the original and exclusive jurisdiction of the Securities and Exchange Commission under Section 6 of Presi-dential Decree No. 902-A. (Abejo vs. Dela Cruz, 149 SCRA 654).——o0o——

[Boman Environmental Dev't. Corp. vs. Court of Appeals, 167 SCRA 540(1988)]

G.R. No. L-17504 & L-17506             February 28, 1969RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena Salas, as stockholders on their own behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other stockholders thereof who may wish to join in this action, plaintiffs-appellants, vs.MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO, defendants-appellants.San Juan, Africa and Benedicto for plaintiffs-appellants.Vicente Hilado and Gianzon, Sison, Yulo and Associates for de-fendants-appellants.CAPISTRANO, J.:This was a representative or derivative suit commenced on Octo-ber 20, 1953, in the Court of First Instance of Manila by four minor-ity stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado Araneta and three other directors of the corporation.The complaint comprising the period November, 1946 to October, 1952, stated five causes of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of self-dealing irregular loans, and unau-thorized investments; (2) for alleged gross mismanagement; (3) for alleged forfeiture of corporate rights warranting dissolution; (4) for alleged damages and attorney's fees; and (5) for receivership.Plaintiffs prayed, in substance, as follows:Under the FIRST CAUSE OF ACTION, that the defendant J. Amado Araneta and his individual co-defendants be ordered to render an accounting of all transactions made and carried out by them for defendant corporation, and "to collect, produce and/or pay to the defendant corporation the outstanding balance of the amounts so diverted and still unpaid to defendant corporation";Under the SECOND CAUSE OF ACTION, that the individual de-fendants be held liable and be ordered to pay to the defendant cor-poration "whatever amounts may be recovered by the plaintiffs in Civil Case No. 20122, entitled 'Francisco Rodriguez vs. Ma-ao Sugar Central Co.'"; to return to the defendant corporation all amounts withdrawn by way of discretionary funds or backpay, and to account for the difference between the corporation's crop loan accounts payable and its crop loan accounts receivable;Under the THIRD CAUSE OF ACTION, that the corporation be dissolved and its net assets be distributed to the stockholders; andUnder the FOURTH CAUSE OF ACTION, that the defendants be ordered "to pay the sum of P300,000.00 by way of compensatory, moral and exemplary damages and for expenses of litigation, in-cluding attorney's fees and costs of the suit."THE FIFTH CAUSE OF ACTION was an application for the provi-sional remedy of receivership.In their answer originally filed on December 1, 1953, and amended on February 1, 1955, defendants denied "the allegations regarding the supposed gross mismanagement, fraudulent use and diversion of corporate funds, disregard of corporate requirements, abuse of trust and violation of fiduciary relationship, etc., supposed to have been discovered by plaintiffs, all of which are nothing but gratu-itous, unwarranted, exaggerated and distorted conclusions not supported by plain and specific facts and transactions alleged in the complaint."BY WAY OF SPECIAL DEFENSES, the defendants alleged, among other things: (1) that the complaint "is premature, improper and unjustified"; (2) that plaintiffs did not make an "earnest, not simulated effort" to exhaust first their remedies within the corpora-tion before filing their complaint; (3) that no actual loss had been suffered by the defendant corporation on account of the transac-tions questioned by plaintiffs; (4) that the payments by the debtors of all amounts due to the defendant corporation constituted a full, sufficient and adequate remedy for the grievances alleged in the complaint and (5) that the dissolution and/or receivership of the defendant corporation would violate and impair the obligation of existing contracts of said corporation.BY WAY OF COUNTERCLAIM, the defendants in substance fur-ther alleged, among others, that the complaint was premature, im-proper and malicious, and that the language used was "unneces-sarily vituperative abusive and insulting, particularly against defen-dant J. Amado Araneta who appears to be the main target of their hatred." Wherefore, the defendant sought to recover "compensa-tion for damages, actual, moral, exemplary and corrective, includ-ing reasonable attorney's fees."After trial, the Lower Court rendered its Decision (later supple-mented by an Order resolving defendants' Motion for Reconsidera-tion), the dispositive portion of which reads:IN VIEW WHEREOF, the Court dismisses the petition for dissolu-tion but condemns J. Amado Araneta to pay unto Ma-ao Sugar Central Co., Inc. the amount of P46,270.00 with 8% interest from the date of the filing of this complaint, plus the costs; the Court reit-erates the preliminary injunction restraining the Ma-ao Sugar Cen-tral Co., Inc. management to give any loans or advances to its offi-cers and orders that this injunction be as it is hereby made, perma-nent; and orders it to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other company whose purpose is not connected with the Sugar Central business; costs of plain-tiffs to be borne by the Corporation and J. Amado Araneta.From this judgment both parties appealed directly to the Supreme Court.

Before taking up the errors respectively, assigned by the parties, we should state that the following findings of the Lower Court on the commission of corporate irregularities by the defendants have not been questioned by the defendants:1. Failure to hold stockholders' meetings regularly. No stockhold-ers' meetings were held in 1947, 1950 and 1951;2. Irregularities in the keeping of the books. Untrue entries were made in the books which could not simply be considered as inno-cent errors;3. Illegal investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining, P7,000.00. The investments were made not in pur-suance of the corporate purpose and without the requisite author-ity of two-thirds of the stockholders;4. Unauthorized loans to J. Amado Araneta totalling P132,082.00 (which, according to the defendants, had been fully paid), in viola-tion of the by-laws of the corporation which prohibits any director from borrowing money from the corporation;5. Diversion of corporate funds of the Ma-ao Sugar Central Co., Inc. to:J. Amado Araneta & Co.P243,415.62Luzon Industrial Corp.585,918.17Associated Sugar463,860.36General Securities86,743.65Bacolod Murcia501,030.61Central Azucarera del Danao97,884.42Talisay-Silay4,365.90The Court found that sums were taken out of the funds of the Ma-ao Sugar Central Co., Inc. and delivered to these affiliated compa-nies, and vice versa, without the approval of the Ma-ao Board of Directors, in violation of Sec. III, Art. 6-A of the by-laws.The errors assigned in the appeal of the plaintiffs, as appellants, are as follows:I.THE LOWER COURT ERRED IN HOLDING THAT THE INVESTMENT OF CORPORATE FUNDS OF THE MA-AO SUGAR CENTRAL CO., INC., IN THE PHILIPPINE FIBER PROCESSING CO., INC. WAS NOT A VIOLATION OF SEC. 17-½ OF THE CORPORATION LAW.II.THE LOWER COURT ERRED IN NOT FINDING THAT THE MA-AO SUGAR CENTRAL CO., INC. WAS INSOLVENT.III.THE LOWER COURT ERRED IN HOLDING THAT THE DIS-CRIMINATORY ACTS COMMITTED AGAINST PLANTERS DID NOT CONSTITUTE MISMANAGEMENT.IV.THE LOWER COURT ERRED IN HOLDING THAT ITS CULPA-BLE ACTS WERE INSUFFICIENT FOR THE DISSOLUTION OF THE CORPORATION.The portions of the Decision of the Lower Court assailed by the plaintiffs as appellants are as follows:(1) ".... Finally, as to the Philippine Fiber, the Court takes it that de-fendants admit having invested P655,000.00 in shares of stock of this company but that this was ratified by the Board of Directors in Resolutions 60 and 80, Exhibits "R" and "R-2"; more than that, de-fendants contend that since said company was engaged in the manufacture of sugar bags it was perfectly legitimate for Ma-ao Sugar either to manufacture sugar bags or invest in another corpo-ration engaged in said manufacture, and they quote authorities for the purpose, pp. 28-31, memorandum; the Court is persuaded to believe that the defendants on this point are correct, because while Sec. 17-1/2 of the Corporation Law provides that:No corporation organized under this act shall invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized unless its board of di-rectors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal at the stockholders' meeting called for the purpose.the Court is convinced that that law should be understood to mean as the authorities state, that it is prohibited to the Corporation to in-vest in shares of another corporation unless such an investment is authorized by two-thirds of the voting power of the stockholders, if the purpose of the corporation in which investment is made is for-eign to the purpose of the investing corporation because surely there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corpora-tion and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the Power of the Board of Directors; the only trouble here is that the investment was made without any previous authority of the Board of Directors but was only ratified afterwards; this of course would have the effect of le-galizing the unauthorized act but it is an indication of the manner in which corporate business is transacted by the Ma-ao Sugar ad-ministration, the fact that off and on, there would be passed by the Board of Directors, resolutions ratifying all acts previously done by the management, e.g. resolutions passed on February 25, 1947, and February 25, 1952, by the Board of Directors as set forth in the affidavit of Isidro T. Dunca p. 127, etc. Vol. 1. (Decision, pp. 239-241 of Record on Appeal.)

x x x           x x x           x x x(2) "On the other hand, the Court has noted against plaintiffs that their contention that Ma-ao Sugar is on the verge of bankruptcy has not been clearly shown; against this are Exh. C to Exh. C-3 perhaps the best proof that insolvency is still far is that this action was filed in 1953 and almost seven years have passed since then without the company apparently getting worse than it was before; ..." (Decision, pp. 243-244, supra.)x x x           x x x           x x x(3) "As to the crop loan anomalies in that instead of giving unto the planters the entire amount alloted for that, the Central withheld a certain portion for their own use, as can be seen in Appendix A of Exh. C-1, while the theory of plaintiffs is that since between the amount of P3,791,551.78 the crop loan account payable, and the amount of P1,708,488.22, the crop loan receivable, there is a dif-ference of P2,083,063.56, this would indicate that this latter sum had been used by the Central itself for its own purposes; on the other hand, defendants contend that the first amount did not repre-sent the totality of the crop loans obtained from the Bank for the purpose of relending to the planters, but that it included the Cen-tral's own credit line on its 40% share in the standing crop; and that this irregularity amounts to a grievance by plaintiffs as planters and not as stockholders, the Court must find that as to this count, there is really reason to find that said anomaly is not a clear basis for the derivative suit, first, because plaintiffs' evidence is not very sufficient to prove clearly the alleged diversion in the face of defen-dants' defense; there should have been a showing that the Central had no authority to make the diversion; and secondly, if the anom-aly existed, there is ground to hold with defendants that it was an anomaly pernicious not to the Central but to the planters; it was not even pernicious to the stockholders.Going to the discriminatory acts of J. Amado Araneta, namely, ma-nipulation of cane allotments, withholding of molasses and alcohol shares, withholding of trucking allowance, formation of rival planters associations, refusal to deal with legitimate planters group, Exh. S; the Court notices that as to the failure to provide hauling transportation, this in a way is corroborated by Exh. 7, that part containing the decision of the Court of First Instance of Manila, civil 20122, Francisco Rodriguez v. Ma-ao Sugar; for the reason, however, that even if these were true, those grievances were grievances of plaintiffs as planters and not as stockholders — just as the grievance as to the crop loans already adverted to, — this Court will find insufficient merit on this count. (Decision, pp. 230-231, supra.)x x x           x x x           x x x(4) "...; for the Court must admit its limitations and confess that it cannot pretend to know better than the Board in matters where the Board has not transgressed any positive statute or by-law espe-cially where as here, there is the circumstance that presumably, an impartial representative in the Board of Directors, — the one from the Philippine National Bank, — against whom apparently plaintiffs have no quarrel, does not appear to have made any protest against the same; the net result will be to hold that the culpable acts proved are not enough to secure a dissolution; the Court will only order the correction of abuses, proved as already mentioned; nor will the Court grant any more damages one way or the other. (Decision, p. 244, supra.)On the other hand, the errors assigned in the appeal of the defen-dants as appellants are as follows:I.THE LOWER COURT ERRED IN ADJUDGING J. AMADO ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO., INC., THE AMOUNT OF P46,270.00, WITH 8% INTEREST FROM THE DATE OF FILING OF THE COMPLAINT.II.THE LOWER COURT ERRED IN NOT ORDERING THE PLAINTIFFS TO PAY THE DEFENDANTS, PARTICULARLY J. AMADO ARANETA, THE DAMAGES PRAYED FOR IN THE COUNTERCLAIM OF SAID DEFENDANTS.The portions of the Decision of the Lower Court assailed by the defendants as appellants are as follows:(1) "As to the alleged juggling of books in that the personal ac-count of J. Amado Araneta of P46,270.00 was closed on October 31, 1947 by charges transferred to loans receivable nor was inter-est paid on this amount, the Court finds that this is related to charge No. 1, namely, the granting of personal loans to J. Amado Araneta; it is really true that according to the books, and as admit-ted by defendants, J. Amado Araneta secured personal loans; in 1947, the cash advance to him was P132,082.00 (Exh. A); the Court has no doubt that this was against the By-Laws which pro-vided that:The Directors shall not in any case borrow money from the Com-pany. (Sec. III, Art. 7);the Court therefore finds this count to be duly proved; worse, the Court also finds that as plaintiffs contend, while the books of the Corporation would show that the last balance of P46,270.00 was written off as paid, as testified to by Auditor Mr. Sanchez, the pay-ment appeared to be nothing more than a transfer of his loan re-ceivable account, stated otherwise, the item was only transferred from the personal account to the loan receivable account, so that again the Court considers established the juggling of the books; and then again, it is also true that the loans were secured without any interest and while it is true that in the Directors' meeting of 21 October, 1953, it was resolved to collect 8%, the Court does not see how such a unilateral action of the Board could bind the bor-rowers. Be it stated that defendants have presented in evidence Exh. 5 photostatic copy of the page in loan receivable and it is

sought to be proved that J. Amado Araneta's debt was totally paid on 31 October, 1953; to the Court, in the absence of definite pri-mary proof of actual payment having found out that there had al-ready been a juggling of books, it cannot just believe that the amount had been paid as noted in the books. (Decision, pp. 233-235 of Record on Appeal.)(2) "With respect to the second point in the motion for reconsidera-tion to the effect that the Court did not make any findings of fact on the counterclaim of defendants, although the Court did not say that in so many words, the Court takes it that its findings of fact on pages 17 to 21 of its decision were enough to justify a dismissal of the counterclaim, because the counterclaims were based on the fact that the complaint was premature, improper, malicious and that the language is unnecessarily vituperative abusive and insult-ing; but the Court has not found that the complaint is premature; nor has the Court found that the complaint was malicious; these findings can be gleaned from the decision with respect to the alle-gation that the complaint was abusive and insulting, the Court does not concur; for it has not seen anything in the evidence that would justify a finding that plaintiffs and been actuated by bad faith, nor is there anything in the complaint essentially libelous; es-pecially as the rule is that allegations in pleading where relevant, are privileged even though they may not clearly proved afterwards; so that the Court has not seen any merit in the counterclaims; and the Court had believed that the decision already carried with it the implication of the dismissal of the counterclaims, but if that is not enough, the Court makes its position clear on this matter in this or-der, and clarifies that it has dismissed the counterclaims of defen-dant; ..." (Order of September 3, 1960, pp. 248-249, supra.)Regarding Assignment of Errors Nos. 2, 3 and 4 contained in the brief of the plaintiffs as appellants, it appears to us that the Lower Court was correct in its appreciation (1) that the evidence pre-sented did not show that the defendant Ma-ao Sugar Company was insolvent (2) that the alleged discriminatory acts committed by the defendant Central against the planters were not a proper sub-ject of derivative suit, but, at most, constituted a cause of action of the individual planters; and (3) that the acts of mismanagement complained of and proved do not justify a dissolution of the corpo-ration.Whether insolvency exists is usually a question of fact, to be deter-mined from an inventory of the assets and their value, as well as a consideration of the liabilities.... But the mere impairment of capital stock alone does not establish insolvency there being other evi-dence as to the corporation being a going concern with sufficient assets. Also, the excess of liabilities over assets does not estab-lish insolvency, when other assets are available. (Fletcher Cyc. of the Law of Private Corporations, Vol. 15A, 1938 Ed pp. 34-37; Em-phasis supplied).But relief by dissolution will be awarded in such cases only where no other adequate remedy is available, and is not available where the rights of the stockholders can be, or are, protected in some other way. (16 Fletcher Cyc. Corporations, 1942 Ed., pp. 812-813, citing "Thwing v. McDonald", 134 Minn. 148, 156 N.W. 780, 158 N.W. 820, 159 N.W. 564, Ann. Cas. 1918 E 420; Mitchell v. Bank of St. Paul, 7 Minn. 252).The First Assignment of Error in the brief of the plaintiffs as appel-lants, contending that the investment of corporate funds by the Ma-ao Sugar Co., Inc., in another corporation (the Philippine Fiber Processing Co., Inc.) constitutes a violation of Sec. 17-½ of the Corporation Law, deserves consideration.Plaintiffs-appellants contend that in 1950 the Ma-ao Sugar Central Co., Inc., through its President, J. Amado Araneta,, subscribed for P300,000.00 worth of capital stock of the Philippine Fiber Process-ing Co. Inc., that payments on the subscription were made on Sep-tember 20, 1950, for P150,000.00, on April 30, 1951, for P50,000.00, and on March 6, 1952, for P100,000.00; that at the time the first two payments were made there was no board resolu-tion authorizing the investment; and that it was only on November 26, 1951, that the President of Ma-ao Sugar Central Co., Inc., was so authorized by the Board of Directors.In addition, 355,000 shares of stock of the same Philippine Fiber Processing Co., Inc., owned by Luzon Industrial, corporation were transferred on May 31, 1952, to the defendant Ma-ao Sugar Cen-tral Co., Inc., with a valuation of P355,000.00 on the basis of P1.00 par value per share. Again the "investment" was made without prior board resolution, the authorizing resolution having been sub-sequentIy approved only on June 4, 1952.Plaintiffs-appellants also contend that even assuming, arguendo, that the said Board Resolutions are valid, the transaction, is still wanting in legality, no resolution having been approved by the af-firmative vote of stockholders holding shares in the corporation en-titling them to exercise at least two-thirds of the voting power, as required in Sec. 17-½ of the Corporation Law.The legal provision invoked by the plaintiffs, as appellants, Sec. 17-½ of the Corporation Law, provides:No corporation organized under this act shall invest its funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, unless its board of di-rectors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal at a stockholders' meeting called for the purpose ....On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the Corporation Law, which provides:SEC. 13. — Every corporation has the power:x x x           x x x           x x x

(9) To enter into any obligation or contract essential to the proper administration of its corporate affairs or necessary for the proper transaction of the business or accomplishment of the purpose for which the corporation was organized;(10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of incorporation, to acquire, hold, mortgage, pledge or dispose of shares, bonds, se-curities and other evidences of indebtedness of any domestic or foreign corporation.A reading of the two afore-quoted provisions shows that there is need for interpretation of the apparent conflict.In his work entitled "The Philippine Corporation Law," now in its 5th edition, Professor Sulpicio S. Guevara of the University of the Philippines, College of Law, a well-known authority in commercial law, reconciled these two apparently conflicting legal provisions, as follows:j. Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish its purpose as stated in its arti-cles 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 evi-dences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of ap-proval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations es-tablished by the Corporation Law; namely, (a) that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation; or (b) that a non-agricultural or non-mining corporation shall be restricted to own not more than 15% of the voting stock of any agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of com-merce or combination in restraint of trade. (The Philippine Corpo-ration Law by Sulpicio S. Guevara, 1967 Ed., p. 89.) (Emphasis ours.)lawphi1.nêt40. Power to invest corporate funds. — A private corporation has the power to invest its corporate funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stock-holders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided fur-ther, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stock-holders is not necessary. (Id., p. 108.) (Emphasis ours.)We agree with Professor Guevara.We therefore agree with the finding of the Lower Court that the in-vestment in question does not fall under the purview of Sec. 17- ½ of the Corporation Law.With respect to the defendants' assignment of errors, the second (referring to the counterclaim) is clearly without merit. As the Lower Court aptly ruled in its Order of September 3, 1960 (resolv-ing the defendants' Motion for Reconsideration) the findings of fact were enough to justify a dismissal of the counterclaim, "because the counterclaims were based on the fact that the complaint was premature, improper, malicious and that the language is unneces-sarily vituperative abusive and insulting; but the Court has not found that the complaint is premature; nor has the Court found that the complaint was malicious; these findings can be gleaned from the decision; with respect to the allegation that the complaint was abusive and insulting, the Court does not concur; for it has not seen anything in the evidence that would justify a finding that plaintiffs had been actuated by bad faith, nor is there anything in the complaint essentially libelous especially as the rule is that alle-gations in pleadings where relevant, are privileged even though they may not be clearly proved afterwards; ..."As regards defendants' first assignment of error, referring to the status of the account of J. Amado Araneta in the amount of P46,270.00, this Court likewise agrees with the finding of the Lower Court that Exhibit 5, photostatic copy of the page on loans receivable does not constitute definite primary proof of actual pay-ment, particularly in this case where there is evidence that the ac-count in question was transferred from one account to another. There is no better substitute for an official receipt and a cancelled check as evidence of payment.In the judgment, the lower court ordered the management of the Ma-ao Sugar Central Co., Inc. "to refrain from making investments in Acoje Mining, Mabuhay Printing and any other company whose purpose is not connected with the sugar central business." This portion of the decision should be reversed because, Sec. 17-½ of the Corporation Law allows a corporation to "invest its fund in any other corporation or business, or for any purpose other than the main purpose for which it was organized," provided that its board of directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power.IN VIEW OF ALL THE FOREGOING, that part of the judgment which orders the Ma-ao Sugar Central Co., Inc. "to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other: company whose purpose is not connected with the sugar

central business," is reversed. The other parts of the judgment are, affirmed. No special pronouncement as to costs.Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Castro, Fernando and Barredo, JJ., concur.Makalintal, Sanchez and Teehankee, JJ., took no part.

G.R. No. 76801 August 11, 1995LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs.FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LA-BOR RELATIONS COMMISSION, respondents. PUNO, J.:The controversy at bench arose from a complaint filed by private respondents, 1 namely, Florentina Fontecha, Mila Refuerzo, Mar-cial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorpo-rated (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 busi-ness, while petitioner Asuncion Lopez Gonzales is one of its ma-jority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows:

1Asuncion Lopez Gonzales7831shares2Teresita Lopez Marquez7830shares3Arturo F. Lopez7830shares4Rosendo de Leon4shares5Benjamin Bernardino1share6Leo Rivera1share

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 em-ployees 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 stock-holder Teresita Lopez Marquez died.On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Direc-tors, 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 em-ployees 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. (em-phasis supplied)Private respondents were the retained employees of petitioner cor-poration. 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 remain-ing employees will receive another 25% (of their gratuity) on or be-fore 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 deriva-tive 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) in-stallments 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 re-spondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were can-celled 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 respon-dents' repeated demands for their gratuity pay, corporation refused to pay the same. 4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela ren-dered judgment in favor of private respondents. 5

Petitioners appealed the adverse ruling of the Labor arbiter to pub-lic respondent National Labor Relations Commission. The appeal focused on the alleged non-ratification and non-approval of the as-sailed 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 pe-titioner corporation since, pursuant to Resolution No. 6, dated Sep-tember 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retire-ment.On November 20, 1985, public respondent, through its Second Di-vision, 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 ef-fect, 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 legit-imate creation of the Board of Directors who steered the corporate affairs of the corporation. . . .Respondents' (petitioners') allegation that the three (3) com-plainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Ma-maril, 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 respon-dents' 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 gratu-ities to complainants Perfecto Bautista, Florentina Fontecha, Mar-cial 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 deci-sion.We affirm.WHEREFORE, let the appealed decision be, as it is hereby, AF-FIRMED and let the instant appeal (be) dismissed for lack of merit.SO ORDERED.Petitioners reconsidered. 7 In their motion for reconsideration, peti-tioners assailed the validity of the board resolutions passed on Au-gust 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 mo-tion for reconsideration was denied by the Second Division on July 24, 1986.On September 4, 1986, petitioners filed another motion for recon-sideration. 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 Re-straining Order, 9 enjoining public respondent from enforcing or ex-ecuting 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 reso-lutions 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 re-tained 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 respon-dent National Labor Relations Commission, or after said public re-spondent 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 resolu-tions and (b) the alleged "mistake" committed by petitioner corpo-ration 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. Pri-vate respondents claim, further, that such failure on the part of pe-titioners, 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 cor-poration, including petitioner Asuncion Lopez Gonzales. 12

Indeed, it would be offensive to the basic rules of fair play and jus-tice 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 can-not, be raised for the first time on appeal. 13 Hence, petitioners may not invoke any other ground, other than those it specified at the la-bor 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 direc-tors, 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 direc-tors 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 le-gal 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, accep-tance or acquiescence. Ratification may be effected by a resolu-tion 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 di -rectors 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 reso-lutions 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 Re-fuerzo, 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 acqui-esced 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, evi-dencing the 2nd installment of the gratuity pay of private respon-dents Mila Refuerzo and Florentina Fontecha. 18

We hold, therefore, that the conduct of petitioners after the pas-sage 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 reso-lutions 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 exer-cise 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 pow-ers of the corporation under the Corporation Code, hence, petition-ers 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 re-signed from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board res-olutions dated August 17, 1981 and September 1, 1981, respec-tively, 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 al-ready 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 An-nual 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 substan-tially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the autho-rization 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 direc-tors. Under the circumstances in field, it will be illogical and super-fluous to require the stockholders' approval of the subject resolu-tions. 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 Na-tional Labor Relations Commission in NLRC-NCR-2176-82 is AF-FIRMED. This decision is immediately executory. Costs against petitioners.SO ORDERED.

G.R. No. L-4935             May 28, 1954J. M. TUASON & CO., INC., represented by it Managing PART-NER, GREGORIA ARANETA, INC., plaintiff-appellee, vs.QUIRINO BOLAÑOS, defendant-appellant.Araneta and Araneta for appellee.Jose A. Buendia for appellant.REYES, J.:This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original complaint described the land as a portion of a lot regis-tered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares more or less. But the complaint was amended by reducing the area of 6 hectares, more or less, after the defen-dant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in another cer-tificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after defendant's sur-veyor and witness, Quirino Feria, had testified that the area occu-pied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations conform to the evidence.Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious posses-sion (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication to defendant and/or predeces-sors in interest." The answer therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and order-ing him to restore possession thereof to plaintiff and to pay the lat-ter a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors:I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest.II. The trial court erred in admitting the third amended complaint.III. The trial court erred in denying defendant's motion to strike.IV. The trial court erred in including in its decision land not involved in the litigation.V. The trial court erred in holding that the land in dispute is cov-ered by transfer certificates of Title Nos. 37686 and 37677.Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January, 1940, until he vacates the premises.VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the com-plaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corpo-ration being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its man-aging partner" is not in line with the corporate business of either of them.Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to sec-tion 4 of Rule 17, Rules of Court, which sanctions such amend-ment. It reads:Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall be so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.Under this provision amendment is not even necessary for the pur-pose of rendering judgment on issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court:Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant has himself raised the point on which recovery is based, and that the appellate court treat the pleadings as amended to conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)Our conclusion therefore is that specification of error II, III, and IV are without merit..Let us now pass on the errors V and VI. Admitting, though his at-torney, at the early stage of the trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant later changed his lawyer and also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square me-ters, more or less, covered by transfer certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-

C and major on portion of lot 4-B-4, and is well within the area cov-ered by the two transfer certificates of title already mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither court the decree be col-laterally attacked by any person claiming title to, or interest in, the land prior to the registration proceedings. (Soroñgon vs. Makalin-tal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notori-ous and continuous possession under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a de-cree of registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose Alcantara et al., vs. Ma-riano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that that reasonable compensation for the use and occupation of the premises, as stip-ulated at the hearing was P10 a month for each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and wit-ness Emigdio Tanjuatco that as early as 1939 an action of eject-ment had already been filed against defendant. And it cannot be supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have always been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus clearly without merit.Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pend-ing before the Court of First Instance of Rizal another action be-tween the same parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed in said ac-tion. But an examination of that complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in the two suits does not appear. That other case is one for recovery of ownership, while the present one is for re-covery of possession. And while appellant claims that he is also in-volved in that order action because it is a class suit, the complaint does not show that such is really the case. On the contrary, it ap-pears that the action seeks relief for each individual plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit.Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.