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G.R. No. 131214 July 27, 2000 Hence, this appeal.

5

BA SAVINGS BANK, petitioner, vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents. DECISION PANGANIBAN, J.: The certificate of non-forum shopping required by Supreme Court Circular 28-91 may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents. The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing 1 2 the August 6, 1997 Resolution of the Court of Appeals (CA) in CA-GR SP No. 43209. Also challenged by petitioner is the October 24, 1997 CA Resolution denying its Motion for Reconsideration. The Facts On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that "the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x." A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was a 4 BA Savings Bank Corporate Secretarys Certificate, dated August 14, 1997. The Certificate showed that the petitioners Board of Directors approved a Resolution on May 21, 1996, authorizing the petitioners lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme Court Revised Circular No. 28-91 "requires that it is the petitioner, not the counsel, who must certify under oath to all of the facts and undertakings required therein."
3

Issue In its Memorandum, petitioner submits the following issues for the consideration of the Court: "I Whether or not petitioner-corporations lawyers are authorized to execute and sign the certificate of non-forum shopping. x x x "II Whether or not the certification of petitioners authorized lawyers will bind the corporation. "III Whether or not the certification by petitioner corporations lawyers is in compliance 6 with the requirements on non-forum shopping." Simply stated, the main issue is whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf. The Courts Ruling The Petition is meritorious. Main Issue: Authority of Counsel A corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. "All acts within the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are 7 agents of individuals and private persons." In the present case, the corporations board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceeding before the Supreme

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Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. As already stated, corporations act only through their officers and duly authorized agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate entity, only by specifically authorized individuals. It is noteworthy that the Circular does not require corporate officers to sign the certificate.1wphi1 More important, there is no prohibition against authorizing agents to do so. In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. Consistent with this rationale, the Court en banc in Robern Development Corporation v. Judge 8 Jesus Quitain has allowed even an acting regional counsel of the National Power Corporation to sign, among others, the certificate of non-forum shopping required by Circular 28-91. The Court held that the counsel was "in the best position to verify the truthfulness and the correctness of the allegations in the Complaint" and "to know and to certify if an action x x x 9 had already been filed and pending with the courts." Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We see no circumvention of this rationale if the certificate was signed by the corporations specifically authorized counsel, who had personal knowledge of the matters 10 required in the Circular. In Bernardo v. NLRC, we explained that a literal interpretation of the Circular should be avoided if doing so would subvert its very rationale. Said the Court: "x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping." Finally, we stress that technical rules of procedure should be used to promote, not frustrate, 11 justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal. WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continue the proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs. SO ORDERED.

G.R. No. L-25400

January 14, 1927

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee. PHIL. C. WHITAKER, intevenor-appellant. Jose Abad Santos for plaintiff-appellee. No appearance for defendant-appellee. Ross, Lawrence & Selph, Thomas Cary Welch and Paredes, Buencamino & Yulo for appellant. MALCOLM, J.: This appeal involves the legal right of the Philippine National Bank to obtain a judgment against the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the property of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C. Whitaker as intervenor to obtain a judgment declaring the mortgage which the Philippine National Bank seeks to foreclose to be without force and effect, requiring an accounting from the Philippine National Bank of the sales of the property and assets of the Philippine Vegetable Oil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine National Bank to pay him the sum of P4,424,418.37. In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil Company, found itself in financial straits. It was in debt to the extent of approximately P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil Company owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The Philippine National Bank was secured principally by a real and chattel mortgage for P3,500,000. On January 10, 1921, the Vegetable Oil Company executed another chattel mortgage in favor of the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to exceed P4,000,000. This was the precarious situation which in the latter part of 1920 and the early part of 1921 confronted the Vegetable Oil Company, its General Manager Phil. C. Whitaker, the Philippine National Bank, and the various creditors of the Vegetable Oil Company. Bankruptcy was

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imminent. On January 1, 1921, Mr. Whitaker made his first offer to pledge certain private properties to secure the creditors of the Oil Company (Intervenor's Exhibit 1). In February of the same year, a creditors' meeting was held. At the instance of Mr. Whitaker but inspired to such action by the bank, a receiver for the Vegetable Oil Company was appointed by the Court of First Instance of Manila on March 11, 1921. (Case No. 19644, Court of First Instance of Manila.) During the period when a receiver was in control of the property of the Vegetable Oil Company, a number of events occurred. The first was the agreement perfected by the Vegetable Oil Company, Mr. Whitaker, and some of the creditors of the Oil Company on June 27, 1921, the creditors transferred to Mr. Whitaker a part of their claims against the Vegetable Oil Company in consideration of the execution by Mr. Whitaker of a trust deed of his property. The Philippine National Bank was not a direct party to the agreement although the officials of the bank had full knowledge of its accomplishment and the general manager of the bank placed his O. K. at the end of the final draft. (Intervenor's Exhibit 10.) The next move of the bank was to obtain a new mortgage from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, on February 28, 1922, the receivership for the Vegetable Oil Company was terminated. The bank suspended the operation of the Vegetable Oil Company in May, 1922, and definitely closed the Oil Company's plant on August 14, 1922. Out of the foregoing facts which are not in dispute and others which are in dispute, arose the action of the Philippine National Bank of May 7, 1924, to foreclose its mortgage on the property of the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain special defenses which need not be described and with the interposition of a counterclaim for P6,000,000. Phil. C. Whitaker presented a complaint in intervention. The judgment rendered was in favor of the plaintiff and against the defendant which was ordered to pay the sum of P15,787,454.54, representing the liquidation between the plaintiff and the defendant, with legal interest beginning with May 8, 1923, together with P25,000 attorney's fees, and costs, with the addition of the usual order to foreclose the mortgage. The counterclaim of the defendant and the complaint in intervention were dismissed. The trial judge in his decision announced and answered three questions, viz: (1) Whether the execution of the mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2) whether this mortgage was null and without force because at the time of its execution all the property of the defendant was under the control of a receiver appointed by the court and neither the approval of the receiver nor of the court had been obtained; and (3) whether the plaintiff had failed to comply with the contract, that it was alleged to have celebrated with the defendant and the intervenor, that it would furnish funds to the defendant so that it could continue operating its factory. Much the same analysis of the issues is made by the intervenor as appellant. The first error, in relation with the sixth error of the assignment of errors, concerns the holding that the mortgage, Exhibit A, has been legally and validly executed by the Philippine Vegetable Oil Co., Inc. The second, third, fourth, and fifth errors, in relation with the sixth error of the assignment of errors, concern the holding that the Philippine National Bank had not bound itself to finance the operation of the Philippine Vegetable Oil Co., Inc. In this later connection, the main point at issue between the Philippine National Bank and Phil. C. Whitaker as disclosed by the amended answer of the Philippine National Bank to the complaint in intervention, and the opening sentence of the memorandum for intervenor-appellant filed in this court, is whether the Philippine National Bank ever made any contract binding the bank to provide the necessary operating capital to the Philippine Vegetable Oil Co., Inc., and whether Mr. Whitaker has established his right to recover damages from the bank by reason of the latter's alleged refusal to finance the operation of the Philippine Vegetable Oil Co., Inc. It results, therefore, in the appeal dividing into two main subjects, the first, the validity of the Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, and second, the alleged agreement of the Philippine Vegetable Oil Co., Inc. These two topics we propose to discuss separately and in order. Parenthetically, it may be said that our mode of approach will be to sweep aside technicalities and to resolve in a broad and liberal manner the various perplexing questions which are before the court. I. Validity of the Philippine National Bank Philippine Vegetable Oil Co., Inc., mortgage of February 10, 1922. At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask that the mortgage contract executed by the Vegetable Oil Company be declared null and void. Appellee is right as to the premises. The Vegetable Oil Company is the defendant. The corporation has not appealed. At the same time, it is evident that Phil. C. Whitaker was one of the largest individual stockholders of the Vegetable Oil Company, and was until the inauguration of the receivership, exercising control over and dictating the policy of that company. Out of twentyeight thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of 5,893 fully paid shares of the par value of P100 each. He it was who asked for the appointment of the receiver. He it was who was the leading figure in the negotiations between the Vegetable Oil Company, the Philippine National Bank, and the other creditors. He it was who pledged his own property to the extent of over P4,000,000 in an endeavor to assist in the rehabilitation of the Vegetable Oil Company. He is in juriously affected by the mortgage. In truth, Mr. Whitaker is more vitally interested in the outcome of this case than is the Vegetable Oil Company. Conceivably if the mortgage had been the free act of the Vegetable Oil Company, it could not be heard to allege its own fraud, and only a creditor could take advantage of the fraud to intervene to avoid the conveyance. We find no merit in appellee's objection and pass on to consider the main question on its merits. The mortgage, Exhibit A, was executed on February 20, 1922, by "Philippine Vegetable Oil Co., Inc., By E. G. Abry, Secretary-Treasurer" "Philippine National Bank By E. W. Wilson, General Manager." E. G. Abry, according to his testimony, was employed as secretarytreasurer of the Vegetable Oil Company after a conference with Mr. Wilson and continued in this position during the period when the Vegetable Oil Company was under the control either of

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a receiver or of the bank. The other signature to the instrument was that of E. W. Wilson, General Manager of the Philippine National Bank. At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank, were serving as Directors of the Vegetable Oil Company. Messrs. Wilson had on July 26, 1921, in a letter to Mr. Whitaker relative to the reorganization of the Vegetable Oil Company, suggested the resignation of two members of the Board of Directors so that the bank might "have rather a close working relationship with the Philippine Vegetable Oil Co." (Intervenor's Exhibit 4). The resolution of the Board of Directors of September 2, 1921, naming Messrs. Wilson and Cuaderno "to represent the Philippine National Bank in the Board of Directors of the Philippine Vegetable Oil Co. as members thereof" did so with the understanding "that neither one of them has any interest other than that of the bank's in the Philippine Vegetable Oil Co., and that in accepting these directorships they are doing it solely for the bank." According to the testimony of Major Randall, Mr. Wilson became President of the Vegetable Oil Company on September 12, 1921. It has been said that the mortgage was executed on February 20, 1922. That is undeniable. The allegation of the plaintiff's complaint is "That the defendant, on the 20th day of February, 1922, duly executed to the plaintiff a mortgage." The mortgage in question recites: "This mortgage, executed at the City of Manila, Philippine Islands, this twentieth day of February, nineteen hundred and twenty-two." However, the mortgage was not ratified before a notary public until March 8, 1922, and was not recorded in the registry of property until March 21, 1922. To add one more date, it will be recalled that the receivership ended on February 28, 1922. In other words, as partially interpretative of the situation, the mortgage was executed by the Philippine National Bank, through its General Manager, and another corporation before the termination of the receivership of the said corporation, but was not acknowledged or recorded until after the termination of the receivership. In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it was prayed that a receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., it was alleged "that the largest individual creditor of said corporation is the Philippine National Bank, the indebtedness to which amounts to approximately P16,000,000, a portion of which indebtedness is secured by mortgage on the major part of the assets of the corporation." The order of the court appointing a receiver contained a similar recital. The Philippine National Bank held the mortgage mentioned, and possibly two others not mentioned, when the receivership proceedings were initiated. It must be evident to all that the Philippine National Bank could legally secure no new mortgage by the accomplishment of documents between its officials and the officials of the Vegetable Oil Company while the property of the latter company was in custodia legis. The Vegetable Oil Company was then inhibited absolutely from giving a mortgage on its property. The receiver was not a party to the mortgage. The court had not authorized the receiver to consent to the execution of a new mortgage. Whether the court could have done so is doubtful, but that it would have thus consented is hardly debatable, considering that it would desire to protect the rights of all the creditors and not the rights of one particular creditor. The legal conclusion is axiomatic. (Code of Civil Procedure, secs. 173 et seq., Compaia General de Tabaccos vs. Gauzon and Pomar [1911], 20 Phil., 261.) To all this the appellee as well as the trial court have answered that while it is true that the document was executed on February 20, 1922, at a time when the properties of the mortgagor were under receivership, the mortgage was not acknowledged before a notary public until March 8, 1922, after the court had determined that the necessity for a receiver no longer existed. But the additional fact remains that while the mortgage could not have been executed without the dissolution of the receivership, such dissolution was apparently secured through representations made to the court by counsel for the bank that the bank would continue to finance the operations of the Vegetable Oil Company (See testimony of Judge Simplicio del Rosario). Instead of so doing, the bank within less than two months after the mortgage was recorded, withdrew its support from the Vegetable Oil Company, and in effect closed its establishment. Also it must not be forgotten that the hands of other creditors were tied pursuant to the creditors' agreement of June 27, 1921. To place emphasis on the outstanding facts, it must be repeated that the mortgage was executed while a receiver was in charge of the Vegetable Oil Company. A mortgage accomplished at such a time by the corporation under receivership and a creditor would be a nullity. The mortgage was definitely perfected subsequent to the lifting of the receivership pursuant to implied promises that the bank would continue to operate the Vegetable Oil Company. It was then accomplished when the Philippine National Bank was a dominating influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine National Bank in person. On the other hand was the Philippine National Bank by proxy. Under such circumstances, it would be unconscionable to allow the bank, after the hands of the other creditors were tied, virtually to appropriate to itself all the property of the Vegetable Oil Company. Whether we consider the action taken as not expressing the free will of the Vegetable Oil Company, or as disclosing undue influence on the part of the Philippine National Bank in procuring the mortgage, or as constituting deceit under the civil law, or whether we go still further and classify the facts as constructive fraud, the result is the same. The mortgage is clearly voidable. The setting aside of the mortgage of February 20, 1922, will not necessarily result in the Philippine National Bank being left without security. It is our understanding that before the receivership was thought of, the bank was the holder of three mortgages on the property of the Vegetable Oil Company, the first dated April 11, 1919, for an uncertain amount; the second,

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dated November 18, 1920, for P3,500,000; and the third, dated January 10, 1921, for P4,000,000. These mortgages remain in effect and may be foreclosed. Addressing ourselves directly to the first two questions discussed in the decision of the trial court and to the first and sixth errors assigned by the intervenor as appellant, we rule that the Philippine National Bank-Philippine Vegetable Co., Inc., mortgage of February 20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc. II. Alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil Co., Inc. Before it need be decided if the intervenor has a right to recover damages from either the plaintiff or the defendant because of the plaintiff's refusal to finance the operations of the defendant, it must be determined if the Philippine National Bank ever entered into any valid agreement by which it bound itself to provide the necessary operating capital of the Philippine Vegetable Oil Co., Inc. The question presents both legal and factual aspects. The legal inquiry relates to the applicability or non-applicability of the Statute of Frauds as found in section 335 of our Code of Civil Procedure. The question of fact goes on the assumption that the oral evidence can be received without violating the Statute of Frauds and then, of course, comes down to the weighing of the evidence. The broad view is that the Statute of Frauds applies only to agreements not to be performed on either side within a year from the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute. As intervenor's theory proceeds on the assumption that Mr. Whitaker has entirely performed his part of the agreement, equity would argue that all evidence be admitted to prove the alleged agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it should not be made the instrument to further them. As preliminary to a presentation of the evidence, it is well to have an understanding of the applicable law. The Charter of the Philippine National Bank, Act No. 2612, section 20, as amended by Act No. 2938, provides that "The General Manager of the Bank, shall, among others, have the following powers and duties: . . . (b) To make, with advice and consent of the board of directors, all contracts on beheld of the said bank and to enter into all necessary obligations by this Act required or permitted." Predicated on our general liberal point of view, we feel free to take into consideration the applicable law although no special defense to this effect was interposed by the Philippine National Bank to intervenor's complaint. Let us now look into the evidence in detail. We may properly begin with the applicable resolutions of the Board of Directors of the Philippine National Bank. In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, is found the following: Philippine Vegetable Oil Co. On motion of Director Westerhouse, duly seconded, the following resolution was adopted by the Board: Be it resolved, that the General Manager be, and he is, hereby authorized to finance the operation of the Philippine Vegetable Oil Co. under the Receivership to the extent of P500,000 to be secured by copra and oil and to be further secured by P500,000 pledged by Phil. C. Whitaker in his creditor's agreement. Under date of October 28, 1921, is found the following: The following additional loans with which to buy more copra were approved by the Board, at the recommendation of the Oil Factory Committee. Philippine Vegetable Oil Co. F. W. Carpenter, Receiver, P. V. O., P200,000. Under date of December 5, 1921, is found the following: After a long discussion and careful deliberation, and on motion of Director Westerhouse, duly seconded by Director Seaver, the following was unanimously approved by the Board: To protect the large investments of the Bank, it is the sense of the Board of Directors to continue financing the operation under receivership of the Philippine Vegetable Oil Co., the Philippine Manufacturing Co., the Cristobal Oil Co., and the Santa Ana Oil Mills, in as modest and economical way as is consistent with conditions, the General Manager to report and secure the approval of the Board for necessary credits from time to time, and that the Board also recommends that the Oil Committee continue studying the advisability of financing the operation of other oil mills indebted to the Bank. Other portions of the minutes of the Board of Directors disclose that the Board authorized advances to the Vegetable Oil Company to the extent of more than P1,000,000. Logically, our review of the evidence should stop here. No contract entered into by the General Manager of the Bank would be valid unless made with the advice and consent of its Board of Directors. What the Board of Directors had decreed was that the Vegetable Oil Company be financed under the receivership to the extent of P500,000, a sum which was later increased. The Board not alone specified the amounts of the loans but cautiously added that the General Manager "report and secure the approval of the Board for necessary credits from time to time." There was no indication in any action taken by the Board of Directors that it had ever consented to an agreement for practically unlimited backing of the Vegetable Oil Company, or that it had ratified any such promise made by its General Manager. Out of consideration for the parties, however, we will go further and will examine the remaining evidence.

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Passing in review intervenor's exhibits, we first notice Mr. Whitaker's letter to the Hongkong and Shanghai Banking Corporation of January 1, 1921. He there confirms his undertaking to assume an obligation to pledge and mortgage specified personal holdings. The offer is made "contingent upon its acceptance by the other unsecured creditors . . . . A further condition to the foregoing offer is that the banks parties to the proposed arrangement supply, subject to the approval of their representatives on the Board of Directors of the P. V. O. Co., funds sufficient to enable the P. V. O. Co., to continue its operations during the full term for which my personal secured undertaking remains in effect." The condition named related to all the banks and not the Philippine National Bank. (Intervenor's Exhibit 1.) The trust deed by Mr. Whitaker in favor of H. C. Stanford makes the purposes and uses among others "To secure the Philippine National Bank against such losses as it may sustain, not exceeding a total of P500,000, on such sums as it shall, from time to time and within three years from July 1, 1921, advance to the Philippine Vegetable Oil Company to enable the latter to resume business and continue the manufacture of vegetable oil." This recital is specific as to P500,000 and is general as to further advances, and is made in a document to which the Philippine National Bank was not a party. (Intervenor's Exhibit 2.) The creditors' agreement is of similar tenor. (Intervenor's 3.) One of the paragraphs in the preamble of the power of attorney from the Roman Catholic Archbishop of Manila to Phil. C. Whitaker mentioned that Mr. Whitaker "has also arranged with the Philippine National Bank for the funds necessary to enable said Oil Company to resume its business and continue in the manufacture of vegetable oil." Although this proxy may have been procured at the instance of the Philippine National Bank, yet obviously it did not bind the officials of the bank. (Intervenor's Exhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine National Bank of June 8, 1921, addressed to Mr. Whitaker stated: "I see no good reason why you should use your property to secure unsecured obligations, and not provide for the operation of the plant." Merely a friendly warning. (Intervenor's Exhibit 8.) Mr. Wilson's letter to Mr. Whitaker to enabled the Bank to put its securities in first-class shape. In order to do this, however, it was necessary for it to furnish certain money for operating the plant, and an additional mortgage was executed. . . . It is my judgment that it was good business for the Philippine National Bank to operate the plant as long as it had the P500,000 guarantee. However, the bank put into the undertaking a great deal more money than it originally intended. Then, too, the guarantee was not as good as we thought, because the first lien on the property was not being paid off as rapidly as we thought it would be." Here was merely an expression of gratification regarding the additional mortgage and emphasis on the P500,000 guarantee. (Intervenor's Exhibit 7.) We discover nothing further of interest in the exhibits. The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs, testifying as to a meeting of the creditors of the Vegetable Oil Company, said: "Mr. Wilson stated in substance that if the negotiations which were then pending between Mr. Whitaker and the other creditors, whereby the other creditors were to refrain from throwing the P. V. O. Co. into insolvency or from bringing action against it, could be carried out, that his bank would finance the P. V. O. Co., and keep it in operation." Mr. Whitaker, testifying as to the same meeting, said: Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as the short time he had permitted, and that the P. V. O. had evidently made good money in the past and if allowed to resume would make good again in the future, that the P. N. B., as the largest creditor, contemplated financing a resumption of the company's operations if the company could be kept out of insolvency." Giving to this testimony its broadest effect, we still discover no definite agreement binding on the bank but only a general intimation proffered by the General Manager of the Bank in conference that his bank contemplated financing the operations of the Vegetable Oil Company. That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear that taking it entirely into consideration it discloses no binding promise, tacit or express, made by the Philippine National Bank to continue indefinitely its backing of the Vegetable Oil Company. Mr. Whitaker was in no way personally responsible for any part of the obligations of the Vegetable Oil Company. Nevertheless, he signed the creditors' agreement. That was a praiseworthy act. We sympathize with him in the situation in which he finds himself. The various creditors have a large amount of his property. The Philippine National Bank has taken over the assets of the Vegetable Oil Company. The latter company has ceased operations. Mr. Whitaker has not made himself the successor in interest of the Vegetable Oil Company and so cannot recover from it in these proceedings. But sympathy cannot be transmuted into legal authoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Here we cannot give him redress for he has not made out his case except insofar as he has been successful in overturning the last mortgage of the Philippine National Bank on the property of the Vegetable Oil Company. III. Result We announce the following conclusions: (1) Plaintiff is entitled to a money judgment against the defendant for P14,183,679.37 with legal interest thereon beginning with May 8, 1924. Exhibit C 1 shows that after May 6, 1924, when Exhibit B 1 was formulated, two further payments were made on the promissory note for P16,869,975.59, which further reduced the principal from P15,760,312.85 as totaled in Exhibit B 1 to P14,183,679.37 as evidenced by Exhibit C 1. As interest has already been charged up to May 7, 1924, legal interest should begin to run from that date instead of from May 8, 1923, as fixed by the trial court. (2) The Philippine National Bank-Philippine Vegetable Oil Co., mortgage of February 20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc., and consequently cannot be given effect. But the prior mortgages held by the Philippine National Bank of April 11, 1919, November 18, 1920, and January 10, 1921, remain in force and may be foreclosed. (3) The Philippine National Bank will obviously have a preferred claim when the three mortgages above mentioned shall be foreclosed. The remainder of the assets of the Philippine Vegetable Oil Co., Inc., if any, should then be applied to the payment pro

Corpo august 3
rata of the unsecured claims, among them that of Mr. Whitaker and the unsecured part of the debt to the Philippine National Bank. Intervenor Whitaker is entitled to an accounting of the proceeds of the Vegetable Oil Company's properties caused to be sold by the Philippine National Bank and of the business operations of the Vegetable Oil Company since March 11, 1921. (4) Intervenor Whitaker has failed to establish an agreement binding the Philippine National Bank to provide the necessary operating capital to the Vegetable Oil Company, and so is not entitled to recover damages from the Philippine National Bank. Nor can intervenor Whitaker recover P4,424,418.37 from the Vegetable Oil Company since he is not the legatee of the assets of that company. The trial judge accordingly committed no error in dismissing intervenor's complaint. (5) No pronouncement is made with reference to intervenor Whitaker's possible rights in connection with the creditors' agreement since that agreement is not here in question and the parties thereto are not before the court. The case will be remanded to the lower court for the entry of judgment and further proceedings as herein indicated. Judgment affirmed in part and reversed in part, without special finding as to costs in either instance. The plaintiff is Salmon, Dexter and Company, a domestic corporation. It was organized under the name of C.S. Salmon and Company on May 28, 1918, with a capital stock of P250,000. Thereafter, pursuant to a resolution of the board of directors of the corporation of June 24, 1920, a meeting of the stockholders was had on July 14, 1920, at which the capital stock of C.S. Salmon and Company was increased to P500,000. The certificate of increase of capital stock from P250,000 to P500,000, and articles of incorporation, as amended, of Salmon, Dexter and Company were filed with the Mercantile Registry of the Bureau of Commerce and Industry on September 16, 1920. On July 28, 1920, Timoteo Unson, the defendant, to follow the allegation in the third paragraph of the complaint, "became a subscriber of C.S. Salmon and Company, by signing an agreement in writing and delivering the same to C.S. Salmon and Company, ... the name of which company was later changed to Salmon, Dexter and Company." Said agreement, Exhibit A, is in words and figures the following: SUBSCRIPTION FOR CAPITAL STOCK OF C.S. SALMON AND COMPANY Authorized Capital P250,000 Shares P100 each I hereby subscribe for 10 shares of the capital stock of C.S. Salmon and Company, at the par value thereof and agree to pay for the same on or before Dec. 15, 1920. G.R. No. L-23608 March 17, 1925 It is understood and agreed that dividends will be prorated and payable, only, from the date of actual payment of the subscription. (Sgd.) TIMOTEO UNSON Iloilo, July 28, 1920 P. O. Address: Timoteo Unson, Pontevedra, Capiz. Even a casual reading of the admitted facts brings prominently to notice that the agreement accomplished by Timoteo Unson on July 28, 1920, was for ten shares of the capital stock of C.S. Salmon and Company, "authorized capital P250,000," and that two weeks before, on July 14, 1920, the stockholders of C.S. Salmon and company, without the acquiescence or participation of Unson, had authorized an increase of the capital stock of the corporation to P500,000. Three questions arise: Is the contract of Unson a contract of subscription to the capital stock of C.S. Salmon and Company, or is it a contract to purchase stock in the corporation? Whether one or the other, is Unson released from his obligation on the

SALMON, DEXTER & CO., plaintiff-appellee, vs. TIMOTEO UNSON, defendant-appellant. Felipe Ysmael for appellant. J.W. Ferrier for appellee. MALCOLM, J.: The plaintiff seeks to recover of the defendant the sum of P1,000 with legal interest on a subscription for capital stock contract. The defense is that the defendant is released from his obligation on the subscription agreement by virtue of the increase of the capital stock of the plaintiff from P250,000, the amount mentioned in the agreement, to P500,000, the amount agreed upon the stockholders prior to the defendant's signing the agreement. On this issue, judgment in the lower court was with the plaintiff.

Corpo august 3
subscription agreement on account of the increase of the capital stock of C.S. Salmon and Company from P250,000 to P500,000? Was there present such fraud or misrepresentation as would permit the defendant to avoid the contract? The parties disagree as to the nature of the transaction. The appellant considers Exhibit A as a subscription, and relies on the case of Newport Cotton Mill Co. vs. Mims ( [1899], 103 Tenn., 465). (See also Katama Land Companyvs. Jernegan [1879], 126 Mass., 155.) Appellee, on the other hand, alleges that the appellant has failed to take into account the legal distinction between a subscription to a corporation and a purchase from it of its shares, and reaches the conclusion on this premise that the contract in the present case one of purchase and sale only. After incorporation, one may become a shareholder by subscription, or by purchasing stock directly from the corporation, or from individual owners thereof. A distinction is drawn by the authorities between a subscription to the capital stock of the corporation after its organization and a sale of shares by it. Whether a particular contract is a subscription or a sale of stock is a matter of construction, and depends upon its terms and the intention of the parties. It has been held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. (Bole vs. Fulton [1912], 233 Pa., 609; 2 Fletcher, Cyclopedia of Corporations, pp. 1120 et seq.) The allegation of the complaint is that defendant is a "subscriber." Exhibit A, on its face, purports to be a "subscription for capital stock." The intention of the parties as gleaned from this contract was undoubtedly to consider it as such. Admitting, however, that the terminology of the agreement is not conclusive, and admitting that it is a contract between a subscriber and the corporation, and thus simply a contract of purchase and sale, then under the last hypothesis we have to determine if the contract is avoided by misrepresentation. Plaintiff's right of recovery rests exclusively upon the written agreement. The promise of Unson in this agreement was to subscribe for ten shares of the capital stock, authorized capital P250,000, of C.S. Salmon and Company. One of the essential conditions of this subscription or contract of sale was that the authorized capital stock of the company was P250,000. As far as we are informed, Unson would have never have put his name to the agreement if he had known that two weeks before, the capital had been increased to P500,000. If knowledge of this increase had been brought home to Unson before he signed, that would be a different question. But the record is silent on this point. So should the contract be enforced. Unson would be required to take and pay for a 1/500 part of the capital stock of Salmon, Dexter and Company, whereas his obligation was to take and pay for a 1/250 part of the capital stock. Paraphrasing the United States Supreme Court in the case of Chicago City Railway Company vs. Allerton ( [1874], 18 Wall., 233), a change in the capital stock without the consent of the stockholder would make him a member of an association in which he never consented to become such. "It would change the relative influence, control and profit of each member." In our opinion, a contract different from that which was entered into cannot be made for the parties and imposed upon Unson. Unson has the right to stand upon the contract he has made. In our opinion also, there was such a non-disclosure of a material fact as was equivalent to false representation. This representation was of a character that the party to whom it was made had a right to rely upon it. For all the foregoing, the judgment must be reversed and another entered absolving the defendant from the complaint. Without special pronouncement as to costs in either instance, it is so ordered.

G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.: The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases filed by petitioner with the Securities and Exchange Commission, as follows: SEC CASE NO 1375

Corpo august 3
On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375. As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and 1 void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was allowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended bylaws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to petitioner. On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by petitioner for production of certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined, that it fails to show good cause and constitutes continued harrasment, and that some of the information sought are not part of the records of the corporation and, therefore, privileged. During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid and legal because the power to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise said delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the stockholders

Corpo august 3
representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its bylaws is broad, subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds. Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated. As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against petitioner. Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-intervention to the petition. On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered: 1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission; 2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in- interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect said documents; 3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and 4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-entitled case. This Order is immediately executory upon its approval.
2

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Dissatisfied with the foregoing Order, petitioner moved for its reconsideration. Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment, a temporary restraining order be issued, restraining respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents. On February 10, 1977, respondent Commission issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: 6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto. By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are

11

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acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting; (2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and (3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment; It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits. On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following reasons: (1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade; (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and (5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed. On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that the acts of private

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respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice." Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root 3 or branch to bear the seeds of future ligiation", citingGayong v. Gayos. To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies.

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It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving nor root or branch to bear the seeds of future 4 5 litigation. Thus, in Francisco v. City of Davao, this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand of the case. In Republic v. Security Credit and 6 Acceptance Corporation, et al., this Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an early disposition of the 7 case", and in Republic v. Central Surety and Insurance Company, this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme 8 Court is now in a position, based upon said evidence, to decide the case on its merits. It is settled that the doctrine of primary jurisdiction has no application where only a question of law 8 is involved. a Because uniformity may be secured through review by a single Supreme Court, 8 questions of law may appropriately be determined in the first instance by courts. b In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. II Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable The validity or reasonableness of a by-law of a corporation in purely a question of 9 law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of 10 law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who 11 are authorized to make by-laws and who have exercised their authority. Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained selfinterest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0.6% 10.0% 10.6% Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0%

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Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6% Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFCRobina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million. According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of self- protection, disqualify a competitor from nomination and election to its Board of Directors. It is recognized by an authorities that 'every corporation has the inherent power to adopt bylaws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of 12 its affairs. At common law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of self-government being essential to enable the corporation to 13 accomplish the purposes of its creation. In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director ... " InGovernment v. El 14 Hogar, the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully 15 enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed ... by 16 any act of the former which is authorized by a majority ... ." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any

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by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject 17 to amendment, alteration and modification. It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a 18 fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and stockholders", according to Ashaman v. 19 Miller, "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *. Justice Douglas, in Pepper v. Litton, emphatically restated the standard of fiduciary obligation of the directors of corporations, thus: A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself first and his cestuis second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters ... He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference or advantage of the fiduciary to the exclusion or detriment of the cestuis.
20

And in Cross v. West Virginia Cent, & P. R. R. Co.,

21

it was said:

... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if personally interested in the cause. No more can a director. Human nature is too weak -for this. Take whatever statute provision you please giving power to stockholders to choose directors, and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by mere implication the existence of such a salutary power ... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not 22 the action of the Board is authorized and sanctioned by law. ... . These principles have been applied by this Court in previous cases.
23

AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose 24 business is in competition with or is antagonistic to the other corporation is valid." This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification, and therefore the corporation was not empowered to add additional 25 qualifications. This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that

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a director or officer of a corporation may not enter into a competing enterprise which cripples or 26 injures the business of the corporation of which he is an officer or director. It is also well established that corporate officers "are not permitted to use their position of trust 27 and confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a 28 "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal 30 profit when the interest of the corporation justly calls for protection. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus: ... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra,
29

specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. In McKee the Court further listed qualificational by-laws upheld by the courts, as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the subject corporation. (2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation, (3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office. (5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.) These are not based on theorical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to 31 encourage and enforce responsible corporate management. As explained by Oleck: "The law win not tolerate the passive attitude of directors ... without active and conscientious

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participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could 32 enable said competitor to utilize such knowledge to his advantage. There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed." Article 186 of the Revised Penal Code also provides: Art. 186. Monopolies and combinations in restraint of trade. The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market. 2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market. 3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or imported merchandise or object of commerce is used. There are other legislation in this jurisdiction, which prohibit monopolies and combinations in 33 restraint of trade. Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices 34 35 and the highest quality ... ." they operate to forestall concentration of economic power. The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, prejudice the 36 public interest by unduly restraining competition or unduly obstructing the course of trade. The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control 37 prices to the detriment of the public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition 38 when desired. Further, it must be considered that the Idea of monopoly is now understood to include a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the qualification of interest or management, or it may be thru agreement and concert of action. It is, in brief, unified tactics 39 with regard to prices. From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence of 40 a combination or conspiracy in restraint of trade. It is enough that a concert of action is 41 contemplated and that the defendants conformed to the arrangements, and what is to be

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considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of competition between them would constitute 42 violation of any provision of the anti-trust laws. There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. A common director of two or more competing corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another, thereby stifling competition. This situation has been aptly explained by Travers, thus: The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. Indeed, if a director, for example, is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without depriving A of his best judgment. If the firms really do compete in the sense of vying for economic advantage at the expense of the other there can hardly be any reason for an interlock 43 between competitors other than the suppression of competition. (Emphasis supplied.) According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations ... to 44 the detriment of the small ones dependent upon them and to the injury of the public. Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories may lead to control of production for the purpose of controlling prices. Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated, The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. CFC-Robina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices. Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of incorporations ... ." Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the bylaw was being applied in a discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have 45 expressed their authority. Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. This power, but is very nature, is subject to certain well established limitations. One of these is inherent in the very convert and definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not Identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by 46 offering more advantageous terms as an inducement to secure trade. The test must be

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whether the business does in fact compete, not whether it is capable of an indirect and highly 47 unsubstantial duplication of an isolated or non-characteristics activity. It is, therefore, obvious that not every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of business, Identity of products and area of competition should be taken into consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the 48 responsibility of directors to act with fairness to the stockholders. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission 49 en banc and its decision shall be final unless reversed by this Court on certiorari. Indeed, it is a settled principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or misapplication of the corporation 50 assets, a court of equity has the power to grant appropriate relief. III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel Corporation Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not objected to by petitioner. Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up of breweries by SMI These averments are supported by the affidavit of the Corporate Secretary, enclosing 51 photocopies of the afore-mentioned documents. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable 52 ownership, a beneficial ownership, or a ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the 53 interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not 54 55 inimical to the interest of the corporation. In Grey v. Insular Lumber, this Court held that "the right to examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes. The weight of judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking 56 inspection. Thus, it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the 57 corporation." But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or 58 motive. It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or 59 certain of the stockholders to the exclusion of others."

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While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the corporations may be required to be produced for 60 examination, and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the parent even though subsidiary was not 61 named as a party. mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent 62 showing the relation of principal or agent or something similar thereto. On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it 63 owned a vast majority of the stock of the subsidiary. Likewise, inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of 64 "persons having an interest." In the Nash case, The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York." In the Bailey case, stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some documents which for some reason or another, respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be 67 caused thereby to the corporation." There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally take an 68 account of the stewardship of the officers and directors.
66 65

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control. IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders 69 holding shares entitling them to exercise at least two-thirds of the voting power is necessary. As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an investment made by Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders

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would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said: "j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.) 40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259). Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby 70 render binding upon it the originally unauthorized acts of its officers or other agents. This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a supported failure to observe in its execution the. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, "or those which are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors, officers and managers. WHEREFORE, judgment is hereby rendered as follows: The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International, Inc., as specified by him. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws shall not apply to petitioner. The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections
71

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until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs. On July 29, 1974, by an alleged resolution of its stockholders, the petitioner reduced its capital 6 stock from 765,000 shares to 267,366 shares. This was effected through the distribution of the marketable securities owned by the petitioner to its stockholders in exchange for their 7 shares in an equivalent amount in the corporation. On August 22, 1975, by yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366 shares to 110,085 shares, again, through the same 8 scheme. After the petitioner's failure to sit down with the respondent union, the latter, on August 28, 1974, commenced Case No. LR-5415 with the National Labor Relations Commission on a 9 complaint for unfair labor practice. In due time, the petitioner filed its position paper, 10 alleging operational losses. Pending the resolution of Case No. LR-5415, the petitioner, in a letter dated November 17, 1975, 11 informed the Secretary of Labor that Rizal Cement Co., Inc., "from which it derives income" 12 "as the General Manager or Agent" 13 had "ceased operating temporarily." 14 "In addition, "because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. due to lack of business incentives and prospects, and in order to prevent further losses," 15 it had to reduce its capital stock on two occasions "As the situation, therefore, now stands, the Madrigal & Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of retrenchment, of its employees and operations." 16 The petitioner then requested that it "be allowed to effect said reorganization gradually considering all the circumstances, by phasing out in at least three (3) stages, or in a manner the Company deems just, equitable and convenient to all concerned, about which your good office will be apprised accordingly." 17 The letter, however, was not verified and neither was it accompanied by the proper supporting papers. For this reason, the Department of Labor took no action on the petitioner's request. On January 19, 1976, the labor arbiter rendered a decision 18 granting, among other things, a general wage increase of P200.00 a month beginning March 1, 1974 plus a monthly living allowance of P100.00 monthly in favor of the petitioner's employees. The arbiter specifically found that the petitioner "had been making substantial profits in its operation" 19 since 1972 through 1975. The petitioner appealed. On January 29, 1976, the petitioner applied for clearance to terminate the services of a number of employees pursuant supposedly to its retrenchment program. On February 3, 1976, the 20 petitioner applied for clearance to terminate 18 employees more. On the same date, the respondent union went to the Regional Office (No. IV) of the Department of Labor (NLRC Case 21 No. R04-2-1432-76) to complain of illegal lockout against the petitioner. Acting on this 22 complaint, the Secretary of Labor, in a decision dated December 14, 1976, 22 found the 23 dismissals "to be contrary to law" and ordered the petitioner to reinstate some 40 employees, 24 37 of them with backwages. The petitioner then moved for reconsideration, which the Acting 25 Labor Secretary, Amado Inciong, denied.

G.R. No. L-48237 June 30, 1987 MADRIGAL & COMPANY, INC., petitioner, vs. HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents. No. L-49023 June 30, 1987 MADRIGAL & COMPANY, INC., petitioner, vs. HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents.

SARMIENTO, J.: These are two petitions for certiorari and prohibition filed by the petitioner, the Madrigal & Co., Inc. The facts are undisputed. The petitioner was engaged, among several other corporate objectives, in the management of Rizal Cement Co., Inc. 1 Admittedly, the petitioner and Rizal Cement Co., Inc. are sister 2 3 companies. Both are owned by the same or practically the same stockholders. On December 28, 1973, the respondent, the Madrigal Central Office Employees Union, sought for the renewal of its collective bargaining agreement with the petitioner, which was due to expire 4 on February 28, 1974. Specifically, it proposed a wage increase of P200.00 a month, an 5 allowance of P100.00 a month, and other economic benefits. The petitioner, however, requested for a deferment in the negotiations.

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Thereafter, the petitioner filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Legal Affairs, affirmed with modification the Labor Department's decision, thus: xxx xxx xxx 1. Eliseo Dizon, Eugenio Evangelista and Benjamin Victorio are excluded from the order of reinstatement. 2. Rogelio Meneses and Roberto Taladro who appear to have voluntarily retired and paid their retirement pay, their cases are left to the judgment of the Secretary of Labor who is in a better position to assess appellant's allegation as to their retirement. 3. The rest are hereby reinstated with six (6) months backwages, except Aleli Contreras, Teresita Eusebio and Norma Parlade who are to be reinstated without backwages. SO ORDERED. xxx xxx xxx On May 15, 1978, the petitioner came to this court. (G.R. No. 48237.) Meanwhile, on May 25, 1977, the National Labor Relations Commission rendered a decision 27 affirming the labor arbiter's judgment in Case No. LR-5415. The petitioner appealed to the 28 Secretary of Labor. On June 9, 1978, the Secretary of Labor dismissed the appeal. Following these successive reversals, the petitioner came anew to this court. (G.R. No. 49023.) By our resolution dated October 9, 1978, we consolidated G.R. No. 48237 with G.R. No. 29 30 49023. We likewise issued temporary restraining orders. In G.R. No. 48237, the petitioner argues, that. xxx xxx xxx I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE WAS NO VALID COMPLIANCE WITH THE CLEARANCE REQUIREMENT. II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT THERE IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION, MUCH LESS FOR UNION-BUSTING PURPOSES.
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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 31 TALADRO WHO HAD VOLUNTARILY RETIRED AND PAID THEIR RETIREMENT PAY. xxx xxx xxx while in G.R. No. 49023, it submits that: xxx xxx xxx 1. RESPONDENT MINISTER ERRED IN AFFIRMING THE DECISION EN BANC OF THE NATIONAL LABOR RELATIONS COMMISSION DESPITE CLEAR INDICATIONS IN THE RECORD THAT THE AWARD WAS PREMATURE IN THE ABSENCE OF A DEADLOCK IN NEGOTIATION AND THE FAILURE ON THE PART OF THE LABOR ARBITER TO RESOLVE THE MAIN IF NOT ONLY ISSUE OF REFUSAL TO BARGAIN, THEREBY DEPRIVING PETITIONER OF ITS RIGHT TO DUE PROCESS. 2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK IN NEGOTIATION, RESPONDENT MINISTER ERRED NEVERTHELESS IN NOT FINDING THAT THE ECONOMIC BENEFITS GRANTED IN THE FORM OF SALARY INCREASES ARE UNFAIR AND VIOLATIVE OF THE MANDATORY GUIDELINES PRESCRIBED UNDER PRESIDENTIAL DECREE NO. 525 AND IGNORING THE UNDISPUTED FACT THAT PETITIONER HAD VIRTUALLY CEASED OPERATIONS AFTER HAVING TWICE DECREASED ITS CAPITAL STOCKS AND, THEREFORE, NOT FINANCIALLY CAPABLE TO 32 ABSORB SUCH AWARD OF BENEFITS. xxx xxx xxx There is no merit in these two (2) petitions. As a general rule, the findings of administrative agencies are accorded not only respect but 33 even finality. This is especially true with respect to the Department of Labor, which performs 34 not only a statutory function but carries out a Constitutional mandate as well. Our jurisdiction, 35 as a rule, is confined to cases of grave abuse of discretion. But for certiorari to lie, there must be such arbitrary and whimsical exercise of power, or that discretion was exercised 36 despotically.

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In no way can the questioned decisions be seen as arbitrary. The decisions themselves show why. Anent Case No. R04-2-1432-76 (G.R. No. 48237), we are satisfied with the correctness of the respondent Presidential Assistant for Legal Affairs' findings. We quote: xxx xxx xxx In urging reversal of the appealed decision, appellant contends that (1) its letter dated November 17, 1975, constitute "substantial compliance with the clearance requirement to terminate;" and (2) individual appellees' dismissal had no relation to any union activities, but was the result of an honest-togoodness retrenchment policy occasioned by loss of income due to cessation of operation. We find the first contention to be without merit. Aside from the fact that the controversial letter was unverified, with not even a single document submitted in support thereof, the same failed to specify the individual employees to be affected by the intended retrenchment. Not only this, but the letter is so vague and indefinite regarding the manner of effecting appellant's retrenchment plan as to provide the Secretary of (sic) a reasonable basis on which to determine whether the request for retrenchment was valid or otherwise, and whether the mechanics in giving effect thereto was just or unjust to the employees concerned. In fact, to be clearly implied from the letter is that the implementary measures needed to give effect to the intended retrenchment are yet to be thought of or concretized in the indefinite future, measures about which the office of the Secretary "will be apprised accordingly." All these, and more, as correctly found by the Acting Secretary, cannot but show that the letter is insufficient in form and substance to constitute a valid compliance with the clearance requirement. That being so, it matters little whether or not complainant union or any of its members failed to interpose any opposition thereto. It cannot be over-emphasized that the purpose in requiring a prior clearance by the Secretary of Labor, in cases of shutdown or dismissal of employees, is to afford said official ample opportunity to examine and determine the reasonableness of the request. This is made imperative in order to give meaning and substance to the constitutional mandate that the State must "afford protection to labor," and guarantee their "security of tenure." Indeed, the rules require that the application for clearance be filed ten (10) days before the intended shutdown or dismissal, serving a copy thereof to the employees affected in order that the latter may register their own individual objections against the grant of the clearance. But how could this requirement of notice to the employees have been complied with, when, as observed by the Acting Secretary in his modificatory decision dated June 30, 1977 "the latter of November 17, 1975 does not even state definitely the employees involved" upon whom service could be made. With respect to appellant's second contention, we agree with the Acting Secretary's findings that individual appellee's dismissal was an offshoot of the union's demand for a renegotiation of the then validly existing collective bargaining Agreement. xxx xxx xxx The pattern of appellant's acts after the decision of the Labor Arbiter in Case No. LR-5415 has convinced us that its sole objective was to render moot and academic the desire of the union to exercise its right to bargain collectively with management, especially so when it is considered in the light of the fact that under the said decision the demand by the union for wage increase and allowances was granted. What renders appellant's motive suspect was its haste in terminating the services of individual appellees, without waiting the outcome of its appeal in Case No. LR-5415. The amount involved by its offer to pay double separation could very well have been used to pay the salaries of those employees whose services were sought to be terminated, until the resolution of its appeal with the NLRC, since anyway, if its planned retrenchment is found to be justifiable and done in good faith, its only liability is to answer for the separation pay provided by law. By and large, therefore, we agree with the Acting Secretary that, under the circumstances obtaining in this case, "respondent's action [was] a systematic and deliberate attempt to get rid of complainants because of their union activities. We now come to the individual cases of Aleli Contreras, Teresita Eusebio and Norma Parlade. It is appellant's claim that these three (3) should not be reinstated inasmuch as they have abandoned their work by their continued absences, and moreover in the case of Contreras, she failed to oppose the application for clearance filed against her on October 24, 1975. However, appellant's payrolls for December 16-31, 1975, January 1-15, 1976 and January 16-31, 1976, show that the three (3) were "on leave without pay." As correctly appreciated by the Acting Secretary, these "payrolls prove, first, that "leave" has been granted to these employees, and, second, that it is a practice in the company to grant "leaves without pay" without loss of employment status, to those who have exhausted their authorized leaves." As regards, Norma Parlade, the records show that she "truly incurred illness and actually underwent surgery in Oct., 1975." As to Aleli Contreras, there is no showing that the Secretary of Labor or appellant ever acted on the clearance. If we

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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 37 their reinstatement but without backwages. xxx xxx xxx With respect Lo Case No. LR-5415 (G.R. No. 49023), we are likewise content with the findings of the National Labor Relations Commission. Thus: xxx xxx xxx Appellant now points that the only issue certified to compulsory arbitration is "refusal to bargain" and it is, therefore, premature to dictate the terms of the CBA on the assumption that there was already a deadlock in negotiation. Appellant further contends that, assuming there was deadlock in negotiation, the economic benefits granted are unreasonable and violative of the guideline prescribed by P.D. 525. On the other hand, it is the union's stance that its economic demands are justified by, the persistent increase in the cost of living and the substantial earnings of the company from 1971 to 1975. It bears to stress that although the union's petition was precipitated by the company's refusal to bargain, there are glaring circumstances pointing out that the parties also submitted "deadlock" to arbitration. The petition itself is couched in general terms, praying for arbitration of the union's "dispute" with the respondent concerning proposed changes in the collective bargaining agreement." It is supported with a copy of the proposed changes which just goes to show that the union, aside from the issue concerning respondent's refusal to bargain, sought determination of the merit of its proposals. On the part of the appellant company, it pleaded financial incapacity to absorb the proposed economic benefits during the initial stage of the proceedings below. Even the evidence and arguments proferred below by both parties are relevant to deadlock issue. In the face of these factual environment, it is our view that the Labor Arbiter below did not commit a reversible error in rendering judgment on the proposed CBA changes. At any rate, the minimum requirements of due process was satisfied because as heretofore stated, the appellant was given Opportunity, and had in fact, presented evidence and argument in avoidance of the proposed CBA changes. We do not also subscribe to appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations. On the contrary, whatever may be the reason behind such reductions, it is indicative of an intention to keep the company a going concern. So much so that until now almost four (4) years later, it is still very much in existence and operational as before. We now come to the question concerning the equitableness of the economic benefits granted below. It requires no evidence to show that the employees concerned deserve some degree of upliftment due to the unabated increase in the cost of living especially in Metro Manila. Of course the company would like us to believe that it is losing and is therefore not financially capable of improving the present CBA to favor its employees. In support of such assertion, the company points that the profits reflected in its yearly Statement of Income and Expenses are dividends from security holdings. We, however, reject as puerile its suggestion to dissociate the dividends it received from security holdings on the pretext that they belong exclusively to its stockholders. The dividends received by the company are corporate earnings arising from corporate investment which no doubt are attended to by the employees involved in this proceedings. Otherwise. it would not have been reflected as part of profits in the company's yearly financial statements. In determining the reasonableness of the economic grants below, we have, therefore, scrutinized the company's Statement of Income and Expenses from 1972 to 1975 and after equating the welfare of the employees with the substantial earnings of the company, we find the award to be predicated on valid justifications. The salary increase we herein sanction is also in keeping with the rational that made imperative the enactment of the Termination Pay Law since in case the respondent company really closes down, the employees will receive higher separation pay or retirement benefits to tide them over while seeking another 38 employment. What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business operations but confronted with the demand of the union for wage increases, decided to evade its responsibility towards the employees by a devised capital reduction. While the reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members, who, by then, had agitated for wage increases. In the face of the petitioner company's piling profits, the unionists had the right to demand for such salary adjustments. That the petitioner made quite handsome profits is clear from the records. The labor arbiter stated in his decision in the collective agreement case (Case No. LR-5415): xxx xxx xxx

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A clear scrutiny of the financial reports of the respondent [herein petitioner] reveals that it had been making substantial profits in the operation. In 1972, when it still had 765,000 common shares, of which 305,000 were unissued and 459,000 outstanding capitalized at P16,830,000.00, the respondent made a net profit of P2,403,211.58. Its total assets were P70,821,317.81. In 1973, based on the same capitalization, its profit increased to P2,724,465.33. Its total assets increased to P83,240,473.73. In 1974, although its capitalization was reduced from P16,830,000.00 to P11,230,459.36, its profits were further increased to P2,922,349.70. Its assets were P78,842,175.75. The reduction in its assets by P4,398,297.98 was due to the fact that its capital stock was reduced by the amount of P5,599,540.54. In 1975, for the period of only six months, the respondent reported a net profit of P547,414.72, which when added to the surplus of P5,591.214.19, makes a 39 total surplus of P6,138,628.91 as of June 30, 1975. xxx xxx xxx The petitioner would, however, have us believe that it in fact sustained losses. Whatever profits it earned, so it claims were in the nature of dividends "declared on its shareholdings in other 40 companies in the earning of which the employees had no participation whatsoever." "Cash dividends," according to it, "are the absolute property of the stockholders and cannot be made 41 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 earnings arising from corporate 42 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 43 profits. Moreover, it is incorrect to say that such profits in the form of dividends are beyond the reach of the petitioner's creditors since the petitioner had received them as compensation for its management services in favor of the companies it managed as a shareholder thereof. As such shareholder, the dividends paid to it were its own money, which may then be available for wage increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property of the stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the right to a share in such dividends, by way of salary increases, may not be denied its employees. Accordingly, this court is convinced that the petitioner's capital reduction efforts were, to begin with, a subterfuge, a deception as it were, to camouflage the fact that it had been making profits, and consequently, to justify the mass layoff in its employee ranks, especially of union members. They were nothing but a premature and plain distribution of corporate assets to obviate a just sharing to labor of the vast profits obtained by its joint efforts with capital through the years. Surely, we can neither countenance nor condone this. It is an unfair labor practice. As we observed in People's Bank and Trust Company v. People's Bank and Trust Co. 44 Employees Union: xxx xxx xxx As has been held by this Court in Insular Lumber Company vs. CA, et al., L23875, August 29, 1969, 29 SCRA 371, retrenchment can only be availed of if the company is losing or meeting financial reverses in its operation, which certainly is not the case at bar. Undisputed is the fact, that the Bank "at no time incurred losses. " As a matter of fact, "the net earnings of the Bank would be in the average of P2,000,000.00 a year from 1960 to 1969 and, during this period of nine (9) years, the Bank continuously declared dividends to its stockholders." Thus the mass lay-off or dismissal of the 65 employees under the guise of retrenchment policy of the Bank is a lame excuse and a veritable smoke-screen of its scheme to bust the Union and thus unduly disturb the employment tenure of the employees concerned, which act is certainly an 45 unfair labor practice. Yet, at the same tune, the petitioner would claim that "the phasing out of its operations which brought about the retrenchment of the affected employees was mainly dictated be the necessity of its stockholders in their capacity as heirs of the late Don Vicente Madrigal to 46 partition the estate left by him." It must be noted, however, that the labor cases were tried on the theory of losses the petitioner was supposed to have incurred to justify retrenchment. The petitioner cannot change its theory in the Supreme Court. Moreover, there is nothing in the records that will substantiate this claim. But what is more important is the fact that it is not impossible to partition the Madrigal estate assuming that the estate is up for partition without the petitioner's business closing shop and inevitably, without the petitioner laying off its employees. As regards the question whether or not the petitioner's letter dated November 17, 1975 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
47

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clearance as contemplated by law, " the factual circumstances show that the letter in question was itself a part of the "systematic and deliberate attempt to get rid of [the union 49 members] because of their union activities." Hence, whether or not the said letter complied with the legal formalities is beside the point since under the circumstances, retrenchment was, in all events, unjustified. Parenthetically, the clearance required under Presidential Decree No. 850 has been done away with by Batas Blg. 130, approved on August 21, 1981. During the pendency of these petitions, the petitioner submitted manifestations to the effect that certain employees have accepted retirement benefits pursuant to its retrenchment 50 scheme. 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 51 Industrial Relations, affirmed in a long line of decisions that came later, 52 hereby fixes the amount of backwages at three (3) years pay reckoned at the increased rates decreed by the labor arbiter in Case No. LR-5415 without deduction or qualification. WHEREFORE, the petitions are hereby DISMISSED. Subject to the modification as to the amount of backwages hereby awarded, the challenged decisions are AFFIRMED. The temporary restraining orders are LIFTED. With costs against the petitioner. This decision is IMMEDIATELY EXECUTORY. SO ORDERED.
48

MENDOZA, J.: This is a petition for review on certiorari of the decision rendered on November 18, 1994 by the 1 Court of Appeals reversing, in part, the decision of the Court of Tax Appeals in C.T.A. Case No. 4583. The facts are not in dispute. Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic corporation engaged in the life insurance business. In 1984, it issued 50,000 shares of stock as stock dividends, with a par value of P100 or a total of P5 million. Petitioner paid documentary stamp taxes on each certificate on the basis of its par value. The question in this case is whether in determining the amount to be paid as documentary stamp tax, it is the par value of the certificates of stock or the book value of the shares which should be considered. The pertinent provision of law, as it stood at the time of the questioned transaction, reads as follows: Sec. 224. Stamp tax on original issues of certificates of stock . On every original issue, whether on organization, reorganization or for any lawful purpose, of certificates of stock by any association, company or corporation, there shall be collected a documentary stamp tax of one peso and ten centavos on each two hundred pesos, or fractional part thereof, of the par value of such certificates: Provided, That in the case of the original issue of stock without par value the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration received by the association, company, or corporation for the issuance of such stock, and in the 3 case of stock dividends on the actual value represented by each share. The Commissioner of Internal Revenue took the view that the book value of the shares, amounting to P19,307,500.00, should be used as basis for determining the amount of the documentary stamp tax. Accordingly, respondent Internal Revenue Commissioner issued a deficiency documentary stamp tax assessment in the amount of P78,991.25 in excess of the par value of the stock dividends. Together with another documentary stamp tax assessment which it also questioned, petitioner appealed the Commissioner's ruling to the Court of Tax Appeals. On March 30, 1993, the CTA rendered its decision holding that the amount of the documentary stamp tax should be based on the par value stated on each certificate of stock. The dispositive portion of its decision reads: WHEREFORE, the deficiency documentary stamp tax assessments in the amount of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack of merit. Respondent Commissioner of Internal Revenue is ordered to desist from collecting said deficiency documentary stamp taxes for the same are considered withdrawn.
2

G.R. No. 118043 July 23, 1998 LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE INSURANCE CO. INC.),petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

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SO ORDERED. In turn, respondent Commissioner of Internal Revenue appealed to the Court of Appeals which, on November 18, 1994, reversed the CTA's decision and held that, in assessing the tax in question, the basis should be the actual value represented by the subject shares on the assumption that stock dividends, being a distinct class of shares, are not subject to the qualification in the law as to the type of certificate of stock used (with or without par value). The appellate court, therefore, ordered: IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby REVERSED with respect to the deficiency tax assessment on the stock dividends, but AFFIRMED with regards to the assessment on the Insurance Policies. Consequently, private respondent is ordered to pay the petitioner herein the sum of P78,991.25, representing documentary stamp tax on the stock dividends it issued. No costs pronouncement. SO ORDERED. Hence, this petition with the following assignment of error: RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT STOCK DIVIDENDS INVOLVING SHARES WITH PAR VALUE ARE SUBJECT TO DOCUMENTARY STAMP TAX BASED ON THE BOOK VALUE OF SAID SHARES WHICH RULING IS CONTRARY TO WHAT IS CLEARLY PROVIDED FOR BY SECTION 224 (NOW SECTION 175) OF THE TAX CODE. The petition has merit. First. In ruling that the book value of the shares should be considered in assessing the documentary stamp tax, the Court of Appeals stated: There are three (3) classes of stocks referred to in Section 224 (now 175) of the Internal Revenue Code: (a) Certificate of Stocks with par value, (b) Certificate of Stock with no par value and (c) stock dividends. The first two (2) mentioned are original issuances of the corporation, association or company while the third ones are taken by the corporation, association or company out of or from their unissued shares of stock, hence are also originals. Undoubtedly, all the three classifications are subject to the documentary stamp tax. Conformably, in the case of stock certificates with par value, the documentary stamp tax is based on the par value of the stock; for stock certificates without par value, the same tax is computed from the actual consideration received by the corporation, association or company; but for stock dividends, documentary stamp tax is to be paid "on the actual value represented by each share." Since in dividends, no consideration is technically received by the corporation, petitioner is correct in basing the assessment on the book value thereof rejecting the principles enunciated in Commissioner of Internal Revenue vs. Heald Lumber Co. (10 SCRA 372) as the said case refers to purchases of no4 par certificates of stocks and not to stock dividends. Apparently, the Court of Appeals treats stock dividends as distinct from ordinary shares of stock for purposes of the then 224 of the National Internal Revenue Code. There is, however, no basis for considering stock dividends as a distinct class from ordinary shares of stock since under this provision only certificates of stock are required to be distinguished (into either one with par value or one without) rather than the classes of shares themselves. Indeed, a reading of the then 224 of the NIRC as quoted earlier, starting from its heading, will show that the documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege of issuing certificates of stock. A stock certificate is merely evidence of a share of stock and not the share itself. This distinction is clear in the Corporation Code, to wit: Sec. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall 5 be transferable in the books of the corporation. Stock dividends are in the nature of shares of stock, the consideration for which is the amount 6 of unrestricted retained earnings converted into equity in the corporation's books. Thus,

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A "stock dividend'' is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits. So, a stock dividend is actually two things: (1) a dividend and (2) the enforced use of 7 the dividend money to purchase additional shares of stock at par . . . From the foregoing, it is clear that stock dividends are shares of stock and not certificates or stock which merely represent them. There is, therefore, no reason for determining the actual value of such dividends for purposes of the documentary stamp tax if the certificates representing them indicate a par value. The Solicitor General himself says that, based on the then 224, there are only two bases for determining the amount of the documentary stamp tax: An examination of the structure of the main provision of Sec. [224] of the NIRC will show that it intends to classify the tax bases into two, either the par value, or the actual consideration or actual value. It specifies in the first part that the basis for the imposition of the documentary stamp tax on shares of stocks belonging to the first category, discussed in the early part of this comment, shall be the face value. In contradistinction, the provision specifies in the proviso that for the second and third categories, the basis for the tax shall not be the face value. Rather, the basis is either the actual consideration received 8 by the corporation for the share or the actual value of the share. Apparently, the former tax code sought to distinguish between stock dividends without par value and other transactions involving ordinary shares of stock without par value in the second clause of the then 224 in order to prevent claims that the former are exempt from documentary stamp taxes as, unlike in the case of ordinary shares, corporations actually receive nothing from their stockholders in exchange for such stock dividends. Hence the provision that, in the case of stock dividends, the amount of the documentary stamp tax must be based on the actual value of each share. This is the only purpose for the distinction in the second clause of the subject provision. Second. It is error for the Solicitor General to contend that, under the then 224 of the NIRC, the basis for assessment is the actual value of the business transaction that is the source of 9 the original issuance of stock certificates. To the contrary, the documentary stamp tax here is not levied upon the specific transaction which gives rise to such original issuance but on the privilege of issuing certificates of stock. As we have held in several cases: A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. (Du Pont v. U.S., 300 U.S. 150; Thomas v. U.S., 192 U.S., 363; Nicol v. Ames, 173 U.S. 509). With respect to stock certificates, it is levied upon the privilege of issuing them; not on the money or property received by the issuing company for such certificates. Neither is it imposed upon the share of stock. As Justice Learned Hand pointed out in one case, documentary stamp tax is levied on the document and not on the property 10 which it described, (Empire Trust Co. v. Hoey, 103 F 2d. 430). . . . Third. Settled is the rule that, in case of doubt, tax laws must be construed strictly against the State and liberally in favor of the taxpayer. This is because taxes, as burdens which must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and 11 clearly declares. That such strict construction is necessary in this case is evidenced by the change in the subject provision as presently worded, which now expressly levies the said tax on shares of stock as against the privilege of issuing certificates of stock as formerly provided: Sec. 175. Stamp Tax on Original Issue of Shares of Stock. On every original issue, whether on organization, reorganization or for any lawful purpose, of shares of stock by any association, company or corporation, there shall be collected a documentary stamp tax of Two pesos (P2.00) on each Two hundred pesos (P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case of the original issue of shares of stock without par value the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, That in the case of stock dividends, on 12 the actual value represented by each share. WHEREFORE, the decision of the Court of Appeals is REVERSED insofar as the deficiency tax assessment on stock dividends is concerned and the decision of the Court of Tax Appeals is reinstated. SO ORDERED.

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United States Immigration Act of February 20, 1907, now in force in the Philippine Islands, which declares that: G.R. No. L-9185 January 25, 1915 The provisions of this law applicable to contract labor shall not be held to exclude professional actors, artists, lecturers, singers, ministers of any religious denomination, professors for colleges or seminaries, persons belonging to any recognized learned profession, or persons employed strictly as personal or domestic servants. The evidence of record fully sustains the allegations of the complaint that plaintiff is a professional acrobat and that the contract in question was for her services as such, in the course of exhibitions to be given under the auspices and control of the defendant. It further appears that she has pursued the profession of "artistic gymnast" and "trapeze artist" for ten years, and that in the words of the principal witness for the defense she was "all right for the work she was engaged to do." We are of opinion and so hold, that the contract in question was not affected by the provisions of the statute, the right of plaintiff to enter the Philippine Islands, notwithstanding the fact that she did so under contract for her professional services, being clearly included within the exceptions of the general provisions of the law in favor of "professional actors." The contentions of the defendant corporation based on its supposed lack of express or implied power under its articles of incorporation to enter into the contract are entitled to but scant consideration. As was said by Justice Brewer in the case of Chicago, Rock Island and Pacific R. R. Co. vs. Union Pacific Ry. Co. (47 Fed. Rep., 15, 22): It is not seemly for a corporation, any more than for an individual, to make a contract and then break it; to abide by it so long as it is advantageous, and repudiate it when it becomes onerous. The courts may well say to such corporation: "As you have called it a contract, we will do the same. As you have enjoyed the benefits when it was beneficial, you must bear the burden when it becomes onerous, unless it clearly appears that that which you have assumed to do is beyond your powers." In Railway Co. vs. McCarthy (96 U. S., 267), the Supreme Court said: "When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to previal where it would defeat the ends of justice or work a legal wrong." The evidence of record in this case falls far short of sustaining a finding that under the articles of incorporation of the defendant, by virtue of which it was engaged in the operation of hotels and week-end resorts in the city of Manila and its environs, it was beyond its implied powers to

GERALDINE COLEMAN, plaintiff-appellee, vs. HOTEL DE FRANCE COMPANY, defendant-appellant. Beaumont and Tenney for appellant. Southworth, Hargis, Adams and Jordan for appellee. CARSON, J.: This is an appeal from a judgment rendered April 29, 1913, by the Honorable A. S. Crossfield in favor of the plaintiff, Geraldin Coleman, and against the defendant, the Hotel de France Company, for the sum of P585.42 as damages for the breach of a written contract made September 13, 1912, at Sydney, Australia, between plaintiff, a professional gymnast, and the defendant company, through its manager, Ignacio Arnalot, whereby the latter hired the former to entertain the patrons of its hotel at Manila for the period of three months at a salary of 12 per month, besides agreeing to furnish her board, lodging, and laundry expenses and also to pay her passage from the Australia to Manila and return. The existence of the contract, the ability and readiness of the plaintiff to fulfill her part thereof, and the cancellation thereof by the defendant company are facts that are not controverted in this court. The defenses here insisted on are: 1. That the contract in question is void under the immigration laws in force in these Islands; 2. That the contract in question is void in that it exceeded the corporate capacity of the defendant corporation that is, is ultra vires; 3. That if the contract were valid defendant company was justified in cancelling it by reason of the violation of its terms by plaintiff; and 4. That the court erred in the measure of damages awarded plaintiff in that plaintiff was at most entitled to the value of the services actually rendered by her to defendant company, and not to the full amount of the stipulated salary and expenses incurred by her by reason of the cancellation of the contract in question. The contention of appellant based on the immigration laws of the United States in force in these Islands is manifestly untenable in view of the express provisions of section 2 of the

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enter into and to execute a contract which had for its object the giving of vaudeville entertainments, including acrobatic exhibitions, at the hotels operated by it, for the purpose of entertaining its guests and attracting patronage. We incline rather to believe that the execution of a contract for the employment of vaudeville artists, bands, orchestras, and the like may fairly be held to be included within the powers incidental to the express powers for which the defendant corporation, engaged as it was in the conduct, management, and operation of hotels in and about the city of Manila, was created. The contentions of the defendant corporation upon which it seeks to justify its violation of its contract with the plaintiff on the ground of her alleged misconduct, are sufficiently and satisfactorily disposed of in the opinion of the trial judge. Holding as we do that the defendant corporation without just cause or excuse discharged the plaintiff in flagrant violation of its contract of employment with her, we agree with the trial judge that plaintiff is entitled to recover not merely compensation for services rendered before the breach of the contract by her employer, but the full amount which she might have learned under the contract less such compensation as she actually obtained or might have obtained in some other employment during the term of the contract which had not yet expired at the date of the breach, the burden of proof as to the amount by which the prima facie damage may thus be reduced being upon the defendant. (Aldaz vs. Gay, 7 Phil. Rep., 268.) We find no error in the proceedings prejudicial to the rights of the appellant. The judgment entered in the court below should therefore be affirmed, with the costs of this instance against it. So ordered. 1. Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was established in 1933 by Maximo C. Hernandez, Sr. It was a "family" corporation, the stockholders of which were/are members of the Hernandez family. It has a compound in Las Pinas Rizal, where it has been engaged in the manufacture mainly of ink and articles associated with ink. 2. On June 6, 1961, employees of RANSOM, most of them being members of petitioner Labor UNION, went on strike and established a picket line which, however, was lifted on June 21st with most of the strikers returning and being allowed to resume their work by RANSOM Twenty-two (22) strikers were refused reinstatement by the Company. 3. During 1969, the same Hernandez family organized another corporation, Rosario Industrial Corporation (ROSARIO, for short) which also engaged, in the RANSOM Compound, in the business of manufacture of ink and products associated with ink. 4. The strike became the subject of Cases Nos. 2848 ULP and 2880 ULP of the Court of Industrial Relations which, on December 19, 1972, ordered RANSOM "its officers and agents to reinstate the 22 strikers with back wages from July 25, 1969. 5. On April 2, 1973, RANSOM filed an application for clearance to close or cease operations effective May 1, 1973, which was granted by the Ministry of Labor and Employment in its Order of June 7, 1973, without prejudice to the right of employees to seek redress of grievance, if any. Although it has stopped operations, RANSOM has continued its personality as a corporation. For practical purposes, reinstatement of the 22 strikers has been precluded. As a matter of fact, reinstatement is not an issue in this case. 6. Back wages of the 22 strikers were subsequently computed at P164,984.00, probably in early 1974. The exact date is not reflected in the record. G.R. No. L-69494 June 10, 1986 A.C. RANSOM LABOR UNION-CCLU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, First Division, A.C. RANSOM (PHILS.) CORPORATION, RUBEN HERNANDEZ, MAXIMO C. HERNANDEZ, JR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ, CELESTINO C. HERNANDEZ & MA. ROSARIO HERNANDEZ, respondents. 7. Up to September 9, 1976, petitioner UNION had filed about ten (10) motions for execution against RANSOM; but all of them could not be implemented, presumably for failure to find leviable assets of RANSOM; although it appears that, in 1975, RANSOM had sold machineries and equipment for P28million to Revelations Manufacturing Corporation. 8. Directly related to this case is the last Motion for Execution, dated December 18, 1978, filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held personally liable for payment of the back wages. That Motion was granted by Labor Arbiter, Tito F. Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly authorized a Writ of Execution to be issued for P164,984.00 (the back wages) against RANSOM and seven officers and directors of the Company who are the named individual respondents herein. RANSOM took an appeal to NLRC which affirmed the GENILO ORDER, except as modified in the body of its decision of July 31, 1984. 9. In RANSOM's appeal to the NLRC, two issues were raised:

MELENCIO-HERRERA, J.: The facts relevant to this case may be related as follows:

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(a) One of the issues was: THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND EXECUTORY IN 1973, IS IT ENFORCEABLE BY A WRIT OF EXECUTION ISSUED IN 1980 OR MORE THAN FIVE YEARS AFTER THE FINALITY OF THE DECISION SOUGHT TO BE ENFORCED? The corresponding ruling made by NLRC was: Article 273 of the Code provides that: Perforce respondent's theory that execution proceedings must stop after the lapse of five (5) years and that a motion to revive need be filed, must fail. Suffice it to state also that the statute of limitations has been devised to operate primarily against those who sleep on their rights, not against those who assert their right but fail for causes beyond their control. The above recital of facts contradicts respondent's contention that the CIR decision of August 19, 1972 had remained dormant to require a motion to revive. (b) The second issue raised was: IS THE JUDGMENT AGAINST A CORPORATION TO REINSTATE ITS DISMISSED EMPLOYEES WITH BACKWAGES, ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS IN THEIR INDIVIDUAL, PRIVATE AND PERSONAL CAPACITIES WHO WERE NOT PARTIES IN THE CASE WHERE THE JUDGMENT WAS RENDERED; The NLRC ruling was: As to the liability of the respondent's officers and agents, we agree with the contention of the respondent-appellant that there is nothing in the Order dated May 11, 1986 that would justify the holding of the individual officers and agents of respondent in their personal capacity. As a general rule, officers of the corporation are not liable personally for the official acts unless they have exceeded the scope of their authority. In the absence of evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March 11, 1980 have exceeded their authority, the writ of execution can not be enforced against them, especially so since they were not given a chance to be heard. RANSOM and the seven individual respondents in this case have not appealed from the ruling of the NLRC that Section 6, Rule 39, is not invocable by them in regards to the execution of the decision of December 19, 1972. Hence, the issue can no longer be raised herein. Even if the said section were applicable, the 5-year period therein mentioned may not have expired by December 18, 1978 because the period should be counted only from the time the back wages were determined, which could have been in early 1974. Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months. (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: (c) 'Employer includes any person acting in the interest of an employer directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer. The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided: (b) If any violation of his Act is committed by a corporation, trust, partnership or association, the manager or in his default, the person acting as such when the violation took place, shall be responsible. In the case of a government corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or commission of some other person, over whom he has no control, in which case the latter shall be held responsible. In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty "shall be imposed upon the guilty officer or officers" of the corporation. We now come to the NLRC's decision upholding non-personal liabilities of the individual respondents herein for back wages of the 22 strikers. (a) Article 265 of the labor Code, in part. expressly provides: Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with fill back wages.

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(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. in the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operation on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. (d) The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager" or in his default, the person acting as such. In RANSOM, the President appears to be the Manager. (e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion What the personal liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a continuing joint and several personal liabilities of all who x-ray have thereafter succeeded to the office of president; otherwise, the 22 strikers may be deprived of their rights by the election of a president without leviable assets. WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that personal liability for the back wages due the 22 strikers shall be limited to Ruben Hernandez, who was President of RANSOM in 1974, jointly and severally with other Presidents of the same corporation who had been elected as such after 1972 or up to the time the corporate life was terminated. SO ORDERED. Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila convicting the appellant of estafa, under an information which reads: That in, about or during the period comprised' between July 24, 1963 and December 31, 1963, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously defraud the Continental Bank, a banking institution duly organized and doing business in the City of Manila, in the following manner, to wit: the said accused, in his capacity as president and general manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets were consigned to the Continental Bank, under the express obligation on the part of said accused of holding the said steel sheets in trust and selling them and turning over the proceeds of the sale to the Continental Bank; but the said accused, once in possession of the said goods, far from complying with his aforesaid obligation and despite demands made upon him to do so, with intent to defraud, failed and refused to return the said cold rolled sheets or account for the proceeds thereof, if sold, which the said accused willfully, unlawfully and feloniously misappropriated, misapplied and converted to his own personal use and benefit, to the damage and prejudice of the said Continental Bank in the total amount of P146,818.68, that is the balance including the interest after deducting the sum of P28,736.47 deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods, in the said sum of P71,023.60. (Original Records, p. 1). In reviewing the evidence, the Court of Appeals came up with the following findings of facts which the Solicitor General alleges should be conclusive upon this Court: There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24 May, 1963, was General Manager of the Metal Manufacturing Company of the Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May, 1963, because his company was in need of raw materials to be imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed to the Continental Bank, herein complainant, Exhibit B and his application having been approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there is some debate on the evidence; according to Complainant Bank, there was permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while according to the accused, the goods were delivered to him sometime before he executed that trust receipt in fact they had already been converted into steel office equipment by the time he signed said trust receipt,

G.R. No. L-30896 April 28, 1983 JOSE O. SIA, petitioner, vs. THE PEOPLE OF THE PHILIPPINES, respondent.

DE CASTRO, J.:

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tsn. II:8; but there is no question - and this is not debated - that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. B) neither accused nor his company having made payment thereon notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason why upon complaint by Continental Bank, the Fiscal filed the information after preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103- 104). The first issue raised, which in effect combines the first three errors assigned, is whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may be liable for the crime charged. In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed to him would constitute the crime of estafa, which he also disputes, but seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing with him only as an officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit B) and which, accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General relies on the general principle that when a corporation commits an act which would constitute a punishable offense under the law, it is the responsible officers thereof, acting for the corporation, who would be punished for the crime, The Court of Appeals has subscribed to this view when it quoted approvingly from the decision of the trial court the following: A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that can not be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely untenable. (Rollo [CA], p. 108.) The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.) The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be squarely applicable to the instant case in that the corporation was directly required by law to do an act in a given manner, and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. The performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law, negated. In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance of an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as that involved herein. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other than in his own behalf, not in behalf of a corporation. The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction, which is a very comprehensive piece of legislation, and includes an express provision that if the violation or offense is committed by a corporation, partnership, association or other juridical entities the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to civil liabilities arising from the criminal offense. The question that suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article 315, par. 1 (b) are not adequate to justify the punishment of the act made punishable by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of the conditions usually embodied in a trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions as estafa under Article 315 of the Revised Penal Code which P.D. 115 now seeks to punish expressly. As executed, the trust receipt in question reads:

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I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either way of conditional sale, pledge or otherwise; In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to CONTINENTAL BANK. (Original Records, p. 108) One view is to consider the transaction as merely that of a security of a loan, and that the trust element is but and inherent feature of the security aspect of the arrangement where the goods are placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the element of trust not being intended to be in the same concept as how it is understood in the criminal sense. The other view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee, " with the authority to sell the goods, but with the obligation to give the proceeds to the "entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as contemplated by Art. 315, par. 1 (b). We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of the goods imported, and acquires legal standing as such receipt only upon acceptance by the "entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of the L/C, the approval of the L/C and the making of the marginal deposit and the effective importation of the goods, all through the efforts of the importer who has to find his supplier, arrange for the payment and shipment of the imported goods-all these circumstances would negate any intent of subjecting the importer to criminal prosecution, which could possibly give rise to a case of imprisonment for non-payment of a debt. The parties, therefore, are deemed to have consciously entered into a purely commercial transaction that could give rise only to civil liability, never to subject the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are received by a person from the owner for sale on commission, and the former misappropriates for his personal use and benefit, either the jewelries or the proceeds of the sale, instead of returning them to the owner as is his obligation, the bank is not in the same concept as the jewelry owner with full power of disposition of the goods, which the bank does not have, for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof, a feature totally absent in the case of the transaction between the jewel-owner and his agent. Consequently, if only from the fact that the trust receipt transaction is susceptible to two reasonable interpretation, one as giving rise only to civil liability for the violation of the condition thereof, and the other, as generating also criminal liability, the former should be adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.) There is, moreover, one circumstance appearing on record, the significance of which should be properly evaluated. As stated in petitioner's brief (page 2), not denied by the People, "before the Continental Bank approved the application for a letter of credit (Exhibit 'D'), subsequently covered by the trust receipt, the Continental Bank examined the financial capabilities of the applicant, Metal Manufacturing Company of the Philippines because that was the bank's standard procedure (Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n., August 30, 1965). The Continental Bank did not examine the financial capabilities of herein petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this fact, it would appear as positively established that the intention of the parties in entering into the "trust receipt" agreement is merely to afford a stronger security for the loan evidenced by the letter of credit, may be not as an ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised Penal Code giving rise to criminal liability, as previously explained and demonstrated. It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of such liability alone, as one arising from the contract, as distinguished from the civil liability arising out of a crime, the petitioner was never intended to be equally liable as the corporation. Without being made so liable personally as the corporation is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt. This is made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner, with respect to which there is variance between the allegation and the evidence. It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed that the imported goods were to be manufactured into finished products first before they could be sold, as the Bank had full knowledge of. This fact is, however, not embodied in the trust agreement, thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for criminal prosecution, in the event of a violation of the terms of the trust receipt. Again, P.D. 115 has express provision relative to the "manufacture or process of

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the good with the purpose of ultimate sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1). Note that what is embodied in the receipt in question is the sale of imported goods, the manufacture thereof not having been mentioned. The requirement in criminal prosecution, that there must be strict harmony, not variance, between the allegation and the evidence, may therefore, not be said to have been satisfied in the instance case. FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the petitioner, with costs de oficio. SO ORDERED.

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