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CASE 1 G.R. No.

164888 December 6, 2006

RURAL BANK OF CORON (PALAWAN), INC., EMPIRE COLD STORAGE AND DEVELOPMENT CORPORATION, CITIZENS DEVELOPMENT INCOPRORATED, CARIDAD B. GARCIA, SANDRA G. ESCAT, LORNA GARCIA, and OLGA G. ESCAT, petitioners, vs. ANNALISA CORTES, respondent.

DECISION

CARPIO MORALES, J.: In 1987, Virgilio Garcia, "founder" of petitioner corporations (the corporations), hired the then still single Annalisa Cortes (respondent) as clerk of the Rural Bank of Coron (Manila Office). After Virgilio died, his son Victor took over the management of the corporations. Anita Cortes (Anita), the wife of Victor Garcia, was also involved in the management of the corporations. Respondent later married Anitas brother Eduardo Cortes. Anita soon assumed the position of Vice President of petitioner Citizens Development Incorporated (CDI) and practically controlled the financial operations of almost all of the other corporations in the course of which she allowed some of her relatives and in-laws, including respondent, to hold several key sensitive positions thereat. Respondent later became the Financial Assistant, Personnel Officer and Corporate Secretary of The Rural Bank of Coron, Personnel Officer of CDI, and also Personnel Officer and Disbursing Officer of The Empire Cold Storage Development Corporation (ECSDC). She simultaneously received salaries from these corporations. On examination of the financial books of the corporations by petitioner Sandra Garcia Escat, a daughter of Virgilio Garcia who was previously residing in Spain, she found out that respondent was involved in several 1 anomalies, drawing petitioners to terminate respondents ser vices on November 23, 1998 in petitioner 2 corporations. By letter of November 25, 1998 addressed to individual petitioners Caridad B. Garcia (widow of Virgilio Garcia), Sandra G. Escat, and Olga G. Escat (another daughter of Virgilio Garcia), respondents counsel conveyed respondents willingness to abide by the decision to terminate her but reminded them that she was entitled to separation pay equivalent to 11 months salary as well as to the other benefits provided by law in her favor. Respondents counsel thus demanded the payment of respondents unpaid salary for the months of October and 4 th November 1998, separation pay equivalent to 12 months salary, 13 month pay and other benefits.
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As the demand remained unheeded, respondent filed a complaint for illegal dismissal and non-payment of salaries and other benefits, docketed as NLRC-NCR Case No. 00-05-05738-99. Petitioners moved for the dismissal of the complaint on the ground of lack of jurisdiction, contending that the case was an intra-corporate controversy involving the removal of a corporate officer, respondent being the Corporate Secretary of the Rural Bank of Coron, Inc., hence, cognizable by the Securities and Exchange Commission (SEC) 6 pursuant to Section 5 of PD 902-A. In resolving the issue of jurisdiction, the Labor Arbiter noted as follows: It is to be noted that complainant, aside from her being Corporate Secretary of Rural Bank of Coron,complainant was likewise appointed as Financial Assistant & Personnel Officer of all respondents herein, whose services w[ere] terminated on 23 November 1998, hence, the instant complaint. Verily, a Financial Assistant & Personnel Officer is not a Corporate Officer of the [petitioners] corporation, thus, pursuant to Article 217 of the Labor Code, as amended, the instant case falls within the 7 ambit of original and exclusive jurisdiction of this Office. (Emphasis and underscoring supplied). Eventually, the Labor Arbiter found for respondent, computing the monetary award due her as follows: Backwages 13th Month Pay for 1998, 1999 & 2000 Separation Pay Unpaid Salary Attorneys fees P658,000.00 63,000.00 P721,000.00 315,000.00 25,900.00 106,190.00 P1,168,090.00 Thus, the Labor Arbiter, by Decision of July 18, 2001, disposed: WHEREFORE, in view of all the foregoing, respondents are hereby ordered to jointly and severally pay complainant the total amount of ONE MILLION ONE HUNDRED SIXTY-EIGHT THOUSAND NINETY 8 (P1,168,090.00) PESOS as discussed above. On August 13, 2001, the tenth or last day of the period of appeal, petitioners filed a Notice of Appeal and Motion 10 11 for Reduction of Bond to which they attached a Memorandum on Appeal. In their Motion for Reduction of Bond, petitioners alleged that the corporations were under financial distress and the Rural Bank of Coron was under receivership. They thus prayed that the amount of bond be substantially reduced, preferably to one half thereof or 12 even lower. By Resolution of October 16, 2001 , the National Labor Relations Commission (NLRC), while noting that petitioners timely filed the appeal, held that the same was not accompanied by an appeal bond, a mandatory 14 requirement under Article 223 of the Labor Code and Section 6, Rule VI of the NLRC New Rules of Procedure. It also noted that the Motion for Reduction of Bond was "premised on self-serving allegations." It accordingly dismissed the appeal. Petitioners Motion for Reconsideration was denied by the NLRC by November 26, 2001 Resolution, hence, they 17 filed a Petition for Certiorari before the Court of Appeals.
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By Decision dated May 26, 2004 , the appellate court dismissed the petition for lack of merit. Petitioners motion 19 for reconsideration was also denied by Resolution of August 13, 2004. Hence, this petition, petitioners faulting the appellate court for: I . . . FAIL*URE+ TO RULE THAT THE NLRCS RULE OF PROCEDURE WHICH PROVIDES FOR THE POSTING OF A BOND AS A CONDITION PRECEDENT FOR PERFECTING AN APPEAL AS A CONDITION PRECEDENT FOR PERFECTING AN APPEAL IS CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE. II . . . DISMISS*ING+ PETITIONERS*+ PETITION FOR *CERTIORARI+ BASED ON TECHNICALITY AND FAIL*URE+ TO DECIDE THE SAME BASED ON ITS MERIT. III . . . DISMISSING PETITIONERS PETITION FOR CERTIORARI FROM THE DECISION OF THE NLRC FOR NONPERFECTION THEREOF. IV . . . DISMISSING PETITIONERS PETITION FOR *CERTIORARI+ FROM THE DECISION OF THE NLRC WITHOUT RESOLVING THE CASE BASED ON ITS MERITS. V . . . FAIL[URE] TO DECLARE THAT INDIVIDUAL PETITIONERS ARE NOT SOLIDARY LIABLE TO PAY THE RESPONDENT FOR HER MONETARY CLAIM IN VIEW OF THE ABSENCE OF ANY EVIDENCE SHOWING THAT THEY WERE MOTIVATED BY ILL-WILL OR MALICE IN SEVERING HER EMPLOYMENT. VI . . . FAIL[URE] TO RESOLVE THE ISSUE OF JURISDICTION.
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While, indeed, respondent was the Corporate Secretary of the Rural Bank of Coron, she was also its Financial 22 Assistant and the Personnel Officer of the two other petitioner corporations. Mainland Construction Co., Inc. v. Movilla instructs that a corporation can engage its corporate officers to 24 perform services under a circumstance which would make them employees. The Labor Arbiter has thus jurisdiction over respondents complaint. On the first three assigned errors which bear on whether petitioners appeal before the NLRC was perfected: As before the Court of Appeals, petitioners cite Cosico, Jr. v. NLRC[25] and Taberrah v. NLRC[26] in support of their contention that their appeal before the NLRC was perfected. As correctly ruled by the Court of Appeals, however, the cited cases are not in point.
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The appellant in Taberrah filed a motion to fix appeal bond instead of posting an appeal bond; and the Supreme Court relaxed the requirement considering that the labor arbiters decision did not contain a computation of the monetary award. In Cosico, the appeal bond posted was of insufficient amount but the Supreme Court ruled that provisions of the Labor Code on requiring a bond on appeal involving monetary awards must be given liberal interpretation in line with the desired objective of resolving controversies on their merits. Herein, no appeal bond, whether sufficient or not, was ever filed by the 27 petitioners. (Italics in the original; emphasis and underscoring supplied) Petitioners additionally cite Star Angel Handicraft v. NLRC[28] to support their position that there is a distinction between the filing of an appeal within the reglementary period and its perfection. In the parallel case of Computer 29 Innovations Center v. National Labor Relations Commission , this Court hesitated to reiterate the doctrine in Star Angel in this wise: Petitioners invoke the aforementioned holding in Star Angel that there is a distinction between the filing of an appeal within the reglementary period and its perfection, and that the appeal may be perfected after the said reglementary period. Indeed, Star Angel held that the filing of a motion for reduction of appeal bond necessarily stays the reglementary period for appeal. However, in this case, the motion for reduction of appeal bond, which was incorporated in the appeal memorandum, was filed only on the tenth or final day of the reglementary period. Under such circumstance, the motion for reduction of appeal bond can no longer be deemed to have stayed the appeal, and the petitioner faces the risk, as had happened in this case, of summary dismissal of the appeal for non-perfection. Moreover, the reference in Star Angel to the distinction between the period to file the appeal and to perfect the appeal has been pointedly made only once by this Court in Gensoli v. NLRC thus, it has not acquired the sheen of venerability reserved for repeatedly-cited cases. The distinction, if any, is not particularly evident or material in the Labor Code; hence, the reluctance of the Court to adopt such doctrine. Moreover, the present provision in the NLRC Rules of Procedure, that "the filing of a motion to reduce bond shall not stop the running of the period to perfect appeal" flatly contradicts the notion expressed in Star Angel that there is a distinction between the filing an appeal and perfecting an appeal. Ultimately, the disposition of Star Angel was premised on the ruling that a motion for reduction of the appeal bond necessarily stays the period for perfecting the appeal, and that the employer cannot be expected to perfect the appeal by posting the proper bond until such time the said motion for reduction is resolved. The unduly stretched-out distinction between the period to file an appeal and to perfect an appeal was not material to the resolution of Star Angel, and this could be properly considered as obiter 30 dictum. (Italics in the original; emphasis and underscoring supplied) The appellate court did not thus err in dismissing the petition before it. And contrary to petit ioners assertion, the appellate court dismissed its petition not "on a mere technicality." For the non-posting of an appeal bond within the reglementary period divests the NLRC of its jurisdiction to entertain the appeal. Thus, in the same case of Computer Innovations Center, this Court held: Petitioners also characterize the appeal bond requirement as a technical rule, and that the dismissal of an appeal on purely technical grounds is frowned upon. However, Article 223, which prescribes the appeal bond requirement, is a rule of jurisdiction and not of procedure. There is a little leeway for condoning a liberal interpretation thereof, and certainly none premised on the ground that its requirements are mere technicalities. It must be emphasized that there is no inherent right to an appeal in a labor case, as it arises solely from grant of statute, namely the Labor Code. We have indeed held that the requirement for posting the surety bond is not merely procedural butjurisdictional and cannot be trifled with. Non-compliance with such legal requirements is fatal and has

the effect of rendering the judgment final and executory. The petitioners cannot be allowed to seek 31 refuge in a liberal application of rules for their act of negligence. (Emphasis and underscoring supplied) It bears emphasis that all that is required to perfect the appeal is the posting of a bond to ensure that the award is eventually paid should the appeal be dismissed. Petitioners should thus have posted a bond, even if it were only 32 partial, but they did not. No relaxation of the Rule may thus be considered. In the case at bar, petitioner did not post a full or partial appeal bond within the prescribed period, thus, no appeal was perfected from the decision of the Labor Arbiter. For this reason, the decision sought to be appealed to the NLRC had become final and executory and therefore immutable. Clearly then, the NLRC has no authority to entertain the appeal, much less to reverse the decision of the Labor Arbiter. Any amendment or alteration made which substantially affects the final and executory judgment is null and void for lack of jurisdiction, including the 33 entire proceeding held for that purpose. (Emphasis and underscoring supplied) As the decision of the Labor Arbiter had become final and executory, a discussion of the fourth and fifth assigned errors is no longer necessary. WHEREFORE, the petition is DENIED. SO ORDERED.

CASE 2 G.R. No. 120077 October 13, 2000

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO G. SANTOS,respondents. PARDO, J.: The case before the Court is a petition for certiorari to annul the following orders of the National Labor Relations Commission (hereinafter referred to as "NLRC") for having been issued without or with excess jurisdiction and with 2 grave abuse of discretion: (1) Order of May 31, 1993. Reversing and setting aside its earlier resolution of August 28, 1992. The questioned order declared that the NLRC, not the Philippine Overseas Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over private respondent's complaint; (2) Decision of December 15, 1994. Directing petitioners to jointly and severally pay private respondent twelve thousand and six hundred dollars (US$ 12,600.00) representing salaries for the unexpired portion of his contract; three thousand six hundred dollars (US$3,600.00) as extra four months salary for the two (2) year period of his contract, three thousand six hundred dollars (US$3,600.00) as "14th month pay" or a total of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso equivalent and attorney's fees amounting to ten percent (10%) of the total award; and (3) Order of March 30, 1995. Denying the motion for reconsideration of the petitioners.
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In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman. Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's Republic of China and later terminated due to retrenchment. Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila Hotel International Company, Limited (hereinafter referred to as "MHICL"). When the case was filed in 1990, MHC was still a government-owned and controlled corporation duly organized and existing under the laws of the Philippines. MHICL is a corporation duly organized and existing under the laws of Hong Kong. MHC is an "incorporator" of 8 MHICL, owning 50% of its capital stock. By virtue of a "management agreement" with the Palace Hotel (Wang Fu Company Limited), MHICL trained the personnel and staff of the Palace Hotel at Beijing, China. Now the facts. During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager, Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was recommended by one Nestor Buenio, a friend of his. Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly salary and 11 increased benefits. The position was slated to open on October 1, 1988. On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the offer. On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the contract was acceptable, to return the same to Mr. Henk in Manila, together with his passport and two additional pictures for his visa to China. On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June 30, 1988, under the pretext that he was needed at home to help with the family's piggery and poultry business. On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter. Respondent Santos enclosed four (4) signed copies of the employment contract (dated June 4, 1988) and notified them that he was going to arrive in Manila during the first week of July 1988. The employment contract of June 4, 1988 stated that his employment would commence September 1, 1988 for a 12 period of two years. It provided for a monthly salary of nine hundred dollars (US$900.00) net of taxes, payable 13 fourteen (14) times a year. On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press. On July 1, 1988, respondent Santos arrived in Manila. On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace Hotel.
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Subsequently, respondent Santos signed an amended "employment agreement" with the Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The Vice President (Operations and

Development) of petitioner MHICL Miguel D. Cergueda signed the employment agreement under the word "noted". From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned to China and reassumed his post on July 17, 1989. On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten note that respondent Santos be given one (1) month notice of his release from employment. On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt that his employment at the Palace Hotel print shop would be terminated due to business reverses brought about by the 15 16 political upheaval in China. We quote the letter: "After the unfortunate happenings in China and especially Beijing (referring to Tiannamen Square incidents), our business has been severely affected. To reduce expenses, we will not open/operate printshop for the time being. "We sincerely regret that a decision like this has to be made, but rest assured this does in no way reflect your past performance which we found up to our expectations." "Should a turnaround in the business happen, we will contact you directly and give you priority on future assignment." On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and paid all benefits due him, including his plane fare back to the Philippines. On October 3, 1989, respondent Santos was repatriated to the Philippines. On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt, demanding full compensation pursuant to the employment agreement. On November 11, 1989, Mr. Shmidt replied, to wit:
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His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the one-month notice clause and Mr. Santos received all benefits due him. "For your information the Print Shop at the Palace Hotel is still not operational and with a low business outlook, retrenchment in various departments of the hotel is going on which is a normal management practice to control costs. "When going through the latest performance ratings, please also be advised that his performance was below average and a Chinese National who is doing his job now shows a better approach. "In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but still enjoyed free accommodation/laundry/meals up to the day of his departure." On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC). He prayed for an award of nineteen thousand nine hundred and twenty three dollars (US$19,923.00) as actual damages, forty thousand pesos

(P40,000.00) as exemplary damages and attorney's fees equivalent to 20% of the damages prayed for. The complaint named MHC, MHICL, the Palace Hotel and Mr. Shmidt as respondents. The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the proceedings 18 before the Labor Arbiter. On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus: "WHEREFORE, judgment is hereby rendered: "1. directing all the respondents to pay complainant jointly and severally; "a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries; "b) P50,000.00 as moral damages; "c) P40,000.00 as exemplary damages; and "d) Ten (10) percent of the total award as attorney's fees. "SO ORDERED." On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had jurisdiction over the case. On August 28, 1992, the NLRC promulgated a resolution, stating:
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"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA. "SO ORDERED." On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted resolution. He argued 21 that the case was not cognizable by the POEA as he was not an "overseas contract worker." On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor Arbiter Emerson 22 Tumanon to hear the case on the question of whether private respondent was retrenched or dismissed. On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial and 23 documentary evidence presented to and heard by him. Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region, Arbitration 24 Branch, and the case was transferred to Labor Arbiter Jose G. de Vera. On November 25, 1994, Labor Arbiter de Vera submitted his report. He found that respondent Santos was illegally dismissed from employment and recommended that he be paid actual damages equivalent to his salaries 26 for the unexpired portion of his contract. On December 15, 1994, the NLRC ruled in favor of private respondent, to wit:
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"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are supported by substantial evidence, judgment is hereby rendered, directing the respondents to jointly and severally pay complainant the following computed contractual benefits: (1) US$12,600.00 as salaries for the unexpired portion of the parties' contract; (2) US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the parties' contract; (3) US$3,600.00 as "14th month pay" for the aforesaid two (2) years contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus (4) attorney's fees of 10% of complainant's total award. "SO ORDERED." On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de Vera's 28 recommendation had no basis in law and in fact. On March 30, 1995, the NLRC denied the motion for reconsideration. Hence, this petition.
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On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a temporary restraining order and/or writ of preliminary injunction and a motion for the annulment of the entry of judgment of the NLRC 31 dated July 31, 1995. On November 20, 1995, the Court denied petitioner's urgent motion. The Court required respondents to file their 32 respective comments, without giving due course to the petition. On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the petition and its annexes, they can not defend and sustain the position taken by the NLRC in its assailed decision and orders. The 33 Solicitor General prayed that he be excused from filing a comment on behalf of the NLRC On April 30,1996, private respondent Santos filed his comment.
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On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the NLRC to file its 35 own comment to the petition. On January 7, 1997, the NLRC filed its comment. The petition is meritorious. I. Forum Non-Conveniens The NLRC was a seriously inconvenient forum. We note that the main aspects of the case transpired in two foreign jurisdictions and the case involves purely foreign elements. The only link that the Philippines has with the case is that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations. Not all cases involving our citizens can be tried here. The employment contract. Respondent Santos was hired directly by the Palace Hotel, a foreign employer, through correspondence sent to the Sultanate of Oman, where respondent Santos was then employed. He was 36 hired without the intervention of the POEA or any authorized recruitment agency of the government.

Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is one to which the parties may conveniently resort to; (2) that the Philippine court is in a position to make an intelligent decision as to the law and the facts; and (3) that the 37 Philippine court has or is likely to have power to enforce its decision. The conditions are unavailing in the case at bar. Not Convenient. We fail to see how the NLRC is a convenient forum given that all the incidents of the case from the time of recruitment, to employment to dismissal occurred outside the Philippines. The inconvenience is compounded by the fact that the proper defendants, the Palace Hotel and MHICL are not nationals of the Philippines. Neither .are they "doing business in the Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are non-residents of the Philippines. No power to determine applicable law. Neither can an intelligent decision be made as to the law governing the employment contract as such was perfected in foreign soil. This calls to fore the application of the principle of lex 38 loci contractus (the law of the place where the contract was made). The employment contract was not perfected in the Philippines. Respondent Santos signified his acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the Palace Hotel in the People's Republic of China. No power to determine the facts. Neither can the NLRC determine the facts surrounding the alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of China. The NLRC was not in a position to determine whether the Tiannamen Square incident truly adversely affected operations of the Palace Hotel as to justify respondent Santos' retrenchment. Principle of effectiveness, no power to execute decision . Even assuming that a proper decision could be reached by the NLRC, such would not have any binding effect against the employer, the Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of China and was not even served with summons. Jurisdiction over its person was not acquired. This is not to say that Philippine courts and agencies have no power to solve controversies involving foreign employers. Neither are we saying that we do not have power over an employment contract executed in a foreign country. If Santos were an "overseas contract worker", a Philippine forum, specifically the POEA, not the NLRC, 39 40 would protect him. He is not an "overseas contract worker" a fact which he admits with conviction. Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision cannot be sustained. II. MHC Not Liable Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity cannot be held liable. True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC. Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done only when a corporation is a mere alter ego or business conduit of a person or another corporation.

In Traders Royal Bank v. Court of Appeals, we held that "the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities." The tests in determining whether the corporate veil may be pierced are: First, the defendant must have control or complete domination of the other corporation's finances, policy and business practices with regard to the transaction attacked. There must be proof that the other corporation had no separate mind, will or existence with respect the act complained of. Second, control must be used by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. The 43 absence of any of the elements prevents the piercing of the corporate veil. It is basic that a corporation has a personality separate and distinct from those composing it as well as from that of 44 any other legal entity to which it may be related. Clear and convincing evidence is needed to pierce the veil of 45 corporate fiction. In this case, we find no evidence to show that MHICL and MHC are one and the same entity. III. MHICL not Liable Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment contract with the Palace Hotel. This fact fails to persuade us. First, we note that the Vice President (Operations and Development) of MHICL, Miguel D. Cergueda signed the employment contract as a mere witness. He merely signed under the word "noted". When one "notes" a contract, one is not expressing his agreement or approval, as a party would. In Sichangco v. 47 Board of Commissioners of Immigration, the Court recognized that the term "noted" means that the person so noting has merely taken cognizance of the existence of an act or declaration, without exercising a judicious deliberation or rendering a decision on the matter. Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the document is that which, "in a deed or other formal instrument is that part which comes after the recitals, or where there are no 48 recitals, after the parties (emphasis ours)." As opposed to a party to a contract, a witness is simply one who, 49 "being present, personally sees or perceives a thing; a beholder, a spectator, or eyewitness." One who "notes" 50 something just makes a "brief written statement" a memorandum or observation. Second, and more importantly, there was no existing employer-employee relationship between Santos and MHICL. 51 In determining the existence of an employer-employee relationship, the following elements are considered: "(1) the selection and engagement of the employee; "(2) the payment of wages; "(3) the power to dismiss; and "(4) the power to control employee's conduct." MHICL did not have and did not exercise any of the aforementioned powers. It did not select respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of employment were negotiated and finalized through correspondence between respondent Santos, Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel and not MHICL. Neither did respondent Santos adduce any proof that MHICL had the power to
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control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos' services. Neither is there evidence to suggest that MHICL was a "labor-only contractor." There is no proof that MHICL "supplied" respondent Santos or even referred him for employment to the Palace Hotel. Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to pierce the corporate veil between MHICL and the Palace Hotel. IV. Grave Abuse of Discretion Considering that the NLRC was forum non-conveniens and considering further that no employer-employee relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-02-01058-90. Labor Arbiters have exclusive and original jurisdiction only over the following: "1. Unfair labor practice cases; "2. Termination disputes; "3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; "4. Claims for actual, moral, exemplary and other forms of damages arising from employer-employee relations; "5. Cases arising from any violation of Article 264 of this Code, including questions involving legality of strikes and lockouts; and "6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement." In all these cases, an employer-employee relationship is an indispensable jurisdictional requirement. The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can be resolved by reference to the Labor Code, or other labor 54 statutes, or their collective bargaining agreements. "To determine which body has jurisdiction over the present controversy, we rely on the sound judicial principle that jurisdiction over the subject matter is conferred by law and is determined by the allegations of the complaint 55 irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein." The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint. His failure to dismiss 56 the case amounts to grave abuse of discretion. V. The Fallo
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WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders and resolutions of the National Labor Relations Commission dated May 31, 1993, December 15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90). No costs. SO ORDERED.

CASE 3 G.R. No. 177549 June 18, 2009

ANTHONY S. YU, ROSITA G. YU and JASON G. YU, Petitioners, vs. JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on their own behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC., Respondents. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to reverse and set 2 3 aside the Resolutions dated 18 July 2006 and 19 April 2007 of the Court of Appeals in CA-G.R. SP No. 00185. Upon herein respondents motion, the Court of Appeals rendered the assailed Resolution dated 18 July 2006, 4 reconsidering its Decision dated 15 February 2006; and remanding the case to the Regional Trial Court (RTC) of 5 Cebu City, Branch 11, for necessary proceedings, in effect, reversing the Decision dated 10 November 2004 of the RTC which dismissed respondents Complaint in SRC Case No. 022-CEB. Herein petitioners Motion for Reconsideration of the Resolution dated 18 July 2006 was denied by the appellate court in the other assailed Resolution dated 19 April 2007. Herein petitioners are members of the Yu Family, particularly, the father, Anthony S. Yu (Anthony); the wife, Rosita G. Yu (Rosita); and their son, Jason G. Yu (Jason). Herein respondents composed the Yukayguan Family, namely, the father, Joseph S. Yukayguan (Joseph); the wife, Nancy L. Yukayguan (Nancy); and their children Jerald Nerwin L. Yukayguan (Jerald) and Jill Neslie Yukayguan (Jill). Petitioner Anthony is the older half-brother of respondent Joseph. Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation engaged in the operation of a general hardware and industrial supply and equipment business. On 15 October 2002, respondents filed against petitioners a verified Complaint for Accounting, Inspection of 6 Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts before the RTC of Cebu. The said Complaint was filed by respondents, in their own behalf and as a derivative suit on behalf of Winchester, Inc., and was docketed as SRC Case No. 022-CEB. The factual background of the Complaint was stated in the attached Affidavit executed by respondent Joseph.
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According to respondents, Winchester, Inc. was established and incorporated on 12 September 1977, with 8 petitioner Anthony as one of the incorporators, holding 1,000 shares of stock worth P100,000.00. Petitioner Anthony paid for the said shares of stock with respondent Josephs money, thus, making the former a m ere trustee of the shares for the latter. On 14 November 1984, petitioner Anthony ceded 800 of his 1,000 shares of stock in 9 10 Winchester, Inc. to respondent Joseph, as well as Yu Kay Guan, Siao So Lan, and John S. Yu. Petitioner Anthony remained as trustee for respondent Joseph of the 200 shares of stock in Winchester, Inc., still in petitioner Anthonys name. Respondents then alleged that on 30 June 1985, Winchester, Inc. bought from its incorporators, excluding 11 petitioner Anthony, their accumulated 8,500 shares in the corporation. Subsequently, on 7 November 1995, Winchester, Inc. sold the same 8,500 shares to other persons, who included respondents Nancy, Jerald, and Jill; 12 and petitioners Rosita and Jason. Respondents further averred that although respondent Joseph appeared as the Secretary and Treasurer in the corporate records of Winchester, Inc., petitioners actually controlled and ran the said corporation as if it were their own family business. Petitioner Rosita handled the money market placements of the corporation to the exclusion of respondent Joseph, the designated Treasurer of Winchester, Inc. Petitioners were also misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging their personal and family expenses to the said corporation, and withdrawing stocks for their personal use without paying for the same. Respondents 13 attached to the Complaint various receipts to prove the personal and family expenses charged by petitioners to Winchester, Inc. Respondents, therefore, prayed that respondent Joseph be declared the owner of the 200 shares of stock in petitioner Anthonys name. Respondents also prayed that petitioners be ordered to: (1) deposit the corporate books and records of Winchester, Inc. with the Branch Clerk of Court of the RT C for respondents inspection; (2) render an accounting of all the funds of Winchester, Inc. which petitioners misappropriated; (3) reimburse the personal and family expenses which petitioners charged to Winchester, Inc., as well as the properties of the corporation which petitioners withheld without payment; and (4) pay respondents attorneys fees and litigation expenses. In the meantime, respondents sought the appointment of a Management Committee and the freezing of all corporate funds by the trial court. On 13 November 2002, petitioners filed an Answer with Compulsory Counterclaim, attached to which was 15 petitioner Anthonys Affidavit. Petitioners vehemently denied the allegation that petitioner Anthony was a mere trustee for respondent Joseph of the 1,000 shares of stock in Winchester, Inc. in petitioner Anthony s name. For the incorporation of Winchester, Inc., petitioner Anthony contributed P25,000.00 paid-up capital, representing 25% of the total par value of the 1,000 shares he subscribed to, the said amount being paid out of petitioner Anthonys personal savings and petitioners Anthony and Rositas conjugal funds. Winchester, Inc. was being co managed by petitioners and respondents, and the attached receipts, allegedly evidencing petitioners use of corporate funds for personal and family expenses, were in fact signed and approved by respondent Joseph. By way of special and affirmative defenses, petitioners contended in their Answer with Compulsory Counterclaim that respondents had no cause of action against them. Respondents Complaint was purely intended for 16 harassment. It should be dismissed under Section 1(j), Rule 16 of the Rules of Court for failure to comply with conditions precedent before its filing. First, there was no allegation in respondents Complaint that earnest efforts were exerted to settle the dispute between the parties. Second, since respondents Complaint purportedly constituted a derivative suit, it noticeably failed to allege that respondents exerted effort to exhaust all available remedies in the Articles of Incorporation and By-Laws of Winchester, Inc., as well as in the Corporation Code. And third, given that respondents Complaint was also for inspection of corporate books, it lacked the a llegation that respondents made a previous demand upon petitioners to inspect the corporate books but petitioners refused. Prayed for by petitioners, in addition to the dismissal of respondents Complaint, was payment of moral and exemplary damages, attorneys fees, litigation expenses, and cost of suit.
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On 30 October 2002, the hearing on the application for the appointment of a Management Committee was commenced. Respondent Joseph submitted therein, as his direct testimony, the same Affidavit that he executed, which was attached to the respondents Complaint. On 4 November 2002, respondent Joseph was cross -examined by the counsel for petitioners. Thereafter, the continuation of the hearing was set for 29 November 2002, in order for petitioners to adduce evidence in support of their opposition to the application for the appointment of a 17 Management Committee. During the hearing on 29 November 2002, the parties manifested before the RTC that there was an ongoing mediation between them, and so the hearing on the appointment of a Management Committee was reset to another date. In amicable settlement of their dispute, the petitioners and respondents agreed to a division of the stocks in 18 trade, the real properties, and the other assets of Winchester, Inc. In partial implementation of the aforementioned amicable settlement, the stocks in trade and real properties in the name of Winchester, Inc. were equally distributed among petitioners and respondents. As a result, the stockholders and members of the Board of 19 Directors of Winchester, Inc. passed, on 4 January 2003, a unanimous Resolution dissolving the corporation as of said date. On 22 February 2004, respondents filed their pre-trial brief.
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On 25 June 2004, petitioners filed a Manifestation informing the RTC of the existence of their amicable settlement with respondents. Respondents, however, made their own manifestation before the RTC that they were repudiating said settlement, in view of the failure of the parties thereto to divide the remaining assets of Winchester, Inc. Consequently, respondents moved to have SRC Case No. 022-CEB set for pre-trial. On 23 August 2004, petitioners filed their pre-trial brief.
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On 26 August 2004, instead of holding a formal pre-trial conference and resuming the hearing on the application for the appointment of a Management Committee, petitioners and respondents agreed that the RTC may already render a judgment based on the pleadings. In accordance with the agreement of the parties, the RTC issued, on 23 even date, an Order which stated: ORDER During the pre-trial conference held on August 26, 2004, counsels of the parties manifested, agreed and suggested that a judgment may be rendered by the Court in this case based on the pleadings, affidavits, and other evidences on record, or to be submitted by them, pursuant to the provision of Rule 4, Section 4 of the Rule on IntraCorporate Controversies. The suggestion of counsels was approved by the Court. Accordingly, the Court hereby orders the counsels of the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from notice hereof. Thereafter, the instant case will be deemed submitted for resolution. xxxx Cebu City, August 26, 2004. (signed) SILVESTRE A. MAAMO, JR. Acting Presiding Judge

Petitioners and respondents duly filed their respective Memoranda, discussing the arguments already set forth in the pleadings they had previously submitted to the RTC. Respondents, though, attached to their Memorandum a 25 Supplemental Affidavit of respondent Joseph, containing assertions that refuted the allegations in petitioner Anthonys Affidavit, which was earlier submitted with petitioners Answer with Compulsory Counterclaim. 26 Respondents also appended to their Memorandum additional documentary evidence, consisting of original and duplicate cash invoices and cash disbursement receipts issued by Winchester, Inc., to further substantiate their claim that petitioners were understating sales and charging their personal expenses to the corporate funds. The RTC subsequently promulgated its Decision on 10 November 2004 dismissing SRC Case No. 022-CEB. The dispositive portion of said Decision reads: WHEREFORE, in view of the foregoing premises and for lack of merit, this Court hereby renders judgment in this case DISMISSING the complaint filed by the [herein respondents]. The Court also hereby dismisses the *herein petitioners+ counterclaim because it has not been indubitably shown 27 that the filing by the *respondents+ of the latters complaint was done in bad faith and with malice. The RTC declared that respondents failed to show that they had complied with the essential requisites for filing a derivative suit as set forth in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. As to respondents prayer for the inspection of corporate books and records, the RTC adjudged that they had likewise failed to comply with the requisites entitling them to the same. Section 2, Rule 7 of the Interim Rules of Procedure Governing Intra-Corporate Controversies requires that the complaint for inspection of corporate books or records must state that: (1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines; (2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant; (3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any; and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof. The RTC further noted that respondent Joseph was the corporate secretary of Winchester, Inc. and, as such, he was supposed to be the custodian of the corporate books and records ; therefore, a court order for respondents

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inspection of the same was no longer necessary. The RTC similarly denied respondents demand for accounting as it was clear that Winchester, Inc. had been engaging the services of an audit firm. Respondent Joseph himself described the audit firm as competent and independent, and believed that the audited financial statements the said audit firm prepared were true, faithful, and correct. Finding the claims of the parties for damages against each other to be unsubstantiated, the RTC thereby dismissed the same. Respondents challenged the foregoing RTC Decision before the Court of Appeals via a Petition for Review under Rule 43 of the Rules of Court, docketed as CA-G.R. SP No. 00185. On 15 February 2006, the Court of Appeals rendered its Decision, affirming the 10 December 2004 Decision of the RTC. Said the appellate court: After a careful and judicious scrutiny of the extant records of the case, together with the applicable laws and jurisprudence, WE see no reason or justification for granting the present appeal. xxxx x x x [T]his Court sees that the instant petition would still fail taking into consideration all the pleadings and evidence of the parties except the supplemental affidavit of [herein respondent] Joseph and its corresponding annexes appended in *respondents+ memorandum before the Court a quo. The Court a quo have (sic) outrightly dismissed the complaint for its failure to comply with the mandatory provisions of the Interim Rules of Procedure for Intra-Corporate Controversies particularly Rule 2, Section 4(3), Rule 8, Section [1(2)] and Rule 7, Section 2 thereof, which reads as follows: RULE 2 COMMENCEMENT OF ACTION AND PLEADINGS Sec. 4. Complaint. The complaint shall state or contain: xxxx (3) the law, rule, or regulation relied upon, violated, or sought to be enforced; xxxx RULE 8 DERIVATIVE SUITS Sec. 1. Derivative action. x x x xxxx (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires. xxxx

RULE 7 INSPECTION OF CORPORATE BOOKS AND RECORDS Sec. 2. Complaint In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the following: (1) The case is set (sic) for the enforcement of plaintiffs right of inspection of corporate orders or records and/or to be furnished with financial statements under Section 74 and 75 of the Corporation Code of the Philippines; (2) A demand for inspection and copying of books [and/or] to be furnished with financial statements made by the plaintiffs upon defendant; (3) The refusal of the defendant to grant the demands of the plaintiff and the reasons given for such refusal, if any; and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof. xxxx A perusal of the extant record shows that [herein respondents] have not complied with the above quoted provisions. [Respondents] should be mindful that in filing their complaint which, as admitted by them, is a derivative suit, should have first exhausted all available remedies under its (sic) Articles of Incorporation, or its bylaws, or any laws or rules governing the corporation. The contention of [respondent Joseph] that he had indeed made several talks to (sic) his brother [herein petitioner Anthony] to settle their differences is not tantamount to exhaustion of remedies. What the law requires is to bring the grievance to the Board of Directors or Stockholders for the latter to take the opportunity to settle whatever problem in its regular meeting or special meeting called for that purpose which [respondents] failed to do. x x x The requirements laid down by the Interim Rules of Procedure for Intra-Corporate Controversies are mandatory which cannot be dispensed with by any stockholder of 28 a corporation before filing a derivative suit. (Emphasis ours.) The Court of Appeals likewise sustained the refusal by the RTC to consider respondent Josephs Supplemental Affidavit and other additional evidence, which respondents belatedly submitted with their Memorandum to the said trial court. The appellate court ratiocinated that: With regard to the claim of [herein respondents] that the supplemental affidavit of [respondent] Joseph and its annexes appended to their memorandum should have been taken into consideration by the Court a quo to support the reliefs prayed [for] in their complaint. (sic) This Court rules that said supplemental affidavit and its annexes is (sic) inadmissible. A second hard look of (sic) the extant records show that during the pre-trial conference conducted on August 26, 2004, the parties through their respective counsels had come up with an agreement that the lower court would render judgment based on the pleadings and evidence submitted. This agreement is in accordance with Rule 4, Sec. 4 of the Interim Rules of Procedure for Intra-Corporate Controversies which explicitly states: SECTION. 4. Judgment before pre-trial. If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a nonextendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda.

xxxx Clearly, the supplemental affidavit and its appended documents which were submitted only upon the filing of the memorandum for the [respondents] were not submitted in the pre-trial briefs for the stipulation of the parties during the pre-trial, hence, it cannot be accepted pursuant to Rule 2, Sec. 8 of the same rules which reads as follows: SEC. 8. Affidavits, documentary and other evidence. Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence. Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading; Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pretrial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases: (1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor; (2) If the failure to submit the evidence is for meritorious and compelling reasons; and (3) Newly discovered evidence. In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. There is no showing in the case at bench that the supplemental affidavit and its annexes falls (sic) within one of the exceptions of the above quoted proviso, hence, inadmissible. It must be noted that in the case at bench, like any other civil cases, "the party making an allegation in a civil case has the burden of proving it by preponderance of evidence." Differently stated, upon the plaintiff in [a] civil case, the burden of proof never parts. That is, appellants must adduce evidence that has greater weight or is more convincing that (sic) which is offered to oppose it. In the case at bar, no one should be blamed for the dismissal of the complaint but the [respondents] themselves for their lackadaisical attitude in setting forth and appending their defences belatedly. To admit them would be a denial of due process for the opposite party which this Court cannot 29 allow. Ultimately, the Court of Appeals decreed: WHEREFORE, judgment is hereby rendered DISMISSING the instant petition and the assailed Decision of the Regional Trial Court (RTC), 7th Judicial Region, Branch II, Cebu City, dated November 10, 2004, in SRC Case No. 02230 CEB is AFFIRMED in toto. Cost against the [herein respondents]. Unperturbed, respondents filed before the Court of Appeals, on 23 February 2006, a Motion for Reconsideration 31 and Motion to Set for Oral Arguments the Motion for Reconsideration, invoking the following grounds: (1) The [herein respondents] have sufficiently exhausted all remedies before filing the present action; and

(2) [The] Honorable Court erred in holding that the supplemental affidavit and its annexes is (sic) inadmissible because the rules and the lower court expressly allowed the submission of the same in its 32 order dated August 26, 2004 x x x. In a Resolution dated 8 March 2006, the Court of Appeals granted respondents Motion to Set for Oral Arguments the Motion for Reconsideration. On 4 April 2006, the Court of Appeals issued a Resolution setting forth the events that transpired during the oral arguments, which took place on 30 March 2006. Counsels for the parties manifested before the appellate court that they were submitting respondents Motion for Reconsideration for resolution. Justice Magpale, howev er, still called on the parties to talk about the possible settlement of the case considering their familial relationship. Independent of the resolution of respondents Motion for Reconsideration, the parties were agreeable to pursue a settlement for the dissolution of the corporation, which they had actually already started. In a Resolution dated 11 April 2006, the Court of Appeals ordered the parties to submit, within 10 days from notice, their intended amicable settlement, since the same would undeniably affect the resolution of respondents pending Motion for Reconsideration. If the said period should lapse without the parties submitting an amicable settlement, then they were directed by the appellate court to file within 10 days thereafter their position papers instead. On 5 May 2006, respondents submitted to the Court of Appeals their Position Paper, stating that the parties did not reach an amicable settlement. Respondents informed the appellate court that prior to the filing with the Securities and Exchange Commission (SEC) of a petition for dissolution of Winchester, Inc., the parties already divided the stocks in trade and the real assets of the corporation among themselves. Respondents posited, though, that the afore-mentioned distribution of the assets of Winchester, Inc. among the parties was null and void, as it violated the last paragraph of Section 122 of the Corporation Code, which provides that, "[e]xcept by a decrease of capital stock and as otherwise allowed by the Corporation Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities." At the same time, however, respondents brought to the attention of the Court of Appeals that the parties did eventually file with the 37 SEC a petition for dissolution of Winchester, Inc., which the SEC approved. Respondents no longer discussed in their Position Paper the grounds they previously invoked in their Motion for Reconsideration of the Court of Appeals Decision dated 15 February 2006, affirming in toto the RTC Decision dated 10 November 2004. They instead argued that the RTC Decision in question was null and void as it did not clearly state the facts and the law on which it was based. Respondents sought the remand of the case to the RTC for further proceedings on their derivative suit and completion of the dissolution of Winchester, Inc., including the legalization of the prior partial distribution among the parties of the assets of said corporation. Petitioners filed their Position Paper on 23 May 2006, wherein they accused respondents of attempting to incorporate extraneous matters into the latters Motion for Reconsideration. Petitioners pointed out that the issue before the Court of Appeals was not the dissolution and division of assets of Winchester, Inc., thus, a remand of the case to the RTC was not necessary. On 18 July 2006, the Court of Appeals rendered the assailed Resolution, granting respondents Motion for Reconsideration. The Court of Appeals reasoned in this wise: After a second look and appreciation of the facts of the case, vis--vis the issues raised by the [herein respondents+ motion for reconsideration and in view of the formal dissolution of the corporation which leaves unresolved up to the present the settlement of the properties and assets which are now in danger of dissipation due to the unending litigation, this Court finds the need to remand the instant case to the lower court (commercial court) as the proper forum for the adjudication, disposition, conveyance and distribution of said properties and
38 36 35 34 33

assets between and amongst its stockholders as final settlement pursuant to Sec. 122 of the Corporation Code after payment of all its debts and liabilities as provided for under the same proviso. This is in accord with the pronouncement of the Supreme Court in the case of Clemente et. al. vs. Court of Appeals, et. al. where the high court ruled and which WE quote, viz: "the corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity x x x nor those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) xxx may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representation with the Securities and Exchange Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns." In the absence of a trustee or board of director in the case at bar for purposes above mentioned, the lower court under Republic Act No. [8799] (otherwise known as the Securities and Exchange Commission) as implemented by A.M. No. 00-8-10-SC (Transfer of Cases from the Securities and Exchange Commission to the Regional Trial Courts) which took effect on October 1, 2001, is the proper forum for working out the final settlement of the corporate 39 concern. Hence, the Court of Appeals ruled: WHEREFORE, premises considered, the motion for reconsideration is GRANTED. The order dated February 15, 2006 is hereby SET ASIDE and the instant case is REMANDED to the lower court to take the necessary proceedings 40 in resolving with deliberate dispatch any and all corporate concerns towards final settlement. Petitioners filed a Motion for Reconsideration of the foregoing Resolution, but it was denied by the Court of Appeals in its other assailed Resolution dated 19 April 2007. In the Petition at bar, petitioners raise the following issues: I. WHETHER OR NOT THE ASSAILED RESOLUTIONS[,] WHICH VIOLATED THE CONSTITUTION OF THE PHILIPPINES, JURISPRUDENCE AND THE LAW[,] ARE NULL AND VOID[.] II. WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic) ISSUED WITHOUT JURISDICTION[.] III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REMANDING THIS CASE TO THE LOWER COURT FOR THE REASON CITED IN THE ASSAILED RESOLUTIONS, AND WITHOUT RESOLVING THE GROUNDS FOR THE *RESPONDENTS+ MOTION FOR RECONSIDERATION. (sic) INASMUCH AS *THE+ REASON CITED WAS A NON ISSUE IN THE CASE.
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IV. WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL TRIAL COURT VIOLATES THE SUMMARY PROCEDURE 42 FOR INTRA-CORPORATE CASES. The crux of petitioners contention is that the Court of Appeals committed grievous error in reconsidering its Decision dated 15 February 2006 on the basis of extraneous matters, which had not been previously raised in respondents Complaint before the RTC, or in their Petition for Review and Motion for Reconsideration before the appellate court; i.e., the adjudication, disposition, conveyance, and distribution of the properties and assets of Winchester, Inc. among its stockholders, allegedly pursuant to the amicable settlement of the parties. The fact that the parties were able to agree before the Court of Appeals to submit for resolution respondents Motion for Reconsideration of the 15 February 2006 Decision of the same court, independently of any intended settlement between the parties as regards the dissolution of the corporation and distribution of its assets, only proves the distinction and independence of these matters from one another. Petitioners also contend that the assailed Resolution dated 18 July 2006 of the Court of Appeals, granting respondents Motion for Reconsideration, failed to clearly and distinctly state the facts and the law on which it was based. Remanding the case to the RTC, petitioners maintain, will violate the very essence of the summary nature of the Interim Rules of Procedure Governing IntraCorporate Controversies, as this will just entail delay, protract litigation, and revert the case to square one. The Court finds the instant Petition meritorious. To recapitulate, the case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for and reimburse to the said corporation the corporate assets and funds which the latter allegedly misappropriated for their personal benefit. During the pendency of the proceedings before the court a quo, the parties were able to reach an amicable settlement wherein they agreed to divide the assets of Winchester, Inc. among themselves. This amicable settlement was already partially implemented by the parties, when respondents repudiated the same, for which reason the RTC proceeded with the case on its merits. On 10 November 2004, the RTC promulgated its Decision dismissing respondents Complaint for failure to comply with essential pre -requisites before they could avail themselves of the remedies under the Interim Rules of Procedure Governing Intra-Corporate Controversies; and for inadequate substantiation of respondents allegations in said Complaint after consideration of the pleadings and evidence on record. In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of the RTC that respondents did not abide by the requirements for a derivative suit, nor were they able to prove their case by a preponderance of evidence. Respondents filed a Motion for Reconsideration of said judgment of the appellate court, insisting that they were able to meet all the conditions for filing a derivative suit. Pending resolution of respondents Motion for Reconsideration, the Court of Appeals urged the parties to again strive to r each an amicable settlement of their dispute, but the parties were unable to do so. The parties were not able to submit to the appellate court, within the given period, any amicable settlement; and filed, instead, their Position Papers. This effectively meant that the parties opted to submit respondents Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, and petitioners opposition to the same, for resolution by the appellate court on the merits. It was at this point that the case took an unexpected turn. In accordance with respondents allegation in their Position Paper that the parties subsequently filed with the SEC, and the SEC already approved, a petition for dissolution of Winchester, Inc., the Court of Appeals remanded the case to the RTC so that all the corporate concerns between the parties regarding Winchester, Inc. could be resolved towards final settlement.

In one stroke, with the use of sweeping language, which utterly lacked support, the Court of Appeals converted the derivative suit between the parties into liquidation proceedings. The general rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on 43 behalf of the corporation. By virtue of Republic Act No. 8799, otherwise known as the Securities Regulation Code, jurisdiction over intra-corporate disputes, including derivative suits, is now vested in the Regional Trial Courts designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000. In contrast, liquidation is a necessary consequence of the dissolution of a corporation. It is specifically governed by Section 122 of the Corporation Code, which reads: SEC. 122. Corporate liquidation. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. Following the voluntary or involuntary dissolution of a corporation, liquidation is the process of settling the affairs of said corporation, which consists of adjusting the debts and claims, that is, of collecting all that is due the 44 corporation, the settlement and adjustment of claims against it and the payment of its just debts. More particularly, it entails the following: Winding up the affairs of the corporation means the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any among the stockholders thereof in accordance with their contracts, or if there be no special contract, on the basis of their respective interests. The manner of liquidation or winding 45 up may be provided for in the corporate by-laws and this would prevail unless it is inconsistent with law. It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to whom all corporate assets are conveyed for liquidation; or by a receiver appointed by the SEC upon its decree dissolving the 46 corporation. lawphil.net

Glaringly, a derivative suit is fundamentally distinct and independent from liquidation proceedings. They are neither part of each other nor the necessary consequence of the other. There is totally no justification for the Court of Appeals to convert what was supposedly a derivative suit instituted by respondents, on their own behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding for the liquidation of Winchester, Inc. While it may be true that the parties earlier reached an amicable settlement, in which they agreed to already distribute the assets of Winchester, Inc., and in effect liquidate said corporation, it must be pointed out that respondents themselves repudiated said amicable settlement before the RTC, even after the same had been partially implemented; and moved that their case be set for pre-trial. Attempts to again amicably settle the dispute between the parties before the Court of Appeals were unsuccessful. Moreover, the decree of the Court of Appeals to remand the case to the RTC for the "final settlement of corporate concerns" was solely grounded on respondents allegation in its Position Paper that the parties had already filed before the SEC, and the SEC approved, the petition to dissolve Winchester, Inc. The Court notes, however, that there is absolute lack of evidence on record to prove said allegation. Respondents failed to submit copies of such petition for dissolution of Winchester, Inc. and the SEC Certification approving the same. It is a basic rule in evidence that each party must prove his affirmative allegation. Since it was respondents who alleged the voluntary 47 dissolution of Winchester, Inc., respondents must, therefore, prove it. This respondents failed to do. Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester, Inc. and the same was approved by the SEC, the Court of Appeals was still without jurisdiction to order the final settlement by the RTC of the remaining corporate concerns. It must be remembered that the Complaint filed by respondents before the RTC essentially prayed for the accounting and reimbursement by petitioners of the corporate funds and assets which they purportedly misappropriated for their personal use; surrender by the petitioners of the corporate books for the inspection of respondents; and payment by petitioners to respondents of damages. There was nothing in respondents Complaint which sought the dissolution and liquidation of Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc. could not have resulted in the conversion of respondents derivative suit to a proceeding for the liquidation of said corporation, but only in the dismissal of the derivative suit based on either compromise agreement or mootness of the issues. Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19 April 2007, the Court of Appeals already went beyond the issues raised in respondents Motion for Reconsideration. Instead of focusing on whether it erred in affirming, in its 15 February 2006 Decision, the dismissal by the RTC of respondents Complaint due to respondents failure to comply with the requirements for a derivative suit and submit evidence to support their allegations, the Court of Appeals unduly concentrated on respondents unsubstant iated allegation that Winchester, Inc. was already dissolved and speciously ordered the remand of the case to the RTC for proceedings so vitally different from that originally instituted by respondents. Despite the foregoing, the Court still deems it appropriate to already look into the merits of respondents Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, for the sake of finally putting an end to the case at bar. In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently exhausted all remedies before filing the derivative suit; and (2) respondent Josephs Supplemental Affidavit and its annexes should have been taken into consideration, since the submission thereof was allowed by the rules of procedure, as well as by the RTC in its Order dated 26 August 2004. As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a derivative suit, the Court subscribes to the ruling to the contrary of the Court of Appeals in its Decision dated 16 February 2006.1avvphi1

The Court has recognized that a stockholders right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholders suit is always one in equity. However, it 48 cannot prosper without first complying with the legal requisites for its institution. Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the following requirements which a stockholder must comply with in filing a derivative suit: Sec. 1. Derivative action. A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. A perusal of respondents Complaint before the RTC would reveal that the same did not allege with particularity that respondents exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire. Respondents assert that their compliance with said requirement was contained in respondent Josephs Affidavit, which was attached to respondents Complaint. Respondent Joseph averred in his Affidavit that he tried for a number of times to talk to petitioner Anthony to settle their differences, but the latter would not listen. Respondents additionally claimed that taking further remedies within the corporation would have been idle ceremony, considering that Winchester, Inc. was a family corporation and it was impossible to expect petitioners to take action against themselves who were the ones accused of wrongdoing. The Court is not persuaded. The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave room for statutory construction. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; and to allege such fact with particularity in the complaint. The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder, after all other remedies to obtain the relief sought had failed. The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies available." Respondents did not refer to or mention at all any other remedy under the articles of incorporation or by-laws of Winchester,

Inc., available for dispute resolution among stockholders, which respondents unsuccessfully availed themselves of. And the Court is not prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely failed to provide for such remedies. Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying with the second requirement under Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. They are flimsy and insufficient, compared to the seriousness of respondents accusations of fraud, misappropriation, and falsification of corporate records against the petitioners. The fact that Winchester, Inc. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules supporting the distinction between, and the difference in the requirements for, family corporations vis--vis other types of corporations, in the institution by a stockholder of a derivative suit. The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents Complaint failed to allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts of petitioners complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit. As to respondents second ground in their Motion for Reconsideration, the Court agrees with the ruling of the Court of Appeals, in its 15 February 2006 Decision, that respondent Josephs Supplemental Affidavit and additional evidence were inadmissible since they were only appended by respondents to their Memorandum before the RTC. Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is crystal clear that: Sec. 8. Affidavits, documentary and other evidence. Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence. Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading, Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pretrial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases: (1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor; (2) If the failure to submit the evidence is for meritorious and compelling reasons; and (3) Newly discovered evidence. In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. (Emphasis ours.) According to the afore-quoted provision, the parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading, which generally should mean the complaint for the plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted must already be attached to the respective pre-trial briefs of the parties. That the parties should have already identified and submitted to the trial court the affidavits of their witnesses and documentary evidence by the time of pre-trial is strengthened by the fact that Section 1, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies require that the following matters should already be set forth in the parties pre -trial briefs:

Section 1. Pre-trial conference, mandatory nature. Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference, and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pretrial brief in such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial. The parties shall set forth in their pre-trial briefs, among other matters, the following: xxxx (4) Documents not specifically denied under oath by either or both parties; xxxx (7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues; (8) All other pieces of evidence, whether documentary or otherwise and their respective purposes. Also, according to Section 2, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, it is the duty of the court to ensure during the pre-trial conference that the parties consider in detail, among other things, objections to the admissibility of testimonial, documentary, and other evidence, as well as objections to the form or substance of any affidavit, or part thereof. Obviously, affidavits of witnesses and other documentary evidence are required to be attached to a partys pre trial brief, at the very last instance, so that the opposite party is given the opportunity to object to the form and substance, or the admissibility thereof. This is, of course, to prevent unfair surprises and/or to avoid the granting of any undue advantage to the other party to the case. True, the parties in the present case agreed to submit the case for judgment by the RTC, even before pre-trial, in accordance with Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies: Sec. 4. Judgment before pre-trial. If after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a nonextendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda. Even then, the afore-quoted provision still requires, before the court makes a determination that it can render judgment before pre-trial, that the parties had submitted their pre-trial briefs and the court took into consideration the pleadings, affidavits and other evidence submitted by the parties. Hence, cases wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that affidavits of witnesses and documentary evidence should be submitted, at the latest, with the parties pre -trial briefs. Taking further into account that under Section 4, Rule 4 of the Interim Rules of Procedure Governing IntraCorporate Controversies parties are required to file their memoranda simultaneously, the same would mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by the other party to its memorandum. To violate the above-quoted provision would, thus, irrefragably run afoul the former partys constitutional right to due process.
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In the instant case, therefore, respondent Josephs Supplemental Affidavi t and the additional documentary evidence, appended by respondents only to their Memorandum submitted to the RTC, were correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006 Decision for having been belatedly submitted. Respondents neither alleged nor proved that the documents in question fall under any of the three exceptions to the requirement that affidavits and documentary evidence should be attached to the appropriate pleading or pretrial brief of the party, which is particularly recognized under Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is hereby GRANTED. The assailed Resolutions dated 18 July 2006 and 19 April 2007 of the Court of Appeals in CA-G.R. SP No. 00185 are hereby REVERSED AND SET ASIDE. The Decision dated 15 February 2006 of the Court of Appeals is hereby AFFIRMED. No costs. SO ORDERED.

CASE 4 G.R. No. 152580 June 26, 2008

CONSUELO METAL CORPORATION, petitioner, vs. PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADO-MANINGAS, in her capacity as Ex-officio Sheriff of Manila, respondents. DECISION CARPIO, J.: The Case This is a petition for review seeking to reverse the 14 December 2001 Decision and the 6 March 2002 3 Resolution of the Court of Appeals in CA-G.R. SP No. 65069. In its 14 December 2001 Decision, the Court of Appeals dismissed petitioner Consuelo Metal Corporations (CMC) petition for certiorari and affirmed the 25 April 4 2001 Order of the Regional Trial Court, Branch 46, Manila (trial court). In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and remanded the case to the Securities and Exchange Commission (SEC) for further proceedings. The Facts On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management committee under Section 5(d) 5 of Presidential Decree No. 902-A. On 2 April 1996, the SEC, finding the petition sufficient in form and substance, declared that "all actions for claims against CMC pending before any court, tribunal, office, board, body and/or 6 commission are deemed suspended immediately until further order" from the SEC. In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake 7 CMCs rehabilitation and reiterated the suspension of all actions for claims against CMC.
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On 29 November 2000, upon the management committees recommendation, the SEC issued an Omnibus Order 9 directing the dissolution and liquidation of CMC. The SEC also directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be 10 transferred." Thereafter, respondent Planters Development Bank (Planters Bank), one of CMCs creditors, commenced the extra-judicial foreclosure of CMCs real estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001. CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to enjoin the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to maintain the status quo and ordered the immediate transfer of the case records to the trial 11 court. The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for issuance of a temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on the merits CMCs petition for suspension of payment, the trial court no longer had le gal basis to act on CMCs motion. On 28 May 2001, the trial court denied CMCs motion for reconsideration. The trial court ruled that CMCs petition for suspension of payment could not be converted into a petition for dissolution and liquidation because they covered different subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new petition for dissolution and liquidation either with the SEC or the trial court. CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction when it required CMC to file a new petition for dissolution and liquidation with either the SEC or the trial court when the SEC clearly retained jurisdiction over the case. On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage. The Ruling of the Court of Appeals On 14 December 2001, the Court of Appeals dismissed the petition and upheld the 25 April 2001 Order of the trial court. The Court of Appeals held that the trial court correctly denied CMCs motion for the issuance of a temporary restraining order because it was only an ancillary remedy to the petition for suspension of payment which was 14 already terminated. The Court of Appeals added that, under Section 121 of the Corporation Code, the SEC has jurisdiction to hear CMCs petition for dissolution and liquidation. CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and liquidation with the SEC but that the case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for suspension of payment. CMC also asked that Planters B anks foreclosure of the real estate mortgage be declared void. In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and ordered that the case be remanded to the SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in order. Planters Bank filed a motion for reconsideration questioning the remand of the case to the SEC. In a resolution dated 19 July 2002, the Court of Appeals denied the motion for reconsideration.
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Not satisfied with the 6 March 2002 Resolution, CMC filed this petition for review on certiorari. The Issues CMC raises the following issues: 1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction over CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for suspension of payment; and 2. Whether Planters Banks foreclosure of the real estate mortgage is valid. The Courts Ruling The petition has no merit. The SEC has jurisdiction to order CMCs dissolution but the trial court has jurisdiction over CMCs liquidation. While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMCs dissolution and liquidation, CMC argues that the Court of Appeals remanded the case to the SEC on the wrong premise that the applicable law is Section 121 of the Corporation Code. CMC maintains that the SEC retained jurisdiction over its dissolution and liquidation because it is only a continuation of the SECs jurisdiction over CMCs original petition for suspension of payment which had not been "finally disposed of as of 30 June 2000." On the other hand, Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for the termination of the existence of the corporation which are incompatible with a petition for suspension of payment which seeks to preserve corporate existence. Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SECs jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides: The Commissions jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis supplied) The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully rehabilitated. However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction 16 to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now pertains to the
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appropriate regional trial courts. This is the reason why the SEC, in its 29 November 2000 Omnibus Order, directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred." This is the correct procedure because the liquidation of a corporation requires the settlement of claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. Foreclosure of real estate mortgage is valid. CMC maintains that the foreclosure is void because it was undertaken without the knowledge and previous consent of the liquidator and other lien holders. CMC adds that the rules on concurrence and preference of credits should apply in foreclosure proceedings. Assuming that Planters Bank can foreclose the mortgage, CMC argues that the foreclosure is still void because it was conducted in violation of Section 15, Rule 39 of the Rules of Court which states that the sale "should not be earlier than nine oclock in the morning and not later than two oclock in the afternoon." On the other hand, Planters Bank argues that it has the right to foreclose the real estate mortgage because of nonpayment of the loan obligation. Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not applicable in this case because CMC has been not been declared insolvent and there are no insolvency proceedings against CMC. In Rizal Commercial Banking Corporation v. Intermediate Appellate Court , we held that if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the 18 preference and prove their credits as ordinary claims. Moreover, Section 2248 of the Civil Code provides: Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers. In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a 19 management committee or rehabilitation receiver or upon the issuance of a stay order by the trial 20 court. However, the creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of 21 the rehabilitation proceedings or upon the lifting of the stay order. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the 22 same is on the party that seeks to challenge the proceedings. CMCs challenge to the foreclosure proceedings has no merit. The notice of sale clearly specified that the auction sale will be held "at 10:00 oclock in the morning or 23 soon thereafter, but not later than 2:00 oclock in the afternoon." The Sheriffs Minutes of the Sale stated that 24 "the foreclosure sale was actually opened at 10:00 A.M. and commenced at 2:30 P.M." There was nothing irregular about the foreclosure proceedings. WHEREFORE, we DENY the petition. We REINSTATE the 29 November 2000 Omnibus Order of the Securities and Exchange Commission directing the Regional Trial Court, Branch 46, Manila to immediately undertake the liquidation of Consuelo Metal Corporation. We AFFIRM the ruling of the Court of Appeals that Planters Development Banks extra-judicial foreclosure of the real estate mortgage is valid.
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SO ORDERED. CASE 5 G.R. No. 158805 April 16, 2009

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA. DE CARAM, Respondent. DECISION TINGA, J.: May a non-stock corporation seize and dispose of the membership share of a fully-paid member on account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws but not by the Articles of Incorporation? Such is the central issue raised in this petition, which arose after petitioner Valley Golf & Country Club (Valley Golf) sold the membership share of a member who had been delinquent in the payment of his monthly dues. I. The facts that preceded this petition are simple. Valley Golf & Country Club (Valley Golf) is a duly constituted nonstock, non-profit corporation which operates a golf course. The members and their guests are entitled to play golf 1 on the said course and otherwise avail of the facilities and privileges provided by Valley Golf. The shareholders are likewise assessed monthly membership dues. In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram), the husband of the present respondent, subscribed to purchased and paid for in full one share (Golf Share) in the capital stock of Valley Golf. He was issued Stock 3 Certificate No. 389 dated 26 January 1961 for the Golf Share. The Stock Certificate likewise indicates a par value of P9,000.00. Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped paying his monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims to have sent five (5) letters to Caram concerning his delinquent account within the period from 27 January 1986 until 3 May 1987, all forwarded to P.O. Box No. 1566, Makati Commercial Center Post Office, the mailing address which Caram allegedly furnished 4 Valley Golf. The first letter informed Caram that his account as of 31 December 1985 was delinquent and that his 5 club privileges were suspended pursuant to Section 3, Article VII of the by-laws of Valley Golf. Despite such notice of delinquency, the second letter, dated 26 August 1986, stated that should Carams account remain unpaid for 45 6 days, his name would be included in the delinquent list to be posted on the clubs bulletin board. The third letter, dated 25 January 1987, again informed Caram of his delinquent account and the suspension of his club 7 privileges. The fourth letter, dated 7 March 1987, informed Caram that should he fail to settle his delinquencies, then totalingP7,525.45, within ten (10) days from receipt thereof Valley Golf would exercise its right to sell the Golf 8 Share to satisfy the outstanding amount, again pursuant to the provisions of the by-laws. The final letter, dated 3 May 1987, issued a final deadline until 31 May 1987 for Caram to settle his account, or otherwise face the sale of 9 the Golf Share to satisfy the claims of Valley Golf. The Golf Share was sold at public auction on 11 June 1987 for P25,000.00 after the Board of Directors had authorized the sale in a meeting on 11 April 1987, and the Notice of Auction Sale was published in the 6 June 1987 10 edition of the Philippine Daily Inquirer.
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As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate proceedings before the 11 Regional Trial Court (RTC) of Iloilo City, Branch 35, to settle her husbands estate. Unaware of the pending controversy over the Golf Share, the Caram family and the RTC includ ed the same as part of Carams estate. The RTC approved a project of partition of Carams estate on 29 August 1989. The Golf Share was adjudicated to respondent, who paid the corresponding estate tax due, including that on the Golf Share. It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale of the Golf Share following their inquiry with Valley Golf about the share. After a series of correspondence, the Caram heirs were subsequently informed, in a letter dated 15 October 1990, that they were entitled to the refund of P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the custody of Valley Golf since 11 June 12 1987. Respondent filed an action for reconveyance of the share with damages before the Securities and Exchange 13 Commission (SEC) against Valley Golf. On 15 November 1996, SEC Hearing Officer Elpidio S. Salgado rendered a decision in favour of respondent, ordering Valley Golf to convey ownership of the Golf Share or in the alternative to issue one fully paid share of stock of Valley Golf the same class as the Golf Share to respondent. Damages 14 totalingP90,000.00 were also awarded to respondent. The SEC hearing officer noted that under Section 67, paragraph 2 of the Corporation Code, a share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction only upon the failure of the stockholder to pay the unpaid subscription or balance for the share. The section could not have applied in Carams case since he had fully paid for the Golf Share and he had been assessed not for the share itself but for his delinquent club dues. Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction sale had no basis in law and was thus a nullity. The SEC hearing officer did entertain Valley Golfs argument that the sale of the Golf Share was authorized under the by-laws. However, it was ruled that pursuant to Section 6 of the Corporation Code, a provision creating a lien upon shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation, should be embodied in the Articles of Incorporation, and not merely in the by-laws, because Section 6 (par.1) prescribes that the shares of stock of a corporation may have such rights, privileges and restrictions as may be stated in the 15 articles of incorporation. It was observed that the Articles of Incorporation of Valley Golf did not impose any lien, liability or restriction on the Golf Share or, for that matter, even any conditionality that the Golf Share would 16 be subject to assessment of monthly dues or a lien on the share for non-payment of such dues. In the same vein, it was opined that since Section 98 of the Corporation Code provides that restrictions on transfer of shares should appear in the articles of incorporation, by-laws and the certificate of stock to be valid and binding on any purchaser in good faith, there was more reason to apply the said rule to club delinquencies to constitute a lien on 17 golf shares. The SEC hearing officer further held that the delinquency in monthly club dues was merely an ordinary debt enforceable by judicial action in a civil case. The decision generally affirmed respond ents assertion that Caram was not properly notified of the delinquencies, citing Carams letter dated 7 July 1978 to Valley Golf about the change in his mailing address. He also noted that Valley Golf had sent most of the letters after Carams death. In a ll, the decision concluded that the sale of the Golf Share was effectively a deprivation of property without due process of law. On appeal to the SEC en banc, said body promulgated a decision on 9 May 2000, affirming the hearing officers decision in toto. Again, the SEC found that Section 67 of the Corporation Code could not justify the sale of the Golf Share since it applies only to unpaid subscriptions and not to delinquent membership dues. The SEC also cited a general rule, formulated in American jurisprudence, that a corporation has no right to dispose of shares of stock for delinquent assessments, dues, service fees and other unliquidated charges unless there is an express grant to 20 do so, either by the statute itself or by the charter of a corporation. Said rule, taken in conjunction with Section 6 of the Corporation Code, militated against the validity of the sale of the Golf Share, the SEC stressed. In view of
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these premises, which according to the SEC entailed the nullity of the sale, the body found it unnecessary to rule on whether there was valid notice of the sale at public auction. Valley Golf elevated the SECs decision to the Court of Appeals by way of a petition for review. On 4 April 2003, 22 the appellate court rendered a decision affirming the decisions of the SEC and the hearing officer, with modification consisting of the deletion of the award of attorneys fees. This time, Valley Golfs central argument was that its by-laws, rather than Section 67 of the Corporation Code, authorized the auction sale of the Golf Share. Nonetheless, the Court of Appeals found that the by-law provisions cited by Valley Golf are of doubtful validity, as they purportedly conflict with Section 6 of the Code, which mandates that rights privileges or restrictions 23 attached to a share of stock should be stated in the articles of incorporation. It noted that what or who had become delinquent was was Mr. Caram himself and not his golf share, and such being the case, the unpaid account should have been filed as a money claim in the proceedings for the settlement of his estate, instead of 24 the petitioner selling his golf share to satisfy the account. The Court of Appeals also adopted the findings of the hearing officer that the notices had not been properly served on Caram or his heirs, thus effectively depriving respondent of property without due process of law. While it upheld the award of damages, the appellate court struck down the award of attorneys fees since there was no 25 discussion on the basis of such award in the body of the decisions of both the hearing officer and the SEC. There is one other fact of note, mentioned in passing by the SEC hearing officer but ignored by the SEC en banc and the Court of Appeals. Valley Golfs third and fourth demand letters dated 25 January 1987 and 7 March 1987, respectively, were both addressed to Est. of Fermin Z. Caram, Jr. The abbreviation Est. can only be taken to refer to Estate. Unlike the first two demand letters, the third and fourth letters were sent after Caram had died on 6 October 1986. However, the fifth and final demand letter, dated 3 May 1987 or twenty-eight (28) days before the sale, was again addressed to Fermin Caram himself and not to his estate, as if he were still alive. The foregoing particular facts are especially significant to our disposition of this case. II. In its petition before this Court, Valley Golf concedes that Section 67 of the Corporation Code, which authorizes the auction sale of shares with delinquent subscriptions, is not applicable in this case. Nonetheless, it argues that the by-laws of Valley Golf authorizes the sale of delinquent shares and that the by-laws constitute a valid law or contractual agreement between the corporation and its stockholders or their respective successors. Caram, by becoming a member of Valley Golf, bound himself to observe its by-laws which constitutes the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves 27 in their relation to it. It also points out that the by-laws itself had duly passed the SECs scrutiny and approval. Valley Golf further argues that it was error on the part of the Court of Appeals to rely, as it did, upon Section 6 of 28 the Corporation Code to nullify the subject provisions of the By-Laws. Section 6 referrs to restrictions on the shares of stock which should be stated in the articles of incorporation, as differentiated from liens which under the by-laws would serve as basis for the auction sale of the share. Since Section 6 refers to restrictions and not to liens, Valley Golf submits that liens are excluded from the ambit of the provision. It further proffers that assuming that liens and restrictions are synonymous, Section 6 itself utilizes the permissive word may, thus evincing the non-mandatory character of the requirement that restrictions or liens be stated in the articles of incorporation. Valley Golf also argues that the Court of Appeals erred in relying on the factual findings of the hearing officer, which are allegedly replete with errors and contradictions. Finally, it assails the award of moral and exemplary damages.
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III. As found by the SEC and the Court of Appeals, the Articles of Incorporation of Valley Golf does not contain any provision authorizing the corporation to create any lien on a members Golf Share as a consequence of the members unpaid assessments or dues to Valley Golf. Before this Court, Valley Golf asserts that such a provision is contained in its by-laws. We required the parties to submit a certified copy of the by-laws of Valley Golf in effect as 29 of 11 June 1987. In compliance, Valley Golf submitted a copy of its by-laws, originally adopted on 6 June 30 31 1958 and amended on 26 November 1986. The amendments bear no relevance to the issue of delinquent membership dues. The relevant provisions, found in Article VIII entitled Club Accounts, are reproduced below: Section 1. Lien.The Club has the first lien on the share of the stockholder who has, in his/her/its name, or in the name of an assignee, outstanding accounts and liabilities in favour of the Club to secure the payment thereof. Xxx Section 3. The account of any member shall be presented to such member every month. If any statement of accounts remains unpaid for a period forty-five (45) days after cut-off date, said member maybe (sic) posted as 35avour35enc (sic). No delinquent member shall be entitled to enjoy the privileges of such membership for the duration of the 35avour35ency (sic). After the member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the club; after which the member loses his/her/its rights and privileges permanently. No member can be indebted to the Club at any time any amount in excess of the credit limit set by the Board of Directors from time to time. The unpaid account referred to here includes non-payment 32 of dues, charges and other assessments and non-payment for subscriptions. To bolster its cause, Valley Golf proffers the proposition that by virtue of the by-law provisions a lien is created on the shares of its members to ensure payment of dues, charges and other assessments on the members. Both the SEC and the Court of Appeals debunked the tenability or applicability of the proposition through two common thrusts. Firstly, they correctly noted that the procedure under Section 67 of the Corporation Code for the stock corporations recourse on unpaid subscriptions is inapt to a non-stock corporation vis--vis a members outstanding dues. The basic factual backdrops in the two situations are disperate. In the latter, the member has fully paid for his membership share, while in the former, the stockholder has not yet fully paid for the share or shares of stock he subscribed to, thereby authorizing the stock corporation to call on the unpaid subscription, 33 declare the shares delinquent and subject the delinquent shares to a sale at public auction. Secondly, the two bodies below concluded that following Section 6 of the Corporation Code, which provides: The shares of stock of stock corporation may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of 34 incorporation x x x the lien on the Golf Share in 35avour of Valley Golf is not valid, as the power to constitute such a lien should be provided in the articles of incorporation, and not merely in the by-laws. However, there is a specific provision under the Title XI, on Non-Stock Corporations of the Corporation Code dealing with termination of membership. Section 91 of the Corporation Code provides: SEC. 91. Termination of membership.Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect of

extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in the articles of incorporation or the by-laws. (Emphasis supplied) Clearly, the right of a non-stock corporation such as Valley Golf to expel a member through the forfeiture of the Golf Share may be established in the by-laws alone, as is the situation in this case. Thus, both the SEC and the appellate court are wrong in holding that the establishment of a lien and the loss of the Golf Share consequent to the enforcement of the lien should have been provided for in the articles of incorporation. IV. Given that the cause for termination of membership in a non-stock corporation may be established through the by-laws alone and need not be set forth in the articles of incorporation, is there any cause to invalidate the lien and the subsequent sale of the Golf Share by Valley Golf? Former SEC Chairperson, Rosario Lopez, in her commentaries on the Corporation Code, explains the import of Section 91 in a manner relevant to this case: The prevailing rule is that the provisions of the articles of incorporation or by-laws of termination of membership must be strictly complied with and applied to the letter. Thus, an association whose member fails to pay his membership due and annual due as required in the by-laws, and which provides for the termination or suspension of erring members as well as prohibits the latter from intervening in any manner in the operational activities of the association, must be observed because by-laws are self-imposed private laws binding on all members, directors 35 and officers of the corporation. Examining closely the relevant by-law provisions of Valley Golf, it appears that termination of membership may occur when the following successive conditions are met: (1) presentation of the account of the member; (2) failure of the member to settle the account within forty-five days after the cut-off date; (3) posting of the member as delinquent; and (4) issuance of an order by the board of directors that the share of the delinquent member be sold to satisfy the claims of Valley Golf. These conditions found in by-laws duly approved by the SEC warrant due respect and we are disinclined to rule against the validity of the by-law provisions. At the same time, two points warrant special attention. A. Valley Golf has sought to accomplish the termination of Carams membership through the sale of the Golf Share, justifying the sale through the constitution of a lien on the Golf Share under Section 1, Article VIII of its by-laws. Generally in theory, a non-stock corporation has the power to effect the termination of a member without having to constitute a lien on the membership share or to undertake the elaborate process of selling the same at public auction. The articles of incorporation or the by-laws can very well simply provide that the failure of a member to pay the dues on time is cause for the board of directors to terminate membership. Yet Valley Golf was organized in such a way that membership is adjunct to ownership of a share in the club; hence the necessity to dispose of the share to terminate membership. Share ownership introduces another dimension to the case the reality that termination of membership may also lead to the infringement of property rights. Even though Valley Golf is a non-stock corporation, as evinced by the fact that it is not authorized to distribute to the holder of its shares dividends or allotments of the surplus profits 37 on the basis of shares held, the Golf Share has an assigned value reflected on the certificate of membership 38 itself. Termination of membership in Valley Golf does not merely lead to the withdrawal of the rights and privileges of the member to club properties and facilities but also to the loss of the Golf Share itself for which the member had fully paid.
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The claim of Valley Golf is limited to the amount of unpaid dues plus incremental costs. On the other hand, Carams loss may encompass not only the amount he had paid for the share but also the price it would have fetched in the market at the time his membership was terminated. There is an easy way to remedy what is obviously an unfair situation. Taking the same example, Valley Golf seizes the share, sells it to itself or a third person for P100.000.00, then refunds P99,000.00 back to the delinquent member. On its face, such a mechanism obviates the inequity of the first example, and assures that the loss sustained by the delinquent member is commensurate to the actual debt owed to Valley Golf. After all, applying civil law concepts, the pecuniary injury sustained by Valley Golf attributable to the delinquent member is only to the extent of the unpaid debt, and it would be difficult to foresee what right under law Valley Golf would have to the remainder of the sales proceeds. A refund mechanism may disquiet concerns of undue loss of property rights corresponding to termination of membership. Yet noticeably, the by-laws of Valley Golf does not require the Club to refund to the discharged member the remainder of the proceeds of the sale after the outstanding obligation is extinguished. After petitioner had filed her complaint though, Valley Golf did inform her that the heirs of Caram are entitled to such refund. B. Let us now turn to the other significant concern. The by-laws does not provide for a mode of notice to the member before the board of directors puts up the Golf Share for sale, yet the sale marks the termination of membership. Whatever semblance of a notice that is afforded is bare at best, ambiguous at most. The member is entitled to receive a statement of account every month; however, the mode by which the member is to receive such notice is not elaborated upon. If the member fails to pay within 45 days from the due date, Valley Golf is immediately entitled to have the member posted as delinquent. While the assignation of delinquent status is evident enough, it is not as clear what the word posted entails. Connotatively, the word could imply the physical posting of the notice of delinquency within the club premises, such as a bulletin board, which we recognize is often the case. Still, the actual posting modality is uncertain from the language of the by-laws. The moment the member is posted as delinquent, Valley Golf is immediately enabled to seize the share and sell the same, thereby terminating membership in the club. The by-laws does not require any notice to the member from the time delinquency is posted to the day the sale of the share is actually held. The setup is to the extreme detriment to the member, who upon being notified that the lien on his share is due for execution would be duly motivated to settle his accounts to foreclose such possibility. Does the Corporation Code permit the termination of membership without due notice to the member? The Code itself is silent on that matter, and the argument can be made that if no notice is provided for in the articles of incorporation or in the by-laws, then termination may be effected without any notice at all. Support for such an 39 argument can be drawn from our ruling in Long v. Basa, which pertains to a religious corporation that is also a 40 non-stock corporation. Therein, the Court upheld the expulsion of church members despite the absence of any provision on prior notice in the by-laws, stating that the members had waived such notice by adhering to those by-laws[,] became members of the church voluntarily[,] entered into its covenant and subscribed to its rules [and 41 by] doing so, they are bound by their consent. However, a distinction should be made between membership in a religious corporation, which ordinarily does not involve the purchase of ownership shares, and membership in a non-stock corporation such as Valley Golf, where the purchase of an ownership share is a condition sine qua non. Membership in Valley Golf entails the acquisition of a property right. In turn, the loss of such property right could also involve the application of aspects of civil law,

in addition to the provisions of the Corporation Code. To put it simply, when the loss of membership in a non-stock corporation also entails the loss of property rights, the manner of deprivation of such property right should also be in accordance with the provisions of the Civil Code. It has been held that a by-law providing that if a member fails to pay dues for a year, he shall be deemed to have relinquished his membership and may be excluded from the rooms of the association and his certificate of membership shall be sold at auction, and any surplus of the proceeds be paid over him, does not ipso facto terminate the membership of one whose dues are a year in arrears; the remedy given for non-payment of dues is not exclusive because the corporation, so long as he remains a member, may sue on his agreement and collect 42 them. V. With these foregoing concerns in mind, were the actions of Valley Golf concerning the Golf Share and membership of Caram warranted? We believe not. It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the provisions of its by-laws on termination of membership, vaguely defined as these are. Yet especially since the termination of membership in Valley Golf is inextricably linked to the deprivation of property rights over the Golf Share, the emergence of such adverse consequences make legal and equitable standards come to fore. The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we can cite with approval. Lopez cites: [I]n order that the action of a corporation in expelling a member for cause may be valid, it is essential, in the absence of a waiver, that there shall be a hearing or trial of the charge against him, with reasonable notice to him and a fair opportunity to be heard in his defense. (Fletcher Cyc. Corp., supra) If the method of trial is not regulated by the by-laws of the association, it should at least permit substantial justice. The hearing must be conducted fairly and openly and the body of persons before whom it is heard or who are to decide the case must be unprejudiced. (SEC opinion dated September 29, 1987, Bacalaran-Sucat Drivers Association)1avvphi1 It is unmistakably wise public policy to require that the termination of membership in a non-stock corporation be done in accordance with substantial justice. No matter how one may precisely define such term, it is evident in this case that the termination of Carams membership betrayed the dictates of substantial justice. Valley Golf alleges in its present petition that it was notified of the death of Caram only in March of 1990, a claim 44 which is reiterated in its Reply to respondents Comment. Yet this claim is belied by the very demand letters sent by Valley Golf to Carams mailing address. The letters dated 25 January 1987 and 7 March 1987, both of which were sent within a few months after Carams death are both addressed to Est. of Fermin Z. Caram, Jr.; and the abbreviation [e]st. can only be taken to refer to estate. This is to be distinguished from the two earlier letters, both sent prior to Carams death on 6 October 1986, which were addressed to Caram himself. Inexplicably, the final letter dated 3 May 1987 was again addressed to Caram himself, although the fact that the two previous letters were directed at the estate of Caram stands as incontrovertible proof that Valley Golf had known of Carams death even prior to the auction sale. Interestingly, Valley Golf did not claim before the Court of Appeals that they had learned of Carams death only after the auction sale. It also appears that Valley Golf had conceded before the SEC that some of the notices it had 45 sent were addressed to the estate of Caram, and not the decedent himself. What do these facts reveal? Valley Golf acted in clear bad faith when it sent the final notice to Caram under the pretense they believed him to be still alive, when in fact they had very well known that he had already died. That it
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was in the final notice that Valley Golf had perpetrated the duplicity is especially blameworthy, since it was that notice that carried the final threat that his Golf Share would be sold at public auction should he fail to settle his account on or before 31 May 1987. Valley Golf could have very well addressed that notice to the estate of Caram, as it had done with the third and fourth notices. That it did not do so signifies that Valley Golf was bent on selling the Golf Share, impervious to potential complications that would impede its intentions, such as the need to pursue the claim before the estate proceedings of Caram. By pretending to assume that Caram was then still alive, Valley Golf would have been able to capitalize on his previous unresponsiveness to their notices and proceed in feigned good faith with the sale.lawphil.netWhatever the reason Caram was unable to respond to the earlier notices, the fact remains that at the time of the final notice, Valley Golf knew that Caram, having died and gone, would not be able to settle the obligation himself, yet they persisted in sending him notice to provide a color of regularity to the resulting sale. That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals. Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice to Caram on the deliberate pretense that he was still alive could bring into operation Articles Articles 19, 20 and 21 under the 46 Chapter on Human Relations of the Civil Code. These provisions enunciate a general obligation under law for every person to act fairly and in good faith towards one another. Non-stock corporations and its officers are not exempt from that obligation. VI. Another point. The by-laws of Valley Golf is discomfiting enough in that it fails to provide any formal notice and hearing procedure before a members share may be seized and sold. The Court would have been satisfied had the by-laws or the articles of incorporation established a procedure which assures that the member would in reality be actually notified of the pending accounts and provide the opportunity for such member to settle such accounts before the membership share could be seized then sold to answer for the debt. As we have emphasized, membership in Valley Golf and many other like-situated non-stock corporations actually involves the purchase of a membership share, which is a substantially expensive property. As a result, termination of membership does not only lead to loss of bragging rights, but the actual deprivation of property. The Court has no intention to interfere with how non-stock corporations should run their daily affairs. The Court also respects the fact that membership is non-stock corporations is a voluntary arrangement, and that the member who signs up is bound to adhere to what the articles of incorporation or the by-laws provide, even if provisions are detrimental to the interest of the member. At the same time, in the absence of a satisfactory procedure under the articles of incorporation or the by-laws that affords a member the opportunity to defend against the deprivation of significant property rights in accordance with substantial justice, the terms of the by-laws or articles of incorporation will not suffice. There will be need in such case to refer to substantive law. Such a flaw attends the articles of incorporation and by-laws of Valley Golf. The Court deems it judicious to refer to the protections afforded by the Civil Code, with respect to the preservation, maintenance, and defense from loss of property rights. The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien is constituted on the membership share to answer for subsequent obligations to the corporation finds applicable parallels under the 47 Civil Code. Membership shares are considered as movable or personal property, and they can be constituted as security to secure a principal obligation, such as the dues and fees. There are at least two contractual modes under the Civil Code by which personal property can be used to secure a principal obligation. The first is through a 48 49 contract of pledge, while the second is through a chattel mortgage. A pledge would require the pledgor to surrender possession of the thing pledged, i.e., the membership share, to the pledge in order that the contract of 50 pledge may be constituted.

Is delivery of the share cannot be effected, the suitable security transaction is the chattel mortgage. Under Article 2124 of the Civil Code, movables may be the object of a chattel mortgage. The Chattel mortgage is governed by Act 51 No. 1508, otherwise known The Chattel Mortgage Law, and the Civil Code. In this case, Caram had not signed any document that manifests his agreement to constitute his Golf Share as security in favour of Valley Golf to answer for his obligations to the club. There is no document we can assess that it is substantially compliant with the form of chattel mortgages under Section 5 of Act No. 1508. The by-laws could not suffice for that purpose since it is not designed as a bilateral contract between Caram and Valley Golf, or a vehicle by which Caram expressed his consent to constitute his Golf Share as security for his account with Valley Golf. VII. We finally turn to the matter of damages. The award of damages sustained by the Court of Appeals was for moral damages in the sum of P50,000.00 and exemplary damages in the sum of P10,000.00. Both awards should be sustained. In pretending to give actual notice to Caram despite full knowledge that he was in fact dead, Valley Golf exhibited utter bad faith. The award of moral damages was based on a finding by the hearing officer that Valley Golf had considerably besmirched the reputation and good credit standing of the plaintiff and her family, such justification having foundation under Article 2217 of the Civil Code. No cause has been submitted to detract from such award. In addition, exemplary damages were awarded to [Valley Golf] defendant from repeating similar acts in the future and to protect the interest of its stockholders and by way of example or correction for the public good. Such conclusion is in accordance with Article 2229 of the Civil Code, which establishes liability for exemplary damages. WHEREFORE, the petition is DENIED. Costs against petitioners. SO ORDERED. CASE 6 G.R. No. 179901 April 14, 2008
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BANCO DE ORO-EPCI, INC., petitioner, vs. JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO,respondents. DECISION CORONA, J.: This petition for review on certiorari seeks to set aside the decision of the Court of Appeals (CA) in CA-G.R. SP No. 3 95659 and its resolution denying reconsideration. After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 4 1998, 1999 and 2000, petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting 5 toP230,000,000 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's sureties.
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Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the 6 approval of its loan. Petitioner later learned from MRM Management, JAPRL's financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from 7 operations for the concerned fiscal years to project itself as a viable investment. The information alarmed 8 petitioner. Citing relevant provisions of the Trust Receipt Agreement, it demanded immediate payment of JAPRL's 9 outstanding obligations amounting to P194,493,388.98. SP Proc. No. Q-03-064 On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court 10 (RTC) of Quezon City, Branch 90 (Quezon City RTC). It disclosed that it had been experiencing a decline in sales for 11 the three preceding years and a staggering loss in 2002. Because the petition was sufficient in form and substance, a stay order was issued on September 28, 13 2003. However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City 14 RTC in an order dated May 9, 2005. Civil Case No. 03-991 Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 15 (Makati RTC) on August 21, 2003. Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) 16 altered and falsified its financial statements. The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons 17 on respondents. Pursuant to the said order, summonses were issued against respondents and were served upon them. Respondents moved to dismiss the complaint due to an allegedly invalid service of summons. Because the 19 officer's return stated that an "administrative assistant" had received the summons, JAPRL and RFC argued that 20 Section 11, Rule 14 of the Rules of Court contained an exclusive list of persons on whom summons against a 21 corporation must be served. An "administrative assistant" was not one of them. Arollado, on the other hand, 22 23 cited Section 6, Rule 14 thereof which mandated personal service of summons on an individual defendant. The Makati RTC, in its October 10, 2005 order, noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. Respondents moved for reconsideration but withdrew it before the Makati RTC could resolve the matter. RTC SEC Case No. 68-2008-C On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form and in substance, the Calamba RTC 27 issued a stay order on March 13, 2006. In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No. 03-991 pending 28 in the Makati RTC.
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On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him 29 30 31 should continue. Respondents moved for reconsideration but it was denied. On August 11, 2006, respondents filed a petition for certiorari in the CA alleging that the Makati RTC committed 33 grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders. They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could 34 not hear the complaint for sum of money. In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative 35 assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition. Petitioner moved for reconsideration but it was denied. Hence, this petition. Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly 37 exploiting procedural technicalities to avoid the payment of their obligations. We grant the petition. Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the October 10, 38 2005 order of the said trial court which they in effect assailed. However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10 months and 1 day after the 39 assailed order was issued by the Makati RTC, way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA. More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the 40 Makati RTC. We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate 41 Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation from the 42 date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings. The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the 43 corporation seeking rehabilitation. Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly 44 disregarded the significance of a stable and efficient banking system to the national economy. Banks are entities engaged in the lending of funds obtained through deposits from the public. They borrow the 47 public's excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.
45 46 36 32

Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the 48 49 public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound 50 lending practices and good corporate governance. Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner's exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC. The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (emphasis supplied) Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate 51 payment of P194,493,388.98 and other appropriate damages. Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust 52 Receipts Law. ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE.

The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted. SO ORDERED.

CASE 7 G.R. No. 169370 April 14, 2008

EUSTACIO ATWEL, LUCIA PILPIL and MANUEL MELGAZO, petitioners, vs. ** CONCEPCION PROGRESSIVE ASSOCIATION, INC., , respondent. DECISION CORONA, J.: The present petition under Rule 45 of the Rules of Court assails the decision of the Court of Appeals (CA), dated 2 March 17, 2005 in CA-G.R. SP No. 85170, declaring petitioners Eustacio Atwel, Lucia Pilpil and Manuel Melgazo estopped from questioning the jurisdiction of Branch 8 of the Regional Trial Court (RTC) of Tacloban City as a 3 special commercial court under Republic Act (RA) No. 8799. The facts follow. In 1948, then Assemblyman Emiliano Melgazo founded and organized Concepcion Progressive Association (CPA) in Hilongos, Leyte. The organization aimed to provide livelihood to and generate income for his supporters. In 1968, after his election as CPA president, Emiliano Melgazo bought a parcel of land in behalf of the association. The property was later on converted into a wet market where agricultural, livestock and other farm products were sold. It also housed a cockpit and an area for various forms of amusement. The income generated from the property, mostly rentals from the wet market, was paid to CPA. When Emiliano Melgazo died, his son, petitioner Manuel Melgazo, succeeded him as CPA president and administrator of the property. On the other hand, petitioners Atwel and Pilpil were elected as CPA vice-president and treasurer, respectively. In 1997, while CPA was in the process of registering as a stock corporation, its other elected officers and members formed their own group and registered themselves in the Securities and Exchange Commission (SEC) as officers and members of respondent Concepcion Progressive Association, Inc. (CPAI). Petitioners were not listed either as officers or members of CPAI. Later, CPAI objected to petitioners' collection of rentals from the wet market vendors. In 2000, CPAI filed a case in the SEC for mandatory injunction. With the passage of RA 8799, the case was transferred to Branch 24 of the Southern Leyte RTC and subsequently, to Branch 8 of the Tacloban City RTC. Both were special commercial courts. In the complaint, CPAI alleged that it was the owner of the property and petitioners, without authority, were collecting rentals from the wet market vendors.
5 4 1

In their answer, petitioners refuted CPAI's claim saying that it was preposterous and impossible for the latter to have acquired ownership over the property in 1968 when it was only in 1997 that it was incorporated and registered with the SEC. Petitioners added that since the property was purchased using the money of petitioner Manuel Melgazo's father (the late Emiliano Melgazo), it belonged to the latter. On June 9, 2004, the special commercial court ruled that the deed of sale covering the property was in the name of CPA, not Emiliano Melgazo: The terms and language of said Deed is unmistakable that the vendee is [CPA], through Emiliano Melgazo, and Emiliano Melgazo signed said Deed "for and [in] behalf of the CPA"...there is therefore no doubt as to who the vendee is. It is [CPA] and not Emiliano Melgazo. As such, it is [CPA] who is the owner of said property and not [petitioner] Manuel Melgazo... [Petitioners] contend that the money used in the purchase of [the property] was Emiliano Melgazo['s]. This Court is not persuaded and to rule 6 otherwise...will be a contravention [to] the Parole Evidence Rule. In the dispositive portion of the decision, the court, however, considered CPA to be one and the same as CPAI: WHEREFORE, premises considered, this Court finds for [CPAI] and against [petitioners] and the latter are hereby directed to cease and desist from collecting the vendor's fee for and [on] behalf of [CPAI] and to account what they have collected from October 1996 up to the present and [turn over] the same to the proper officer. SO ORDERED.
7

Aggrieved, petitioners went to the CA and contested the jurisdiction of the special commercial court over the case. According to them, they were not CPAI members, hence the case did not involve an intra-corporate dispute "between and among members" so as to warrant the special commercial court's jurisdiction over it. CPAI, on the other hand, argued that petitioners were already in estoppel as they had participated actively in the court proceedings. In its assailed decision of March 17, 2005, although the CA found that the special commercial court should not have tried the case since there was no intra-corporate dispute among CPAI members or officers, it nonetheless held that petitioners were already barred from questioning the court's jurisdiction based on the doctrine of 8 estoppel. Quoting this Court's ruling in Tijam v. Sibonghanoy, the CA held: An examination of the record of the case will show that [CPAI] admitted in its Pre-Trial Brief and Amended Pre-Trial Brief that petitioners are not its members. The fact that petitioners are admittedly not members of [CPAI], then, [the special commercial court] should not have taken cognizance of the case as [it] exercises special and limited jurisdiction under R.A. No. 8799. However, as correctly argued and pointed out by [CPAI], the acts of the petitioners, through their counsel, in participating in the trial of the 9 case...show that they themselves consider the trial court to have jurisdiction over the case. xxx xxx xxx

...[I]n the case of Tijam v. Sibonghanoy, the Supreme Court categorically that: "The rule is that the jurisdiction over the subject matter is conferred upon the courts exclusively by law, and as the lack of it affects the very authority of the court to take cognizance of the case, the objection may be raised at any stage of the proceedings. However, considering the facts and the circumstances of the present case, a party may be barred by laches from invoking this plea

for the first time on appeal for the purpose of annulling everything done in the case with the active participation of said party invoking the plea." Hence, we agree with [CPAI] that petitioners, after actively participating in the trial of the case, can no 10 longer be allowed to impugn the jurisdiction of the court... xxx xxx xxx

WHEREFORE, based on the foregoing premises, judgment is hereby rendered by us DISMISSING the petition filed in this case and AFFIRMING the DECISION dated June 9, 2004 of the [special commercial court] of Tacloban City, Branch 8 in SEC Case No. 2001-07-110. SO ORDERED.
11

Petitioners filed a motion for reconsideration but it was denied by the CA. Hence, this petition. Petitioners essentially argue that estoppel cannot apply because a court's jurisdiction is conferred exclusively by the Constitution or by law, not by the parties' agreement or by estoppel. We agree. Originally, Section 5 of Presidential Decree (PD) 902-A conferred on the SEC original and exclusive jurisdiction over the following: (1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; or association of which they are stockholders, members, or associates, respectively; (3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations; (4) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payment in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee...(emphasis supplied) Upon the enactment of RA 8799 in 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases enumerated in Section 5 of PD 902-A was transferred to the courts of general jurisdiction. Under this authority, Branch 8 of the Tacloban City RTC, acting as a special commercial court, deemed the mandatory injunction case filed by CPAI an intra-corporate dispute falling under subparagraph (2) of the aforecited provision as it involved the officers and members thereof. To determine whether a case involves an intra-corporate controversy to be heard and decided by the RTC, two elements must concur:
13

12

(1) the status or relationship of the parties and (2) the nature of the question that is subject of their controversy.
14

The first element requires that the controversy must arise out of intra-corporate or partnership relations: (a) between any or all of the parties and the corporation, partnership or association of which they are stockholders, members or associates; (b) between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates and (c) between such corporation, partnership or association and the State insofar as it concerns their individual franchises. On the other hand, the second element requires that the 15 dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra16 corporate controversy. In the case at bar, these elements are not present. The records reveal that petitioners were never officers nor members of CPAI. CPAI itself admitted this in its pleadings. In fact, petitioners were the only remaining members of CPA which, obviously, was not the CPAI that was registered in the SEC. Moreover, the issue in this case does not concern the regulation of CPAI (or even CPA). The determination as to who is the true owner of the disputed property entitled to the income generated therefrom is civil in nature and 17 should be threshed out in a regular court. Cases of this nature are cognizable by the RTC under BP 129. Therefore, the conflict among the parties here was outside the jurisdiction of the special commercial court. But did the doctrine of estoppel bar petitioners from questioning the jurisdiction of the special commercial court? No. In Lozon v. NLRC, this Court came up with a clear rule on when jurisdiction by estoppel applies and when it does not: The operation of estoppel on the question of jurisdiction seemingly depends on whether the lower court actually had jurisdiction or not. If it had no jurisdiction, but the case was tried and decided upon the theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for the same "must exist as a matter of law, and may not be conferred by the consent of the parties or by estoppel." However, if the lower court had jurisdiction, and the case was heard and decided upon a given theory, such, for instance, as that the court had no jurisdiction, the party who induced it to adopt such theory will not be permitted, on appeal, to assume an inconsistent position that the lower court had jurisdiction.... (emphasis supplied) The ruling was reiterated in Metromedia Times Corporation [(Metromedia)] v. Pastorin, where we reversed the CA ruling that Metromedia was already estopped from questioning the jurisdiction of the labor arbiter (LA) after it participated in the proceedings before him. There, an illegal dismissal case was filed by an employee against 20 Metromedia alleging that his transfer to another department was tantamount to constructive dismissal. Realizing the issue was properly cognizable by a voluntary arbitrator, Metromedia assailed the LA's jurisdiction in the NLRC 21 and the CA. The CA, also citing Tijam, ruled erroneously that Metromedia was already barred from questioning the LA's jurisdiction. We likewise held in Metromedia that Tijam provided an exceptional circumstance. To void the trial court's decision in Tijam for lack of jurisdiction was not only unfair but patently revolting considering that the question on 22 jurisdiction was raised only after 15 years of tedious litigation. We said: The notion that the defense of lack of jurisdiction may be waived by estoppel on the party invoking the same most prominently emerged in Tijam v. Sibonghanoy....[H]owever, Tijam represented an exceptional
19 18

case wherein the party invoking the lack of jurisdiction only did so after fifteen (15) years, and at a stage where the case was already elevated to the Court of Appeals. In Calimlim v. Ramirez, which we extensively quoted in Metromedia, we spoke of Tijam in this sense: A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that jurisdiction is a matter of law and may not be conferred by consent or agreement of the parties....[T]his doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the cited case of [Tijam v.]Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations which were obviously not contemplated therein. The exceptional circumstances involved in [Tijam v.]Sibonghanoy which justified the departure from the accepted doctrine of non-waivability of objection to jurisdiction has been ignored and instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling [therein] not as the exception, but rather the general rule, virtually overthrowing altogether the time-honored principle that the issue of jurisdiction is not lost by waiver or by estoppel. The rule remains that estoppel does not confer jurisdiction on a tribunal that has none over the cause of action or 24 subject matter of the case. Unfortunately for CPAI, no exceptional circumstance appears in this case to warrant divergence from the rule. Jurisdiction by estoppel is not available here. Consequently, CPAI cannot be permitted to wrest from petitioners (as the remaining CPA officers) the administration of the disputed property until after the parties' rights are clearly adjudicated in the proper courts. It 25 is neither fair nor legal to bind a party to the result of a suit or proceeding in a court with no jurisdiction. The 26 decision of a tribunal not vested with the appropriate jurisdiction is null and void. WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appeals in CA-G.R. SP No. 85170 is REVERSED and SET ASIDE. Accordingly, SEC Case No. 2001-07-110 is DISMISSED for lack of jurisdiction. SO ORDERED.
23

CASE 8 G.R. No. 150711 August 10, 2006 CALTEX (PHILIPPINES), INC., Petitioner, vs. PNOC SHIPPING AND TRANSPORT CORPORATION, Respondent. DECISION CARPIO, J.: The Case Before the Court is a petition for review assailing the 31 May 2001 Decision and 9 November 2001 Resolution of 4 the Court of Appeals in CA-G.R. CV No. 46097. The Court of Appeals reversed the 1 June 1994 Decision of the Regional Trial Court of Manila, Branch 51 ("trial court"), and dismissed the complaint filed by Caltex (Philippines), Inc. ("Caltex") against PNOC Shipping and Transport Corporation (PSTC).
1 2 3

The Antecedent Facts On 6 July 1979, PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an Agreement of Assumption of Obligations ("Agreement"). The Agreement provides that PSTC shall assume all the obligations of LUSTEVECO with respect to the claims enumerated in Annexes "A" and "B" ("Annexes") of the Agreement. The Agreement also provides that PSTC shall control the conduct of any litigation pending or which may be filed with respect to the claims in the Annexes. The Agreement further provides that LUSTEVECO shall deliver to PSTC all papers and records of the claims in the Annexes. Finally, the Agreement provides that LUSTEVECO appoints and constitutes PSTC as its attorney-in-fact to demand and receive any claim out of the countersuits and counterclaims arising from the claims in the Annexes. Among the actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon Stevedoring Corporation docketed as AC-G.R. CV No. 62613 which at that time was pending before the then Intermediate Appellate Court (IAC). The case was an appeal from the Decision by the then Court of First Instance of Manila (CFI) directing LUSTEVECO to pay Caltex P103,659.44 with legal interest from the filing of the action until full payment. In its 12 November 1985 5 Decision, the IAC affirmed with modification the Decision of the CFI. The dispositive portion of the Decision reads: WHEREFORE, the decision appealed from is hereby MODIFIED and judgment is rendered ordering the defendant [LUSTEVECO] to pay plaintiff [Caltex]: (a) P126,771.22 under the first cause of action, with legal interest until fully paid; (b) P103,659.44 under the second cause of action with legal interest until fully paid; (c) 10% of the sums due as and for attorneys fees; (d) costs of the suit. SO ORDERED.
6

The Decision of the IAC became final and executory. The Regional Trial Court of Manila, Branch 12, issued a writ of execution in favor of Caltex. However, the judgment was not satisfied because of the prior foreclosure of LUSTEVECOs properties. The Manila Bank Intramuros Branch and the Traders Royal Bank Aduana Branch did not respond to the notices of garnishment. Caltex subsequently learned of the Agreement between PSTC and LUSTEVECO. Caltex sent successive demands to PSTC asking for the satisfaction of the judgment rendered by the CFI. PSTC requested for the copy of the records of AC-G.R. CV No. 62613. Later, PSTC informed Caltex that it was not a party to AC-G.R. CV No. 62613 and thus, PSTC would not pay LUSTEVECOs judgment debt. PSTC advised Caltex to demand satisfaction of the judgment directly from LUSTEVECO. Caltex continued to send several demand letters to PSTC. On 5 February 1992, Caltex filed a complaint for sum of money against PSTC. The case was docketed as Civil Case No. 91-59512. On 1 June 1994, the trial court rendered its Decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff, ordering defendant to pay plaintiff the sums due the latter in the decision rendered by the Court of Appeals in CA-G.R. No. 62613, CALTEX vs. LUSTEVECO, or to pay plaintiff (Exhibit "C"):

(a) P126,771.22 under the first cause of action, with legal interest from the date of the promulgation of the decision on November 12, 1985 until fully paid; (b) P103,659.44 under the second cause of action with legal interest from the date of the promulgation of the decision on November 12, 1985 until fully paid; (c) 10% of the sums due as and for attorneys fees; and (d) Costs of suit. SO ORDERED.
7

PSTC appealed the trial courts Decision. The Ruling of the Court of Appeals In its 31 May 2001 Decision, the Court of Appeals found the appeal meritorious. The Court of Appeals ruled that Caltex has no personality to sue PSTC. The Court of Appeals held that non-compliance with the Agreement could only be questioned by the signatories to the contract, namely, LUSTEVECO and PSTC. The Court of Appeals stated that LUSTEVECO and PSTC are the only parties who can file an action to enforce the Agreement. The Court of Appeals considered fatal the omission of LUSTEVECO, the real party in interest, as a party defendant in the case. The Court of Appeals further ruled that Caltex is not a beneficiary of a stipulation pour autrui because there is no stipulation in the Agreement which clearly and deliberately favors Caltex. The dispositive portion of the Decision of the Court of Appeals reads: WHEREFORE, premises considered, the appealed Decision dated June 1, 1994, rendered by the Regional Trial Court of Manila, Branch 51, is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint filed by appellee [Caltex], against appellant [PSTC], for want of cause of action. SO ORDERED.
8

Caltex filed a motion for reconsideration of the 31 May 2001 Decision. In a Resolution promulgated on 9 November 2001, the Court of Appeals denied the motion for lack of merit. Hence, this petition before this Court. The Issues The issues in this case are: 1. Whether PSTC is bound by the Agreement when it assumed all the obligations of LUSTEVECO; and 2. Whether Caltex is a real party in interest to file an action to recover from PSTC the judgment debt against LUSTEVECO. The Ruling of this Court

The petition is meritorious. Caltex May Recover from PSTC Under the Terms of the Agreement Caltex may recover the judgment debt from PSTC not because of a stipulation in Caltexs favor but because the Agreement provides that PSTC shall assume all the obligations of LUSTEVECO. In this case, LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECOs business, properties and assets pertaining to its tanker and bulk business "together with all the obligations relating to the said business, properties and assets." The Agreement, reproduced here in full, provides: AGREEMENT OF ASSUMPTION OF OBLIGATIONS KNOW ALL MEN BY THESE PRESENTS: This Agreement of Assumption of Obligations made and executed this 6th day of July 1979, in the City of Manila, by and between: LUZON STEVEDORING CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with offices at Tacoma and Second Streets, Port Area, Manila, represented by GERONIMO Z. VELASCO, in his capacity as Chairman of the Board, hereinafter referred to as ASSIGNOR, - and PNOC SHIPPING AND TRANSPORT CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with offices at Makati Avenue, Makati, Metro Manila, represented by MARIO V. TIAOQUI, in his capacity as Vice-President, hereinafter referred to as ASSIGNEE, WITNESSETH : T h a t WHEREAS, on April 1, 1979, ASSIGNOR, for valuable consideration, executed an Agreement of Transfer with ASSIGNEE whereby ASSIGNOR transferred, conveyed and assigned unto ASSIGNEE all of ASSIG NORs business, properties and assets appertaining to its tanker and bulk all (sic) departments, together with all the obligations relating to said business, properties and assets; WHEREAS, relative to the conduct, operation and management of the business, properties and assets transferred, conveyed and assigned by ASSIGNOR to ASSIGNEE certain actions and claims particularly described in Annex "A" consisting of four (4) pages and Annex "B", consisting of one (1) page, attached hereto and made integral parts hereof, have been filed, either with ASSIGNOR or with appropriate courts and administrative tribunals. WHEREAS, under the terms and conditions hereinafter mentioned, ASSIGNEE agree[s] to assume the obligations incident and relative to the actions and claims enumerated and described in Annexes "A" and "B" hereof. NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto have agreed as follows: 1. ASSIGNEE shall assume, as it hereby assumes all the obligations of ASSIGNOR in respect to the actions and claims and described in Annexes "A" and "B";

2. ASSIGNEE shall have complete control in the conduct of any and all litigations now pending or may be filed with respect to the actions and claims enumerated and described in Annexes "A" and "B"; 3. ASSIGNOR shall deliver and convey unto ASSIGNEE all papers, documents, files and any other records appertaining to the actions and claims enumerated and described in Annexes "A" and "B"; 4. ASSIGNOR hereby constitutes and appoints ASSIGNEE, its successors and assigns, the true and lawful attorney of ASSIGNOR, with full power of substitution, for it and in its name, place and stead or otherwise, but on behalf and for the benefit of ASSIGNEE, its successors and assigns, to demand and receive any and all claim[s] out of countersuits or counterclaims arising from the actions and claims enumerated and described in Annexes "A" and 9 "B". (Emphasis supplied) When PSTC assumed all the properties, business and assets of LUSTEVECO pertaining to LUSTEVECOs tanker and bulk business, PSTC also assumed all of LUSTEVECOs obligations pertaining to such business. The assumption of obligations was stipulated not only in the Agreement of Assumption of Obligations but also in the Agreement of Transfer. The Agreement specifically mentions the case between LUSTEVECO and Caltex, docketed as AC-G.R. CV No. 62613, then pending before the IAC. The Agreement provides that PSTC may demand and receive any claim out of counter-suits or counterclaims arising from the actions enumerated in the Annexes. PSTC is bound by the Agreement. PSTC cannot accept the benefits without assuming the obligations under the same Agreement. PSTC cannot repudiate its commitment to assume the obligations after taking over the assets for that will amount to defrauding the creditors of LUSTEVECO. It will also result in failure of consideration since the assumption of obligations is part of the consideration for the transfer of the assets from LUSTEVECO to PSTC. Failure of consideration will revert the assets to LUSTEVECO for the benefit of the creditors of LUSTEVECO. Thus, PSTC cannot escape from its undertaking to assume the obligations of LUSTEVECO as stated in the Agreement. Disposition of Assets should not Prejudice Creditors Even without the Agreement, PSTC is still liable to Caltex. The disposition of all or substantially all of the assets of a corporation is allowed under Section 40 of Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines ("Corporation Code"). Section 40 provides: SEC. 40. Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors, or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders or members meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets, if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purposes for which it was incorporated.

xxxx While the Corporation Code allows the transfer of all or substantially all the properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor. The only way the transfer can proceed without prejudice to the creditors is to hold the assignee liable for the obligations of the assignor. The acquisition by the assignee of all or substantially all of the assets of the assignor necessarily includes the assumption of the assignors 10 liabilities, unless the creditors who did not consent to the transfer choose to rescind the transfer on the ground 11 of fraud. To allow an assignor to transfer all its business, properties and assets without the consent of its creditors and without requiring the assignee to assume the assignors obligations will defraud the creditors. The assignment will place the assignors assets beyond the reach of its creditors. Here, Caltex could not enforce the judgment debt against LUSTEVECO. The writ of execution could not be satisfied because LUSTEVECOs remaining properties had been foreclosed by lienholders. In addition, all of LUSTEVECOs business, properties and assets pertaining to its tanker and bulk business had been assigned to PSTC without the knowledge of its creditors. Caltex now has no other means of enforcing the judgment debt except against PSTC. If PSTC refuses to honor its written commitment to assume the obligations of LUSTEVECO, there will be fraud on the creditors of LUSTEVECO. PSTC agreed to take over, and in fact took over, all the assets of LUSTEVECO upon its express written commitment to pay all obligations of LUSTEVECO pertaining to those assets, including specifically the claim of Caltex. LUSTEVECO no longer informed its creditors of the transfer of all of its assets presumably because PSTC committed to pay all such creditors. Such transfer, leaving the claims of creditors unenforceable 12 against the debtor, is fraudulent and rescissible. To allow PSTC now to welsh on its commitment is to sanction a 13 fraud on LUSTEVECOs creditors. In Oria v. McMicking, the Court enumerated the badges of fraud as follows: 1. The fact that the consideration of the conveyance is fictitious or is inadequate. 2. A transfer made by a debtor after suit has been begun and while it is pending against him . 3. A sale upon credit by an insolvent debtor. 4. Evidence of large indebtedness or complete insolvency. 5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially. 6. The fact that the transfer is made between father and son, when there are present other of the above circumstances. 7. The failure of the vendee to take exclusive possession of all the property. (Emphasis supplied) In Pepsi-Cola Bottling Co. v. NLRC, which involved the illegal dismissal of the employees of Pepsi-Cola Distributors of the Philippines (PCD), the Court has ruled that Pepsi-Cola Products Philippines, Inc. (PCPPI) which acquired the franchise of PCD is liable for the reinstatement of PCDs employees. The Court rejected PCPPIs argument that it is a company separate and distinct from PCD. The Court ruled that the complaint was filed when PCD was still in existence. Further, there was no evidence that PCPPI, as the new entity or purchasing company, was free from any liabilities incurred by PCD. In this case, PSTC was aware of the pendency of the case between Caltex and LUSTEVECO. PSTC assumed LUSTEVECOs obligations, including specifically any obligation that might arise from Caltexs suit against
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LUSTEVECO. The Agreement transferred the unencumbered assets of LUSTEVECO to PSTC, making any money judgment in favor of Caltex unenforceable against LUSTEVECO. To allow PSTC to renege on its obligation under the Agreement will allow PSTC to defraud Caltex. This militates against the statutory policy of protecting creditors from fraudulent contracts. Article 1313 of the Civil Code provides that "[c]reditors are protected in cases of contracts intended to defraud them." Further, Article 1381 of the Civil Code provides that contracts entered into in fraud of creditors may be 16 rescinded when the creditors cannot in any manner collect the claims due them. Article 1381 applies to contracts where the creditors are not parties, for such contracts are usually made without their knowledge. Thus, a creditor who is not a party to a contract can sue to rescind the contract to prevent fraud upon him. Or, the same creditor can instead choose to enforce the contract if a specific provision in the contract allows him to collect his claim, and thus protect him from fraud. If PSTC does not assume the obligations of LUSTEVECO as PSTC had committed under the Agreement, the creditors of LUSTEVECO could no longer collect the debts of LUSTEVECO. The assignment becomes a fraud on the part of PSTC, because PSTC would then have inveigled LUSTEVECO to transfer the assets on the promise to pay LUSTEVECOs creditors. However, after taking over the assets, PSTC would now turn around and renege on its promise. The Agreement, under Article 1291 of the Civil Code, is also a novation of LUSTEVECOs obligations by substituting the person of the debtor. Under Article 1293 of the Civil Code, a novation which consists in substituting a new debtor in place of the original debtor cannot be made without the consent of the 18 creditor. Here, since the Agreement novated the debt without the knowledge and consent of Caltex, the Agreement cannot prejudice Caltex. Thus, the assets that LUSTEVECO transferred to PSTC in consideration, among others, of the novation, or the value of such assets, remain even in the hands of PSTC subject to execution to satisfy the judgment claim of Caltex. Caltex is a Real Party in Interest Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides: SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. Ordinarily, one who is not a privy to a contract may not bring an action to enforce it. However, this case falls under the exception. In Oco v. Limbaring, we ruled: The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only the contracting parties are bound by the stipulation in the contract; they are the ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to ones benefit. As an exception, parties who have not taken part in a contract may show that they have a real interest affected by its performance or annulment. In other words, those who are not principally or subsidiarily obligated in a 19 contract, in which they had no intervention, may show their detriment that could result from it . x x x (Emphasis supplied) Caltex may enforce its cause of action against PSTC because PSTC expressly assumed all the obligations of LUSVETECO pertaining to its tanker and bulk business and specifically, those relating to AC-G.R. CV No. 62613.
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While Caltex is not a party to the Agreement, it has a real interest in the performance of PSTCs obligations under the Agreement because the non-performance of PSTCs obligations will defraud Caltex. Even if PSTC did not expressly assume to pay the creditors of LUSTEVECO, PSTC would still be liable to Caltex up to the value of the assets transferred. The transfer of all or substantially all of the unencumbered assets of LUSTEVECO to PSTC cannot work to defraud the creditors of LUSTEVECO. A creditor has a real interest to go after any person to whom the debtor fraudulently transferred its assets. WHEREFORE, we REVERSE and SET ASIDE the 31 May 2001 Decision and 9 November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 46097. We AFFIRM the 1 June 1994 Decision of the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-59512. Costs against respondent. SO ORDERED.

CASE 9 G.R. No. 147905 May 28, 2007

B. VAN ZUIDEN BROS., LTD., Petitioner, vs. GTVL MANUFACTURING INDUSTRIES, INC., Respondent. DECISION CARPIO, J.: The Case Before the Court is a petition for review of the 18 April 2001 Decision of the Court of Appeals in CA-G.R. CV No. 3 66236. The Court of Appeals affirmed the Order of the Regional Trial Court, Branch 258, Paraaque City (trial court) dismissing the complaint for sum of money filed by B. Van Zuiden Bros., Ltd. (petitioner) against GTVL Manufacturing Industries, Inc. (respondent). The Facts On 13 July 1999, petitioner filed a complaint for sum of money against respondent, docketed as Civil Case No. 990249. The pertinent portions of the complaint read: 1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x ZUIDEN is not engaged in business in the Philippines, but is suing before the Philippine Courts, for the reasons hereinafter stated. xxxx 3. ZUIDEN is engaged in the importation and exportation of several products, including lace products. 4. On several occasions, GTVL purchased lace products from [ZUIDEN].
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5. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd. (KENZAR), x x x and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by GTVL. KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever instructions GTVL had on the matter. Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the transaction is concluded; and GTVL became obligated to pay the agreed purchase price. xxxx 7. However, commencing October 31, 1994 up to the present, GTVL has failed and refused to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, as above-mentioned. xxxx 9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of liability, GTVL has failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02 4 [inclusive of interest]. Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without securing the required license. Accordingly, petitioner cannot sue before Philippine courts. After an exchange of several pleadings between the parties, the trial court issued an Order on 10 November 1999 dismissing the complaint. On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint. Hence, this petition. The Court of Appeals Ruling In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte., Ltd. v. Court of Appeals. In that case, Eriks, an unlicensed foreign corporation, sought to collect US$41,939.63 from a Filipino businessman for goods which he purchased and received on several occasions from January to May 1989. The transfers of goods took place in Singapore, for the Filipinos account, F.O.B. Singapore, with a 90 -day credit term. Since the transactions involved were not isolated, this Court found Eriks to be doing business in the Philippines. Hence, this Court upheld the dismissal of the complaint on the ground that Eriks has no capacity to sue. The Court of Appeals noted that in Eriks, while the deliveries of the goods were perfected in Singapore, this Court still found Eriks to be engaged in business in the Philippines. Thus, the Court of Appeals concluded that the place of delivery of the goods (or the place where the transaction took place) is not material in determining whether a foreign corporation is doing business in the Philippines. The Court of Appeals held that what is material are the proponents to the transaction, as well as the parties to be benefited and obligated by the transaction. In this case, the Court of Appeals found that the parties entered into a contract of sale whereby petitioner sold lace products to respondent in a series of transactions. While petitioner delivered the goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong Kong company, the party with whom petitioner transacted was actually respondent, a Philippine corporation, and not Kenzar. The Court of Appeals believed Kenzar is merely a shipping
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company. The Court of Appeals concluded that the delivery of the goods in Hong Kong did not exempt petitioner from being considered as doing business in the Philippines. The Issue The sole issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. The resolution of this issue depends on whether petitioner is doing business in the Philippines. The Ruling of the Court The petition is meritorious. Section 133 of the Corporation Code provides: Doing business without license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. In the present controversy, petitioner is a foreign corporation which claims that it is not doing business in the Philippines. As such, it needs no license to institute a collection suit against respondent before Philippine courts. Respondent argues otherwise. Respondent insists that petitioner is doing business in the Philippines without the required license. Hence, petitioner has no legal capacity to sue before Philippine courts. Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments Act of 1991," the phrase "doing business" includes: x x x soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. The series of transactions between petitioner and respondent cannot be classified as "doing business" in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as "doing business" in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and respondent entered into a

series of transactions implying a continuity of commercial dealings, the perfection and consummation of these 8 transactions were done outside the Philippines. In its complaint, petitioner alleged that it is engaged in the importation and exportation of several products, including lace products. Petitioner asserted that on several occasions, respondent purchased lace products from it. Petitioner also claimed that respondent instructed it to deliver the purchased goods to Kenzar, which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the lace products to the Philippines. In other words, the sale of lace products was consummated in Hong Kong. As earlier stated, the series of transactions between petitioner and respondent transpired and were consummated 9 in Hong Kong. We also find no single activity which petitioner performed here in the Philippines pursuant to its 10 purpose and object as a business organization. Moreover, petitioners desire to do business within the Philippines is not discernible from the allegations of the complaint or from its attachments. Therefore, there is no basis for ruling that petitioner is doing business in the Philippines. In Eriks, respondent therein alleged the existence of a distributorship agreement between him and the foreign corporation. If duly established, such distributorship agreement could support respondents claim that petitioner was indeed doing business in the Philippines. Here, there is no such or similar agreement between petitioner and respondent. We disagree with the Court of Appeals ruling that the proponents to the transaction determine whether a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place where the transaction took place. To accede to such theory makes it possible to classify, for instance, a series of transactions between a Filipino in the United States and an American company based in the United States as "doing business in the Philippines," even when these transactions are negotiated and consummated only within the United States. An exporter in one country may export its products to many foreign importing countries without performing in the importing countries specific commercial acts that would constitute doing business in the importing countries. The mere act of exporting from ones own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country. The importing country does not acquire jurisdiction over the foreign exporter who has not performed any specific commercial act within the territory of the importing country. Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do business in the importing country. Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have a deleterious effect not only on Philippine exports, but also on global trade. To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.

Considering that petitioner is not doing business in the Philippines, it does not need a license in order to initiate and maintain a collection suit against respondent for the unpaid balance of respondents purchases. WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April 2001 of the Court of Appeals in CAG.R. CV No. 66236. No costs. SO ORDERED.

CASE 10 G.R. No. 157911 September 19, 2006

SPOUSES MANUEL A. AGUILAR and YOLANDA C. AGUILAR, petitioners, vs. THE MANILA BANKING CORPORATION, respondent. DECISION AUSTRIA-MARTINEZ, J.: The sad and lamentable spectacle that this case presents, that is, the execution of a final and executory decision forestalled by perpetual dilatory tactics employed by a litigant, makes a blatant mockery of justice. The Court cannot countenance, and in fact, condemns, the outrageous abuse of the judicial process by Spouses Manuel A. Aguilar and Yolanda C. Aguilar (petitioners) and their counsel. Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing 1 the Decision dated October 29, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 71849 which dismissed 2 petitioners' Petition for Certiorari, and the CA Resolution dated April 29, 2003 which denied petitioners' Motion for Reconsideration. The procedural antecedents and factual background of the case are as follows: Sometime in 1979, petitioners obtained a P600,000.00 loan from the Manila Banking Corporation (respondent), secured by a real estate mortgage over their 419-square meter property located at No. 8 Pia St., Valle Verde, Pasig City, covered by Transfer Certificate of Title (TCT) No. 11082. When petitioners failed to pay their obligation, the mortgaged property was extra-judicially foreclosed. Respondent was the winning bidder at public auction sale on May 20, 1982. Consequently, a Certificate of Sale was issued in its favor on June 23, 1982. Subsequently, on May 30, 1983, instead of redeeming the property, petitioners filed a complaint for annulment of the foreclosure sale of the property before the Regional Trial Court, Branch 165, Pasig City (RTC Branch 165), 3 docketed as Civil Case No. 49793. While the case was pending, the parties entered into a compromise agreement. Under the Compromise Agreement dated January 23, 1987, the petitioners admitted the validity of the extrajudicial foreclosure and agreed to purchase the property from respondent for P2,548,000.00. Parties agreed that the amount of P100,000.00 shall be payable upon execution of the agreement and the balance of P2,448,000.00, which shall earn twenty-six per cent (26%) interest per annum, shall be payable in eighteen installments from February 23, 1987 to July 27, 1988. They further agreed that in case of default: (a) all outstanding installments and/or interest thereon shall be immediately due; (b) petitioners shall immediately vacate the property and deliver possession thereof to respondent; (c) respondent shall be entitled to register all documents needed to transfer

title over the property in their favor; and, (d) respondent shall be entitled to ask for the execution of the judgment or an ancillary remedy necessary to place it in possession of the property. On January 30, 1987, RTC Branch 165 4 adopted and approved the Compromise Agreement. Petitioners failed to pay the balance of P2,448,000.00 within the eighteen-installment period from February 23, 1987 to July 27, 1988. A year and three months later, or on October 20, 1989, respondent filed a Motion for 5 Issuance of Writ of Execution to enforce the Decision dated January 30, 1987. On November 28, 1989, RTC Branch 165 issued an Order granting the motion and issuing a writ of execution: (a) directing petitioners to immediately vacate the property and surrender possession to the respondent; (b) directing the Register of Deeds of Metro Manila, District II to register any and all documents needed to transfer title over the property to respondent and to issue a new certificate of title respondent's favor free from any liens, adverse claims and/or encumbrances; (c) issuing a writ of possession in respondent's favor to place it in possession of the 6 property. However, on January 22, 1990, petitioners filed a Manifestation praying for deferment of the enforcement of the writ of execution until July 31, 1990 because petitioners have a pending proposal for the settlement of their 7 8 judgment debt. The manifestation was with the conformity of respondents. On January 24, 1990, RTC Branch 165 issued an Order granting the motion and holding in abeyance the enforcement of the writ of execution until July 9 31, 1990. However, no settlement was reached by the parties during the period. One year and four months later, petitioners still failed to settle their judgment debt. Consequently, respondent 10 filed on December 2, 1991 a Manifestation reiterating its motion for the issuance of a writ of execution. On December 5, 1991, RTC Branch 165 issued an Order granting the manifestation and directing the issuance of a writ 11 of execution to enforce the Decision dated January 30, 1987. To evade the implementation of the writ, petitioners filed on December 20, 1991 an Ex-Parte Motion to Recall the Court's Order dated December 5, 1991 claiming that their obligation was novated by the Letter dated June 7, 1991 12 from respondent's Statutory Receiver. In said letter, respondent's Statutory Receiver approved the purchase of the property on installment basis over a three-year period at an interest rate of twelve per cent (12%) withP481,265.00 due on September 30, 1991, P481,265.00 due on September 30, 1992, and P724,064.79 due on 13 September 30, 1993. On December 2, 1992, respondent filed a Manifestation and Motion for Issuance of Alias Writ of Execution manifesting that the Letter dated June 7, 1991 did not novate the Decision dated January 30, 1987 but was a mere accommodation of the petitioners' request for a liberal mode of payment of their account and petitioners still 14 failed to comply with such approved mode of payment. On December 14, 1992, petitioners filed their Comment and Manifestation praying for a humanitarian and liberal judicial dispensation since that they have been paying their obligations to respondent despite delay due to 15 "financial restraints for family subsistence and their children's educational expenses". On February 1, 2000, respondent filed an Urgent Ex-Parte Manifestation praying for resolution of the pending 16 incidents. On March 3, 2000, petitioners filed their Opposition claiming that Section 6, Rule 39 of the Rules of Court bars execution, by mere motions, of judgment which is more than five years old. On March 14, 2000, respondent filed its Reply stating that the peculiar circumstances of the case warrant its exclusion from the scope of said Rule. On March 20, 2000, RTC Branch 165 issued its Order which resolved the pending motions with the Court. With respect to petitioner's ex-parte motion to recall, the Court said that for failure to comply with Sections 4, 5 and 6 of Rule 15 of the Revised Rules of Court and considering the nature of petitioners' motion, it treated petitioner's

motion as a mere scrap of paper. As to respondent's motion for issuance of a writ of execution, it granted the same, holding that Section 6, Rule 39 of the Rules of Court does not apply since the delay in the execution of the judgment was due to petitioners who made several alternative payment proposals, requested several extensions of time to pay their account, filed dilatory motions and pleadings and it would be a blatant injustice to allow them to profit from the delays they deliberately caused to escape completely and absolutely the satisfaction of their 18 admitted and confessed obligation by sheer literal adherence to technicality. On March 30, 2000, petitioners filed their Motion for Reconsideration but RTC Branch 165 denied it in its Order 20 dated May 30, 2000. On June 20, 2000, petitioners filed a Notice of Appeal but RTC Branch 165 denied it in its Order dated August 21, 22 2000 on the ground that an order of execution is not appealable. Thereafter, petitioners filed a six-page Petition for Review on Certiorari with this Court, docketed as G.R. No. 144719, reiterating that the Decision dated January 30, 1987 can no longer be executed on mere motion since it is 23 more than five years old. In a Resolution dated October 11, 2000, the First Division of this Court denied the petition for violation of the rule on hierarchy of courts and failure to show special and important reasons or exceptional and compelling 24 circumstances that justify a disregard of the rule. Petitioners filed a Motion for Reconsideration but the Court 25 denied it with finality in its Resolution dated December 11, 2000. Since the Resolution in G.R. No. 144719 became final and executory on January 16, 2001, RTC Branch 165 issued a 26 writ of execution on February 19, 2001 to enforce the Decision dated January 30, 1987. On February 23, 2001, 27 the Sheriff issued a Notice for Compliance of the said writ. Undaunted by their previous setbacks, petitioners filed on March 6, 2001 in RTC Branch 165 an Omnibus Motion to 28 quash the Writ of Execution insisting anew on their novation and prescription theories. They also moved for consignation of the amount of their obligation under the Letter dated June 7, 1991 of respondent's Statutory Receiver. On March 14, 2001, respondent filed an Ex-Parte Motion for Order to Divest Plaintiffs' Title and to Direct the 29 Register of Deeds to Transfer Title to Defendant based on Section 10, Rule 39 of the 1997 Rules of Civil Procedure. On March 19, 2001, respondent filed its Opposition (to petitioners' Omnibus Motion) and Motion to Cite Plaintiffs in Contempt claiming that the Omnibus Motion is nothing but petitioners' desperate attempt to thwart or delay the payment of their obligations and they should be declared guilty of indirect contempt for their 30 improper conduct calculated to impede, obstruct and degrade the administration of justice. On May 2, 2001, petitioners filed an Urgent Motion for Inhibition. While RTC Branch 165 Presiding Judge Marietta A. Legaspi denied the motion for inhibition in her Order dated June 5, 2001, she voluntarily inhibited 32 herself from further participating in the case to show that she has no interest therein. Respondent filed a Motion 33 34 for Partial Reconsideration to no avail. The case was re-raffled and was assigned to Branch 268 presided by Judge Amelia C. Manalastas. On September 17, 2001 and January 4, 2002, respondent filed two Motions to Resolve Pending Incidents. Despite the fact that Judge Manalastas has not actively participated in the case since she has not acted on the pending 36 incidents, petitioners filed on February 5, 2002 a Motion for Inhibition. A day later, on February 6, 2002, Judge 37 Manalastas granted the motion for inhibition. Thus, the case was again re-raffled and was assigned to Branch 167 presided by Judge Jesus G. Bersamira. On February 13, 2002, respondent filed again a Motion to Resolve Pending 38 Incidents.
35 31 21 19

17

On March 22 and 26, 2002, both parties filed separate Urgent Motions to Resolve the case. Subsequently, 40 petitioners filed a Manifestation and Motion that the Letter dated June 7, 1991 be marked as their exhibit. RTC 41 Branch 167 in its Order dated April 30, 2002 admitted the exhibit over the objections of respondent. On May 24, 2002, RTC Branch 167 rendered its Omnibus Order denying the Omnibus Motion to quash the writ of execution and for consignation, as well as the motion to cite petitioners in contempt and the ex parte motion for an order to divest petitioners' title to respondent. It held that there was no novation because there was no incompatibility between the Letter dated June 7, 1991 and the Decision dated January 30, 1987 with the former only providing for a more liberal scheme of payment and grant of reduced interest; that petitioners' claim that respondent's receivership and the Letter dated June 7, 1991 are supervening events which rendered the execution unjust and impossible is unavailing since there is nothing on record to indicate that such circumstances resulted in unfairness and injustice to petitioners if execution of judgment is carried out; that petitioner's claim that the judgment could no longer be executed by mere motion after the five-year period had elapsed from its finality is specious since any interruption or delay occasioned by petitioners will extend the time within which the judgment 42 may be executed by motion. No motion for reconsideration was filed by the petitioners. Accordingly, RTC Branch 167 issued a Writ of Execution 43 44 on July 4, 2002. On July 23, 2002, the Sheriff issued the Notice for Compliance of the said writ. Petitioners filed on July 26, 2002 a petition for certiorari with the CA, docketed as CA-G.R. SP No. 71849. They reiterated that the Decision dated January 30, 1987 cannot be executed by mere motion filed on February 1, 2000 since more than five years have elapsed. On October 29, 2002, the CA denied the petition for certiorari. It held that since the delays were occasioned by petitioners' own initiative and for their own advantage, the five-year period allowed for the enforcement of the judgment by motion have been interrupted or suspended. On November 13, 2002, petitioners filed a Motion for Reconsideration but the CA denied it in its Resolution 48 dated April 29, 2003. Hence, the present petition anchored on the following grounds: 1. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT PRESCRIPTION HAS SET IN IN THIS CASE CONSIDERING THAT MORE THAN FIVE (5) YEARS, NAY, MORE THAN TEN (10) YEARS, HAD ELAPSED SINCE THE DECISION BASED ON COMPROMISE AGREEMENT BECAME FINAL AND EXECUTORY. 2. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT EVENTS AND CIRCUMSTANCES IN THIS CASE HAVE TRANSPIRED AFTER THE DECISION HAD BECOME FINAL AND EXECUTORY THAT WARRANTS AND CALLS FOR STAY OR PRECLUSION OF EXECUTION, CONSIDERING THAT THE LETTER-APPROVAL OF THE STATUTORY RECEIVER OF RESPONDENT PARTAKES OF AN EXCEPTION TO THE GENERAL RULE WHICH HAS BEEN CONSISTENTLY UPHELD BY THIS HONORABLE SUPREME COURT. 3. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT THE LETTER APPROVAL OF THE STATUTORY RECEIVER NOVATED THE COMPROMISE AGREEMENT AND DECISION BASED ON COMPROMISE AGREEMENT. 4. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT THE EQUITIES OF THE CASE 49 FAVOR HEREIN PETITIONERS. Anent the first ground, petitioners reiterate that under Section 6 of Rule 39, Rules of Court, the execution of the judgment by mere motion was barred by prescription, given that more than five years had lapsed since the
47 46 45

39

Decision dated January 30, 1987 became final and executory and they cannot be faulted for the delay as they have done nothing that warrants the conclusion that they employed unscrupulous machinations and dilatory tactics. As to the second ground, petitioners argue that respondent's receivership is a supervening event that rendered execution of the Decision dated January 30, 1987 impossible, if not unjust; that since a bank under receivership is relieved of its obligation to pay interest on the deposits of its depositors, they (petitioners) are also not obliged to pay interest on a loan due it and interest shall commence again only after respondent's resumption of banking operations. On the third ground, petitioners maintain that the Letter dated June 7, 1991 of respondent's Statutory Receiver novated the Decision dated January 30, 1987 considering the substantial differences in their principal terms and conditions. On the fourth ground, petitioners aver that the acceleration clause provision of the Compromise Agreement is iniquitous and void for being violative of morals and public policy. In their Comment, respondent contends that the present petition should be dismissed outright because it is barred byres judicata or the final judgment of this Court in G.R. No. 144719 and petitioners engaged in forum-shopping by deliberately failing to state that they previously filed G.R. No. 144719 where the issue of prescription was raised. Even if the petition is given due course, respondent argues that execution of the Decision dated January 30, 1987 is not barred by prescription; that respondent's receivership and the Letter dated June 7, 1991 of respondent's Statutory Receiver are not circumstances that would render the execution of the judgment unjust, inequitable or even merit a stay of execution; that the Letter dated June 7, 1991 of respondent's Statutory Receiver did not 50 novate the Decision dated January 30, 1987 since there was no intent to novate petitioners' judgment obligation. In Reply, petitioners argue that res judicata is not applicable since the minute Resolution of the Court in G.R. No. 144719: (a) does not operate as adjudication on the merits, (b) was not rendered with jurisdiction over the parties; 51 and (c) involved different subject matters and causes of action. In the Resolution dated May 15, 2003, upon motion of petitioner, the Court directed the parties to maintain 52 thestatus quo until further orders from this Court. The petition is bereft of merit. Prefatorily, the Court notes that the petition for certiorari before the CA should have been dismissed outright since petitioners failed to file a motion for reconsideration from the RTC Omnibus Order dated May 24, 2002. Section 1 of Rule 65 of the 1997 Rules of Civil Procedure provides: SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of his jurisdiction, or with grave abuse of discretion amounting to lack of or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of the law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. (Emphasis supplied) The plain and adequate remedy referred to in the rule is a motion for reconsideration of the assailed decision or order. The purpose for this requirement is to grant an opportunity for the court or agency to correct any actual or 53 perceived error attributed to it by the re-examination of the legal and factual circumstances of the case without 54 the intervention of a higher court. Thus, the filing of a motion for reconsideration is a condition sine qua non to the institution of a special civil action for certiorari.

While jurisprudence has recognized several exceptions to the rule, such as: (a) where the order is a patent nullity, as where the court a quo has no jurisdiction; (b) where the questions raised in the certiorari proceedings have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings was ex parte or in which the petitioner had no opportunity to object; and (i) where the issue raised is one purely of law or where public interest is 55 involved, none of these exceptions apply here. In the present case, the petitioners not only failed to explain their failure to file a motion for reconsideration before the RTC, they also failed to show sufficient justification for dispensing with the requirement. A motion for reconsideration is not only expected to be but would actually have provided an adequate and more speedy 56 remedy than the petition for certiorari. Certiorari cannot be resorted to as a shield from the adverse 57 consequences of petitioners' own omission to file the required motion for reconsideration. In any case, even if petitioners' procedural faux pas is ignored, their contentions on the substantive aspect of the case fail to invite judgment in their favor. Petitioners are barred from raising the issue on the prescription of execution of the decision by mere motion under the principle of the "law of the case," which is the practice of courts in refusing to reopen what has been decided. It means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so 58 long as the facts on which such decision was predicated continue to be the facts of the case before the court. The law of the case on the issue of prescription of the execution of the decision by mere motion or applicability of Section 6, Rule 39 of the Rules of Court has been settled in the Order dated March 20, 2000 of RTC Branch 165. Upon denial of petitioner's motion for reconsideration, they erroneously sought review with this Court which dismissed their petition for review on certiorari for violation of the rule on hierarchy of courts and for failure to show special and important reasons or exceptional and compelling circumstances that justify a disregard of the 59 rule. This Court's Resolution became final and executory on January 16, 2001. Thus, petitioners are bound thereby. The question of prescription has been settled with finality and may no longer be resurrected by petitioners. It is not subject to review or reversal in any court, even this Court. The CA failed to consider this principle of law of the case, which is totally different from the concept of res 60 judicata. In Padillo v. Court of Appeals, the Court distinguished the two as follows: x x x Law of the case does not have the finality of the doctrine of res judicata, and applies only to that one case, whereas res judicata forecloses parties or privies in one case by what has been done in another case. In the 1975 case of Comilang v. Court of Appeals (Fifth Division.), a further distinction was made in this manner: The doctrine of law of the case is akin to that of former adjudication, but is more limited in its application. It relates entirely to questions of law, and is confined in its operation to subsequent proceedings in the same case. The doctrine of res judicata differs therefrom in that it is applicable to the conclusive determination of issues of fact, although it may include questions of law, and although it may apply to collateral proceedings in the same action or general proceeding, it is generally concerned with the effect of an adjudication in a wholly independent 61 proceeding.

To elucidate further, res judicata or bar by prior judgment is a doctrine which holds that a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it 62 arises in any subsequent litigation between the same parties and for the same cause. The four requisites forres judicata to apply are: (a) the former judgment or order must be final; (b) it must have been rendered by a court having jurisdiction over the subject matter and the parties; (c) it must be a judgment or an order on the merits; and (d) there must be, between the first and the second actions, identity of parties, of subject matter and of 63 cause of action. The fourth requisite is wanting in the present case. There is only one case involved. There is no second independent proceeding or subsequent litigation between the parties. The present petition concerns subsequent proceedings in the same case, with petitioners raising the same issue long settled by a prior appeal. On the matter of forum shopping, while the Court has held that forum shopping exists only where the elements 64 of litis pendentia are present or where a final judgment in one case will amount to res judicata in another, it must be recalled that the doctrines of law of the case and res judicata are founded on a public policy against reopening 65 that which has previously been decided. Both doctrines share the policy consideration of putting an end to 66 litigation. Thus, the principle of forum shopping should apply by analogy to a case involving the principle of law of the case. Moreover, although forum shopping exists when, as a result of an adverse opinion in one forum, a party seeks a favorable opinion, other than by appeal or certiorari, in another, or when a party institutes two or more suits indifferent courts, either simultaneously or successively, in order to ask the courts to rule on the same or related causes and/or to grant the same or substantially the same reliefs on the supposition that one or the other courtwould make a favorable disposition or increase a party's chances of obtaining a favorable decision or 67 action, the peculiar circumstances attendant in this case bate out a situation akin to forum shopping - there is only one court involved, RTC Pasig City, but the issue of prescription was ultimately resolved by two different branches thereof Branches 165 and 167. Petitioners first raised before RTC Branch 165 the issue of prescription of the execution of the decision by mere motion. Said RTC Branch 165 ruled against petitioners and the court's order thereon became final and executory. Petitioners raised the issue again in an Omnibus Motion with the same RTC Branch 165. However, they moved for the inhibition of the presiding judge hearing the issue not only once, but twice, both motions granted in their favor and the case was successively raffled and assigned to two different branches of RTC Pasig, first to Branch 268 and then to Branch 167, which ruled against petitioners. Through the motions for inhibition of the presiding judges and the assignment of the case to different branches of the same court, petitioners sought to obtain from one branch a ruling more favorable than the ruling of another branch. They deliberately sought a friendly branch of the same court to grant them the relief that they wanted, despite the finality of the resolution of one branch on the matter. This is a permutation of forum shopping. It trifles 68 with the courts, abuses their processes, degrades the administration of justice, and congests court dockets. Be it remembered that the grave evil sought to be avoided by the rules against forum shopping is the rendition by two competent tribunals of two separate, and contradictory decisions. Unscrupulous party-litigants, taking advantage of a variety of competent tribunals, may repeatedly try their luck in several different fora until a 69 favorable result is reached. This would make a complete mockery of the judicial system. As to petitioners' arguments on the inequity of the acceleration clause of the Compromise Agreement, respondent's receivership as a supervening event, and novation of the Compromise Agreement by the Letter dated June 7, 1991, the Court holds that these were raised as mere afterthought. If petitioners sincerely believed in the merits of their arguments, they should have raised them at the earliest opportunity and pursued their ultimate resolution. However, petitioners did not.

Petitioners are barred from raising arguments concerning the inequity of the acceleration clause of the 70 Compromise Agreement since they only raised it for the first time before the CA in their Petition for Certiorari in CA-G.R. SP No. 71849. To consider the argument raised belatedly in a pleading filed in the appellate court, especially in the executory stage of the proceedings, would amount to trampling on the basic principles of fair play, justice and due process. In addition, after adopting and agreeing to the terms and conditions of the Compromise Agreement, petitioners cannot be permitted to subsequently make a complete volte face and attack the validity of the said agreement when they miserably failed to comply with its provisions. Our law and policy do not sanction such a somersault. What's more, petitioners also failed to comply with the reduced purchase amount and interest rate granted in the Letter dated June 7, 1991. They can hardly evoke judicial compassion. On the arguments relating to the effect of respondent's receivership, petitioners brought this matter for the first time in RTC Branch 165 in their Omnibus Motion dated March 5, 2001, fourteen years after respondent was placed under receivership and was ordered to close operation in 1987. The belated invocation of such circumstance speaks strongly of the staleness of their claim. Besides, it would be absurd to adopt petitioners' position that they are not obliged to pay interest on their obligation when respondent was placed under receivership. When a bank is placed under receivership, it would only not be able to do new business, that is, to grant new loans or to accept new deposits. However, the receiver of the bank is in fact obliged to collect debts owing to the bank, which debts form part of the assets of the 71 bank. Thus, petitioners' obligation to pay interest subsists even when respondent was placed under receivership. The respondent's receivership is an extraneous circumstance and has no effect on petitioners' obligation. On the claim of novation, petitioners raised it for the first time before RTC Branch 165 in their Ex-Parte Motion to 72 Recall the Court's Order dated December 5, 1991 but they did not pursue the matter after their ex-parte motion was denied. They did not raise said issue in their motion for reconsideration or in their first petition for review on certiorari with this Court in G.R. No. 144719. Thus, they are deemed to have abandoned their claim of novation. They cannot be allowed to revive the issue as it is offensive to basic rules of fair play, justice and due process. Moreover, the Court cannot see how novation can take place considering that the surrounding circumstances negate the same. The established rule is that novation is never presumed; it must be clearly and unequivocally 73 shown. Novation will not be allowed unless it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation expressly declares that the old 74 obligation is thereby extinguished or that the new obligation be on every point incompatible with the new one. In the present case, there is no clear intent of the parties to make the Letter dated June 7, 1991 completely supersede and abolish the Compromise Agreement adopted and approved by the RTC in its Decision dated January 30, 1987. Petitioners were merely granted a more liberal scheme of payment and reduced rate of interest but the conditions relating to the consequences of default in payment remained, such that when petitioners' failed to comply with the approved mode of payment in the Letter dated June 7, 1991, respondents were entitled to call for enforcement of the Decision dated January 30, 1987 and eject petitioners from the property. The well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the 75 old ones, or the new contract merely supplements the old one. Hence, there is no merit to petitioners' claim of novation. Without a doubt, the present case is an instance where the due process routine vigorously pursued by petitioners is but a clear-cut devise meant to perpetually forestall execution of an otherwise final and executory decision. Aside from clogging court dockets, the strategy is deplorably a common course resorted to by losing litigants in the hope of evading manifest obligations. The Court condemns this outrageous abuse of the judicial process by the petitioners and their counsels.

It is an important fundamental principle in the judicial system that every litigation must come to an end. Access to the courts is guaranteed. But there must be a limit thereto. Once a litigant's rights have been adjudicated in a valid and final judgment of a competent court, he should not be granted an unbridled license to come back for another try. The prevailing party should not be harassed by subsequent suits. For, if endless litigations were to be 76 encouraged, then unscrupulous litigants will multiply to the detriment of the administration of justice. The Court reminds petitioners' counsel of the duty of lawyers who, as officers of the court, must see to it that the orderly administration of justice must not be unduly impeded. It is the duty of a counsel to advise his client, ordinarily a layman on the intricacies and vagaries of the law, on the merit or lack of merit of his case. If he finds that his client's cause is defenseless, then it is his bounden duty to advise the latter to acquiesce and submit, rather than traverse the incontrovertible. A lawyer must resist the whims and caprices of his client, and temper his client's propensity to litigate. A lawyer's oath to uphold the cause of justice is superior to his duty to his client; its 77 primacy is indisputable. There should be a greater awareness on the part of litigants and counsels that the time of the judiciary, much more so of this Court, is too valuable to be wasted or frittered away by efforts, far from commendable, to evade the operation of a decision final and executory, especially so, where, as shown in the present case, the clear and manifest absence of any right calling for vindication, is quite obvious and indisputable. Verily, by the undue delay in the execution of a final judgment in their favor, respondents have suffered an injustice. The Court views with disfavor the unjustified delay in the enforcement of the final decision and orders in the present case. Once a judgment becomes final and executory, the prevailing party should not be denied the 78 fruits of his victory by some subterfuge devised by the losing party. Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing justiciable controversies with finality. WHEREFORE, the present petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CAG.R. SP No. 71849 are AFFIRMED. The status quo order issued by this Court on May 15, 2003 is LIFTED. The Regional Trial Court, Branch 167, Pasig City, is directed to issue the corresponding writ of execution and the Sheriff of the court is ordered to enforce the same to its ultimate conclusion. Triple costs against petitioners. SO ORDERED.

CASE 11 G.R. No. 167434 February 19, 2007 SPOUSES RAMON M. NISCE and A. NATIVIDAD PARAS-NISCE, Petitioners, vs. EQUITABLE PCI BANK, INC., Respondent.

DECISION CALLEJO, SR., J.:

On November 26, 2002, Equitable PCI Bank (Bank) as creditor-mortgagee filed a petition for extrajudicial foreclosure before the Office of the Clerk of Court as Ex-Officio Sheriff of the Regional Trial Court (RTC) of Makati City. It sought to foreclose the following real estate mortgage contracts executed by the spouses Ramon and Natividad Nisce over two parcels of land covered by Transfer Certificate of Title (TCT) Nos. S-83466 and S-83467 of the Registry of Deeds of Rizal: one dated February 26, 1974; two (2) sets of "Additional Real Estate Mortgage" dated September 27, 1978 and June 3, 1996; and an "Amendment to Real Estate Mortgage" dated February 28, 2000. The mortgage contracts were executed by the spouses Nisce to secure their obligation under Promissory Note Nos. 1042793 and BD-150369, including a Suretyship Agreement executed by Natividad. The obligation of the Nisce spouses totaled P34,087,725.76 broken down as follows: Spouses Ramon & Natividad Nisce - - - - - P17,422,285.99 Natividad P. Nisce (surety) - - - - - - - - - - US$57,306.59 and - - - - - - - - - - - - P16,665,439.77
2

On December 2, 2002, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on January 14, 2003, or on January 30, 2003 in the event the public auction would not take place on the earlier setting. On January 28, 2003, the Nisce spouses filed before the RTC of Makati City a complaint for "nullity of the Suretyship Agreement, damages and legal compensation" with prayer for injunctive relief against the Bank and the 4 Ex-Officio Sheriff. They alleged the following: in a letter dated December 7, 2000 they had requested the bank (through their lawyer-son Atty. Rosanno P. Nisce) to setoff the peso equivalent of their obligation against their US dollar account with PCI Capital Asia Limited (Hong Kong), a subsidiary of the Bank, under Certificate Deposit No. 5 6 01612 and Account No. 090-0104 (Passbook No. 83-3041); the Bank accepted their offer and requested for an estimate of the balance of their account; they complied with the Banks request and in a letter dated February 11 , 2002, informed it that the estimated balance of their account as of December 1991 (including the 11.875% per 7 annum interest) was US$51,000.42, and that as of December 2002, Natividads US dollar deposit with it amounted to at least P9,000,000.00; they were surprised when they received a letter from the Bank demanding payment of their loan account, and later a petition for extrajudicial foreclosure. The spouses Nisce also pointed out that the petition for foreclosure filed by the Bank included the alleged obligation of Natividad as surety for the loan of Vista Norte Trading Corporation, a company owned and managed by their son Dino Giovanni P. Nisce (P16,665,439.77 and US$57,306.59). They insisted, however, that the suretyship agreement was null and void for the following reasons: (a) x x x [I]t was executed without the knowledge and consent of plaintiff Ramon M. Nisce, who is by law the administrator of the conjugal partnership; (b) The suretyship agreement did not redound to the benefit of the conjugal partnership and therefore did not bind the same; (c) Assuming, arguendo, that the suretyship contract was valid and binding, any obligation arising therefrom is not covered by plaintiffs real estate mortgages which were constituted to secure the 8 payment of certain specific obligations only. The spouses Nisce likewise alleged that since they and the Bank were creditors and debtors with respect to each other, their obligations should have been offset by legal compensation to the extent of their account with the Bank.

To support their plea for a writ of preliminary and prohibitory injunction, the spouses Nisce alleged that the amount for which their property was being sold at public auction (P34,087,725.76) was grossly excessive; the US dollar deposit of Natividad with PCI Capital Asia Ltd. (Hong Kong), and the obligation covered by the suretyship agreement had not been deducted. They insisted that their property rights would be violated if the sale at public auction would push through. Thus, the spouses Nisce prayed that they be granted the following reliefs: (1) that upon the filing of this Complaint and/or after due notice and summary hearing, the Honorable Court immediately issue a temporary restraining order (TRO) restraining defendants, their representatives and/or deputies, and other persons acting for and on their behalf from proceeding with the extrajudicial foreclosure sale of plaintiffs mortgaged properties on 30 January 2003 or on any other dates subsequent thereto; (2) that after due notice and hearing and posting of the appropriate bond, the Honorable Court convert the TRO to a writ of preliminary prohibitory injunction; (3) that after trial on the merits, the Honorable Court render judgment (a) making the preliminary injunction final and permanent; (b) ordering defendant Bank to set off the present peso value of Mrs. Nisces US dollar time deposit, inclusive of stipulated interest, against plaintiffs loan obligations with defendant Bank; (c) declaring the Deed of Suretyship dated 25 May 1998 null and valid and without any binding effect as to plaintiff spouses, and ordering defendant Bank to exclude the amounts covered by said suretyship contract from plaintiffs obligations with defendant Bank; (d) ordering defendant Bank to pay plaintiffs the following sums: (i) at least P3,000,000.00 as moral damages; (ii) at least P1,500,000.00 as exemplary damages; and (iii) at least P500,000.00 as attorneys fees and for other expenses of litigation. Plaintiffs further pray for costs of suit and such other reliefs as may be deemed just and equitable.
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On same day, the Bank filed an "Amended Petition" with the Office of the Executive Judge for extrajudicial foreclosure of the Real Estate Mortgage to satisfy the spouses loan account of P30,533,552.24, exclusive of interests, penalties and other charges; and the amounts of P16,665,439.77 and US$57,306.59 covered by the 10 suretyship agreement executed by Natividad Nisce. In the meantime, the parties agreed to have the sale at public auction reset to January 30, 2003. In its Answer to the complaint, the Bank alleged that the spouses had no cause of action for legal compensation since PCI Capital was a different corporation with a separate and distinct personality; if at all, offsetting may occur only with respect to the spouses US$500.00 deposit account in its Paseo de Roxas branch. In the meantime, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on March 5 and 27, 2003. The spouses Nisce then filed a Supplemental Complaint with plea for a temporary restraining order to enjoin the sale at
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public auction. Thereafter, the RTC conducted hearings on the plaintiffs plea for a temporary restraining order, and the parties adduced testimonial and documentary evidence on their respective arguments. The Case for the Spouses Nisce Natividad frequently traveled abroad and needed a facility with easy access to foreign exchange. She inquired from E.P. Nery, the Bank Manager for PCI Bank Paseo de Roxas Branch, about opening an account. He assured her that she would be able to access it from anywhere in the world. She and Nery also agreed that any balance of account remaining at maturity date would be rolled over until further instructions, or until she terminated the 13 facility. Convinced, Natividad deposited US$20,500.00 on July 19, 1984, and was issued Passbook No. 8314 3041. Upon her request, the bank transferred the US$20,000.00 to PCI Capital Asia Ltd. in Hong Kong via cable 15 order. On July 11, 1996, the spouses Nisce secured a P20,000,000.00 loan from the Bank under Promissory Note No. BD16 150369. The maturity date of the loan was July 11, 2001, payable in monthly installments at 16.731% interest per annum. To secure the payment of the loan account, they executed an Amendment to the Real Estate Mortgage 17 18 over the properties located in Makati City covered by TCT Nos. S-83466 and S-83467. They later secured another loan of P13,089,936.90 on March 1, 2000 (to mature on March 1, 2005) payable quarterly at 13.9869% 19 interest per annum; this loan agreement is evidenced by Promissory Note (PN) No. 1042793 and covered by a 20 Real Estate Mortgage executed on February 28, 2000. They made a partial payment of P13,866,666.50 on the 21 principal of their loan account covered by PN No. BD-150369, and P5,348,239.82 on the interests. These 22 payments are evidenced by receipts and checks. However, there were payments totaling P4,600,000.00 received 23 by the Bank but were not covered by checks or receipts. As of September 2000, the balance of their loan account 24 under PN No. BD-150369 was only P4,333,333.46. They also made partial payment on their loan account under 25 PN No. 1042793 which, as of May 30, 2001, amounted to P2,218,793.61. On July 20, 1984, PCI Capital issued Certificate of Deposit No. CD-01612; proof of receipt of the US$20,000.00 transferred to it by PCI Bank Paseo de Roxas Branch as requested by Natividad. The deposit account was to earn interest at the rate of 11.875% per annum, and would mature on October 22, 1984, thereafter to be payable at the office of the depositary in Hong Kong upon presentation of the Certificate of Deposit. In June 1991, two sons of the Nisce spouses were stranded in Hong Kong. Natividad called the Bank and requested for a partial release of her dollar deposit to her sons. However, she was informed that according to its computer records, no such dollar account existed. Sometime in November 1991, she submitted her US dollar passbook with a 27 xerox copy of the Certificate of Deposit for the PCIB to determine the whereabouts of the account. She reiterated 28 29 her request to the Bank on January 27, 1992 and September 11, 2000. In the meantime, in 1994, the Equitable Banking Corporation and the PCIB were merged under the corporate name Equitable PCI Bank. In a letter dated December 7, 2000, Natividad confirmed to the Bank, through Ms. Shellane R. Casaysayan, her offer to settle their loan account by offsetting the peso equivalent of her dollar account with PCI Capital under 30 Account No. 090-0104. Their son, Atty. Rosanno Nisce, later wrote the Bank, declaring that the estimated balance 31 of the US dollar account with PCI Capital as of December 1991 was US$51,000.42. Atty. Nisce corroborated this in 32 his testimony, and stated that Ms. Casaysayan had declared that she would refer the matter to her superiors. A certain Rene Esteven also told him that another offer to setoff his parents account had been accepted, and he was 33 assured that its implementation was being processed. On cross examination, Atty. Nisce declared that there was 34 no response to his request for setoff, and that Esteven assured him that the Bank would look for the records of 35 his mothers US dollar savings deposit. He was later told that the Bank had accepted the offer to setoff the 36 account.
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The Case for the Bank The Bank adduced evidence that, as of January 31, 2003, the balance of the spouses account under the two 37 promissory notes, including interest and penalties, was P30,533,552.24. It had agreed to restructure their loans 38 on March 31, 1998, but they nevertheless failed to pay despite repeated demands. The spouses had also been furnished with a statement of their account as of June 2001. Thus, under the terms of the Real Estate Mortgage and Promissory Notes, it had the right to the remedy of foreclosure. It insisted that there is no showing in its 39 records that the spouses had delivered checks amounting to P4,600,000.00. According to the Bank, Natividads US$20,000.00 deposit with the PCIB Paseo de Roxas branch was transferred to 40 41 PCI Capital via cable order, and that it later issued Certificate of Deposit No. 01612 (Non-transferrable). In a letter dated May 9, 2001, it informed Natividad that it had acted merely as a conduit in facilitating the transfer of the funds, and that her deposit was made with PCI Capital and not with PCIB. PCI Capital had a separate and distinct personality from the PCIB, and a claim against the former cannot be made against the latter. It was later 42 advised that PCI Capital had already ceased operations. The spouses Nisce presented rebuttal documentary evidence to show that PCI Capital was registered in Hong Kong 43 as a corporation under Registration No. 84555 on February 27, 1989 with an authorized capital stock of 50,000,000 (with par value of HKD1.00); the PCIB subscribed to 29,039,993 issued shares at the par value of 44 HKD1.00 per share; on October 25, 2004, the corporate name of PCI Capital was changed to PCI Express Padala 45 46 (HK) Ltd.; and the stockholdings of PCIB remained at 29,039,999 shares. On March 24, 2003, the RTC issued an Order granting the spouses Nisces plea for a writ of preliminary injunction on a bond of P10,000,000.00. The dispositive portion of the Order reads: WHEREFORE, in order not to render the judgment ineffectual, upon filing by the plaintiffs and the approval thereof by the court of a bond in the amount of Php10,000,000.00, which shall answer for any damage should the court finally decide that plaintiffs are not entitled thereto, let a writ of preliminary injunction issue enjoining defendants Equitable-PCI Bank, Atty. Engracio M. Escasinas, Jr., and any person or entity acting for and in their behalf from proceeding with the extrajudicial foreclosure sale of TCT Nos. 437678 and 437679 registered in the names of the 48 plaintiffs. After weighing the parties arguments along with their documentary evidence, the RTC declared that justice would be best served if a writ of preliminary injunction would be issued to preserve the status quo. It had yet to resolve the issue of setoff since only Natividad dealt with the Bank regarding her dollar account. It also had to resolve the issue of whether the Bank had failed to credit the amount of P4,600,000.00 to the spouses Nisces account under PN No. BD-150369, and their claim that the Bank had effectively accelerated the respective maturity dates of their 49 loan. The spouses Nisce posted the requisite bond which was approved by the RTC.1awphi1.net The Bank opted not to file a motion for reconsideration of the order, and instead assailed the trial courts order before the CA via petition for certiorari under Rule 65 of the Rules of Court. The Bank alleged that the RTC had acted without or in excess of its jurisdiction, or with grave abuse of its discretion amounting to lack or excess of 50 jurisdiction when it issued the assailed order; the spouses Nisce had failed to prove the requisites for the issuance of a writ of preliminary injunction; respondents claim that their account with petitioner had been extinguished by legal compensation has no factual and legal basis. It further asserted that according to the evidence, Natividad made the US$20,000.00 deposit with PCI Capital before it merged with Equitable Bank hence, the Bank was not the debtor of Natividad relative to the dollar account. The Bank cited the ruling of this 51 Court in Escao v. Heirs of Escao and Navarro to support its arguments. It insisted that the spouses Nisce had failed to establish "irreparable injury" in case of denial of their plea for injunctive relief.
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The spouses, for their part, pointed out that the Bank failed to file a motion for reconsideration of the trial courts order, a condition sine qua non to the filing of a petition for certiorari under Rule 65 of the Rules of Court. Moreover, the error committed by the trial court is a mere error of judgment not correctible by certiorari; hence, the petition should have been dismissed outright by the CA. They reiterated their claim that they had made a partial payment ofP4,600,000.00 on their loan account which petitioner failed to credit in their favor. The Bank had agreed to debit their US dollar savings deposit in the PCI Capital as payment of their loan account. They insisted that they had never deposited their US dollar account with PCI Capital but with the Bank, and that they had never defaulted on their loan account. Contrary to the Banks claim, they would have suffered irreparable injury had the trial court not enjoined the extrajudicial foreclosure of the real estate mortgage. On December 22, 2004, the CA rendered judgment granting the petition and nullifying the assailed Order of the 52 RTC. The appellate court declared that a petition for certiorari under Rule 65 of the Rules of Court may be filed despite the failure to file a motion for reconsideration, particularly in instances where the issue raised is one of law; where the error is patent; the assailed order is void, or the questions raised are the same as those already ruled upon by the lower court. According to the appellate court, the issue raised before it was purely one of law: whether the loan account of the spouses was extinguished by legal compensation. Thus, a motion for the reconsideration of the assailed order was not a prerequisite to a petition for certiorari under Rule 65. The appellate court further declared that the trial court committed grave abuse of its discretion in issuing the assailed order, since no plausible reason was given by the spouses Nisce to justify the injunction of the extrajudicial foreclosure of the real estate mortgage. Given their admission that they had not settled the obligations secured by the mortgage, the Bank had a clear right to seek the remedy of foreclosure. The CA further declared as devoid of factual basis the spouses Nisces argument that the Bank should have applied, by way of legal compensation, the peso equivalent of their time deposit with PCI Capital as partial settlement of their obligations. It held that for compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code of the Philippines must be present; in this case, the parties are not mutually creditors and debtors of each other. It pointed out that the time deposit which the spouses Nisce sought to offset against their obligations to the Bank is maintained with PCI Capital. Even if PCI Capital is a subsidiary of the Bank, compensation cannot validly take place because the Bank and PCI Capital are two separate and distinct corporations. It pointed out the settled principle "that a corporation has a personality separate and distinct from its stockholders and from other corporations to which it may be connected." The CA further declared that the alleged P4,600,000.00 payment on PN No. BD-150369 was not pleaded in the spouses complaint and supplemental complaint before the court a quo. What they alleged, aside from legal compensation, was that the mortgage is not liable for the obligation of Natividad Nisce as surety for the loans obtained by a trading firm owned and managed by their son. The CA further pointed out that the Bank precisely amended the petition for foreclosure sale by deleting the claim for Natividads obligation as suret y. The appellate 53 court concluded that the injunctive writ was issued by the RTC without factual and legal basis. The spouses Nisce moved to have the decision reconsidered, but the appellate court denied the motion. They thus filed the instant petition for review on the following grounds: 5.1. THE HONORABLE COURT OF APPEALS ERRED IN TAKING COGNIZANCE OF THE PETITION FOR CERTIORARI DESPITE THE BANKS FAILURE TO FILE A MOTION FOR RECONSIDERATION WITH THE TRIAL COURT. 5.2. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT PREMATURELY RULED ON THE MERITS OF THE MAIN CASE.

5.3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT JUDGE HAD COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING A TEMPORARY RESTRAINING ORDER AND A WRIT OF PRELIMINARY INJUNCTION IN FAVOR OF 54 THE SPOUSES NISCE. Petitioners aver that the CA erred in not dismissing respondent Banks petition for certiorari outright because of the absence of a condition precedent: the filing of a motion for reconsideration of the assailed Order of the RTC before filing the petition for certiorari in the CA. They insist that respondent banks failure to file a motion for reconsideration of the assailed Order deprived the RTC of its option to resolve the issue of whether it erred in issuing the writ of preliminary injunction in their favor. Petitioners insist that in resolving whether a petition for a writ of preliminary injunction should be granted, the trial court and the appellate court are not to resolve the merits of the main case. In this case, however, the CA resolved the bone of contention of the parties in the trial court: whether the loan account of petitioners with respondent bank had been extinguished by legal compensation against petitioner Natividad Nisces US dollar savings account with PCI Capital in Hong Kong. The CA reversed the assailed order of the trial court by resolving the main issue in the trial court on its merits, and declaring that the US dollar savings deposit of the petitioner Natividad Nisce with the PCI Capital cannot be used to offset the loan account of petitioners with respondent bank. In fine, according to petitioners, the CA preempted the ruling of the RTC on the main issue even before the parties could be given an opportunity to complete the presentation of their respective evidences. Petitioners point out that in the assailed Order, the RTC declared that to determine whether respondent had credited petitioners for the amount ofP4,600,000.00 under PN No. BD-150369 and whether respondent as mortgagee-creditor accelerated the maturities of the two (2) promissory notes executed by petitioner, there was a need for a full-blown trial and an exhaustive consideration of the evidence of the parties. Petitioners further insist that a petition for a writ of certiorari is designed solely to correct errors of jurisdiction and not errors of judgment, such as errors in the findings and conclusions of the trial court. Petitioners maintain that the trial courts erroneous findings and conclusions (according to respondent bank) are not the p roper subjects for a petition for certiorari. Contrary to the findings of the CA, they did not admit in the trial court that they were in default in the payment of their loan obligations. They had always maintained that they had no outstanding obligation to respondent bank precisely because their loan account had been offset by the US dollar deposit of petitioner Natividad Nisce, and that they had made check payments of P4,600,000.00 which respondent bank had not credited in their favor. Likewise erroneous is the CA ruling that they would not suffer irreparable damage or injury if their properties would be sold at public auction following the extrajudicial foreclosure of the mortgage. Petitioners point out that their conjugal home stands on the subject properties and would be lost if sold at public auction. Besides, petitioners aver, the injury to respondent bank resulting from the issuance of a writ of preliminary injunction is amply secured by the P10,000,000.00 injunction bond which they had posted. For its part, respondent avers that, as held by the CA, the requirement of the filing of a motion for reconsideration of the assailed Order admits of exceptions, such as where the issue presented in the appellate court is the same issue presented and resolved by the trial court. It insists that petitioners failed to prove a clear legal right to injunctive relief; hence, the trial court committed grave abuse of discretion in issuing a writ of preliminary injunction. Respondent maintains that the sole issue involved in the petition for certiorari of respondent in the CA was whether or not the trial court committed grave abuse of its discretion in issuing the writ of preliminary injunction. Necessarily, the CA would have to delve into the circumstances behind such issuance. In so doing, the CA had to consider and calibrate the testimonial and documentary evidence adduced by the parties. However, the RTC and the CA did not resolve with finality the threshold factual and legal issue of whether the loan account of petitioners had been paid in full before it filed its petition for extrajudicial foreclosure of the real estate mortgage. The Ruling of the Court

The Petition in the Court of Appeals Not Premature The general rule is that before filing a petition for certiorari under Rule 65 of the Rules of Court, the petitioner is mandated to comply with a condition precedent: the filing of a motion for reconsideration of the assailed order, and the subsequent denial of the court a quo. It must be stressed that a petition for certiorari is an extraordinary remedy and should be filed only as a last resort. The filing of a motion for reconsideration is intended to afford the public respondent an opportunity to correct any actual error attributed to it by way of re-examination of the legal 55 and factual issues. However, the rule is subject to the following recognized exceptions: (a) where the order is a patent nullity, as where the court a quo has no jurisdiction; (b) where the questions raised in the certiorari proceeding have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings was ex parte or in which the petitioner had no opportunity to object; and (i) where the issue raised is one purely of law or public 56 interest is involved. As will be shown later, the March 24, 2003 Order of the trial court granting petitioners plea for a writ of preliminary injunction was issued with grave abuse of discretion amounting to excess or lack of jurisdiction and thus a nullity. If the trial court issues a writ of preliminary injunction despite the absence of proof of a legal right 57 and the injury sustained by the plaintiff, the writ is a nullity. Petitioners Are Not Entitled to a Writ of Preliminary Prohibitory Injunction Section 3, Rule 58 of the Rules of Court provides that a preliminary injunction may be granted when the following have been established: (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; (b) That the commission, continuance or nonperformance of the act or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tendering to render the judgment ineffectual. The grant of a preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with great caution. The exercise of sound judicial discretion by the lower court should not be interfered with except in cases of manifest abuse. Injunction is a preservative remedy for the protection of the parties substantive rights and interests. The sole aim of a preliminary injunction is to preserve the status quo within the last actual status that preceded the pending controversy until the merits of the case can be heard fully.

Moreover, a petition for a preliminary injunction is an equitable remedy, and one who comes to claim for equity must do so with clean hands. It is to be resorted to by a litigant to prevent or preserve a right or interest where there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard of compensation. A petition for a writ of preliminary injunction rests upon an alleged existence of an emergency or of a special reason for such a writ before the case can be regularly tried. By issuing a writ of preliminary injunction, the court can thereby prevent a threatened or continued irreparable injury to the plaintiff before a judgment can 58 be rendered on the claim. The plaintiff praying for a writ of preliminary injunction must further establish that he or she has a present and 59 unmistakable right to be protected; that the facts against which injunction is directed violate such right; and there is a special and paramount necessity for the writ to prevent serious damages. In the absence of proof of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified. Thus, where the plaintiffs right is doubtful or disputed, a preliminary injunction is not proper. The possibility of irreparable damage without proof of an actual existing right is not a ground for a preliminary 60 injunction. However, to establish the essential requisites for a preliminary injunction, the evidence to be submitted by the 61 plaintiff need not be conclusive and complete. The plaintiffs are only required to show that they have an 62 ostensible right to the final relief prayed for in their complaint. A writ of preliminary injunction is generally based 63 solely on initial or incomplete evidence. Such evidence need only be a sampling intended merely to give the court an evidence of justification for a preliminary injunction pending the decision on the merits of the case, and is not 64 conclusive of the principal action which has yet to be decided. It bears stressing that findings of the trial court granting or denying a petition for a writ of preliminary injunction based on the evidence on record are merely provisional until after the trial on the merits of the case shall have 65 been concluded. The trial court, in granting or dismissing an application for a writ of preliminary injunction based on the pleadings of the parties and their respective evidence must state in its order the findings and conclusions based on the evidence and the law. This is to enable the appellate court to determine whether the trial court committed grave abuse of its discretion amounting to excess or lack of jurisdiction in resolving, one way or the other, the plea for injunctive relief. The trial courts exercise of its judicial discretion whether to grant or deny an application for a writ of preliminary injunction involves the assessment and evaluation of the evidence, and its findings of facts are 66 ordinarily binding and conclusive on the appellate court and this Court. We agree with respondents contention that as creditor-mortgagee, it has the right under the real estate mortgage contract and the amendment thereto to foreclose extrajudicially, the real estate mortgage and sell the property at public auction, considering that petitioners had failed to pay their loans, plus interests and other incremental amounts as provided for in the deeds. Petitioners contend, however, that if respondent bank extrajudicially forecloses the real estate mortgage and has petitioners property sold at public auction for an amount in excess of the balance of their loan account, petitioners contractual and substantive rights under the real estate mortgage would be violated; in such a case, the extrajudicial foreclosure sale may be enjoined by a writ of preliminary injunction. Respondent bank sought the extrajudicial foreclosure of the real estate mortgage and was to sell the property at public auction for P30,533,552.24. The amount is based on Promissory Notes No. 1042793 and BD-150369, interests, penalty charges, and attorneys fees, as of January 31, 2003, exclusive of all i nterests, penalties, other 67 charges, and foreclosure costs accruing thereafter. Petitioners asserted before the trial court that respondents sought the extrajudicial foreclosure of the mortgaged deed for an amount far in excess of what they owed, because the latter failed to credit P4,600,000.00 paid in checks but without any receipts having been issued therefor; and theP9,000,000.00 peso equivalent of the US$20,000.00 deposit of petitioner Natividad Nisce with PCIB under Passbook No. 83-3041 and Certificate of Deposit No. CD-01612 issued by PCI Capital on July 23, 1984.

Petitioners maintain that the US$20,000.00 dollar deposit should be setoff against their account with respondent against their loan account, on their claim that respondent is their debtor insofar as said deposit is concerned. It was the burden of petitioners, as plaintiffs below, to adduce preponderant evidence to prove their claim that respondent bank was the debtor of petitioner Natividad Nisce relative to her dollar deposit with PCIB, and later transferred to PCI Capital in Hong Kong, a subsidiary of respondent Bank. Petitioners, however, failed to discharge their burden. Under Article 1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order that compensation may be proper, petitioners were burdened to establish the following: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and 68 communicated in due time to the debtor. Compensation takes effect by operation of law when all the requisites mentioned in Article 1279 of the New Civil Code are present and extinguishes both debts to the concurrent amount even though the creditors and debtors are not aware of the compensation. Legal compensation operates even against the will of the interested parties 69 and even without their consent. Such compensation takes place ipso jure; its effects arise on the very day on 70 which all requisites concur. As its minimum, compensation presupposes two persons who, in their own right and as principals, are mutually indebted to each other respecting equally demandable and liquidated obligations over any of which no retention or controversy commenced and communicated in due time to the debtor exists. Compensation, be it legal or conventional, requires confluence in the parties of the characters of mutual debtors and creditors, although their rights as such creditors or their obligations as such debtors need not spring from one and the same contract or 71 transaction. Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans. Under Article 1953, of the same Code, a person who secures a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality. The relationship of the depositors and the Bank or similar institution is that of creditor-debtor. Such deposit may be setoff against the obligation of the depositor with the bank or similar institution. When petitioner Natividad Nisce deposited her US$20,500.00 with the PCIB on July 19, 1984, PCIB became the debtor of petitioner. However, when upon petitioners request, the amount of US$20,000.00 was transferred to PCI Capital (which forthwith issued Certificate of Deposit No. 01612), PCI Capital, in turn, became the debtor of Natividad Nisce. Indeed, a certificate of deposit is a written acknowledgment by a bank or borrower of the receipt of a sum of money or deposit which the Bank or borrower promises to pay to the depositor, to the order of the depositor; or to some other person; or to his order whereby the relation of debtor and creditor between the bank

and the depositor is created. The issuance of a certificate of deposit in exchange for currency creates a debtor73 creditor relationship. Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital [PCI Express Padala (HK) Ltd.] has an independent and separate juridical personality from that of the respondent Bank, its parent company; hence, 74 any claim against the subsidiary is not a claim against the parent company and vice versa. The evidence on record shows that PCIB, which had been merged with Equitable Bank, owns almost all of the stocks of PCI Capital. However, the fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those 75 arising in their respective business. A corporation has a separate personality distinct from its stockholders and from other corporations to which it may be conducted. This separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice. This Court, in Martinez v. Court of Appeals held that, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the piercing of the corporate veil. The veil of separate corporate personality may be lifted when, inter alia, the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality; or to work injustice; or where necessary to achieve equity or for the protection of the creditors. In those cases where valid grounds exist for piercing the veil of corporate entity, the corporation will be considered as a mere association of persons. 77 The liability will directly attach to them. The Court likewise declared in the same case that the test in determining the application of the instrumentality or alter ego doctrine is as follows: 1. Control, not mere majority or complete stock control, but complete dominion, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complaint of. The Court emphasized that the absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with 78 how the corporation operated and the individual defendants relationship to that operation. Petitioners failed to adduce sufficient evidence to justify the piercing of the veil of corporate entity and render respondent Bank liable for the US$20,000.00 deposit of petitioner Natividad Nisce as debtor. On hindsight, petitioners could have spared themselves the expenses and tribulation of a litigation had they just withdrawn their deposit from the PCI Capital and remitted the same to respondent. However, petitioner insisted on their contention of setoff. On the P4,600,000.00 paid in checks allegedly remitted by petitioners to respondent in partial payment of their loan account, petitioners failed to adduce in evidence the checks to show that, indeed, the checks were drawn by
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petitioners and delivered to respondent, and that respondent was able to cash the checks. The only evidence adduced by petitioners is a piece of paper listing the serial numbers of the checks and the amount of each check: PAYMENTS MADE & RECEIVED BY EBC BUT W/O RECEIPTS P2,000,000.0 0 1,000,000.00 800,000.00

1. Dec. 29, 1997 - EBC-0000039462 2. Jan. 22, 1998 - EBC-213016118C 3. Feb. 24, 1998 - UB -0000074619 -

4. Mar. 23, 1998 - EBC-213016121C - 800,000.00 P4,600,000.00


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IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court of Appeals is AFFIRMED. Costs against petitioners. SO ORDERED.

CASE 12 G.R. No. 143972 August 31, 2007

PACIFIC BASIN SECURITIES CO., INC., Petitioner, vs. ORIENTAL PETROLEUM and MINERALS CORP. and EQUITABLE BANKING CORP., Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 144056 ORIENTAL PETROLEUM and MINERALS CORP., EQUITABLE BANKING CORP. and ROBERT COYIUTO, JR.,Petitioners, vs. PACIFIC BASIN SECURITIES CO., INC., Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 144631 PACIFIC BASIN SECURITIES CO., INC., Petitioner, vs. ORIENTAL PETROLEUM and MINERALS CORP., EQUITABLE BANKING CORP., ROBERTO COYIUTO and ETHELWOLDO FERNANDEZ, Respondents. DECISION

AUSTRIA-MARTINEZ, J.: By Resolution dated February 21, 2001, the Court ordered the consolidation of the Petitions for Review 2 3 onCertiorari under Rule 45 of the Rules of Court docketed as G.R. No. 143972, G.R. No. 144056 and G.R. No. 4 144631. The facts of the case are undisputed: On May 31, 1991, Pacific Basin Securities, Inc. (Pacific Basin), through the stock brokerage firm First Resources Management and Securities Corporation (FRMSC), purchased 308,300,000 Class "A" shares of Oriental Petroleum and Minerals Corporation (OPMC). Pacific Basin fully paid for the OPMC shares in the total amount 5 ofP17,727,000.00 or P.05750 per share. The shares were listed and traded in the Makati Stock Exchange. The OPMC shares turned out to be owned by Piedras Petroleum Mining Corporation (Piedras Petroleum), a sequestered company controlled by the nominees of the Presidential Commission on Good Government (PCGG). PCGG sent a letter dated June 10, 1991 to Equitable Banking Corporation (EBC), OPMCs stock and transfer agent, confirming Piedras Petroleums sale of the OPMC shares in favor of Pacific Basin through FRMSC. In the same letter, PCGG requested EBC to record the acquisition of said shares and to issue the corresponding certificates of 6 stock in favor of Pacific Basin. The requests were left unheeded. EBC informed FRMSC that it cannot effect the transfer of the OPMC s hares to Pacific Basin on the following grounds: first, that the endorser of the stock certificate, a certain Mr. Clemente Madarang, was not among the authorized signatories of Piedras Petroleum; and second, there was no board 7 resolution from Piedras Petroleum which authorized the sale of the OPMC shares. FRMSC complied with the requirements imposed by EBC and consequently renewed its demand for the transfer of 8 the OPMC shares to Pacific Basin and the issuance of new certificates of stock. Again, these requests proved futile. Hence, on April 23, 1992, Pacific Basin filed a Petition for Mandamus with Prayer for a Writ of Preliminary Mandatory Injunction and/or Restraining Order and Writ of Preliminary Prohibitory Injunction docketed as SEC 9 Case No. 04225. Pacific Basin alleged that: it had purchased 308,300,000 Class "A" shares of stock of OPMC; EBC refused to record its acquisition of the shares and to issue the corresponding certificates of stock, which is in grave neglect of the performance of the ministerial duty specifically enjoined by Section 63 of the Corporation Code; and there was a violation of Section 1, Article 1 of the Amended By-laws of OPMC which mandates the issuance of 10 certificate of stock to each holder of fully paid stock. In their Answer, OPMC and EBC claimed that the governments title over the subject OPMC shares was based on the cession made by Mr. Roberto S. Benedicto, an associate of former President Ferdinand Marcos, in exchange for immunity from prosecution and suit by the government for allegedly amassing ill-gotten wealth. According to OPMC and EBC, item no. 6 of the annex to the Compromise Agreement executed between the government (through PCGG) and Mr. Benedicto shows that part of the assets to be turned over by Mr. Benedicto to the government were all of the OPMC shares owned by Piedras Petroleum. The Court, however, in G.R. Nos. 108368, 108548-49, and 108550 issued a Temporary Restraining Order enjoining the enforcement of the Compromise Agreement. Thus, OPMC and EBC maintained that the basis for PCGGs claim of title over the OPMC shares disappeared as the effectivity of the supposed cession made by Mr. Benedicto is suspended. OPMC and EBC also argued that even on the assumption that the government has a valid and effective title over the subject OPMC shares, the sale by Piedras Petroleum to Pacific Basin was void as there was no showing that Piedras Petroleum complied with the legal requirements for the disposition of government owned assets as embodied in Proclamation No. 50, as amended, and related rules and regulations on the matter. The non-holding of a public bidding for the sale of the shares was allegedly a blatant violation of the said law.
11 1

The Securities and Exchange Commission Hearing Officer ruled in favor of Pacific Basin. In the Decision dated December 28, 1995, the Hearing Officer took judicial notice of the Courts January 10, 1993 and January 18, 1994 En Banc Resolutions which dismissed the petition and denied the Motion for Reconsideration filed by PCGG in G.R. No. 108368. Thus, the issue of the Temporary Restraining Order on the Compromise Agreement executed between PCGG and Mr. Benedicto was rendered moot. The Decision further held that since the subject shares have been fully paid by Pacific Basin, it is the obligation and a ministerial duty of OPMC and EBC to transfer the shares in the corporate books and issue certificates of stock in favor of Pacific Basin under Section 63 of the Corporation Code and Section I of Article I of the amended by-laws of OPMC. The corporate officers of OPMC were also found to have acted in bad faith when they refused to transfer the shares to Pacific Basin. Hence, they were ordered to jointly and severally pay Pacific Basin the following amounts:P20,000,000.00 representing actual damages; P300,000.00 representing exemplary damages; P300,000.00 representing attorneys fees; and P50,000.00 for the cost and expenses of the suit. On December 28, 1995, OPMC and EBC filed their Motion for Reconsideration which was denied by the Hearing Officer. Later, OPMC and EBC filed their appeal before the SEC en banc. On July 13, 1999, the SEC en bancrendered 14 its Decision which modified the December 28, 1995 Decision of the Hearing Officer by deleting the awards of actual and exemplary damages in favor of Pacific Basin. Petitioner Pacific Basin and respondents OPMC and EBC separately went to the Court of Appeals (CA) on appeal, docketed as CA-G.R. SP No. 54456 and CA-G.R. SP No. 54442, respectively. In CA-G.R. SP No. 54442, OPMC and EBC contend that the SEC erred in holding that the sale of publicly listed shares of stock through the stock market is tantamount to a public bidding and that they are ministerially bound to record 15 said shares in their stock and transfer book. On January 26, 2000, the CA rendered a Decision which affirmed in toto the July 13, 1999 Decision of the SECen 17 banc. The CA held that: public bidding signifies a letting of a contract that is open to all notorious, a letting that furnishes fair and reasonable public notice and secures to the public equal competition in bidding and becoming contractors; the sale of shares through public stock exchange offers transparent and fair competition; and the pricing of shares of stock is a highly specialized field that is better left to the experts. The dispositive portion of the Decision states: WHEREFORE, the instant petition is hereby DENIED. Accordingly, the Decision dated 13 July 1999 of the Securities and Exchange Commission is AFFIRMED in toto. SO ORDERED.
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upon learning the January 26, 2000 Decision of the CA in CA-G.R. SP No. 54442, Pacific Basin filed with the Court a petition, docketed as G.R. No. 143972, assailing said CA Decision claiming that: I. the court of appeals committed grave error when it sustained the SECs en banc decision which deleted the award of actual and compensatory damages in favor of the petitioner. there is clear and convincing evidence established through the unrebutted testimony of petitioners expert witness that petitioner was deprived of actual profits in the amount of around twenty million pesos (p20,000,000.00) x x x II.

THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT FAILED TO AWARD THE PETITIONER EXEMPLARY DAMAGES, AS FOUND BY THE SEC HEARING OFFICER WHO CONDUCTED ADVERSARIAL PROCEEDINGS BELOW AND HAD OPPORTUNITY TO EXAMINE THE PARTIES EVIDENCE AND THEIR WITNESSES. RESPONDENTS MANIFEST BAD FAITH AND MALICIOUS REFUSAL TO REGISTER THE PURCHASE OF THE SHARES DESPITE LACK OF REASONABLE OR JUSTIFIABLE GROUND ENTITLE THE PETITIONER TO EXEMPLARY DAMAGES. x x x OPMC and EBC are also before the Court in a petition, docketed as G.R. No. 144056, questioning the CA Decision, thus: I. [g]overnment-owned property, even of [sic] shares of stock which are publicly listed in a stock exchange, may be disposed of only through a public bidding, that the sale of such shares if made in violation of the public bidding requirement is not valid and that the disposition of such shares through the normal operation of the stock exchange does not satisfy the requirement of public bidding. x x x II. x x x the GOOD FAITH OF THE PETITIONERS HAVING BEEN ESTABLISHED AS A MATTER OF FACT THERE IS NO LEGAL BASIS TO ASSESS ATTORNEYS FEES IN FAVOR OF THE RESPONDENT. On the other hand, in CA-G.R. SP. No. 54456, Pacific Basin questioned SEC en bancs deletion of the actual and 19 exemplary damages awarded to it by the SEC Hearing Officer. On August 18, 2000, the CA rendered its Decision which held that: the testimony given by Ms. Vicky Chan, the Vice-President of Pacific Basin, is not sufficient to prove actual damages; no exemplary damages should be awarded since the responsible officers of OPMC did not act in bad faith nor in a wanton, fraudulent, reckless, oppressive or malevolent manner when they refused to transfer the subject shares to Pacific Basins name; and the responsible officers of OPMC were only taking extra precautions in verifying the validity of the transfer since it involved a substantial number of shares aside from the highly controversial matters underlying the transfer which created doubt in their minds. The dispositive portion of the Decision states: WHEREFORE, foregoing premises considered, the appealed Decision dated July 13, 1999 of the Securities and Exchange Commission (SEC) En Banc is hereby AFFIRMED in toto. Costs against the petitioner. SO ORDERED.
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Pacific Basin is once again before the Court in a petition, docketed as G.R. No. 144631, assailing the CA Decision claiming that: I. IT WAS GRAVE ERROR FOR THE COURT OF APPEALS TO RULE THAT PETITIONER HAS FAILED TO PROVE ITS CLAIM FOR DAMAGES WITH A REASONABLE DEGREE OF CERTAINTY DESPITE THE EVIDENCE ON RECORD. EFFECTIVELY, THE COURT OF APPEALS IS REQUIRING ABSOLUTE CERTAINTY, WHICH IS EVEN BEYOND PROOF BEYOND REASONABLE DOUBT IN CRIMINAL PROCEEDINGS OR PREPONDERANCE OF EVIDENCE IN CIVIL PROCEEDINGS. SINCE THIS CASE WAS ORIGINALLY ADMINISTRATIVE IN NATURE, THE PROOF REQUIRED IS MERELY SUBSTANTIAL EVIDENCE WHICH PETITIONER HAS MORE THAN SUFFICIENTLY ESTABLISHED.

II. THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT RULED THAT THE TESTIMONY OF MS. VICKY CHAN, PETITIONERS VICE-PRESIDENT, IS NOT SUFFICIENT TO PROVE ACTUAL DAMAGES SUSTAINED BY PETITIONER. THE TESTIMONY OF MS. CHAN WAS UNREBUTTED EVEN IN THE PROCEEDINGS BEFORE THE SEC. HER EXPERTISE IN STOCK BROKERAGE WAS ADMITTED AND NEVER QUESTIONED BY THE RESPONDENTS. x x x III. THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT RULED THAT RESPONDENTS DID NOT ACT IN BAD FAITH, NOR IN WANTON, FRAUDULENT, RECKLESS OR OPPRESSIVE MANNER. x x x MOREOVER, THIS CASE AFFECTS THE EXPECTATION OF THE INVESTING PUBLIC ON THE MARKETABILITY OF THE SHARES LISTED AND TRADED IN THE STOCK EXCHANGE. AS AN EXAMPLE TO THE PUBLIC GOOD, RESPONDENTS SHOULD BE ORDERED TO PAY EXEMPLARY DAMAGES. The petitions are without merit. In G.R. No. 144056, OPMC and EBC argue that the OPMC shares are government-owned and, as government property, these can be disposed of only through public bidding. Hence, the sale by Piedras Petroleum of the OPMC shares to Pacific Basin through the stock market is not valid, since it does not comply with the public bidding requirement. The argument is baseless. Prior to the 31 May 1991 sale to Pacific Basin, Piedras Petroleum was the owner of the subject OPMC shares. Piedras Petroleum is a sequestered company controlled by the nominees of the PCGG. The fact that Piedras Petroleum was placed under sequestration by the PCGG does not ipso facto make it a government-owned corporation. The Court elucidated on the power of the PCGG to issue sequestration orders in Bataan Shipyard & Engineering 22 Company, Inc. v. Presidential Commission on Good Government . The Court held: By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and records pertaining thereto may be found, including "business enterprises and entities,"- for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same- until it can be determined, through appropriate judicial proceedings, whether the property was in truth "ill- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense 23 in which the term is commonly understood in other jurisdictions. (Emphasis supplied) The Court further held: As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or receivership. By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. By receivership, property, real or personal, which

is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who shall 24 conserve it pending final determination of the title or right of possession over it. x x x (Emphasis supplied) A sequestration order is similar to the provisional remedy of Receivership under Rule 59 of the Rules of Court. The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over so as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and 25 administrator. The PCGG, as a mere conservator, does not automatically become the owner of a sequestered property in behalf of the government. There must be a final determination by the courts if the property is in fact "ill-gotten" and was acquired by using government funds. Thus, OPMC cannot conclusively claim that the subject shares are government property by virtue of a sequestration order on Piedras Petroleum. Such conclusion is non sequitur. OPMC and EBC insist that Proclamation No. 50 is the law which should govern the sale of the OPMC shares to Pacific Basin. Under said law, the OPMC shares should be disposed of through public bidding. We find such argument untenable. Proclamation No. 50 seeks to "[p]romote privatization through an orderly, coordinated and efficient programs for the prompt disposition of the large number of non-performing assets of the government financial institutions, and certain government-owned or controlled corporations which have been found unnecessary or inappropriate for the government sector to maintain." The term "assets" is defined under Article I, Sec. 2, Par. 1, of Proclamation No. 50, as: (i) receivables and other obligations due to government institutions under credit, lease, indemnity and other agreements together with all collateral security and other rights (including but not limited to rights in relation to shares of stock in corporations such as voting rights as well as rights to appoint directors of corporations or otherwise engage in the management thereof) granted to such institutions by contract or operation of law to secure or enforce the right of payment of such obligations; (ii) real and personal property of any kind owned or held by government institutions, including shares of stock in corporations, obtained by such government institutions, whether directly or indirectly, through foreclosure or other means, in settlement of such obligations; (iii) shares of stock and other investments held by government institutions; and (iv) the government institutions themselves, whether as parent or subsidiary corporations. The subject OPMC shares do not fall within the ambit of "assets," as the term contemplates properties which are government-owned. To repeat, the OPMC shares originally owned by Piedras Petroleum, a sequestered corporation controlled by the nominees of PCGG, remain to be privately owned until such time when the court declares that the subject shares were acquired through government funds. Even on the assumption that the OPMC shares are government assets, the Court finds that the sale of the subject shares through the stock exchange is valid and binding, as there is no law which mandates that listed shares which are owned by the government be sold only through public bidding. As conceded by both Pacific Basin and OPMC, the subject OPMC shares are listed and traded in the stock 27 exchange. OPMC is a listed corporation in the Philippine Stock Exchange (PSE). As a listed corporation, it shall be
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bound by the provisions of the Revised Listing Rules of the PSE the objective of which is "to provide a fair, orderly, efficient, and transparent market for the trading of securities x x x." This Court held in Nicolas v. Court of Appeals that stock market trading is a technical and highly specialized institution in the Philippines. Trading of listed shares should therefore be left to the stock market where knowledge and expertise on securities mechanism can be expected. Moreover, even if the law indeed requires that the sale of the subject shares undergo public bidding, the Court finds that sale through the stock exchange is already a substantial compliance with the public bidding requirement. As correctly held by the CA: [T]o the mind of the Court, the sale of the sale of shares through public stock exchange offers transparent and fair competition. Parenthetically, the pricing of shares of stock is a highly specialized field that is better left to the experts. It involves an inquiry into the earning potential, dividend history, business risks, capital structure, management, asset values of the company, prevailing business climate, political and economic conditions, and myriad other factors that bear on the valuation of shares. xxxx The Commission on Audit does not require public bidding of publicly listed shares of stock as the stock market determines the price of the share, hence, by analogy, the stock market itself can be considered as public bidding. x 30 xx It is beyond dispute that OPMC holds no unpaid claim against Pacific Basin for the value of the shares acquired by the latter. The Court sees no reason why OPMC and EBC consistently and continuously refused to record the transfer in the stock and transfer books of OPMC and issue new certificates in favor of Pacific Basin. Section 63 of the Corporation Code provides: Sec. 63. x x x 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 x x x. Clearly, the right of a transferee/ assignee to have stocks transferred to his name is an inherent right flowing from 31 32 his ownership of the stocks. The Court had ruled in Rural Bank of Salinas, Inc. v. Court of Appeals that the corporations obligation to register is ministerial, citing Fletcher, to wit: In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide 33 the question of ownership. The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good 34 cause, it may be compelled to do so by mandamus. The Court further held in Rural Bank of Salinas that the only limitation imposed by Section 63 of the Corporation 35 Code is when the corporation holds any unpaid claim against the shares intended to be transferred. Pacific Basin satisfied the condition of full payment of the OPMC shares as evidenced by the FRMC Buy Invoice No. 36 14200 dated May 31, 1991. This fact was never denied by both OPMC and EBC. Therefore, upon Pacific Basins full payment of the OPMC shares, it became a ministerial duty on the part of OPMC to record the transfer in the stock and transfer book of OPMC and issue new stock certificates in favor of Pacific Basin. Thus, OPMCs and EBCs
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refusal to record the transfer is violative of Section 63 of the Corporation Code and OPMCs own amended by -laws which states: Certificate of stock shall be issued to each holder of fully paid stock in numerical order from the stock certificate book, and shall be signed by the President and countersigned by the Secretary and sealed with the corporate seal. A record of each certificate issued shall be kept on the stub thereof and upon the stock register of the company. (Emphasis supplied) The Court agrees with and adopts the findings of the SEC Hearing Officer in his Decision:
37

[t]he rights of an innocent purchaser of shares of stock cannot be prejudiced and has to be protected especially when the purchase of the shares are coursed through the Stock Market (in this case the Makati Stock Exchange). An investor when purchasing publicly listed shares of stock in the Stock Market has every right to presume that the shares of a publicly listed corporation being traded in the Stock Market are free from any defect, and that upon purchased [sic] of the said shares, it will be registered in his name in the corporate books. To rule otherwise would be froth with dangerous consequences. The investing publics confidence in purchasing and investing in shares of stocks thru the Stock Market will erode and become a tedious and burdensome transaction for the buying or selling of shares of stock of publicly listed corporation. An investor who invests good money in shares in the stock market necessarily expects that the said shares will be registered in his name upon payment of the full value thereof. Instead of building investors confidence and encourage investment in publicly listed shares in the Stock Market, every investor will have second thoughts in investing as they will be purchasing shares in the stock market subject to a caveat that there is no guaranty the shares they buy are good or transferable to his name. Thus, every potential investor, prior to his purchase of shares of stock in the Stock Market will have to investigate each and every share he intends to purchase to make sure that it is free from any defect and that the said shares may be registered in his name after he purchases the same. In G.R. No. 143972 and G.R. No. 144631, Pacific Basin alleges that the CA erred when it upheld the Decision of the SEC En Banc which directed the deletion of the actual and exemplary damages awarded by the SEC Hearing Officer. As to the issue on actual damages, Pacific Basin contends that the CA erred in ruling that there was failure to prove its claim for actual damages. Pacific Basin maintains that the testimony of its Vice-President, Ms. Vicky Chan, is sufficient to establish the loss incurred as a result of OPMCs refusal to transfer the shar es in their name. In order that damages may be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual 38 amount thereof. If the proof is flimsy and unsubstantial, no damages will be awarded. The court cannot rely on uncorroborated testimony whose truth is suspect, but must depend upon competent 39 proof that actual damages have been actually suffered. The testimonies should be viewed in light of claimants 40 self-interest and, hence, should not be taken as gospel truth. Based on the records, the claim of Pacific Basin for actual damages, in the amount of P20,000,000.00 is not supported by any documentary evidence. We find that the bare testimonial assertions of Ms. Vicky Chan are not adequate and competent proof of the actual pecuniary loss allegedly suffered by Pacific Basin. OPMC and EBC, however, cannot escape liability. The Court awards Pacific Basin temperate damages.
41

Temperate damages are included within the context of compensatory damages. In arriving at a reasonable level of temperate damages to be awarded, courts are guided by the ruling that there are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been 42 such loss. The nature of stock market trading is speculative where the value of a specific share may vary from time to time, depending on several factors which may affect the market. Pacific Basin is in the business which involves marketing of securities; it would buy shares and re-sell them when their value appreciates to gain profit from the transaction. OPMCs and EBCs refusal to record the transfer in the stock and transfer boo k and issuance of new certificates of stock in the name of Pacific Basin prevented Pacific from re-selling the subject shares in the market. By this nonperformance of a ministerial function, the Court is convinced that Pacific Basin suffered pecuniary loss, the amount of which cannot be proved with certainty. In lieu of actual damages, the Court finds OPMC and EBC, Mr. Roberto Coyiuto and Ethelwoldo Fernandez (as 43 president and corporate secretary of OPMC respectively) liable for temperate damages, jointly and severally in the amount of P1,000,000.00. The issue on exemplary damages deserves scant consideration. Well settled is the rule that although exemplary damages are not recoverable as a matter of right, and although such damages may not be proved, it must first be shown that the claimant is entitled to moral, temperate or compensatory damages before a court can favorably 44 consider an award of exemplary damages. The Court found earlier that Pacific Basin is not entitled to actual damages. lawph!l Exemplary damages, as an accessory to actual damages, cannot also be awarded. Moreover, the Court agrees with the findings of both the SEC en banc and the CA when it held that OPMC and EBC did not act in bad faith nor in a wanton, fraudulent reckless, oppressive or malevolent manner when they refused to transfer the subject shares under Pacific Basins name. It is true that both OPMC and EBC refused to transfer the subject OPMC shares in the name of Pacific Basin despite the fact that such transfer is ministerial in nature. However, the Court did not find any proof that such refusal was tainted by bad faith. Pacific Basin alleges that the bad faith of both OPMC and EBC is manifested by the propensity for shifting their defenses and the deliberate deprivation of the rights so that OPMC can gain substantial 47 shareholdings in the company and affect the balance of power. All these are mere allegations. It is axiomatic that good faith is always presumed unless convincing evidence to the contrary is adduced. It is incumbent upon the party alleging bad faith to sufficiently prove such allegation. Absent enough proof thereof, the 48 presumption of good faith prevails. In the case at bar, the burden of proving alleged bad faith therefore was on Pacific Basin, which failed to discharge its onus probandi. Without a clear and persuasive evidence of bad faith, the presumption of good faith in favor of OPMC and EBC stands. On the issue regarding the award of attorneys fees, the Court finds that it is justified. Attorneys fees may be awarded inter alia when the defendants act or omission has compelled the plaintiff to incur expenses to protect his interests or in any other case where the court deems it just and 49 equitable that the attorneys fees and expenses of litigation be recovered. Here, Pacific Basin was forced to file a case for Mandamus when the OPMC officers refused to do the ministerial act of recording the purchase of shares in the stock and transfer book and to issue new certificates of stock for fully paid shares.
45 46

WHEREFORE, the petition in G.R. No. 144056 is DENIED. The petitions in G.R. Nos. 143972 and 144631 arePARTLY GRANTED. The assailed Decisions of the Court of Appeals dated January 26, 2000 and August 18, 2000 are AFFIRMED with MODIFICATION to the effect that Oriental Petroleum and Minerals Corporation and Equitable Banking Corporation, Mr. Roberto Coyiuto and Ethelwoldo Fernandez (as president and corporate secretary of OPMC respectively) are ORDERED to pay Pacific Basin Securities Co., Inc., jointly and severally, temperate damages in the amount of P1,000,000.00. Costs against Oriental Petroleum and Minerals Corporation and Equitable Banking Corporation. SO ORDERED.

CASE 13 G.R. No. L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners, vs. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents. Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents. CONCEPCION, C.J.: Upon application of the officers of the government named on the margin hereinafter referred to as 2 Respondents-Prosecutors several judges hereinafter referred to as Respondents-Judges issued, on 3 4 different dates, a total of 42 search warrants against petitioners herein and/or the corporations of which they 5 were officers, directed to the any peace officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal property to wit: Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers). as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code." Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of Court because, inter alia: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the documents, papers and cash money seized were not delivered
1

to the courts that issued the warrants, to be disposed of in accordance with law on March 20, 1962, said petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending final disposition of the present case, a writ of preliminary injunction be issued restraining Respondents-Prosecutors, their agents and /or representatives from using the effects seized as aforementioned or any copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter, decision be rendered quashing the contested search warrants and declaring the same null and void, and commanding the respondents, their agents or representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers, things and cash moneys seized or confiscated under the search warrants in question. In their answer, respondents-prosecutors alleged, (1) that the contested search warrants are valid and have been issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned searches and seizures. On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of the corporations above mentioned are concerned; but, the injunction was 7 maintained as regards the papers, documents and things found and seized in the residences of petitioners herein. Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein. As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they 8 hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party 9 whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely 10 personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongsexclusively to the corporations, to whom the seized effects belong, and may not be invoked by the 11 corporate officers in proceedings against them in their individual capacity. Indeed, it has been held: . . . that the Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by onewhose rights have been invaded. Certainly, such a seizure, if unlawful, could not affect the constitutional rights of defendants whose property had not been seized or the privacy of whose homes had not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its violation, if any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the admissibility of the evidence based on an alleged unlawful search and seizure does not extend to the personal defendants but embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.) With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this
6

Court, thereby, in effect, restraining herein Respondents-Prosecutors from using them in evidence against petitioners herein. In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1) whether the search warrants in question, and the searches and seizures made under the authority thereof, are valid or not, and (2) if the answer to the preceding question is in the negative, whether said documents, papers and things may be used in evidence against petitioners herein.1wph1.t Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that accordingly, the seizures effected upon the authority there of are null and void. In this connection, the 13 Constitution provides: The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized. Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized. None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon applications stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specificoffense had been alleged in said applications. The averments thereof with respect to the offense committed wereabstract. As a consequence, it was impossible for the judges who issued the warrants to have found the existence of probable cause, for the same presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws. As a matter of fact, the applications involved in this case do not allege any specific acts performed by herein petitioners. It would be the legal heresy, of the highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code," as alleged in the aforementioned applications without reference to any determinate provision of said laws or To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights guaranteed in our Constitution, for it would place the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the whims caprice or passion of peace officers. This is precisely the evil sought to be remedied by the constitutional provision above quoted to outlaw the so-called general warrants. It is not difficult to imagine what would happen, in times of keen political strife, when the party in power feels that the minority is likely to wrest it, even though by legal means. Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this 14 Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court by providing in its counterpart, 15 under the Revised Rules of Court that "a search warrant shall not issue but upon probable cause in connection with one specific offense." Not satisfied with this qualification, the Court added thereto a paragraph, directing that "no search warrant shall issue for more than one specific offense." The grave violation of the Constitution made in the application for the contested search warrants was compounded by the description therein made of the effects to be searched for and seized, to wit:

12

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including disbursement receipts, balance sheets and related profit and loss statements. Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights that the things to be seized be particularly described as well as tending to defeat its major objective: the elimination of general warrants. Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches and seizures under consideration were unconstitutional, the documents, papers and things thus seized are admissible in evidence against petitioners herein. Upon mature deliberation, however, we are unanimously of the opinion that the position taken in the Moncado case must be abandoned. Said position was in line with the American common law rule, that the criminal should not be allowed to go free merely "because the constable has 16 blundered," upon the theory that the constitutional prohibition against unreasonable searches and seizures is 17 protected by means other than the exclusion of evidence unlawfully obtained, such as the common-law action for damages against the searching officer, against the party who procured the issuance of the search warrant and against those assisting in the execution of an illegal search, their criminal punishment, resistance, without liability to an unlawful seizure, and such other legal remedies as may be provided by other laws. However, most common law jurisdictions have already given up this approach and eventually adopted the exclusionary rule, realizing that this is the only practical means of enforcing the constitutional injunction against unreasonable searches and seizures. In the language of Judge Learned Hand: As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional privilege. In earlier times the action of trespass against the offending official may have been protection enough; but that is true no longer. Only in case the prosecution which itself controls the seizing officials, knows that it 18 cannot profit by their wrong will that wrong be repressed . In fact, over thirty (30) years before, the Federal Supreme Court had already declared: If letters and private documents can thus be seized and held and used in evidence against a citizen accused of an offense, the protection of the 4th Amendment, declaring his rights to be secure against such searches and seizures, is of no value, and, so far as those thus placed are concerned, might as well be stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years of endeavor and suffering which have resulted in their embodiment in the 19 fundamental law of the land. This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. After reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.): . . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee against that very same unlawful conduct. We hold that all evidence obtained by searches and seizures in violation of the Constitution is, by that same authority, inadmissible in a State.
20

Since the Fourth Amendment's right of privacy has been declared enforceable against the States through the Due Process Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion as it used against the Federal Government. Were it otherwise, then just as without the Weeks rule the assurance against unreasonable federal searches and seizures would be "a form of words," valueless and underserving of mention in a perpetual charter of inestimable human liberties, so too, without that rule the freedom from state invasions of privacy would be so ephemeral and so neatly severed from its conceptual nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high regard as a freedom"implicit in the concept of ordered liberty." At the time that the Court held in Wolf that the amendment was applicable to the States through the Due Process Clause, the cases of this Court as we have seen, had steadfastly held that as to federal officers the Fourth Amendment included the exclusion of the evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that proposition. The right to when conceded operatively enforceable against the States, was not susceptible of destruction by avulsion of the sanction upon which its protection and enjoyment had always been deemed dependent under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of due process to all constitutionally unreasonable searches state or federal it was logically and constitutionally necessarily that the exclusion doctrine an essential part of the right to privacy be also insisted upon as an essential ingredient of the right newly recognized by the Wolf Case. In short, the admission of the new constitutional Right by Wolf could not tolerate denial of its most important constitutional privilege, namely, the exclusion of the evidence which an accused had been forced to give by reason of the unlawful seizure. To hold otherwise is to grant the right but in reality to withhold its privilege and enjoyment. Only last year the Court itself recognized that the purpose of the exclusionary rule to "is to deter to compel respect for the constitutional guaranty in the only effectively available way by removing the incentive to disregard it" . . . . The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional restraints on which the liberties of the people rest. Having once recognized that the right to privacy embodied in the Fourth Amendment is enforceable against the States, and that the right to be secure against rude invasions of privacy by state officers is, therefore constitutional in origin, we can no longer permit that right to remain an empty promise . Because it is enforceable in the same manner and to like effect as other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable at the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment. Our decision, founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him to the police officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so necessary in the true administration of justice . (emphasis ours.) Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction against unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence to establish probable cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason why the applicant should not comply with the requirements of the fundamental law. Upon the other hand, if he has no such competent evidence, then it is not possible for the Judge to find that there is probable cause, and, hence, no justification for the issuance of the warrant. The only possible explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a crime. But, then, this fishing expedition is indicative of the absence of evidence to establish a probable cause. Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make unreasonable searches or seizures would suffice to protect the constitutional guarantee under consideration, overlooks the fact that violations thereof are, in general, committed By agents of the party in power, for, certainly, those belonging to the minority could not possibly abuse a power they do not have. Regardless of the handicap under which the minority usually but, understandably finds itself in prosecuting agents of the majority, one 21 must not lose sight of the fact that the psychological and moral effect of the possibility of securing their

conviction, is watered down by the pardoning power of the party for whose benefit the illegality had been committed. In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304 of the Army-Navy Club, should be included among the premises considered in said Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other effects seized in the offices of the corporations above referred to include personal belongings of said petitioners and other effects under their exclusive possession and control, for the exclusion of which they have a standing under the latest rulings of the 22 federal courts of federal courts of the United States. We note, however, that petitioners' theory, regarding their alleged possession of and control over the aforementioned records, papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in their petition or amended petition herein, but in the Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said theory would appear to be readjustment of that followed in said petitions, to suit the approach intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the affidavits or copies of alleged affidavits attached to said motion for reconsideration, or submitted in support thereof, contain either inconsistent allegations, or allegations inconsistent with the theory now advanced by petitioners herein. Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and the contents of the aforementioned affidavits and other papers submitted in support of said motion, have sufficiently established the facts or conditions contemplated in the cases relied upon by the petitioners; to warrant application of the views therein expressed, should we agree thereto. At any rate, we do not deem it necessary to express our opinion thereon, it being best to leave the matter open for determination in appropriate cases in the future. We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in connection with the documents, papers and other effects thus seized in said residences of herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as the documents, papers and other effects so seized in the aforementioned residences are concerned; that the aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other premises enumerated in the same Resolution, without special pronouncement as to costs. It is so ordered.

CASE 14 G.R. No. 150763 July 2, 2004

RURAL BANK OF MAKATI, INC., ESTEBAN S. SILVA and MAGDALENA V. LANDICHO, petitioners, vs. MUNICIPALITY OF MAKATI and ATTY. VICTOR A. L. VALERO, respondents.

DECISION

QUISUMBING, J.: In its decision dated July 17, 2001, in CA-G.R. CV No. 58214, the Court of Appeals affirmed the decision dated October 22, 1996 of the Regional Trial Court of Makati City, Branch 134, in Civil Case No. 91-2866 dismissing petitioners complaint for recovery of a sum of money and damages. Petitioners now assail said CA decision as well 3 as the Resolution dated November 9, 2001, which denied their Motion for Reconsideration. The facts are as follows: Sometime in August 1990, Atty. Victor A.L. Valero, then the municipal attorney of the Municipality of Makati, upon request of the municipal treasurer, went to the Rural Bank of Makati to inquire about the banks payments of taxes and fees to the municipality. He was informed, however, by petitioner Magdalena V. Landicho, corporate secretary 4 of the bank, that the bank was exempt from paying taxes under Republic Act No. 720, as amended. On November 19, 1990, the municipality lodged a complaint with the Prosecutors Office, charging petitioners Esteban S. Silva, president and general manager of the bank and Magdalena V. Landicho for violation of Section 21(a), Chapter II, Article 3 in relation to Sections 105 and 169 of the Metropolitan Tax Code. On April 5, 1991, an Information docketed as Criminal Case No. 140208, for violation of Municipal Ordinance Nos. 122 and 39 for non-payment of the mayors permit fee, was filed with the Metropolitan Trial Court (MeTC) of Makati against petitioners. Another Information, docketed as Criminal Case No. 140209, for non-payment of annual business tax, in violation of Metro Manila Commission Ordinance No. 82-03, Section 21(a), Chapter II, Article 3, was likewise filed with the MeTC. While said cases were pending with the municipal court, respondent municipality ordered the closure of the bank. This prompted petitioners to pay, under protest, the mayors permit fe e and the annual fixed tax in the amount ofP82,408.66. On October 18, 1991, petitioners filed with the RTC of Makati a Complaint for Sum of Money and Damages, docketed as Civil Case No. 91-2866. Petitioners alleged that they were constrained to pay the amount ofP82,408.66 because of the closure order, issued despite the pendency of Criminal Cases Nos. 140208-09 and the lack of any notice or assessment of the fees to be paid. They averred that the collection of the taxes/fees was oppressive, arbitrary, unjust and illegal. Additionally, they alleged that respondent Atty. Valero had no power to enforce laws and ordinances, thus his action in enforcing the collection of the permit fees and business taxes was ultra vires. Petitioners claimed that the bank lost expected earnings in the amount of P19,778. Petitioners then assailed the municipal ordinances of Makati as invalid for want of the requisite publication. In its Answer, respondent municipality asserted that petitioners payment of P82,408.66 was for a legal obligation because the payment of the mayors permit fee as well as the municipal business license was required of all business concerns. According to respondent, said requirement was in furtherance of the police power of the municipality to regulate businesses.
1 2

For his part, Atty. Valero filed an Answer claiming that there was no coercion committed by the municipality, that payment was a legal obligation of the bank, and that its claim of exemption had no legal basis. He further alleged that petitioners action was clearly intended to harass and humiliate him and as counterclaim, he asked for moral and other damages. On October 22, 1996, the RTC decided Civil Case No. 91-2866 as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the complaint. On the counterclaim, the plaintiffs are hereby ordered jointly and severally to pay to defendant Victor Valero the sum of P200,000.00 as moral damages and the amount of P50,000.00 as attorneys fees. The counterclaim of defendant Municipality is dismissed. Cost against the plaintiffs. SO ORDERED.
5

In finding for respondents, the RTC ruled that the bank was engaged in business as a rural bank. Hence, it should secure the necessary permit and business license, as well as pay the corresponding charges and fees. It found that the municipality had authority to impose licenses and permit fees on persons engaging in business, under its police power embodied under the general welfare clause. Also, the RTC declared unmeritorious petitioners claim for 6 exemption under Rep. Act No. 720 since said exemption had been withdrawn by Executive Order No. 93 and the 7 Rural Bank Act of 1992. These statutes no longer exempted rural banks from paying corporate income taxes and local taxes, fees and charges. It also found petitioners claim of lack of publication of MMC Ordinance Nos. 82 -03 and Municipal Ordinance No. 122 to be mere allegations unsupported by clear and convincing evidence. In awarding damages to Atty. Valero, the RTC found that he had been maliciously impleaded as defendant. It noted that Atty. Valero, as a municipal legal officer, was tasked to enforce municipal ordinances. In short, he was merely an agent of the local chief executive and should not be faulted for performing his assigned task. Petitioners seasonably moved for reconsideration, but this was denied by the RTC in its Order dated January 10, 8 1997. Petitioners appealed to the Court of Appeals in CA-G.R. CV No. 58214. The appellate court sustained the lower court in this wise: WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in toto. SO ORDERED.
9

The Court of Appeals found the order of closure of the bank valid and justified since the bank was operating without any permit and without having paid the requisite permit fee. Thus, declared the Court of Appeals, "it is not merely a matter of enforcement and collection of fees, as the appellants would have it, but a violation of the 10 municipalitys authority to regulate the businesses operating within its territory." The appellate court also brushed aside petitioners claim that the general welfare clause is limited only to legislative action. It declared that the exercise of police power by the municipality was mandated by the general welfare clause, which authorizes the local government units to enact ordinances, not only to carry into effect and discharge such duties as are conferred upon them by law, but also those for the good of the municipality and its inhabitants. This mandate includes the regulation of useful occupations and enterprises.

Petitioner moved for reconsideration, but the appellate court in its Resolution of November 9, 2001 denied the same. Hence, this instant petition alleging that the Honorable Court of Appeals seriously erred in: 1) .HOLDING THAT THE CLOSURE BY THE APPELLEE, VICTOR VALERO, OF THE APPELLANT BANK WAS A LEGITIMATE EXERCISE OF POLICE POWER BY THE MUNICIPALITY OF MAKATI; 2) .NOT CONSIDERING THE FACT THAT MAKATI ORDINANCE 122 REQUIRING MAYORS PERMIT FOR OPERATION OF AN ESTABLISHMENT AND MMC ORDINANCE NO. 82-03 WERE ADMITTED AS NOT PUBLISHED AS REQUIRED IN TAADA, ET AL., vs. TUVERA, NO. L-63915, DECEMBER 29, 1986 AND THAT NO TAX ASSESSMENT WAS PRESENTED TO THE BANK; 3) .AWARDING MORAL DAMAGES TO APPELLEE VICTOR VALERO IN THE AMOUNT OF P200,000.00 AND ATTORNEYS FEES IN THE SUM OF P50,000.00; 4) .NOT AWARDING TO THE APPELLANT BANK, THE AMOUNT OF P57,854.00 REPRESENTING THE AMOUNT UNJUSTLY AND ILLEGALLY COLLECTED FROM THE APPELLANT BANK; 5) .NOT AWARDING THE AMOUNT OF P10,413.75 YEARLY REPRESENTING THE UNREALIZED PROFIT WHICH THE APPELLANT BANK IS BEING DEPRIVED OF IN THE USE OF THE AFORESAID AMOUNT PLUS LEGAL INTEREST ALLOWED IN JUDGMENT FROM THE TIME OF THE EXTRAJUDICIAL DEMAND. (DEMAND LETTER, DATED OCTOBER 4, 1991, EXHIBIT "O" FOR THE APPELLANTS); 6) .NOT GRANTING TO APPELLANTS ESTEBAN S. SILVA AND MAGDALENA LANDICHO MORAL DAMAGES IN THE AMOUNT OF P15,000.00; 7) .NOT AWARDING TO APPELLANTS, P1,000,000.00 EXEMPLARY DAMAGES; 25% OF THE APPELLANTS 12 CLAIM AS AND FOR ATTORNEYS FEE AND COSTS OF SUIT. Essentially, the following are the relevant issues for our resolution: 1. Whether or not petitioner bank is liable to pay the business taxes and mayors permit fees imposed by respondent; 2. Whether or not the closure of petitioner bank is valid; 3. Whether or not petitioners are entitled to an award of unrealized profit and damages; 4. Whether or not respondent Atty. Victor Valero is entitled to damages. On the first issue, petitioner bank claims that of the P82,408.66 it paid under protest, it is actually liable only for the amount of P24,154, representing taxes, fees and charges due beginning 1987, or after the issuance of E.O. No. 93. Prior to said year, it was exempt from paying any taxes, fees, and charges by virtue of Rep. Act No. 720. We find the banks claim for refund untenable now. Section 14 of Rep. Act No. 720, as amended by Republic Act No. 4106, approved on July 19, 1964, had exempted rural banks with net assets not exceeding one million pesos (P1,000,000) from the payment of all taxes, charges and fees. The records show that as of December 29, 1986, petitioner banks net assets amo unted only
13

11

toP745,432.29 or below the one million ceiling provided for in Section 14 of the old Rural Banking Act. Hence, under Rep. Act No. 720, petitioner bank could claim to be exempt from payment of all taxes, charges and fees under the aforementioned provision. However, on December 17, 1986, Executive Order No. 93 was issued by then President Corazon Aquino, withdrawing all tax and duty incentives with certain exceptions. Notably, not included among the exceptions were those granted to rural banks under Rep. Act No. 720. With the passage of said law, petitioner could no longer claim any exemption from payment of business taxes and permit fees. Now, as to the refund of P57,854 claimed by petitioners allegedly because of overpayment of taxes and fees, we note that petitioners have not adequately substantiated their claim. As found by the Court of Appeals: As to the computation of the payable fees, the plaintiffs-appellants claim an overpayment and pray for a refund. It is not clearly shown from their argument that such overpayment exists. And from their initial complaint, they even asked for the refund of the whole P82,408.66 paid, which complaint was instituted in 1991. They claim having paid the fees and charges due since 1991, which is irrelevant, since the P82,408.66 was paid for the period before 1991, and thus no deduction can be made for payments after that period. It is not clear where their computation of P57,854.00 owed them came from, and lacking solid support, their prayer for a partial refund must fail. Plaintiffs-appellants have failed to show 15 that the payment of fees and charges even covered the period before their exemption was withdrawn. Factual findings of the Court of Appeals, which are supported on record, are binding and conclusive upon this Court. As repeatedly held, such findings will not be disturbed unless they are palpably unsupported by the 16 evidence on record or unless the judgment itself is based on misapprehension of facts. Moreover, in a petition for review, only questions of law are properly raised. On this score, the refund sought by petitioners could not be entertained much less granted. Anent the second issue, petitioner bank claims that the closure of respondent bank was an improper exercise of police power because a municipal corporation has no inherent but only delegated police power, which must be exercised not by the municipal mayor but by the municipal council through the enactment of ordinances. It also 17 assailed the Court of Appeals for invoking the General Welfare Clause embodied in Section 16 of the Local 18 Government Code of 1991, which took effect in 1992, when the closure of the bank was actually done on July 31, 1991. Indeed the Local Government Code of 1991 was not yet in effect when the municipality ordered petitioner banks closure on July 31, 1991. However, the general welfare clause invoked by the Court of Appeals is not found on the 19 provisions of said law alone. Even under the old Local Government Code (Batas Pambansa Blg. 337) which was then in effect, a general welfare clause was provided for in Section 7 thereof. Municipal corporations are agencies of the State for the promotion and maintenance of local self-government and as such are endowed with police 20 powers in order to effectively accomplish and carry out the declared objects of their creation. The authority of a local government unit to exercise police power under a general welfare clause is not a recent development. This 21 was already provided for as early as the Administrative Code of 1917. Since then it has been reenacted and implemented by new statutes on the matter. Thus, the closure of the bank was a valid exercise of police power pursuant to the general welfare clause contained in and restated by B.P. Blg. 337, which was then the law governing local government units. No reversible error arises in this instance insofar as the validity of respondent municipalitys exercise of police power for the general welfare is concerned. The general welfare clause has two branches. The first, known as the general legislative power, authorizes the municipal council to enact ordinances and make regulations not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon the municipal council by law. The second, known as thepolice power proper, authorizes the municipality to enact ordinances as may be necessary and proper for the

14

health and safety, prosperity, morals, peace, good order, comfort, and convenience of the municipality and its 22 inhabitants, and for the protection of their property. In the present case, the ordinances imposing licenses and requiring permits for any business establishment, for purposes of regulation enacted by the municipal council of Makati, fall within the purview of the first branch of the general welfare clause. Moreover, the ordinance of the municipality imposing the annual business tax is part of the 23 power of taxation vested upon local governments as provided for under Section 8 of B.P. Blg. 337, to wit: Sec. 8. Authority to Create Sources of Revenue. (1) Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law. ... Implementation of these ordinances is vested in the municipal mayor, who is the chief executive of the municipality as provided for under the Local Government Code, to wit: Sec. 141. Powers and Duties. (1) The mayor shall be the chief executive of the municipal government and shall exercise such powers, duties and functions as provided in this Code and other laws. (2) He shall: ... (k) Grant licenses and permits in accordance with existing laws or municipal ordinances and revokethem for violation of the conditions upon which they have been granted; ... (o) Enforce laws, municipal ordinances and resolutions and issue necessary orders for their faithful and proper enforcement and execution; (p) Ensure that all taxes and other revenues of the municipality are collected , and that municipal funds are spent in accordance with law, ordinances and regulations; ... (t) Cause to be instituted judicial proceedings in connection with the violation of ordinances, for the collection of taxes, fees and charges, and for the recovery of property and funds of the 24 municipality, and otherwise to protect the interest of the municipality; (Emphasis supplied) ... Consequently, the municipal mayor, as chief executive, was clothed with authority to create a Special Task Force headed by respondent Atty. Victor A.L. Valero to enforce and implement said ordinances and resolutions and to 25 file appropriate charges and prosecute violators. Respondent Valero could hardly be faulted for performing his official duties under the cited circumstances.

Petitioners contend that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122 are void for lack of publication. This again raises a factual issue, which this Court may not look into. As repeatedly held, this Court is 26 not a trier of facts. Besides, both the Court of Appeals and the trial court found lack of sufficient evidence on this point to support petitioners claim, thus: And finally the matter of the lack of publication is once again alleged by the plaintiffs-appellants, claiming that the matter was skirted by the trial court. This argument must fail, in the light of the trial courts squarely finding lack of evidence to support the allegation of the plaintiffs-appellants. We quote from the trial courts decision: The contention that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122 of Makati are void as they were not publishced (sic) is untenable. The mere allegation of the plaintiff is not sufficient to declare said ordinances void. The plaintiffs failed to adduce clear, convincing and competent evidence to prove said Ordinances void. Moreover, in this jurisdiction, an ordinance is presumed to be valid unless declared otherwise by a Court in an appropriate proceeding where 27 the validity of the ordinance is directly put in issue. On the issue of the closure of the bank, we find that the bank was not engaged in any illegal or immoral activities to warrant its outright closure. The appropriate remedies to enforce payment of delinquent taxes or fees are provided for in Section 62 of the Local Tax Code, to wit: SEC. 62. Civil Remedies. The civil remedies available to enforce payment of delinquent taxes shall be by distraint of personal property, and by legal action. Either of these remedies or both simultaneously may be pursued at the discretion of the proper authority. The payment of other revenues accruing to local governments shall be enforced by legal action.
28

Said Section 62 did not provide for closure. Moreover, the order of closure v iolated petitioners right to due process, considering that the records show that the bank exercised good faith and presented what it thought was a valid and legal justification for not paying the required taxes and fees. The violation of a municipal ordinance does 29 not empower a municipal mayor to avail of extrajudicial remedies. It should have observed due process before ordering the banks closure. Finally, on the issue of damages, we agree with both the trial and the appellate courts that the bank is not entitled to any damages. The award of moral damages cannot be granted to a corporation, it being an artificial person that exists only in legal contemplation and cannot, therefore, experience physical suffering and mental anguish, which 30 can be experienced only by one having a nervous system. There is also no sufficient basis for the award of exemplary damages. There being no moral damages, exemplary damages could not be awarded also. As to attorneys fees, aside from lack of adequate support and proof on the matter, these fees are not recoverable as a 31 matter of right but depend on the sound discretion of the courts. Under the circumstances of this case, the award of damages to Atty. Valero is also baseless. We cannot ascribe any illegal motive or malice to the bank for impleading Atty. Valero as an officer of respondent municipality. The bank filed the case against respondent municipality in the honest belief that it is exempt from paying taxes and fees. Since Atty. Valero was the official charged with the implementation of the ordinances of respondent municipality, he was rightly impleaded as a necessary party in the case. WHEREFORE, the assailed Decision dated July 17, 2001, of the Court of Appeals in CA-G.R. CV No. 58214 is AFFIRMED with MODIFICATIONS, so that (1) the order denying any claim for refunds and fees allegedly overpaid by the bank, as well as the denial of any award for damages and unrealized profits, is hereby SUSTAINED; (2) the

order decreeing the closure of petitioner bank is SET ASIDE; and (3) the award of moral damages and attorneys fees to Atty. Victor A.L. Valero is DELETED. No pronouncement as to costs. SO ORDERED.

CASE 15 G.R. No. 124715 January 24, 2000

RUFINA LUY LIM, petitioner, vs. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. respondents. BUENA, J.: May a corporation, in its universality, be the proper subject of and be included in the inventory of the estate of a deceased person? Petitioner disputes before us through the instant petition for review on certiorari, the decision of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617, which nullified and set aside the orders dated 04 2 3 4 July 1995 , 12 September 1995 and 15 September 1995 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court. Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner".1wphi1.nt Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her 5 nephew George Luy, fried on 17 March 1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, 6 7 then filed a motion for the lifting of lis pendens and motion for exclusion of certain properties from the estate of the decedent. In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court, granted the private respondents' twin motions, in this wise: Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and it is hereby further ordered that the properties covered by the same titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123, 236236 and 263236 are excluded from these proceedings.
8 1

SO ORDERED. Subsequently, Rufina Luy Lim filed a verified amended petition which contained the following averments: 3. The late Pastor Y. Lim personally owned during his lifetime the following business entities, to wit: Business Entity xxx Alliance Marketing, Inc. xxx Speed Distributing Inc. xxx Auto Truck TBA Corp. xxx Active Distributors, Inc. xxx Action Company xxx Address: xxx
9

Block 3, Lot 6, Dacca BF Homes, Paraaque, Metro Manila. xxx xxx

910 Barrio Niog, Aguinaldo Highway, Bacoor, Cavite. xxx xxx

2251 Roosevelt Avenue, Quezon City. xxx xxx

Block 3, Lot 6, Dacca BF Homes, Paraaque, Metro Manila. xxx xxx

100 20th Avenue Murphy, Quezon City or 92-D Mc-Arthur Highway Valenzuela Bulacan.

3.1 Although the above business entities dealt and engaged in business with the public as corporations, all their capital, assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers appearing in the respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim, and they were listed therein only for purposes of registration with the Securities and Exchange Commission. 4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and in other banks whose identities are yet to be determined. 5. That the following real properties, although registered in the name of the above entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit: Corporation xxx Title xxx xxx Location

k. Auto Truck

TCT No. 617726 Sto. Domingo TBA Corporation Cainta, Rizal Prance, Metro Manila

q. Alliance Marketing TCT No. 27896

Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are hereto attached as Annexes "C" to "W". xxx xxx xxx

7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all conjugal in nature, having been acquired by him during the existence of his marriage with petitioner. 8. There are other real and personal properties owned by Pastor Y. Lim which petitioner could not as yet identify. Petitioner, however will submit to this Honorable Court the identities thereof and the necessary documents covering the same as soon as possible. On 04 July 1995, the Regional Trial Court acting on petitioner's motion issued an order , thus: Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of Quezon City is hereby directed to reinstate the annotation of lis pendens in case said annotation had already been deleted and/or cancelled said TCT Nos. 116716, 116717, 116718, 116719 and 51282. Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and 236237 by virtue of the petitioner are included in the instant petition. SO ORDERED. On 04 September 1995, the probate court appointed Rufina Lim as special administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which letters of administration were accordingly issued. In an order dated 12 September 1995, the probate court denied anew private respondents' motion for exclusion, in this wise: The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue involves the piercing of the corporate veil, a matter that is clearly within the jurisdiction of this Honorable Court and not the Securities and Exchange Commission. Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was whether the corporation involved therein was the mere extension of the decedent. After finding in the affirmative, the Court ruled that the assets of the corporation are also assets of the estate. A reading of P.D. 902, the law relied upon by oppositors, shows that the SEC's exclusive ( sic) applies only to intra-corporate controversy. It is simply a suit to settle the intestate estate of a deceased person who, during his lifetime, acquired several properties and put up corporations as his instrumentalities. SO ORDERED.
12 11 10

On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner, issued an order the dispositive portion of which reads: Wherefore, the parties and the following banks concerned herein under enumerated are hereby ordered to comply strictly with this order and to produce and submit to the special administrators, through this Honorable Court within (5) five days from receipt of this order their respective records of the savings/current accounts/time deposits and other deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions made or done concerning savings/current accounts from January 1994 up to their receipt of this court order. xxx SO ORDERED. Private respondent filed a special civil action for certiorari , with an urgent prayer for a restraining order or writ of preliminary injunction, before the Court of Appeals questioning the orders of the Regional Trial Court, sitting as a probate court. On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the assailed 15 decision , the decretal portion of which declares: Wherefore, premises considered, the instant special civil action for certiorari is hereby granted, The impugned orders issued by respondent court on July 4, 1995 and September 12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and records are concerned. SO ORDERED. Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now comes before us with a lone assignment of 16 error : The respondent Court of Appeals erred in reversing the orders of the lower court which merely allowed the preliminary or provisional inclusion of the private respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the petitioner, from performing her duty as special administrator of the estate as expressly provided in the said Rules. Petitioner's contentions tread on perilous grounds. In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were subsequently set aside by the Court of Appeals. Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate proceedings is indeed in order. The provisions of Republic Act 7691 , which introduced amendments to Batas Pambansa Blg. 129, are pertinent: Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980", is hereby amended to read as follows:
17 14

13

xxx

xxx

Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction: xxx xxx xxx

(4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos (P200,000); xxx xxx xxx

Sec. 3. Section 33 of the same law is hereby amended to read as follows: Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise: 1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not exceed One Hundred Thousand Pesos (P100,000) or, in Metro Manila where such personal property, estate or amount of the demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and costs, the amount of which must be specifically alleged, Provided, that interest, damages of whatever kind, attorney's, litigation expenses and costs shall be included in the determination of the filing fees, Provided further, that where there are several claims or causes of actions between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions; xxx xxx xxx

Simply put, the determination of which court exercises jurisdiction over matters of probate depends upon the gross value of the estate of the decedent. As to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may pass upon title to certain properties, albeit provisionally, for the purpose of determining whether a certain property should or should not be included in the inventory. In a litany of cases, We defined the parameters by which the court may extend its probing arms in the determination of the question of title in probate proceedings. This Court, in PASTOR, JR. vs. COURT OF APPEALS, held: . . . As a rule, the question of ownership is an extraneous matter which the probate court cannot resolve with finality. Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title. We reiterated the rule in PEREIRA vs. COURT OF APPEALS :
19 18

. . . The function of resolving whether or not a certain property should be included in the inventory or list of properties to be administered by the administrator is one clearly within the competence of the probate court. However, the court's determination is only provisional in character, not conclusive, and is subject to the final decision in a separate action which may be instituted by the parties. Further, in MORALES vs. CFI OF CAVITE citing CUIZON vs. RAMOLETE , We made an exposition on the probate court's limited jurisdiction: It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so. Again, in VALERA vs. INSERTO , We had occasion to elucidate, through Mr. Justice Andres Narvasa : Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of and determine the issue of title to property claimed by a third person adversely to the decedent, unless the claimant and all other parties having legal interest in the property consent, expressly or impliedly, to the submission of the question to the probate court for adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the exception being that the question of whether or not a particular matter should be resolved by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of procedural one, involving a mode of practice which may be waived. . . . . . . . These considerations assume greater cogency where, as here, the Torrens title is not in the decedent's name but in others, a situation on which this Court has already had occasion to rule . . . . (emphasis Ours) Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and registered in the name of private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the determination by the probate court of whether these properties should be included or not is merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought for the purpose of adjudging once and for all the issue of title. Yet, under the peculiar circumstances, where the parcels of land are registered in the name of private respondent 24 corporations, the jurisprudence pronounced in BOLISAY vs., ALCID is of great essence and finds applicability, thus: It does not matter that respondent-administratrix has evidence purporting to support her claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after it has been set aside in the manner indicated in the law itself, which of course, does not include, bringing up the matter as a mere incident in special proceedings for the settlement of the estate of deceased persons. . . . . . . . In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence to the contrary, the holder thereof should be considered as the
22 23 20 21

owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title. . . . A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, "The Property Registration Decree", proscribes collateral attack on Torrens Title, hence: xxx xxx xxx

Sec. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law. In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the controversy was duly registered under the Torrens system, We categorically stated: . . . Having been apprised of the fact that the property in question was in the possession of third parties and more important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should have denied the motion of the respondent administrator and excluded the property in question from the inventory of the property of the estate. It had no authority to deprive such third persons of their possession and ownership of the property. . . . Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. Accordingly, the probate court was remiss in denying private respondents' motion for exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of title over properties, it is no less true that such authority conferred upon by law and reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of each individual case. Notwithstanding that the real properties were duly registered under the Torrens system in the name of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders. By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court through such brazen act transgressed the clear provisions of law and infringed settled jurisprudence on this matter. Moreover, petitioner urges that not only the properties of private respondent corporations are properly part of the decedent's estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations, 25 26 27 which are the private respondents in the instant case. Petitioner thus attached as Annexes "F" and "G" of the petition for review affidavits executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the incorporators of Uniwide Distributing, Inc. included on the list had no actual and participation in the organization and incorporation of the said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide Distributing, Inc., as incorporators thereof, are mere

dummies since they have not actually contributed any amount to the capital stock of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective signatures thereon. It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal 28 indebtedness of its stockholders or those of the entities connected with it. Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK vs.COURT OF 29 APPEALS , We enunciated: . . . When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. . . . Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a 30 seemingly separate one, were it not for the existing corporate fiction. The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to 31 naught. Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent 32 "piercing the corporate veil". Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a 33 corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and 34 convincingly established. It cannot be presumed. Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would have justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the aforementioned documents possess no weighty probative value pursuant to the hearsay rule. Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented during the course of the proceedings in

the lower court. To put it differently, for this Court to uphold the admissibility of said documents would be to relegate from Our duty to apply such basic rule of evidence in a manner consistent with the law and jurisprudence. Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS finds pertinence: Affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. Moreover, the adverse party is deprived of the opportunity to cross-examine the affiants. For this reason, affidavits are generally rejected for being hearsay, unless the affiant themselves are placed on the witness stand to testify thereon. As to the order of the lower court, dated 15 September 1995, the Court of Appeals correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said order; The probate court had no authority to demand the production of bank accounts in the name of the private respondent corporations. WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for lack of merit and the decision of the Court of Appeals which nullified and set aside the orders issued by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED. 1wphi1.nt SO ORDERED.
36 35

CASE 16 G.R. No. 124293 January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents. RESOLUTION PUNO, J.: For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc. The petitioner questions the Resolution which reversed our Decision of November 20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals promulgated on July 18, 1995. I. Facts The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows: On January 27, 1997, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of

its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz: 1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate. On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%. In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government's share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the right to top. On September 7, 1990, 1 KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top. At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were explained to the interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads: 1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the rules herein enumerated. xxx xxx xxx 2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the Committee on Privatization (COP). 2.1 APT reserves the right in its sole discretion, to reject any or all bids. 3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00). xxx xxx xxx 6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the

date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof. 6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's notice within which to pay the balance of their bid price. 6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder. xxx xxx xxx 12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. . . . At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz: 4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof. As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules." On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings. On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the
2

proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to KAWASAKI/*PHILYARDS+ isestopped from questioning the validity of the award given to [PHILYARDS] after the latter exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court. On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because the petition was also one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal not only because it violates the rules on competitive bidding but more so, because it allows foreign corporations to own more than 40% equity in the shipyard. It also held that "although the petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz: WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to: (a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner; (b) execute a Stock Purchase Agreement with petitioner; (c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's total capitalization; (d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and (e) cause the cancellation of the stock certificates issued to PHI. SO ORDERED. In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to 3 KAWASAKI violates the principles of competitive bidding. (citations omitted) In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature, a shipyard is 4 5 not a public utility and that no law declares a shipyard to be a public utility. On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan 6 (KAWASAKI) from acquiring more than 40% of PHILSECOs total capitalization. On the final issue, we held that the right to top granted to KAWASAKI in exchange for its right of first refusal did not violate the principles of 7 competitive bidding.

On October 20, 2003, the petitioner filed a Motion for Reconsideration and a Motion to Elevate This Case to the 9 Court En Banc. Public respondents Committee on Privatization (COP) and Asset Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.s (JG Summits) Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively. II. Issues Based on the foregoing, the relevant issues to resolve to end this litigation are the following: 1. Whether there are sufficient bases to elevate the case at bar to the Court en banc. 2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a reconsideration of this Courts Resolution of September 24, 2003. Motion to Elevate this Case to the Court En Banc The petitioner prays for the elevation of the case to the Court en banc on the following grounds: 1. The main issue of the propriety of the bidding process involved in the present case has been confused with the policy issue of the supposed fate of the shipping industry which has never been an issue that is 10 determinative of this case. 2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984 which included among en banc cases those involving a novel question of law and those where a doctrine 11 or principle laid down by the Court en banc or in division may be modified or reversed. 3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report dated October 17, 2001, which matter was placed in the agenda of the Court and noted by it in a formal resolution dated November 28, 12 2001. Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the petitioners inconsistency in previously opposing PHILYARDS Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not an appellate court to which decisions or resolutions of its divisions 13 may be appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989. PHILYARDS also alleges that there is no novel question of law involved in the present case as the assailed Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent power of courts to amend 14 and control its process and orders so as to make them conformable to law and justice. (Rule 135, sec. 5)" Private respondent belittles the petitioners allegations regarding the change in ponente and the alleged executive interference as shown by former Secretary of Finance Jose Isidro Camachos memorandum dated November 5, 2001 arguing that these do not justify a referral of the present case to the Court en banc. In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit further argued that: its Opposition to the Office of the Solicitor Generals Motion to Refer is different from its own Motion to

Elevate; different grounds are invoked by the two motions; there was unwarranted "executive interference"; and 15 the change in ponente is merely noted in asserting that this case should be decided by the Court en banc. We find no merit in petitioners contention that the propriety of the bidding process involved in the present case has been confused with the policy issue of the fate of the shipping industry which, petitioner maintains, has never been an issue that is determinative of this case. The Courts Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the bidding process. In discussing whether the right to top granted to KAWASAKI in exchange for its right of first refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules and principles of public bidding and whether they were complied with in the case 16 at bar. This Court categorically ruled on the petitioners argument that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so, we recognized 17 the impact of our ruling on the shipbuilding industry which was beyond avoidance. We reject petitioners argument that the present case may be considered under t he Supreme Court Resolution dated February 23, 1984 which included among en banc cases those involving a novel question of law and those where a doctrine or principle laid down by the court en banc or in division may be modified or reversed. The case was resolved based on basic principles of the right of first refusal in commercial law and estoppel in civil law. Contractual obligations arising from rights of first refusal are not new in this jurisdiction and have been recognized 18 in numerous cases. Estoppel is too known a civil law concept to require an elongated discussion. Fundamental principles on public bidding were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a condition or a reservation made in the bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the 19 President, et al., we dealt with this conditionality, viz: x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the effect that the bidding shall be subject to the right of the government to reject any and all bids subject to its discretion. In the case at bar, the government has made its choice and unless an unfairness or injustice is shown, the losing bidders have no cause to complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction and elsewhere." The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decisionmaking. It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at all in contemplation of law, where the power is exercised in an arbitrary and despotic manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L40867, 26 July 1988, 163 SCRA 489). The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra), the

CISS Committee made an express reservation of the right of the Government to "reject any or all bids or any part thereof or waive any defects contained thereon and accept an offer most advantageous to the Government." It is a well-settled rule that where such reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case may be, is not entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied)1awphi1.nt Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government in the bidding rules which was made known to all parties. It was a condition imposed on all bidders equally, based on the APTs exercise of its discretion in deciding on how best to privatize the governments shares in PHILSECO . It was not a whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which the APT approved as the best way the government could comply with its contractual obligations to KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the government. The right to top had its history in the mutual right of first refusal in the JVA and was reached by agreement of the government and KAWASAKI. Further, there is no "executive interference" in the functions of this Court by the mere filing of a memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution dated September 24, 2003 was decided unanimously by the Special First Division in favor of the respondents . Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court and the Court en 21 banc is not an appellate court to which decisions or resolutions of a Division may be appealed. For all the foregoing reasons, we find no basis to elevate this case to the Court en banc. Motion for Reconsideration Three principal arguments were raised in the petitioners Motion for Reconsideration. First, that a fair resolution of the case should be based on contract law, not on policy considerations; the contracts do not authorize the right to 22 top to be derived from the right of first refusal. Second, that neither the right of first refusal nor the right to top can be legally exercised by the consortium which is not the proper party granted such right under either the JVA or 23 the Asset Specific Bidding Rules (ASBR). Third, that the maintenance of the 60%-40% relationship between the National Investment and Development Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the 24 60%-40% constitutional limitation. On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show compelling 25 reasons to warrant a reconsideration of the Decision of the Court. PHILYARDS denies that the Decision is based mainly on policy considerations and points out that it is premised on principles governing obligations and contracts and corporate law such as the rule requiring respect for contractual stipulations, upholding rights of first refusal, 26 and recognizing the assignable nature of contracts rights. Also, the ruling that shipyards are not public utilities relies on established case law and fundamental rules of statutory construction. PHILYARDS stresses that 27 KAWASAKIs right of first refusal or even the right to top is not limited to the 40% equity of the latter. On the landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this Court can take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately a qualified entity would eventually hold PHILSECOs real estate 28 properties. Further, given the assignable nature of the right of first refusal, any applicable nationality restrictions, including landholding limitations, would not affect the right of first refusal itself, but only the manner of its 29 exercise. Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summits allegations of fact regarding
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PHILSECOs landholding, it must also recognize PHILYARDS assertions that PHILSECOs landholdings were sold to 30 another corporation. As regards the right of first refusal, private respondent explains that KAWASAKIs reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually granted right of 31 first refusal. Also, the bidding was valid because PHILYARDS exercised the right to top and it was of no moment 32 that losing bidders later joined PHILYARDS in raising the purchase price. In cadence with the private respondent PHILYARDS, public respondents COP and APT contend: 1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the JVA between NIDC and KAWASAKI. 2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign ownership. 3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as it voluntarily submitted itself to the terms of the ASBR which included the provision on the right to top. 4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that PHILYARDS formed a consortium to raise the required amount to exercise the right to top the highest bid by 5% does not violate the JVA or the ASBR. 5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real property. 6. Petitioners motion to elevate the case to the Court en banc is baseless and would only delay the 33 termination of this case. In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and private respondents in this wise: 1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the exercise of a right to top, which is contrary to law and the constitution is null and void for being violative of substantive due process and the abuse of right provision in the Civil Code. a. The bidders*+ right to top was actually exercised by losing bidders. b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding. c. The benefits derived from the right to top were unwarranted. 2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored by the respondents. a. The landholding issue is not a non-issue. b. The landholding issue does not pose questions of fact. c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case. 3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to top. a. The history behind the birth of the right to top shows fraud and bad faith. b. The right of first refusal was, indeed, "effectively useless." 4. Petitioner is not legally estopped to challenge the right to top in this case. a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public policy. b. Deception was patent; the right to top was an attractive nuisance. c. The 10% bid deposit was placed in escrow. J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal is not new and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of first 34 refusal in the JVA. We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more than 40% of 35 PHILSECOs total capitalization. Likewise, nothing in the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing new and o f significance in the petitioners pleading warrants a reconsideration of our ruling. Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can legally be exercised by the consortium which is not the proper party granted such right under either the JVA or the ASBR. Thus, we held: The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion necessary in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the petitioner estopped from questioning the validity of the transfer of 36 the National Government's shares in PHILSECO to respondent. Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who were losing bidders. This is a purely commercial decision over which the State should not interfere absent any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a corporation which the government sought to privatize. As such, the persons with whom PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are basically its business. This is in contrast to a case involving a contract for the operation of or construction of a government infrastructure where the identity of the buyer/bidder or financier constitutes an important consideration. In such cases, the government would have to take utmost precaution to protect public interest by ensuring that the parties with which it is contracting have the ability to satisfactorily construct or operate the infrastructure. On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on

landholding by corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could not 37 subsequently be converted into the right to top. Petitioner also asserts that, at present, PHILSECO continues to 38 violate the constitutional provision on landholdings as its shares are more than 40% foreign-owned. PHILYARDS 39 admits that it may have previously held land but had already divested such landholdings. It contends, however, that even if PHILSECO owned land, this would not affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first refusal, being a property right, could be assigned to a qualified party. In the alternative, the land could be divested before the exercise of the right of first refusal. In the case at bar, respondents assert that since the right of first refusal was validly converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), 40 then there is no violation of the Constitution. At first, it would seem that questions of fact beyond cognizance by this Court were involved in the issue. However, the records show that PHILYARDS admits it had owned land up 41 until the time of the bidding. Hence, the only issue is whether KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the bidding and KAWASAKI already held 40% of PHILSECOs equity. We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations . As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders ownership of the shares which is adversely affected but the capacity of the corporation to own land that is, the corporation becomes disqualified to own land. This finds support under the basic corporate law principle that the corporation and its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land. This is the clear import of the following provisions in the Constitution: Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. xxx xxx xxx Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to 42 individuals, corporations, or associations qualified to acquire or hold lands of the public domain . (emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is similarly void. Hence, 43 the right to top, sourced from the right of first refusal, is also void." Contrary to the contention of petitioner, the case of Lui She did not that say "an option to buy land is void in itself," for we ruled as follows: x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. As this Court said in Krivenko vs. Register of Deeds: [A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire. But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) rights the sum total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet this is just exactly what the parties in this case did within this pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against alien landholding in the 44 Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave peril. (emphases supplied; Citations omitted) In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land from selling, donating, mortgaging, or encumbering the property during the 50-year period of the option to buy. This is not so in the case at bar where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over shares of stockwhile the Lui She case involves an option to buy the land itself. As discussed earlier, there is a distinction between the shareholders ownership of shares and the corporations ownership of land arising from the separat e juridical personalities of the corporation and its shareholders. We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the 45 Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights which are real rights. It cites Article 415 of the Civil Code which includes in the definition of immovable property, "contracts for public 46 works, and servitudes and other real rights over immovable property." Any existing landholding, however, is 47 denied by PHILYARDS citing its recent financial statements. First, these are questions of fact, the veracity of which would require introduction of evidence. The Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings, to wit: 29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this violates the Constitution x x x The violation continues to this day because under the law, it continues to own real property xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed in 1977), provided: "Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain." 32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution. 32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended). (emphases supplied) As correctly observed by the public respondents, the prohibition in the Constitution applies only to ownership of 48 land. It does not extend to immovable or real property as defined under Article 415 of the Civil Code.Otherwise, we would have a strange situation where the ownership of immovable property such as trees, 49 plants and growing fruit attached to the land would be limited to Filipinos and Filipino corporations only. III. WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is DENIED WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise DENIED for lack of merit. SO ORDERED.

CASE 17 G.R. No. 153886 January 14, 2004

MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent. DECISION CARPIO-MORALES, J.: This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the decision and 2 resolution of the Court of Appeals, raises the issue of whether the defendant in a complaint for collection of sum of money can raise a counterclaim for retirement benefits, unpaid salaries and incentives, and other benefits arising from services rendered by him in a subsidiary of the plaintiff corporation. On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million (P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default which would give the lender the right to declare the loan together with accrued interest immediately due and 3 payable.
1

Sec. 6 of the agreement detailed what constituted an "event of default" as follows: Section 6 Each of the following events and occurrences shall constitute an Event of Default ("Event of Default") under this Agreement: a) the BORROWER fails to make payment when due and payable of any amount he is obligated to pay under this Agreement; b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient to cover the 4 amount of the LOAN. As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the latter 5 and gives his written instructions to it (Sky Vision). Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed 6 unliquidated advances from Sky Vision had already been properly liquidated. On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the above-quoted Section 6 of the loan agreement as he failed to put up the needed collateral for the loan and pay the installments as they became 7 8 due, and that despite his receipt of letters of demand dated December 1, 1997 and January 13, 1998, he refused to pay. In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with respondent, it being merely a "cover document" to evidence the reward to him of ten million pesos (P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and that the payment, if any was expected, was in the form of continued service; and that it was when he was compelled by respondent to retire that the form of payment agreed upon was rendered impossible, prompting the late Eugenio Lopez, Jr. to agree that his 9 retirement benefits from Sky Vision would instead be applied to the loan. By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00, unpaid incentives in the amount of P500,000, unpaid share from the "net income of Plaintiff corporation," equity in his service vehicle in the amount of P1,500,000, reasonable return on the stock ownership plan for services rendered as General Manager, 10 and moral damages and attorneys fees. Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of money in the form of compulsory counterclaims: 1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid share from the net income with Plaintiff corporation (to be computed) as actual damages; 2. P15,000,000.00, as moral damages; and 3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of suit.
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Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to hold respondent liable for his counterclaims. By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondents motion to dismiss the counterclaim on the following premises: A counterclaim being essentially a complaint, the principle that a motion to dismiss hypothetically admits the allegations of the complaint is applicable; the counterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between respondent and Sky Vision to merit the 12 piercing of the veil of corporate fiction. Respondents motion for reconsideration of the trial courts Order of January 3, 2000 having been denied, it filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the real party-in-interest on the counterclaim and that there was failure to show the presence of any of the circumstances to justify the application of the principle of "piercing the veil of corporate fiction." The Orders of the trial court were thus set aside and the 13 counterclaims of petitioner were accordingly dismissed. The Court of Appeals having denied petitioners motion for reconsideration, the instant Petition for Review was filed which assigns the following errors: I. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3, 2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF JUDGMENT AND NOT ERRORS OF JURISDICTION. II. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-ININTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.S MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYING THE PIERCING OF THE VEIL OF CORPORATE FICTION. III. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF PETITIONER VELARDE ARE 14 NOT COMPULSORY. While petitioner correctly invokes the ruling in Atienza v. Court of Appeals to postulate that not every denial of a motion to dismiss can be corrected by certiorari under Rule 65 and that, as a general rule, the remedy from such denial is to appeal in due course after a decision has been rendered on the merits, there are exceptions thereto, as when the court in denying the motion to dismiss acted without or in excess of jurisdiction or with patent grave 16 abuse of discretion, or when the assailed interlocutory order is patently erroneous and the remedy of appeal 17 would not afford adequate and expeditious relief, or when the ground for the motion to dismiss is improper 18 19 20 venue, res judicata, or lack of jurisdiction as in the case at bar. Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to dismiss the counterclaims to assail its jurisdiction, respondent asserting that the counterclaims, being money claims arising
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from a labor relationship, are within the exclusive competence of the National Labor Relations Commission. On the other hand, petitioner alleged that due to the tortuous manner he was coerced into retirement, it is the Regional Trial Courts (RTCs) and not the National Labor Relations Commission which has exclusive jurisdiction over his counterclaims. In determining which has jurisdiction over a case, the averments of the complaint/counterclaim, taken as a whole, 22 are considered. In his counterclaim, petitioner alleged that: xxx 29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately after receiving this computation, Defendant immediately informed Plaintiff of the erroneous figure used as salary in the computation of benefits. This was done in a telephone conversation with a certain Atty. Amina Amado of Lopez, Inc. 29.1 The Defendant also informed her that the so called "unliquidated advances amounting to P422,922.87 since 1995" had all been properly liquidated as reflected in all the reports of the company. The Defendant reminded Atty. Amado of unpaid incentives and salaries for 1997. 29.2 Defendant likewise informed Plaintiff that the one month for every year of service as a basis for the computation of the Defendants retirement benefit is erroneous. This computation is even less than what the rank and file employees get. That CEOs, COOs and senior executives of the level of ABS -CBN, Sky Vision, Benpres, Meralco and other Lopez companies had and have received a lot more than the regular rank and file employees. All these retired executives and records can be summoned for verification. 29.3 The circumstances of the retirement of the Defendant are not those for a simple and ordinary rank and file employee. Mr. Lopez, III admitted that he and the Defendant have had problems which accumulated through time and that they chose to part ways in a manner that was dignified for both of them. Treating the Defendant as a rank and file employee is hardly dignified not just to the Defendant but also to the Lopezes whose existing executives serving them will draw lessons from the Defendants experience. 29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known in the local and international media community, is hardly considered a rank and file employee. Defendant was a stockholder of the Corporation and a duly-elected member of the Board of Directors. Certain government officials can attest to the sensitivity of issues and matters the Defendant had represented for the Lopezes that are hardly issues handled by a simple rank and file employee. Respectable individuals in government 23 and industry are willing to testify to this regard.x x x (Underscoring and italics supplied). At the heart of petitioners counterclaim is his alleged forced retirement which is also the basis of his claim for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan, and other benefits from a subsidiary company of the respondent. Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a corporate officers dismissal. For a corporate officers dismissal is always a corporate act and/or an intra -corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors may have in 24 taking such action. With regard to petitioners claim for unpaid salaries, unpaid share in net income, reasonable return on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer includes money claims since such

21

claims are actually part of the prerequisite of his position and, therefore, interlinked with his relations with the 25 corporation. The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate 26 affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code. While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the trial court denying respondents motion for reconsideration of the denial of its motion to dismiss was issued on October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate controversies, subject of the counterclaims, to RTCs. But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof against respondent is improper, it not being the real party-in-interest, for it is petitioners employer Sky Vision, respondents subsidiary. It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company, hence, any claim or suit against the latter does not bind the former and vice versa. Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two 27 corporations, the law will regard the corporations as merged into one. The rationale behind piercing a corporations identity is to remove the barrier between the corporati on from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain 28 proscribed activities. In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause 29 the injury or unjust loss complained of. Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for damages arising from the alleged tortuous manner by which petitioner was forced to retire as General Manager of Sky Vision is respondent. Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know the legal and binding effects of loan agreements. It bears emphasis that Sky Visions involvement in the transaction subject of the case spran g only after a proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision be used in partial payment of 30 his loan from respondent as gathered from the July 15, 1998 letter of Rommel Duran, Vice-President and General Manager of respondent, to petitioner reading:

Dear Mr. Velarde: As requested, we have made computations on the outstanding amount of your loan with Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central CATV, Inc. ""Sky/Central") be applied to the partial payment of your loan. Please note that in order to effect the application of your retirement benefits to the partial payment of your loan, you will need to give Sky/Central written instructions on the same in the soonest possible time. As you will see in the attached computation, the amount of P4,077,077.13 will be applied to the payment of your loan to retroact on January 1, 1998. The amount of P422,922.87, representing unliquidated advances made by Sky/Central to you (see attached listing), has been deducted from your retirement pay of P4.5 million. Should you be able to liquidate the advances as requested by Sky/Central, the said amount will be applied to the partial payment of your loan and we shall adjust the amount of principal and interest due from you accordingly. After the application of the amount of P4,077,077.13 to the partial payment of your loan, the amount of P7,585,912.86 will be immediately due and demandable. The amount of P7,585,912.86 represents the outstanding principal and interest due as of July 15, 1998. Without the application of your retirement benefits to the partial payment of your loan, the amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full payment of your outstanding obligation immediately. (Underscoring supplied) As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a set-off, it is a condition sine qua non that the approval thereof by "Sky/Central" must be obtained, and that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky Vision as to make the latter its mere instrumentality, agency or adjunct. WHEREFORE, the instant petition for review on certiorari is hereby DENIED. SO ORDERED.

CASE 18 G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner, vs. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents. DECISION CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision of the Court of Appeals (CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and 2 its Resolution dated June 28, 2004 denying the motion for reconsideration thereof.
1

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent 3 bank) for the issuance of commercial letters of credit to finance its importation of assorted goods. Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The 4 goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts as surety, acknowledging delivery of the following goods: T/R Nos. 1845 Date Granted Maturity Date Principal Description of Goods

12-05-80

03-05-81

P1,596,470.05

79.9425 M/T "SDK" Brand Synthetic Graphite Electrode 3,000 pcs. (15 bundles) Calorized Lance Pipes One Lot High Fired Refractory Tundish Bricks 5 cases spare parts for CCM 200 pcs. ingot moulds High Fired Refractory Nozzle Bricks Synthetic Graphite Electrode [with] tapered pitch filed nipples 3,000 pcs. (15 bundles calorized lance pipes [)] Spare parts for Spectrophotometer 50 pcs. Ingot moulds 50 pcs. Ingot moulds 8 pcs. Kubota Rolls for rolling mills Spare parts for 5 Lacolaboratory Equipment

1853

12-08-80

03-06-81

P198,150.67

1824

11-28-80

02-26-81

P707,879.71

1798 1808 2042

11-21-80 11-21-80 01-30-81

02-19-81 02-19-81 04-30-81

P835,526.25 P370,332.52 P469,669.29

1801

11-21-80

02-19-81

P2,001,715.17

1857

12-09-80

03-09-81

P197,843.61

1895

12-17-80

03-17-81

P67,652.04

1911 2041 2099

12-22-80 01-30-81 02-10-81

03-20-81 04-30-81 05-11-81

P91,497.85 P91,456.97 P66,162.26

2100

02-10-81

05-12-81

P210,748.00

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the

form of money or bills, receivables, or accounts separate and capable of identification" were respondent banks property. When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value 6 amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa against petitioner in the Office of the City Prosecutor of Manila. After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court. Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed 7 in a Resolution dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against 8 petitioner. The City Prosecutor was ordered to move for the withdrawal of the Informations. This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24, 9 1988. The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that 10 the material allegations therein did not amount to estafa. In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez, holding that the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a 12 trust receipt is an act violative of the obligation of the entrustee to pay." On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614. Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability was only civil, not criminal, having 13 signed the trust receipts as surety. Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling: 1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of the trust receipts; 2. That the respondent is a mere surety of the trust receipts; and 3. That the liability of the respondent is only civil in nature.
14 11

On July 13, 1999, the Secretary of Justice issued Resolution No. 250 granting the petition and reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior VicePresident of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied Banking Corporation v. 16 Ordoez, where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure to turn

15

over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts." The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. 17 Court of Appeals; and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115. Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for 18 reconsideration, which the Secretary of Justice denied in a Resolution dated January 17, 2000. Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the Secretary of Justice on the following grounds: 1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS. 2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE. 3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY CONTINUED THE 19 PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it 20 hereby undertakes to notify this Honorable Court within five (5) days from such notice." In its Comment on the petition, the Office of the Solicitor General alleged that A. THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE. B.

THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL. C. THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE PRESENT 21 PETITION MUST THEREFORE BE DISMISSED. On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner. On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v. 22 Ordoez; and (c) petitioner was estopped from raising the City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ. Thus, petitioner filed the instant petition, alleging that: I THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE. II THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT 23 WITH THE ASSAILED RESOLUTIONS. The Court will delve into and resolve the issues seriatim. The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in his certification of non-forum shopping should not result in the dismissal of his petition. The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts about pending actions concerning similar issues and parties. It asserts that petitioners failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in 24 Melo v. Court of Appeals.

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition before the appellate court is defective. The certification reads: It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it 25 hereby undertakes to notify this Honorable Court within five (5) days from such notice. Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part: SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved, the factual background of the case and the grounds relied upon for the relief prayed for. xxx The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx Compliance with the certification against forum shopping is separate from and independent of the avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise 26 provided. Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner failed to certify that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court. We agree with petitioners contention that the certification is designed to promote and facilitate the orderly administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed 27 of. However, there must be a special circumstance or compelling reason which makes the strict application of the requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action involving the same issues in other tribunals. On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under

Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated: Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz: "x x x it is apropos to quote section 13 of PD 115 which states in part, viz: xxx If the violation or offense is committed by a corporation, partnership, association or other judicial 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 the civil liabilities arising from the criminal offense. "There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD 115. "Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts. "In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our penal law. "Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil lia bilities arising from the criminal offense thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is 28 clearly separate and distinct from his criminal liability under PD 115." Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries and equipment and not for resale. The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit. 35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability. Petitioners responsibility as the corporate official of PBM who received the goods in trust is premised on Section 13 of P.D. No. 115, which provides: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. 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 the civil liabilities arising from the criminal offense. (Emphasis supplied) 36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBMs 29 violation of P.D. No. 115. The ruling of the CA is correct. In Mendoza-Arce v. Office of the Ombudsman (Visayas), this Court held that the acts of a quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against 31 the accused. The Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the 32 absence of probable cause, such act may be nullified by a writ of certiorari. Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, the Information shall be prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is 34 filed against the respondent despite absence of evidence showing probable cause therefor. If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may 35 likewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure. A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that more likely than not, a crime has been committed by 36 the suspect.
33 30

However, while probable cause should be determined in a summary manner, there is a need to examine the evidence with care to prevent material damage to a potential accuseds constitutional right to liberty and the 37 guarantees of freedom and fair play and to protect the State from the burden of unnecessary expenses in 38 prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges. In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence. Section 4 of P.D. No. 115 defines a trust receipt transaction, thus: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation, collection or renewal. The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt 39 agreement. The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and 40 conditions of the trust receipt not contrary to the provisions of the decree.

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt; provided, such are not contrary to the provisions of the 41 document. In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows: And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Banks account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise. I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said goods. In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust Receipt to the BANK without any need of demand. I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or 42 bills, receivables, or accounts separate and capable of identification as property of the BANK. It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said 43 goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions. The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v. 44 Ordoez. The law applies to goods used by the entrustee in the operation of its machineries and equipment. The non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustees obligation to pay the amount or to return the goods to the entruster. In Colinares v. Court of Appeals, the Court declared that there are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which 46 refers to merchandise received under the obligation to return it (devolvera) to the owner. Thus, failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that 47 causes prejudice, not only to another, but more to the public interest.
45

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115. The penalty clause of the law, Section 13 of P.D. No. 115 reads: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. 1wphi1 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 the civil liabilities arising from the criminal offense. The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article 315, which reads: ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be; 2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos; 3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and 4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible 48 share in the violations of the law. If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be 49 penalized for a crime punishable by imprisonment. However, a corporation may be charged and prosecuted for a

crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a 50 corporation may be prosecuted and, if found guilty, may be fined. A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such 51 penalty. Corporate officers or employees, through whose act, default or omission the corporation commits a 52 crime, are themselves individually guilty of the crime. The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their 53 relationship to the corporation, they had the power to prevent the act. Moreover, all parties active in promoting 54 a crime, whether agents or not, are principals. Whether such officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact. In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself 55 behind a corporation where he is the actual, present and efficient actor. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner. SO ORDERED.

CASE 19 G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner, vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents. DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision of 2 the Court of Appeals (CA) dated June 18, 1997 and its Resolution dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company. The facts of the case, as culled from the records, are as follows:
1

Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area. Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate contracts denominated as Agreements for the Sale of Electric Energy under the following account 3 4 numbers: 09341-1322-16 and 09341-1812-13. Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10. In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of 5 Lease with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract. On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters 6 installed at the DCIM building, witnessed by Ultra's representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The results of the inspection were reflected in the Service 7 Inspection Reports prepared by the team. In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until 8 September 28, 1987, as a result of the alleged tampering of the meters. TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. 9 Bobby Tan, referred the demand letter to Ultra which, in turn, informed TEC that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the 10 meters, petitioner's assessment was excessive. For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building on April 29, 1988. TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 11 before the Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building. The ERB immediately ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered 12 anew. Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the 13 14 differential billing. TEC denied petitioner's allegations and claim in a letter dated June 29, 1988. Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service 15 would be disconnected in case of continued refusal to pay the differential billing. To avert the impending 16 disconnection of electrical service, TEC paid the above amount, under protest. On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra before the Regional 18 Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851. Upon the filing of the parties' answer to the complaint, pre-trial was scheduled.
17

At the pre-trial, the parties agreed to limit the issues, as follows: 1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building. 2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount ofP7,040,401.01. 3. Whether or not the plaintiff is liable to defendant for exemplary damages.
19

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision reads: WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows: (1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing of this case on January 19, 1989 until the said amount shall have been fully paid; (2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate of interest also from January 19, 1989; (3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest at legal rate from January 19, 1989; (4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00; (5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount of P200,000.00; (6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00 Costs against defendant Meralco. SO ORDERED.
20

The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to the transformer vault did not, in themselves, prove the alleged tampering, especially since access to the 21 transformer was given only to petitioner's employees. The sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus 22 makes it liable for damages. The court further denied petitioner's claim of differential billing primarily on the 23 ground of equitable negligence. Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00.

Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states: WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled to lease a generator set with interest at the legal rate from the above-stated date. SO ORDERED.
24

The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric power without prior notice. Petitioner now comes before this Court in this petition for review on certiorari contending that: The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this Honorable Court: 1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building owned by TEC. 2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to differential billing, and if so, how much. 3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering. 4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra. 5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building. 6. In finding that there was no notice of disconnection. 7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering. 8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter installations, they were found to be tampered. 9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters. 10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is questionable"; 11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and reckless. 12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded. 14. In not declaring that petitioner is entitled to the differential bill. 15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and 25 expenses for litigation. The petition must fail. The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building. Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue. It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of 26 Appeals, are binding on this Court. Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988. The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the 27 Supervising Engineer of its Special Billing Analysis Department, claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with. However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric 28 consumption during the affected period, the Pattern of TEC's Electrical Consumption shows that the sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise: In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as 29 "unexplainable. x x x. The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of 30 actual electric energy consumption, not the supply of electricity, is affected when a meter is tampered with. The witnesses claimed that after the inspection, the tampered electric meters were corrected, so that they would

register the correct consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customer's registered consumption would go up. In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until 31 September 1987. Based on petitioner's Billing Record (for the DCIM building), TEC's monthly electric 32 consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh. Account No. 9341-1812-13 33 showed a monthly consumption between 9,600 and 34,200 kwh. It is interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account. Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first and second accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic difference between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible reason for the drop in electric consumption. Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the non-payment of differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters and 34 assessed P7 million would further jeopardize itself in the eyes of petitioner. If it is true that there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile 35 Mills Corporation would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects 36 therein. Failure to perform such duties constitutes negligence. By reason of said negligence, public utilities run 37 the risk of forfeiting amounts originally due from their customers. As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was 38 unbroken, with petitioner having sole access to the said meters. In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection. The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 issued on March 40 1, 1974. The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being of both the companies concerned and the consuming 41 public. P.D. 401 granted the electric companies the right to conduct inspections of electric meters and the 42 criminal prosecution of erring consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedient remedies such as the charging of differential billing and immediate disconnection against erring consumers. Thus, electric companies found a creative way of availing themselves of
39

such remedies by inserting into their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon non-payment by the erring consumer. The Court has 43 recognized the validity of such stipulations. However, recourse to differential billing with disconnection was 44 subject to the prior requirement of a 48-hour written notice of disconnection. Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually 45 proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable. Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 andP280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set 46 forth by the Court. However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount. TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amount of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum ofP150,000.00, as found by the RTC, is proper. As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are imposed by way of example or correction for the public good in addition to moral, 47 temperate, liquidated, or compensatory damages. In this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility, the requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of 48 attorney's fees is likewise proper, pursuant to Article 2208 of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the award ofP200,000.00 49 is in order. We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the 50 damage to its goodwill and reputation. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a 51 reputation that is debased, resulting in its humiliation in the business realm. But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of

the damage and its causal relation to petitioner's acts. In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement for the rentals of the generator set is REDUCEDto P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED. SO ORDERED.

52

CASE 20 G.R. No. 141994 January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents. DECISION CARPIO, J.: The Case This petition for review assails the 4 January 1999 Decision and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 3 Decision of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit. The Antecedents "Expos" is a radio documentary program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre 5 ("Alegre"). Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. 6 ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas. In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of 7 AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE:
4 1 2

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same? xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS . xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs administration . Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations 8 to lift or suspend their donations temporarily. xxx On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. xxx MEL RIMA: xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their 9 struggle to improve their social status are even more burdened with false regulations. xxx (Emphasis supplied) The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, 11 collaborating counsel of Atty. Lozares, filed a Motion to Dismiss on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was whe n he agreed with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press." The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
12 10

SO ORDERED.

13

(Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.
14

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed this petition.
15

The Ruling of the Court of Appeals The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social duty to inform the public about the students gripes." The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false 16 regulations." The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt Issues FBNI raises the following issues for resolution: I. WHETHER THE BROADCASTS ARE LIBELOUS; II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. The Courts Ruling We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against 17 AMEC. While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals 18 that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 authorizes a separate civil 19 action to recover civil liability arising from a criminal offense. On the other hand, Article 33 particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical 20 injuries. AMEC also invokes Article 19 of the Civil Code to justify its claim for damages. AMEC cites Articles 21 22 2176 and 2180 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or 24 juridical person, or to blacken the memory of one who is dead. There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money on the part of AMECs administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; an d AMEC students who graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound. However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel. FBNIs contentions are untenable. Every defamatory imputation is presumed malicious. Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and misleading 26 27 information." Hearing the students alleged complaints a month before the expos, they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the 28 students "because they were many and not because there is proof that what they are saying is true." This plainly shows Rima and Alegres reckless disregard of whether their report was true or not.
25 23

Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective 29 awareness of the truth or falsity of the accusation. Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the 30 defamatory statement. However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of 31 Appeals, FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the 32 opinion happens to be mistaken, as long as it might reasonably be inferred from the facts. (Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. Crebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith. As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel. Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board 33 examination easily and become prosperous and responsible professionals. Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion 34 happens to be mistaken, as long as it might reasonably be inferred from the facts. However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se. The broadcasts also violate the Radio Code of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES 1. x x x 4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x. xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code. 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public 36 issues. (Emphasis supplied)
35

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions. The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and 37 performance of his duties as required by Article 19 of the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a 38 manner contrary to morals or good customs under Article 21 of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation.
39

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience 40 physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The 41 Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be 42 a ground for the award of moral damages" is an obiter dictum. Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral 44 damages. Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest 46 mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the 47 recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. 48 FBNI adds that the instant case does not fall under the enumeration in Article 2208 of the Civil Code. The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both t he trial and appellate
45 43

courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees. In Inter50 Asia Investment Industries, Inc. v. Court of Appeals , we held that: [I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture . In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the 51 legal reason for the award of attorneys fees. (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program." FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation. FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they 52 commit. Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for 53 their benefit. Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who 54 procures, or participates in, the making of the defamatory statements." An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least 55 when the employer authorizes or ratifies the defamation. In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired t he broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection andsupervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised

49

diligence in theselection of its broadcasters without introducing any evidence to prove that it observed the same diligence in thesupervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in 56 their KBP accreditation, which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre. WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED.

CASE 21 G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T Capulong for respondent Eduardo R. Visaya.

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

SEC CASE NO 1375 On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375. As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws 1 are null and 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 Bylaws" 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 intracorporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds. Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in

the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated. As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against petitioner. Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-intervention to the petition. On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered: 1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission; 2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-ininterest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect said documents; 3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and 4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-entitled case. This Order is immediately executory upon its approval.
2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration. Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the Bylaws", 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 annual stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted

thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: 6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto. By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order, 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 shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade; (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and (5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed. On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and

oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice."

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation", 3 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. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a 4 single proceeding, leaving nor root or branch to bear the seeds of future litigation. Thus, in Francisco v. City of 5 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 6 Credit and 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 case", and in Republic v. 7 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 Court is now in a position, 8 based upon said evidence, to decide the case on its merits. It is settled that the doctrine of primary jurisdiction 8 has no application where only a question of law is involved. a Because uniformity may be secured through review 8 by a single Supreme Court, 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 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 10 therefore unlawful is a question of 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 are 11 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.
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Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0.6% 10.0% 10.6% Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0% Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6% Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million.

According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of self- protection, disqualify a competitor from nomination and election to its Board of Directors. It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and 12 among themselves in reference to the management of 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 self13 government being essential to enable the corporation to 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 ... " 14 InGovernment v. El 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 majorityof the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters 15 within the limits of the act of incorporation and lawfully 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 any act of the former 16 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 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 17 corporate charter and the by-law shall be subject 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 18 stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust 19 relationship of directors of a corporation and stockholders", according to Ashaman v. 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, corporations, thus:
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emphatically restated the standard of fiduciary obligation of the directors of

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

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

stockholder, on account of the supposed interest of the wife in her husband's affairs, and his suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. 22 ... . These principles have been applied by this Court in previous cases.
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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 bylaws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is 24 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 25 additional 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 a director or officer of a corporation may not enter into a competing 26 enterprise which cripples or 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 and confidence to 27 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 30 opportunity for his own personal 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
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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, inMcKee, explained the reasons of the court, thus: ... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. In McKee the Court further listed qualificational by-laws upheld by the courts, as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the subject corporation. (2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation, (3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office. (5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.) These are not based on theorical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate 31 management. As explained by Oleck: "The law will not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of

guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of 32 existing or new products could 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 restraint of trade.
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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 34 35 prices 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 public interest by unduly restraining competition or 36 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 37 competition in the broad and general sense, or to control 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 39 concert of action. It is, in brief, unified tactics 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 40 an express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. It is 41 enough that a concert of action is contemplated and that the defendants conformed to the arrangements, and what is to be considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of 42 competition between them would constitute 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 between competitors other than the suppression of 43 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 the detriment of the small ones dependent upon them 44 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 by-law was being applied in a discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by45 laws and who have 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 offering more 46 advantageous terms as an inducement to secure trade. The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non47 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 en banc and its decision shall be final unless reversed by this Court on 49 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 assets, a court of equity has the 50 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 photocopies of the afore51 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 ownership, a beneficial ownership, or a 52 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 inimical to the interest of the 54 55 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 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 57 good faith or is used to the detriment of the 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 58 place upon the corporation the burden of showing impropriety of purpose or 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." 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 named as a 61 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 showing the relation of principal or agent or something 62 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 owned a vast majority of the stock of the 63 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 64 of "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 67 that no harm would be 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 account of the stewardship of the 68 officers and directors. 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.
66 65

56

IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares 69 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 would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said: "j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.)

40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary ."" (Id., p. 108) (Emphasis ours.) (pp. 258-259). Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally 70 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 71 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 aforementioned amended by-laws shall not apply to petitioner. The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result.

Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs.

CASE 22 G.R. No. 180036 January 16, 2013

SITUS DEV. CORPORATION, DAILY SUPERMARKET, INC. and COLOR LITHOGRAPH PRESS, INC.,Petitioners, vs. ASIATRUST BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK AND TRUST COMPANY and CAMERON GRANVILLE II ASSET MANAGEMENT, INC. ("CAMERON"), Respondents. RESOLUTION SERENO, CJ.: For resolution is the Motion for Reconsideration of our 25 July 2012 Decision in the case involving petitioners herein, Situs Development Corporation, Daily Supermarket, Inc. and Color Lithographic Press, Inc. Most of the arguments raised by petitioners are too insubstantial to merit our consideration or are merely rehashed from their previous pleadings and have already been passed upon by this Court. However, certain issues merit a brief discussion, to wit: 1. That the properties belonging to petitioner corporations majority stockholders may be included in the 3 rehabilitation plan pursuant to Metropolitan Bank and Trust Company v. ASB Holdings, Inc. (the Metrobank Case); 2. That the subject properties should be included in the ambit of the Stay Order by virtue of the provisions of the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), which should be given a retroactive effect; and 3. That Allied Bank and Metro Bank were not the owners of the mortgaged properties when the Stay Order was issued by the rehabilitation court. On the first issue, petitioners incorrectly argue that the properties belonging to their majority stockholders may be included in the rehabilitation plan, because these properties were mortgaged to secure petitioners loans. In 4 support of their argument, they cite a footnote appearing in the Metrobank Case, which states:
1 2

In their petition for rehabilitation, the corporations comprising the ASB Group of Companies alleged that their allied companies have joined in the said petition because they executed mortgages and/or pledges over their real and personal properties to secure the obligations of petitioner ASB Group of Companies. Further, (they) agreed to contribute, to the extent allowed by law, some of their specified properties and assets to help rehabilitate petitioner ASB Group of Companies. (Rollo, pp. 119-120) A reading of the footnote shows that it is not a ruling on the propriety of the joinder of parties; rather, it is a statement of the fact that the afore-quoted allegation was made in the petition for rehabilitation in that case. On the second issue, petitioners argue that the trial court was correct in including the subject properties in the ambit of the Stay Order. Under the FRIA, the Stay Order may now cover third-party or accommodation mortgages, in which the "mortgage is necessary for the rehabilitation of the debtor as determined by the court upon 5 recommendation by the rehabilitation receiver." The FRIA likewise provides that its provisions may be applicable to further proceedings in pending cases, except to the extent that, in the opinion of the court, their application 6 would not be feasible or would work injustice. Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in insolvency, suspension of payments and rehabilitation cases x x x except to the extent that in the opinion of the court their application would not be feasible or would work injustice," still presupposes a prospective application. The wording of the law clearly shows that it is applicable to all further proceedings. In no way could it be made retrospectively applicable to the Stay Order issued by the rehabilitation court back in 2002. At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of Procedure on Corporate Rehabilitation (the "Interim Rules"). Under those rules, one of the effects of a Stay Order is the stay of the "enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action 7 or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor." Nowhere in the Interim Rules is the rehabilitation court authorized to suspend foreclosure proceedings against properties of thirdparty mortgagors. In fact, we have expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul 8 Land, Inc. that the issuance of a Stay Order cannot suspend the foreclosure of accommodation mortgages. Whether or not the properties subject of the third-party mortgage are used by the debtor corporation or are necessary for its operation is of no moment, as the Interim Rules do not make a distinction. To repeat, when the Stay Order was issued, the rehabilitation court was only empowered to suspend claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor. Thus, it was beyond the jurisdiction of the rehabilitation court to suspend foreclosure proceedings against properties of third-party mortgagors. The third issue, therefore, is immaterial.1wphi1 Whether or not respondent banks had acquired ownership of the subject properties at the time of the issuance of the Stay Order, the same conclusion will still be reached. The subject properties will still fall outside the ambit of the Stay Order issued by the rehabilitation court. Since the subject properties are beyond the reach of the Stay Order, and since foreclosure and consolidation of title may no longer be stalled, petitioners rehabilitation plan is no longer feasible. We therefore affirm our earlier finding that the dismissal of the Petition for the Declaration of State of Suspension of Payments with Approval of Proposed Rehabilitation Plan is in order. WHEREFORE, the Court resolves to DENY WITH FINALITY the instant Motion for Reconsideration for lack of merit. No further pleadings shall be entertained. Let entry of judgment be made in due course. SO ORDERED.

CASE 23 G.R. No. 170770 January 9, 2013

VITALIANO N. AGUIRRES II and FIDEL N. AGUIRRE, Petitioners, vs. FQB+7, INC., NATHANIEL D. BOCOBO, PRISCILA BOCOBO and ANTONIO DE VILLA, Respondents. DECISION DEL CASTILLO, J.: Pursuant to Section 145 of the Corporation Code, an existing intra-corporate dispute, which does not constitute a continuation of corporate business, is not affected by the subsequent dissolution of the corporation. Before the Court is a Petition for Review on Certiorari of the June 29, 2005 Decision of the Court of Appeals (CA) in CA-G.R. SP No. 87293, which nullified the trial courts writ of preliminary injunction and dismissed petitioner Vitaliano N. Aguirres (Vitaliano) Complaint before the Regional Trial Court (RTC) for lack of jurisdiction. The dispositive portion of the assailed Decision reads: WHEREFORE, the assailed October 15, 2004 Order, as well as the October 27, 2004 Writ of Preliminary Injunction, are SET ASIDE. With FQB+7, Inc.s dissolution on September 29, 2003 and Case No. 04111077s ceasing to become an intra-corporate dispute said case is hereby ordered DISMISSED for want of jurisdiction. SO ORDERED.
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Likewise assailed in this Petition is the appellate courts December 16, 2005 Resolution, which denied a reconsideration of the assailed Decision. Factual Antecedents On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc. (FQB+7), a Complaint for intra-corporate dispute, injunction, inspection of corporate books and records, and damages, against respondents Nathaniel D. Bocobo (Nathaniel), Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio). The Complaint alleged that FQB+7 was established in 1985 with the following directors and subscribers, as reflected in its Articles of Incorporation: Directors Subscribers
4

1. Francisco Q. Bocobo 1. Francisco Q. Bocobo 2. Fidel N. Aguirre 3. Alfredo Torres 4. Victoriano Santos 2. Fidel N. Aguirre 3. Alfredo Torres 4. Victoriano Santos

5. Victorino Santos

5. Victorino Santos 6. Vitaliano N. Aguirre II 7. Alberto Galang 8. Rolando B. Bechayda


6

To Vitalianos knowledge, except for the death of Francisco Q. Bocobo and Alfredo Torres, there has been no other change in the above listings. The Complaint further alleged that, sometime in April 2004, Vitaliano discovered a General Information Sheet (GIS) of FQB+7, dated September 6, 2002, in the Securities and Exchange Commission (SEC) records. This GIS was filed by Francisco Q. Bocobos heirs, Nathaniel and Priscila, as FQB+7s president and secretary/treasurer, respectively. It also stated FQB+7s directors and subscribers, as follows: Directors Subscribers

1. Nathaniel D. Bocobo 1. Nathaniel D. Bocobo 2. Priscila D. Bocobo 3. Fidel N. Aguirre 4. Victoriano Santos 5. Victorino Santos 6. Consolacion Santos
8

2. Priscila D. Bocobo 3. Fidel N. Aguirre 4. Victorino Santos 5. Victorino Santos 6. Consolacion Santos
9 7

Further, the GIS reported that FQB+7s stockholders held their annual meeting on September 3, 2002.

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The substantive changes found in the GIS, respecting the composition of directors and subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of Directors (the directors reflected in the Articles of 11 Incorporation), represented by Fidel N. Aguirre (Fidel). In this letter dated April 29, 2004, Vitaliano questioned the validity and truthfulness of the alleged stockholders meeting held on September 3, 2002. He asked the "real" Board to rectify what he perceived as erroneous entries in the GIS, and to allow him to inspect the corporate books and records. The "real" Board allegedly ignored Vitalianos request. On September 27, 2004, Nathaniel, in the exercise of his power as FQB+7s president, appointed Antonio as the corporations attorney-in-fact, with power of administration over the corporations farm in Quezon

Province. Pursuant thereto, Antonio attempted to take over the farm, but was allegedly prevented by Fidel and 13 his men. Characterizing Nathaniels, Priscilas, and Antonios continuous representation of the corporation as a usurpation of the management powers and prerogatives of the "real" Board of Directors, the Complaint asked for an injunction against them and for the nullification of all their previous actions as purported directors, including the GIS they had filed with the SEC. The Complaint also sought damages for the plaintiffs and a declaration of Vitalianos right to inspect the corporate records. The case, docketed as SEC Case No. 04-111077, was assigned to Branch 24 of the RTC of Manila (Manila RTC), 14 which was a designated special commercial court, pursuant to A.M. No. 03-03-03-SC. The respondents failed, despite notice, to attend the hearing on Vitalianos application for preliminary 15 16 injunction. Thus, in an Order dated October 15, 2004, the trial court granted the application based only on Vitalianos testimonial and documentary evidence, consisting of the corporations articles of incorporation, by laws, the GIS, demand letter on the "real" Board of Directors, and police blotter of the incident between Fidels 17 and Antonios groups. On October 27, 2004, the trial court issued the writ of preliminary injunction after Vitaliano filed an injunction bond. The respondents filed a motion for an extension of 10 days to file the "pleadings warranted in response to the 18 complaint," which they received on October 6, 2004. The trial court denied this motion for being a prohibited pleading under Section 8, Rule 1 of the Interim Rules of Procedure Governing Intra-corporate Controversies under 19 Republic Act (R.A.) No. 8799. The respondents filed a Petition for Certiorari and Prohibition, docketed as CA-G.R. SP No. 87293, before the CA. They later amended their Petition by impleading Fidel, who allegedly shares Vitalianos interest in keeping them 21 out of the corporation, as a private respondent therein. The respondents sought, in their certiorari petition, the annulment of all the proceedings and issuances in SEC Case 22 No. 04-111077 on the ground that Branch 24 of the Manila RTC has no jurisdiction over the subject matter, which 23 they defined as being an agrarian dispute. They theorized that Vitalianos real goal in filing the Complaint was to maintain custody of the corporate farm in Quezon Province. Since this land is agricultural in nature, they claimed 24 that jurisdiction belongs to the Department of Agrarian Reform (DAR), not to the Manila RTC. They also raised the grounds of improper venue (alleging that the real corporate address is different from that stated in the Articles 25 26 of Incorporation) and forum-shopping (there being a pending case between the parties before the DAR 27 regarding the inclusion of the corporate property in the agrarian reform program). Respondents also raised their defenses to Vitalianos suit, particularly the alleged disloyalty and fraud committed by the "real" Board of 28 Directors, and respondents "preferential right to possess the corporate property" as the heirs of the majority 29 stockholder Francisco Q. Bocobo. The respondents further informed the CA that the SEC had already revoked FQB+7s Certificate of Reg istration on 30 September 29, 2003 for its failure to comply with the SEC reportorial requirements. The CA determined that the corporations dissolution was a conclusive fact after petitioners Vitaliano and Fidel failed to dispute this factual 31 assertion. Ruling of the Court of Appeals The CA determined that the issues of the case are the following: (1) whether the trial courts issuance of the writ of preliminary injunction, in its October 15, 2004 Order, was attended by grave abuse of discretion amounting to lack of jurisdiction; and (2) whether the corporations dissolution affected the trial courts jurisdiction to hear the intra 32 corporate dispute in SEC Case No. 04-111077.
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On the first issue, the CA determined that the trial court committed a grave abuse of discretion when it issued the writ of preliminary injunction to remove the respondents from their positions in the Board of Directors based only on Vitalianos self-serving and empty assertions. Such assertions cannot outweigh the entries in the GIS, which are documented facts on record, which state that respondents are stockholders and were duly elected corporate directors and officers of FQB+7, Inc. The CA held that Vitaliano only proved a future right in case he wins the suit. Since an injunction is not a remedy to protect future, contingent or abstract rights, then Vitaliano is not entitled to 33 a writ. Further, the CA disapproved the discrepancy between the trial courts October 15, 2004 Order, which granted the application for preliminary injunction, and its writ dated October 27, 2004. The Order enjoined all the respondents "from entering, occupying, or taking over possession of the farm owned by Atty. Vitaliano Aguirre II," while the writ states that the subject farm is "owned by plaintiff corporation located in Mulanay, Quezon Province." The CA 34 held that this discrepancy imbued the October 15, 2004 Order with jurisdictional infirmity. On the second issue, the CA postulated that Section 122 of the Corporation Code allows a dissolved corporation to continue as a body corporate for the limited purpose of liquidating the corporate assets and distributing them to its creditors, stockholders, and others in interest. It does not allow the dissolved corporation to continue its business. That being the state of the law, the CA determined that Vitalianos Complaint, being geared towards the continuation of FQB+7, Inc.s business, should be dismissed because the corporation has lost its juridical 35 personality. Moreover, the CA held that the trial court does not have jurisdiction to entertain an intra-corporate 36 dispute when the corporation is already dissolved. After dismissing the Complaint, the CA reminded the parties that they should proceed with the liquidation of the dissolved corporation based on the existing GIS, thus: With SECs revocation of its certificate of registration on September 29, 2004 [sic], FQB+7, Inc. will be obligated to wind up its affairs. The Corporation will have to be liquidated within the 3-year period mandated by Sec. 122 of the Corporation Code. Regardless of the method it will opt to liquidate itself, the Corporation will have to reckon with the members of the board as duly listed in the General Information Sheet last filed with SEC. Necessarily, and as admitted in the complaint below, the following as listed in the Corporations General Information Sheet dated Septembe r 6, 2002, will have to continue acting as Members of the Board of FQB+7, Inc. viz: xxxx
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Herein petitioners filed a Motion for Reconsideration. They argued that the CA erred in ruling that the October 15, 2004 Order was inconsistent with the writ. They explained that pages 2 and 3 of the said Order were interchanged in the CAs records, which then misled the CA to its erroneous conclusion. They also posited that the original sentence in the correct Order reads: "All defendants are further enjoined from entering, occupying or taking over possession of the farm owned by plaintiff corporation located in Mulanay, Quezon." This sentence is in accord with what is ordered in the writ, hence the CA erred in nullifying the Order. On the second issue, herein petitioners maintained that the CA erred in characterizing the reliefs they sought as a continuance of the dissolved corporations business, which is prohibited under Section 122 of the Corporation Code. Instead, they argued, the relief they seek is only to determine the real Board of Directors that can represent the dissolved corporation. The CA denied the Motion for Reconsideration in its December 16, 2005 Resolution. It determined that the crucial issue is the trial courts jurisdiction over an intra-corporate dispute involving a dissolved 40 corporation. Based on the prayers in the Complaint, petitioners seek a determination of the real Board that can
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take over the management of the corporations farm, not to sit as a liquidation Board. Thus, contrary to petitioners claims, their Complaint is not geared towards liquidation but a continuance of the corporations business. Issues 1. Whether the CA erred in annulling the October 15, 2004 Order based on interchanged pages. 2. Whether the Complaint seeks to continue the dissolved corporations business. 3. Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation. Our Ruling The Petition is partly meritorious. On the nullification of the Order of preliminary injunction. Petitioners reiterate their argument that the CA was misled by the interchanged pages in the October 15, 2004 Order. They posit that had the CA read the Order in its correct sequence, it would not have nullified the Order on 41 the ground that it was issued with grave abuse of discretion amounting to lack of jurisdiction. Petitioners argument fails to impress. The CA did not nullify the October 15, 2004 Order merely because of the interchanged pages. Instead, the CA determined that the applicant, Vitaliano, was not able to show that he had an actual and existing right that had to be protected by a preliminary injunction. The most that Vitaliano was able to prove was a future right based on his victory in the suit. Contrasting this future right of Vitaliano with respondents existing right under the GIS, the CA determined that the trial court should not have disturbed the status quo. The CAs discussion regarding the interchanged pages was made only in addition to its above ratiocination. Thus, whether the pages were interchanged or not will not affect the CAs main finding that the trial court issued the Order despite the absence of a clear and existing right in favor of the applicant, which is tantamount to grave abuse of discretion. We cannot disturb the CAs finding on this score withou t any showing by petitioners of strong basis to warrant the reversal. Is the Complaint a continuation of business? Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its business, but allows it to continue with a limited personality in order to settle and close its affairs, including its complete liquidation, thus: Sec. 122. Corporate liquidation. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. xxxx

Upon learning of the corporations dissolution by revocation of its corporate franchise, the CA held that the intracorporate Complaint, which aims to continue the corporations business, must now be dismissed under Section 122. Petitioners concede that a dissolved corporation can no longer continue its business. They argue, however, that Section 122 allows a dissolved corporation to wind up its affairs within 3 years from its dissolution. Petitioners then maintain that the Complaint, which seeks only a declaration that respondents are strangers to the corporation and have no right to sit in the board or act as officers thereof, and a return of Vitalianos stockholdings, intends only to resolve remaining corporate issues. The resolution of these issues is allegedly part of corporate winding up. Does the Complaint seek a continuation of business or is it a settlement of corporate affairs? The answer lies in the prayers of the Complaint, which state: PRAYER WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor of the plaintiffs and against the defendants, in the following wise: I. ON THE PRAYER OF TRO/STATUS QUO ORDER AND WRIT OF PRELIMINARY INJUNCTION: 1. Forthwith and pending the resolution of plaintiffs prayer for issuance of writ of preliminary injunction, in order to maintain the status quo, a status quo order or temporary restraining order (TRO) be issued enjoining the defendants, their officers, employees, and agents from exercising the powers and authority as members of the Board of Directors of plaintiff FQB as well as officers thereof and from misrepresenting and conducting themselves as such, and enjoining defendant Antonio de Villa from taking over the farm of the plaintiff FQB and from exercising any power and authority by reason of his appointment emanating from his co-defendant Bocobos. 2. After due notice and hearing and during the pendency of this action, to issue writ of preliminary injunction prohibiting the defendants from committing the acts complained of herein, more particularly those enumerated in the immediately preceeding paragraph, and making the injunction permanent after trial on the merits. II. ON THE MERITS After trial, judgment be rendered in favor of the plaintiffs and against the defendants, as follows: 1. Declaring defendant Bocobos as without any power and authority to represent or conduct themselves as members of the Board of Directors of plaintiff FQB, or as officers thereof. 2. Declaring that Vitaliano N. Aguirre II is a stockholder of plaintiff FQB owning fifty (50) shares of stock thereof. 3. Allowing Vitaliano N. Aguirre II to inspect books and records of the company. 4. Annulling the GIS, Annex "C" of the Complaint as fraudulent and illegally executed and filed. 5. Ordering the defendants to pay jointly and solidarily the sum of at least P200,000.00 as moral damages; at least P100,000.00 as exemplary damages; and at least P100,000.00 as and for attorneys fees and other litigation expenses.

Plaintiffs further pray for costs and such other relief just and equitable under the premises.

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The Court fails to find in the prayers above any intention to continue the corporate business of FQB+7. The Complaint does not seek to enter into contracts, issue new stocks, acquire properties, execute business transactions, etc. Its aim is not to continue the corporate business, but to determine and vindicate an alleged stockholders right to the return of his stockholdings and to participate in th e election of directors, and a corporations right to remove usurpers and strangers from its affairs. The Court fails to see how the resolution of these issues can be said to continue the business of FQB+7. Neither are these issues mooted by the dissolution of the corporation. A corporations board of directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation to continue its existence for a limited purpose, necessarily there must be a board that will continue acting for and on behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes the dissolved corporations board of directors to conduct its liquidation within three years from its dissolution. Jurisprudence has even recognized the board s 43 authority to act as trustee for persons in interest beyond the said three-year period. Thus, the determination of which group is the bona fide or rightful board of the dissolved corporation will still provide practical relief to the parties involved. The same is true with regard to Vitalianos shareholdings in the dissolved corporation. A partys stockholdings in a 44 corporation, whether existing or dissolved, is a property right which he may vindicate against another party who has deprived him thereof. The corporations dissolution does not extinguish such propert y right. Section 145 of the Corporation Code ensures the protection of this right, thus: Sec. 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. (Emphases supplied.) On the dismissal of the Complaint for lack of jurisdiction. The CA held that the trial court does not have jurisdiction over an intra-corporate dispute involving a dissolved corporation. It further held that due to the corporations dissolution, the qualifications of the respondents can no longer be questioned and that the dissolved corporation must now commence liquidation proceedings with the respondents as its directors and officers. The CAs ruling is founded on the assumptions that intra-corporate controversies continue only in existing corporations; that when the corporation is dissolved, these controversies cease to be intra-corporate and need no longer be resolved; and that the status quo in the corporation at the time of its dissolution must be maintained. The Court finds no basis for the said assumptions. Intra-corporate disputes remain even when the corporation is dissolved. Jurisdiction over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction over intra-corporate 46 controversies on courts of general jurisdiction or RTCs, to be designated by the Supreme Court. Thus, as long as the nature of the controversy is intra-corporate, the designated RTCs have the authority to exercise jurisdiction over such cases. So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of Presidential Decree (P.D.) No. 902A (or The SEC Reorganization Act) for a description of such controversies:
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a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members of associations or organizations registered with the Commission; b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. The Court reproduced the above jurisdiction in Rule 1 of the Interim Rules of Procedure Governing Intra-corporate Controversies under R.A. No. 8799: SECTION 1. (a) Cases Covered These Rules shall govern the procedure to be observed in civil cases involving the following: (1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; (3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations; (4) Derivative suits; and (5) Inspection of corporate books. Meanwhile, jurisprudence has elaborated on the above definitions by providing tests in determining whether a 47 controversy is intra-corporate. Reyes v. Regional Trial Court of Makati, Br. 142 contains a comprehensive discussion of these two tests, thus: A review of relevant jurisprudence shows a development in the Court's approach in classifying what constitutes an intra-corporate controversy. Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The types of relationships embraced under Section 5(b) x x x were as follows: a) between the corporation, partnership, or association and the public; b) between the corporation, partnership, or association and its stockholders, partners, members, or officers; c) between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves. xxx The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC now the RTC, regardless of the subject matter of the dispute. This came to be known as the relationship test. However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute. Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. This two-tier test was adopted in the recent case of Speed Distribution, Inc. v. Court of Appeals: 'To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and [b] the nature of the question that is the subject of their controversy.1wphi1 The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are stockholders, members or associates, between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns the individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.' (Citations and some emphases omitted; emphases supplied.) Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of intra-corporate or partnership relations, and (b) the nature of the question subject of the controversy must be such that it is intrinsically connected with the regulation of the corporation or the enforcement of the parties rights and obligations under the Corporation Code and the internal regulatory rules of the corporation. So long as these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a special commercial court, has jurisdiction over it. Examining the case before us in relation to these two criteria, the Court finds and so holds that the case is essentially an intra-corporate dispute. It obviously arose from the intra-corporate relations between the parties, and the questions involved pertain to their rights and obligations under the Corporation Code and matters relating to the regulation of the corporation. We further hold that the nature of the case as an intra-corporate dispute was not affected by the subsequent dissolution of the corporation. It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and remedies of corporate actors against other corporate actors. The statutory provision assures an aggrieved party that the

corporations dissolution will not impair, much less remove, his/her rights or remedies against the corporation, its stockholders, directors or officers. It also states that corporate dissolution will not extinguish any liability already incurred by the corporation, its stockholders, directors, or officers. In short, Section 145 preserves a corporate actors cause of action and remedy against another corporate actor. In so doing, Section 145 also preserves the nature of the controversy between the parties as an intra-corporate dispute. The dissolution of the corporation simply prohibits it from continuing its business. However, despite such dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not automatically convert the parties into total strangers or change their intra-corporate relationships. Neither does it change or terminate existing causes of action, which arose because of the corporate ties between the parties. Thus, a cause of action involving an intra-corporate controversy remains and must be filed as an intra-corporate dispute despite the subsequent dissolution of the corporation. WHEREFORE, premises considered, the Petition for Review on Certiorari is PARTIALLY GRANTED. The assailed June 29, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 87293, as well as its December 16, 2005 Resolution, are ANNULLED with respect to their dismissal of SEC Case No. 04-111077 on the ground of lack of jurisdiction. The said case is ordered REINSTATED before Branch 24 of the Regional Trial Court of Manila. The rest of the assailed issuances are AFFIRMED. SO ORDERED.

CASE 24 G.R. No. 168008 August 17, 2011

PETRONILO J. BARAYUGA, Petitioner, vs. ADVENTIST UNIVERSITY OF THE PHILIPPINES, THROUGH ITS BOARD OF TRUSTEES, REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON, Respondents. DECISION BERSAMIN, J.: The injunctive relief protects only a right in esse. Where the plaintiff does not demonstrate that he has an existing right to be protected by injunction, his suit for injunction must be dismissed for lack of a cause of action. The dispute centers on whether the removal of the petitioner as President of respondent Adventist University of the Philippines (AUP) was valid, and whether his term in that office was five years, as he insists, or only two years, as AUP insists. We hereby review the decision promulgated on August 5, 2004, by which the Court of Appeals (CA) nullified and set aside the writ of preliminary injunction issued by the Regional Trial Court (RTC), Branch 21, in Imus, Cavite to prevent AUP from removing the petitioner. Antecedents AUP, a non-stock and non-profit domestic educational institution incorporated under Philippine laws on March 3, 1932, was directly under the North Philippine Union Mission (NPUM) of the Southern Asia Pacific Division of the
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Seventh Day Adventists. During the 3rd Quinquennial Session of the General Conference of Seventh Day Adventists held from November 27, 2000 to December 1, 2000, the NPUM Executive Committee elected the members of the Board of Trustees of AUP, including the Chairman and the Secretary. Respondent Nestor D. Dayson was elected Chairman while the petitioner was chosen Secretary. On January 23, 2001, almost two months following the conclusion of the 3rd Quinquennial Session, the Board of 2 Trustees appointed the petitioner President of AUP. During his tenure, or from November 11 to November 13, 2002, a group from the NPUM conducted an external performance audit. The audit revealed the petitioners autocratic management style, like making major decisions without the approval or recommendation of the proper committees, including the Finance Committee; and that he had himself done the canvassing and purchasing of materials and made withdrawals and reimbursements for expenses without valid supporting receipts and without the approval of the Finance Committee. The audit concluded that he had committed serious violations of fundamental rules and procedure in the disbursement and use of funds. The NPUM Executive Committee and the Board of Trustees decided to immediately request the services of the General Conference Auditing Service (GCAS) to determine the veracity of the audit findings. Accordingly, GCAS auditors worked in the campus from December 4 to December 20, 2002 to review the petitioners transactions during the period from April 2002 to October 2002. On December 20, 2002, CGAS auditors reported the results of their review, and submitted their observations and recommendations to the Board of Trustees. Upon receipt of the CGAS report that confirmed the initial findings of the auditors on January 8, 2003, the NPUM informed the petitioner of the findings and required him to explain. On January 15, 2003, Chairman Dayson and the NPUM Treasurer likewise informed the petitioner inside the NPUM office on the findings of the auditors in the presence of the AUP Vice-President for Financial Affairs, and reminded him of the possible consequences should he fail to satisfactorily explain the irregularities cited in the report. He replied that he had already prepared his written explanation. The Board of Trustees set a special meeting at 2 p.m. on January 22, 2003. Being the Secretary, the petitioner himself prepared the agenda and included an item on his case. In that mee ting, he provided copies of the auditors report and his answers to the members of the Board of Trustees. After hearing his explanations and oral answers to the questions raised on issues arising from the report, the members of the Board of Trustees requested him to leave to allow them to analyze and evaluate the report and his answers. Despite a long and careful deliberation, however, the members of the Board of Trustees decided to adjourn that night and to set another meeting in the following week considering that the meeting had not been specifically called for the purpose of deciding his case. The adjournment would also allow the Board of Trustees more time to ponder on the commensurate disciplinary measure to be meted on him. On January 23, 2003, Chairman Dayson notified the petitioner in writing that the Board of Trustees would hold in abeyance its deliberation on his answer to the auditors report and would meet again at 10:00 a.m. on January 27, 2003. Chairman Dayson indicated that some sectors in the campus had not been properly represented in the January 22, 2003 special meeting, and requested the petitioner as Secretary to ensure that all sectors are duly 3 represented in the next meeting of the Board of Trustees. In the January 27, 2003 special meeting, the petitioner sent a letter to the Board of Trustees. The members, by secret ballot, voted to remove him as President because of his serious violations of fundamental rules and procedures in the disbursement and use of funds as revealed by the special audit; to appoint an interim committee consisting of three members to assume the powers and functions of the President; and to recommend him to the 4 NPUM for consideration as Associate Director for Secondary Education.

On January 28, 2003, the petitioner was handed inside the NPUM office a letter, together with a copy of the minutes of the special meeting held the previous day. In turn, he handed to Chairman Dayson a letter requesting two weeks within which to seek a reconsideration, stating that he needed time to obtain supporting documents 5 because he was then attending to his dying mother. In the evening of January 28, 2003, the Board of Trustees, most of whose members had not yet left Cavite, reconvened to consider and decide the petitioners request for reconsideration. During the meeting, he made an emotional appeal to allow him to continue as President, promising to immediately vacate his office should he again commit any of the irregularities cited in the auditors report. He added that should the Board of Trustees not favor his appeal, he would settle for a retirement package for him and his wife and would leave the church. The Board of Trustees denied the petitioners request for reconsideration because his reasons were not meritorious. Board Member Elizabeth Role served the notice of the denial on him the next day, but he refused to 6 receive the notice, simply saying Alam ko na yan. The petitioner later obtained a copy of the inter-school memorandum dated January 31, 2003 informing AUP students, staff, and faculty members about his relief as President and the appointment of an interim committee to assume the powers and duties of the President. On February 4, 2003, the petitioner brought his suit for injunction and damages in the RTC, with prayer for the issuance of a temporary restraining order (TRO), impleading AUP and its Board of Trustees, represented by Chairman Dayson, and the interim committee. His complaint alleged that the Board of Trustees had relieved him as President without valid grounds despite his five-year term; that the Board of Trustees had thereby acted in bad faith; and that his being denied ample and reasonable time to present his evidence deprived him of his right to due 7 process. The suit being intra-corporate and summary in nature, the application for TRO was heard by means of affidavits. In the hearing of February 7, 2003, the parties agreed not to harass each other. The RTC used the mutual agreement 8 as its basis to issue a status quo order on February 11, 2003. In their answer with counterclaim, the respondents denied the allegations of the petitioner, and averred that he 9 had been validly removed for cause; and that he had been granted ample opportunity to be heard in his defense. Order of the RTC On March 21, 2003, after summary hearing, the RTC issued the TRO enjoining the respondents and persons acting for and in their behalf from implementing the resolution removing him as President issued by the Board of Trustees during the January 27, 2003 special meeting, and enjoining the interim committee from performing the 10 functions of President of AUP. The RTC did not require a bond. After further hearing, the RTC issued on April 25, 2003 its controversial order, granting the petitioners application for a writ of preliminary injunction. It thereby resolved three issues, namely: (a) whether the special board meetings were valid; (b) whether the conflict-of-interest provision in the By-Laws and Working Policy was violated; and (c) whether the petitioner was denied due process. It found for the petitioner upon all the issues. On the first issue, it held that there was neither a written request made by any two members of the Board of Trustees nor proper notices sent to the members as required by AUPs By-Laws, which omissions, being patent defects, tainted the special board meetings with nullity. Anent the second issue, it ruled that the purchase of coco lumber from his balae (i.e., mother-in-law of his son) was not covered by the conflict-of-interest provision, for AUPs Model Statement of Acceptance form mentioned only the members of the immediate family and did not extend to the relationship
11

between him and his balae. On the third issue, it concluded that he was deprived of due process when the Board of Trustees refused to grant his motion for reconsideration and his request for additional time to produce his evidence, and instead immediately implemented its decision by relieving him from his position without according him the treatment befitting a university President. Proceedings in the CA With the Interim Rules for Intra-Corporate Controversies prohibiting a motion for reconsideration, the respondents 12 forthwith filed a petition for certiorari in the CA, contending that the petitioners complaint did not meet the requirement that an injunctive writ should be anchored on a legal right; and that he had been merely appointed, not elected, as President for a term of office of only two years, not five years, based on AUPs amended By -Laws. In the meanwhile, on September 17, 2003, the petitioner filed a supplemental petition in the CA, alleging that after the commencement of his action, he filed in the RTC an urgent motion for the issuance of a second TRO to enjoin the holding of an AUP membership meeting and the election of a new Board of Trustees, capitalizing on the admission in the respondents answer that he had been elected in 2001 to a five -year term of office. He argued that the admission estopped the respondents from insisting to the contrary. The respondents filed in the CA a verified urgent motion for a TRO and to set a hearing on the application for preliminary injunction to enjoin the RTC from implementing the assailed order granting a writ of preliminary injunction and from further proceeding in the case. The petitioner opposed the motion for TRO, but did not object to the scheduling of preliminary injunctive hearings. On February 24, 2004, the CA issued a TRO to enjoin the RTC from proceeding for a period of 60 days, and declared that the prayer for injunctive relief would be resolved along with the merits of the main case. The petitioner sought a clarification of the TRO issued by the CA, considering that his cause of action in his petitions to cite the respondents in indirect contempt dated March 5, 2004 and March 16, 2004 filed in the RTC involved the election of a certain Robin Saban as the new President of AUP in blatant and malicious violation of the writ of preliminary injunction issued by the RTC. In clarifying the TRO, the CA explained that it did not go beyond the reliefs prayed for in the respondents motion for TRO and preliminary injunctive hearings. On August 5, 2004, the CA rendered its decision nullifying the RTCs writ of preliminary injunction. It rejected the petitioners argument that Article IV, Section 3 of AUPs Constitution and By-Laws and Working Policy of the Conference provided a five-year term for him, because the provision was inexistent. It ruled that the petitioners term of office had expired on January 22, 2003, or two years from his appointment, based on AUPs amended By Laws; that, consequently, he had been a mere de facto officer appointed by the members of the Board of Trustees; and that he held no legal right warranting the issuance of the writ of preliminary injunction. The CA declared that the rule on judicial admissions admitted of exceptions, as held in National Power Corporation 14 v. Court of Appeals, where the Court held that admissions were not evidence that prevailed over documentary proof; that the petitioners being able to answer the results of the special audit point -by-point belied his allegation of denial of due process; that AUP was the party that stood to be injured by the issuance of the injunctive writ in the form of a "demoralized administration, studentry, faculty and staff, sullied reputation, and dishonest leadership;" and that the assailed RTC order sowed confusion and chaos because the RTC thereby chose to subordinate the interest of the entire AUP community to that of the petitioner who had been deemed not to have satisfied the highest ideals required of his office. Issues Undeterred, the petitioner has appealed, contending that:
13

I. THE COURT OF APPPEALS HAS DECIDED CONTRARY TO LAW AND JURISPRUDENCE WHEN IT RULED THAT THE EXTRAORDINARY WRIT OF CERTIORARI APPLIED IN THE CASE AT BAR. II. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE ESTABLISHED LAW AND JURISPRUDENCE THAT "ADMISSIONS, VERBAL OR WRITTEN, MADE BY A PARTY IN THE COURSE OF THE PROCEEDINGS IN THE SAME CASE, DOES NOT REQUIRE PROOF," BY REQUIRING PETITIONER BARAYUGA TO PRESENT EVIDENCE THAT HIS TERM AS PRESIDENT OF AUP IS FOR FIVE (5) YEARS. III. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND ESTABLISHED FACTS WHEN IT RULED THAT PETITIONER BARAYUGA HAS ONLY A TERM OF TWO (2) YEARS INSTEAD OF FIVE (5) YEARS AS CLEARLY ADMITTED BY PRIVATE RESPONDENT AUP IN ITS ANSWER. IV. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND JURISPRUDENCE BY SOLELY RELYING ON THE CASE OF NATIONAL POWER CORPORATION v. COURT OF APPEALS, WHICH INVOLVE FACTS DIFFERENT FROM THE PRESENT CASE. V. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND ESTABLISHED FACTS WHEN IT UNJUSTIFIABLY ALLOWED THE WAIVER OF NOTICE FOR THE SPECIAL MEETING OF THE BOARD OF TRUSTEES. VI. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND ESTABLISHED FACTS WHEN IT ERRONEOUSLY CONCLUDED THAT PETITIONER BARAYUGA WAS MERELY OCCUPYING THE POSITION OF AUP PRESIDENT IN A HOLD-OVER CAPACITY. The petitioner argues that the assailed RTC order, being supported by substantial evidence, accorded with law and jurisprudence; that his tenure as President under the Constitution, By-Laws and the Working Policy of the Conference was for five years, contrary to the CAs findings that he held the position in a hold -over capacity; that instead, the CA should have applied the rule on judicial admission, because the holding in National Power Corporation v. Court of Appeals, cited by the CA, did not apply, due to AUP not having presented competent evidence to prove that he had not been elected by the Board of Trustees as President of AUP; and that his removal during the special board meeting that was invalidly held for lack of notice denied him due process. AUP counters that: I

PETITIONER IS NOT AN ELECTED TRUSTEE OF THE AUP BOARD, NOR WAS (HE) ELECTED AS PRESIDENT, AND AS SUCH, HE CAN CLAIM NO RIGHT TO THE AUP PRESIDENCY, BEING TWICE DISQUALIFIED BY LAW, WHICH RENDERS MOOT AND ACAMEDIC ALL OF THE ARGUMENTS IN THIS PETITION. II EVEN IF WE FALSELY ASSUME EX GRATIA THAT PETITIONER IS AN ELECTED TRUSTEE AND ELECTED PRESIDENT, THE TWO (2) YEAR TERM PROVIDED IN AUPS BY-LAWS REQUIRED BY THE CORPORATION CODE AND APPROVED BY THE SEC IS WHAT GOVERNS THE INTRA-CORPORATE CONTROVERSY, THE AUPS ADMISSION IN ITS ANSWER THAT HE HAS A FIVE (5) YEAR TERM BASED ON HIS INVOKED SAMPLE CONSTITUTION, BY-LAWS AND POLICY OF THE SEVENTH DAY ADVENTIST NOTWITHSTANDING. III PURSUANT TO THE RULES AND SETTLED JURISPRUDENCE, THE ADMISSION IN THE ANSWER IS NOT EVEN PREJUDICIAL AT ALL. IV EVEN IF WE FALSELY ASSUME, JUST FOR THE SAKE OF ARGUMENT, THAT THE PETITIONER HAD A FIVE (5) YEAR TERM AS UNIVERSITY PRESIDENT, HE WAS NONETHELESS VALIDLY TERMINATED FOR LOSS OF CONFIDENCE, GIVEN THE NUMEROUS ADMITTED ANOMALIES HE COMMITTED. V PETITIONER CANNOT COMPLAIN THAT NOTICES OF THE BOARD MEETING WERE NOT SENT TO ALL "THE TWENTY FIVE (25) TRUSTEES OF THE AUP BOARD", SINCE: [1] AS THE AUP SECRETARY, IT WAS HE WHO HAD THE DUTY TO SEND THE NOTICES; [2] WORSE, HE ATTENDED AND EXHAUSTIVELY DEFENDED HIS WRITTEN ANSWER IN THE AUP BOARD OF TRUSTEES MEETING, THUS, WAIVING ANY "NOTICE OBJECTION"; [3] WORST OF ALL, HIS AFTERTHOUGHT OBJECTION IS DECEPTIVELY FALSE IN FACT. The decisive question is whether the CA correctly ruled that the petitioner had no legal right to the position of President of AUP that could be protected by the injunctive writ issued by the RTC. Ruling We deny the petition for review for lack of merit. 1. Petition is already moot The injunctive writ issued by the RTC was meant to protect the petitioners right to stay in office as President. Given that the lifetime of the writ of preliminary injunction was co-extensive with the duration of the act sought to 15 be prohibited, this injunctive relief already became moot in the face of the admission by the petitioner himself, 16 through his affidavit, that his term of office premised on his alleged five-year tenure as President had lasted only until December 2005. In short, the injunctive writ granted by the RTC had expired upon the end of the term of office (as posited by him).

The mootness of the petition warranted its denial. When the resolution of the issue submitted in a case has become moot and academic, and the prayer of the complaint or petition, even if granted, has become impossible 17 of enforcement for there is nothing more to enjoin the case should be dismissed. No useful purpose would then be served by passing on the merits of the petition, because any ruling could hardly be of any practical or useful purpose in the premises. It is a settled rule that a court will not determine a moot question or an abstract 18 proposition, nor express an opinion in a case in which no practical relief can be granted. Indeed, moot and 19 academic cases cease to present any justiciable controversies by virtue of supervening events, and the courts of 20 law will not determine moot questions, for the courts should not engage in academic declarations and determine 21 a moot question. 2. RTC acted in patently grave abuse of discretion in issuing the TRO and writ of injunction Nonetheless, the aspect of the case concerning the petitioners claim for damages has still to be decided. It is for this reason that we have to resolve whether or not the petitioner had a right to the TRO and the injunctive writ issued by the RTC. A valid writ of preliminary injunction rests on the weight of evidence submitted by the plaintiff establishing: (a) a present and unmistakable right to be protected; (b) the acts against which the injunction is directed violate such 22 right; and (c) a special and paramount necessity for the writ to prevent serious damages. In the absence of a clear 23 legal right, the issuance of the injunctive writ constitutes grave abuse of discretion and will result to nullification thereof. Where the complainants right is doubtful or disputed, injunction is not proper. The possibility of 24 irreparable damage sans proof of an actual existing right is not a ground for a preliminary injunction. It is clear to us, based on the foregoing principles guiding the issuance of the TRO and the writ of injunction, that the issuance of the assailed order constituted patently grave abuse of discretion on the part of the RTC, and that the CA rightly set aside the order of the RTC. To begin with, the petitioner rested his claim for injunction mainly upon his representation that he was entitled to serve for five years as President of AUP under the Constitution, By-Laws and Working Policy of the General Conference of the Seventh Day Adventists (otherwise called the Bluebook). All that he presented in that regard, however, were mere photocopies of pages 225-226 of the Bluebook, which read: Article IV-Board of Directors Sec. 1. This school operated by the _____________ Union Conference/Mission of Seventh-Day Adventists shall be under the direct control of a board of directors, elected by the constituency in its quinquennial sessions. The board of directors shall consist of 15 to 21 members, depending on the size of the institution. Ex officio members shall be the union president as chairperson, the head of the school as secretary, the union secretary, the union treasurer, the union director of education, the presidents of the conferences/missions within the union. xxx. Sec. 2. The term of office of members of the board of directors shall be five years to coincide with the ______________ Union Conference/Mission quinquennial period. Sec. 3. The duties of the board of directors shall be to elect quinquenially the president, xxx. Yet, the document had no evidentiary value. It had not been officially adopted for submission to and approval of the Securities and Exchange Commission. It was nothing but an unfilled model form. As such, it was, at best, only a

private document that could not be admitted as evidence in judicial proceedings until it was first properly authenticated in court. Section 20, Rule 132 of the Rules of Court requires authentication as a condition for the admissibility of a private document, to wit: Section 20. Proof of private document. Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (a) By anyone who saw the document executed or written; or (b) By evidence of the genuineness of the signature or handwriting of the maker. Any other private document need only be identified as that which it is claimed to be. (21 a) For the RTC to base its issuance of the writ of preliminary injunction on the mere photocopies of the document, especially that such document was designed to play a crucial part in the resolution of the decisive issue on the length of the term of office of the petitioner, was gross error. Secondly, even assuming that the petitioner had properly authenticated the photocopies of the Bluebook, the provisions contained therein did not vest the right to an office in him. An unfilled model form creates or establishes no rights in favor of anyone. Thirdly, the petitioners assertion of a five-year duration for his term of office lacked legal basis. Section 108 of the Corporation Code determines the membership and number of trustees in an educational corporation, viz: Section 108. Board of trustees. Trustees of educational institutions organized as educational corporations shall not be less than five (5) nor more than fifteen (15): Provided, however, That the number of trustees shall be in multiples of five (5). Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the by-laws. For institutions organized as stock corporations, the number and term of directors shall be governed by the provisions on stock corporations. The second paragraph of the provision, although setting the term of the members of the Board of Trustees at five years, contains a proviso expressly subjecting the duration to what is otherwise provided in the articles of 25 incorporation or by-laws of the educational corporation. That contrary provision controls on the term of office. In AUPs case, its amended By-Laws provided the term of the members of the Board of Trustees, and the period within which to elect the officers, thusly:

Article I Board of Trustees Section 1. At the first meeting of the members of the corporation, and thereafter every two years, a Board of Trustees shall be elected. It shall be composed of fifteen members in good and regular standing in the Seventh-day Adventist denomination, each of whom shall hold his office for a term of two years, or until his successor has been elected and qualified. If a trustee ceases at any time to be a member in good and regular standing in the Seventhday Adventist denomination, he shall thereby cease to be a trustee. xxxx Article IV Officers Section 1. Election of officers. At their organization meeting, the members of the Board of Trustees shall elect from among themselves a Chairman, a Vice-Chairman, a President, a Secretary, a Business Manager, and a Treasurer. The same persons may hold and perform the duties of more than one office, provided they are not 26 incompatible with each other. In light of foregoing, the members of the Board of Trustees were to serve a term of office of only two years; and the officers, who included the President, were to be elected from among the members of the Board of Trustees during their organizational meeting, which was held during the election of the Board of Trustees every two years. Naturally, the officers, including the President, were to exercise the powers vested by Section 2 of the amended By-Laws for a term of only two years, not five years. Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for only two years, or until January 22, 2003. By the time of his removal for cause as President on January 27, 2003, he was already occupying the office in a hold-over capacity, and could be removed at any time, without cause, upon the election or appointment of his successor. His insistence on holding on to the office was untenable, therefore, and with more reason when one considers that his removal was due to the loss of confidence on the part of the Board of Trustees. 4. Petitioner was not denied due process The petitioner complains that he was denied due process because he was deprived of the right to be heard and to seek reconsideration; and that the proceedings of the Board of Trustees were illegal due to its members not being properly notified of the meeting. Still, the petitioner fails to convince us. The requirements of due process in an administrative context are satisfied when the parties are afforded fair and 27 reasonable opportunity to explain their respective sides of the controversy, for the essence of due process is an 28 opportunity to be heard. Here, the petitioner was accorded the full opportunity to be heard, as borne by the fact that he was granted the opportunity to refute the adverse findings contained in the GCAS audit report and that the Board of Trustees first heard his side during the board meetings before his removal. After having voluntarily offered his refutations in the proceedings before the Board of Trustees, he should not now be permitted to denounce the proceedings and to plead the denial of due process after the decision of the Board of Trustees was adverse to him.1avvphi1

Nor can his urging that the proceedings were illegal for lack of prior notification be plausible in light of the fact that he willingly participated therein without raising the objection of lack of notification. Thereby, he effectively waived 29 his right to object to the validity of the proceedings based on lack of due notice. 5. Conclusion The removal of the petitioner as President of AUP, being made in accordance with the AUP Amended By-Laws, was valid. With that, our going into the other issues becomes unnecessary. We conclude that the order of the RTC granting his application for the writ of preliminary injunction was tainted with manifestly grave abuse of discretion; that the CA correctly nullified and set aside the order; and that his claim for damages, being bereft of factual and legal warrant, should be dismissed. WHEREFORE, we DENY the petition for review on certiorari for lack of merit, and hereby DISMISS SEC Case No. 028-03 entitled Dr. Petronilo Barayuga v. Nelson D. Dayson, et al. The petitioner shall pay the cost of suit. SO ORDERED.

CASE 25 G.R. No. 178618 October 11, 2010

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, vs. EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro City,Respondent. DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Mindanao Savings and Loan Association, Inc. (MSLAI), represented by its liquidator, Philippine Deposit Insurance Corporation (PDIC), against respondents Edward R. Willkom (Willkom); Gilda Go (Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in his capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan City; and the Register of Deeds of 1 2 Cagayan de Oro City. MSLAI seeks the reversal and setting aside of the Court of Appeals (CA) Decision dated 3 March 21, 2007 and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337. The controversy stemmed from the following facts: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission (SEC) under Registry Nos. 34869 and 32388, respectively, primarily engaged in the business of granting loans and receiving deposits from the general 4 public, and treated as banks.

Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation. The articles of 6 merger were not registered with the SEC due to incomplete documentation. On August 12, 1985, DSLAI changed its corporate name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation, but the 7 amendment was approved by the SEC only on April 3, 1987. Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and approved Board Resolution No. 86-002, 8 assigning its assets in favor of DSLAI which in turn assumed the formers liabilities. The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the Philippines ordered its closure and placed it under receivership per Monetary Board Resolution No. 922 dated August 31, 1990. The Monetary Board found that MSLAIs financial condition was one of insolvency, and for it to continue in bus iness would involve probable loss to its depositors and creditors. On May 24, 1991, the Monetary Board ordered the 9 liquidation of MSLAI, with PDIC as its liquidator. It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City, an action for collection of sum of money against FISLAI, docketed as Civil Case No. 111-697. On October 19, 1989, the RTC issued a summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay the former the sum ofP136,801.70, plus interest until full payment, 25% as attorneys fees, and the costs of suit. The decision was modified by the CA by further ordering the third-party defendant therein to reimburse the payments that would be made by the defendants. The decision became final and executory on February 21, 1992. A writ of execution 10 was thereafter issued. On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro City, and the notice of sale was subsequently published. During the public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was issued and eventually registered with the Register of Deeds of Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued the sheriffs definite deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom. On September 20, 1994, 11 Willkom sold one of the subject parcels of land to Go. On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, Branch 41 of Cagayan de Oro City, a complaint 12 for Annulment of Sheriffs Sale, Cancellation of Title and Reconveyance of Properties against respondents. MSLAI alleged that the sale on execution of the subject properties was conducted without notice to it and PDIC; that PDIC only came to know about the sale for the first time in February 1995 while discharging its mandate of liquidating MSLAIs assets; that the execution of the RTC decision in Civil Case No. 111-697 was illegal and contrary to law and jurisprudence, not only because PDIC was not notified of the execution sale, but also because the assets of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia legis and should 13 be exempt from any order of garnishment, levy, attachment, or execution. In answer, respondents averred that MSLAI had no cause of action against them or the right to recover the subject properties because MSLAI is a separate and distinct entity from FISLAI. They further contended that the "unofficial merger" between FISLAI and DSLAI (now MSLAI) did not take effect considering that the merging companies did not comply with the formalities and procedure for merger or consolidation as prescribed by the Corporation Code of the Philippines. Finally, they claimed that FISLAI is still a SEC registered corporation and could not have been 14 absorbed by petitioner. On March 13, 1997, the RTC issued a resolution dismissing the case for lack of jurisdiction. The RTC declared that it could not annul the decision in Civil Case No. 111-697, having been rendered by a court of coordinate 15 jurisdiction. On appeal, MSLAI failed to obtain a favorable decision when the CA affirmed the RTC resolution. The dispositive portion of the assailed CA Decision reads:

WHEREFORE, premises considered, the instant appeal is DENIED. The decision assailed is AFFIRMED. We REFER Sheriff Malayo B. Bantuas violation of the Supreme Court Administrative Circular No. 12 to the Office of the Court Administrator for appropriate action. The Division Clerk of Court is hereby DIRECTED to furnish the Office of the Court Administrator a copy of this decision. SO ORDERED.
16

The appellate court sustained the dismissal of petitioners complaint not because it had no j urisdiction over the 17 case, as held by the RTC, but on a different ground. Citing Associated Bank v. CA, the CA ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down by the Corporation Code for a valid merger or consolidation. The CA then concluded that the two corporations retained their separate personalities; consequently, the claim against FISLAI is warranted, and the subsequent sale of the levied properties at public auction is valid. The CA went on to say that even if there had been a de facto merger between FISLAI and MSLAI (formerly DSLAI), Willkom, having relied on the clean certificates of title, was an innocent purchaser for value, whose right is superior to that of MSLAI. Furthermore, the alleged assignment of assets and liabilities executed by FISLAI in favor of MSLAI was not binding on third parties because it was not registered. Finally, the CA said that the validity of the auction sale could not be invalidated by the fact that the 18 sheriff had no authority to conduct the execution sale. Petitioners motion for reconsideration was denied in a Resolution dated June 1, 2007. Hence, the instant petition anchored on the following grounds: THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO COMMITTED GRAVE AND REVERSIBLE ERROR WHEN: (1) IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI (now MSLAI) AS THE SURVIVING ENTITY IN THE MERGER BETWEEN DSLAI AND FISLAI AS A DEFENSE IN AN ACTION OTHER THAN IN A QUO WARRANTO PROCEEDING UPON THE INSTITUTION OF THE SOLICITOR GENERAL AS MANDATED UNDER SECTION 20 OF BATAS PAMBANSA BLG. 68. (2) IT REFUSED TO RECOGNIZE THE MERGER BETWEEN F[I]SLAI AND DSLAI WITH DSLAI AS THE SURVIVING CORPORATION. (3) IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE ARE NOT IN CUSTODIA LEGIS AND THEREFORE, 19 EXEMPT FROM GARNISHMENT, LEVY, ATTACHMENT OR EXECUTION. To resolve this petition, we must address two basic questions: (1) Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective; and (2) Was there novation of the obligation by substituting the person of the debtor? We answer both questions in the negative. Ordinarily, in the merger of two or more existing corporations, one of the corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties, and liabilities are acquired by the 20 surviving corporation. Although there is a dissolution of the absorbed or merged corporations, there is no

winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all 21 their rights, privileges, and powers, as well as their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent 22 corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the 23 rights of stockholders and creditors, there must be an express provision of law authorizing them. The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76, 77, 78, and 27 79 of the Corporation Code, are: (1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements required in the articles of incorporation of a corporation. (2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called and at least two (2) weeks notice must be sent to all stockholders or members, personally or by registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be respected. (3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the corporate officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated corporation, or amend the articles of incorporation of the surviving corporation. (4) Submission of said articles of merger or consolidation to the SEC for approval. (5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before. (6) Issuance of certificate of merger or consolidation.
28 24 25 26

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its 29 prior determination that the merger is not inconsistent with the Corporation Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a 30 favorable recommendation of the appropriate government agency should first be obtained. In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still incomplete without the certification. The issuance of the certificate of merger is crucial because not only does it bear out SECs approval but it also marks the moment when the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken 31 and deemed transferred to and vested in the surviving corporation. The same rule applies to consolidation which becomes effective not upon mere agreement of the members but 32 only upon issuance of the certificate of consolidation by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the

reorganization official. The new consolidated corporation comes into existence and the constituent corporations 34 are dissolved and cease to exist. There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as respondents, the two corporations shall not be considered as one but two separate corporations. A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties 35 expressly authorized by law or incident to its existence. It has a personality separate and distinct from the 36 persons composing it, as well as from any other legal entity to which it may be related. Being separate entities, the property of one cannot be considered the property of the other. Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets and cannot be considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties to DSLAI, and the latter assumed all the liabilities of the former. As provided in Article 1625 of the Civil Code, "an assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property." The certificates of title of the subject properties were clean and contained no annotation of the fact of assignment. Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the properties registered under its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul the execution sale over the properties of FISLAI. With more reason can it not cause the cancellation of the title to the subject properties of Willkom and Go. Petitioner cannot also anchor its right to annul the execution sale on the principle of novation. 1avvphi1 While it is true that DSLAI (now MSLAI) assumed all the liabilities of FISLAI, such assumption did not result in novation as would release the latter from liability, thereby exempting its properties from execution. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in 37 place of the debtor, or by subrogating a third person in the rights of the creditor. It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. Article 1293 of the Civil Code is explicit, thus: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by MSLAI. The consent of the creditor to a novation by change of debtor is as indispensable as the creditors consent in 39 conventional subrogation in order that a novation shall legally take place. Since novation implies a waiver of the 40 right which the creditor had before the novation, such waiver must be express. WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated March 21, 2007 and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337 are AFFIRMED. SO ORDERED.
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CASE 26 G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners, vs. RICARDO R. COROS, Respondent. DECISION BERSAMIN, J.: This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate. In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13, 1 2 2002 and the resolution dated April 2, 2003, both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial and Commercial Corporation (Matling). Antecedents After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers 3 (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. The petitioners moved to dismiss the complaint, raising the ground, among others, that the complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate inasmuch as the respondent was a member of Matlings Board of Directors aside from being its Vice -President for Finance and Administration prior to his termination. The respondent opposed the petitioners motion to dismiss, insisting that his status as a member of Matlings Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed. On October 16, 2000, the LA granted the petitioners motion to dismiss, ruling that the respondent was a corporate officer because he was occupying the position of Vice President for Finance and Administration and at the same time was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree No. 902. Ruling of the NLRC
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The respondent appealed to the NLRC, urging that: I THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEES MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS. II THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF JURISDICTION. On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondents complaint for illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in Matling, albeit high ranking and managerial, not being among the positions listed in Matlings 8 Constitution and By-Laws. The NLRC disposed thuswise: WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-President for Finance and Administration being held by complainant-appellant is not listed as among respondent's corporate officers. Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective evidence and position papers fully observing the requirements of due process, and resolve the same with reasonable dispatch. SO ORDERED. The petitioners sought reconsideration, reiterating that the respondent, being a member of the Board of Directors, was a corporate officer whose removal was not within t he LAs jurisdiction. The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine copies of Matlings Amended Articles of Incorporation and By Laws to prove that the President of Matling was thereby granted "full power to create new offices and appoint the officers thereto, and the minutes of special meeting held on June 7, 1999 by Matlings Board of Directors to prove that the respondent was, indeed, a Member 10 of the Board of Directors. Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for reconsideration. Ruling of the CA The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714, contending that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of the LA. In its assailed decision promulgated on September 13, 2002, the CA dismissed the petition for certiorari, explaining: For a position to be considered as a corporate office, or, for that matter, for one to be considered as a corporate officer, the position must, if not listed in the by-laws, have been created by the corporation's board of directors,
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and the occupant thereof appointed or elected by the same board of directors or stockholders. This is the implication of the ruling in Tabang v. National Labor Relations Commission, which reads: "The president, vice president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation, and modern corporation statutes usually designate them as the officers of the corporation. However, other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. It has been held that an 'office' is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an 'employee' usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee." This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations Commission and De Rossi v. National Labor Relations Commission. The position of vice-president for administration and finance, which Coros used to hold in the corporation, was not created by the corporations board of directors but only by its president or executive vice -president pursuant to the by-laws of the corporation. Moreover, Coros appointment to said position was not made through any act of the board of directors or stockholders of the corporation. Consequently, the position to which Coros was appointed and later on removed from, is not a corporate office despite its nomenclature, but an ordinary office in the corporation. Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter. WHEREFORE, the petition for certiorari is hereby DISMISSED. SO ORDERED. The CA denied the petitioners motion for reconsideration on April 2, 2003. Issue Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a stockholder/member of the Matlings Board of Directors as well as its Vice President for Finance and Administration; and that the CA consequently erred in holding that the LA had jurisdiction. The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal. Ruling The appeal fails. I The Law on Jurisdiction in Dismissal Cases
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As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as follows: Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Termination disputes; 3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; 4. Claims for actual, moral, exemplary and other forms of damages arising from the employeremployee relations; 5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and 6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements. (As amended by Section 9, Republic Act No. 6715, March 21, 1989). Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate or partnership relations between and among stockholders, members, or associates, or between any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership, or association and the State insofar as the controversy concerns their individual franchise or right to exist as such entity; or because the controversy involves the election 14 or appointment of a director, trustee, officer, or manager of such corporation, partnership, or association. Such controversy, among others, is known as an intra-corporate dispute. Effective on August 8, 2000, upon the passage of Republic Act No. 8799, otherwise known as The Securities Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit: 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this
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Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. Considering that the respondents complaint for illegal dismissal was commenced on August 10, 2000, it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a corporate, not a regular, officer of Matling. II Was the Respondents Position of Vice President for Administration and Finance a Corporate Office? We must first resolve whether or not the respondents position as Vice President for Finance and Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799. The petitioners contend that the position of Vice President for Finance and Administration was a corporate office, 16 having been created by Matlings President pursuant to By -Law No. V, as amended, to wit: BY LAW NO. V Officers The President shall be the executive head of the corporation; shall preside over the meetings of the stockholders and directors; shall countersign all certificates, contracts and other instruments of the corporation as authorized by the Board of Directors; shall have full power to hire and discharge any or all employees of the corporation; shall have full power to create new offices and to appoint the officers thereto as he may deem proper and necessary in the operations of the corporation and as the progress of the business and welfare of the corporation may demand; shall make reports to the directors and stockholders and perform all such other duties and functions as are incident to his office or are properly required of him by the Board of Directors. In case of the absence or disability of the President, the Executive Vice President shall have the power to exercise his functions. The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the offices was delegated by Matlings Board of Directors to its President through By-Law No. V, as amended; and that any office the President created, like the position of the respondent, was as valid and effective a creation as that made by the Board of Directors, making the office a corporate office. In justification, they cite Tabang v. National 17 Labor Relations Commission, which held that "other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional officers as may be necessary." The respondent counters that Matlings By-Laws did not list his position as Vice President for Finance and Administration as one of the corporate offices; that Matlings By-Law No. III listed only four corporate officers, 18 namely: President, Executive Vice President, Secretary, and Treasurer; that the corporate offices contemplated in the phrase "and such other officers as may be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt with Directors & Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between the officers mentioned in the two provisions, with those classified under By-Law No. V being ordinary or non-corporate officers; and that the officer, to be considered as a corporate officer, must be elected by the Board of Directors or the stockholders, for the President could only appoint an employee to a position pursuant to ByLaw No. V. We agree with respondent.

Section 25 of the Corporation Code provides: Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the bylaws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board. Directors or trustees cannot attend or vote by proxy at board meetings. Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough 19 to make a position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as employees or subordinate officials. Thus, it was held in Easycall 20 Communications Phils., Inc. v. King: An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner 's general manager, not by the board of directors of petitioner. It was also Malonzo who determined the compensation package of respondent. Thus, respondent was an employee, not a "corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC (now the RTC). This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the ByLaws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by the corporations By -Laws. A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer position. It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 21 1993, to wit: Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other Offices without amending first the corporate By-laws. However, the Board may create appointive positions other than the positions of corporate Officers, but the persons occupying such positions are not considered as

corporate officers within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions of the corporate Officers, except those functions lawfully delegated to them. Their functions and duties are to be determined by the Board of Directors/Trustees. Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary power that the law 22 exclusively vested in the Board of Directors, and could not be delegated to subordinate officers or agents. The office of Vice President for Finance and Administration created by Matlings President pursuant to By Law No. V was an ordinary, not a corporate, office. To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by ByLaw No. V merely allowed Matlings President to create non -corporate offices to be occupied by ordinary employees of Matling. Such powers were incidental to the President s duties as the executive head of Matling to assist him in the daily operations of the business. The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered corporate offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the position was a corporate office, and that the determination of the rights and liabilities arising from the ouster from the position was an intra-corporate controversy within the SECs jurisdiction. In Nacpil v. Intercontinental Broadcasting Corporation, which may be the more appropriate ruling, the position subject of the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law enabling provision authorizing the Board of Directors to create other offices that the Board of Directors might see fit to create. The Court held there that the position was a corporate office, relying on the obiter dictum in Tabang. Considering that the observations earlier made herein show that the soundness of their dicta is not unassailable,Tabang and Nacpil should no longer be controlling. III Did Respondents Status as Director and Stockholder Automatically Convert his Dismissal into an Intra-Corporate Dispute? Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying 24 25 onPaguio v. National Labor Relations Commission and Ongkingko v. National Labor Relations Commission, the NLRC had no jurisdiction over his complaint, considering that any case for illegal dismissal brought by a stockholder/officer against the corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A. The petitioners insistence is bereft of basis. To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of them had been duly elected by the respective Boards of Directors. Bu t the herein respondents position of Vice President for Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of Vice President for Finance and Administration created by Matlings Board of Directors. Lastly, the President, not the Board of Directors, appointed him.
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True it is that the Court pronounced in Tabang as follows: Also, an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers all kinds of controversies 26 between stockholders and corporations. However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason, justice, and fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the status or relationship of the parties; and (b) the 27 nature of the question that is the subject of their controversy. This was our thrust in Viray v. Court of Appeals: The establishment of any of the relationships mentioned above will not necessarily always confer jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in one case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy. Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person leases an apartment owned by a corporation of which he is a stockholder, there should be no question that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of the regular courts and not of the SEC. By the same token, if one person injures another in a vehicular accident, the complaint for damages filed by the victim will not come under the jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the same corporation. A contrary interpretation would dissipate the powers of the regular courts and distort the meaning and intent of PD No. 902-A. In another case, Mainland Construction Co., Inc. v. Movilla, the Court reiterated these determinants thuswise: In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must pertain to any of the following relationships: a) between the corporation, partnership or association and the public; b) between the corporation, partnership or association and its stockholders, partners, members or officers; c) between the corporation, partnership or association and the State as far as its franchise, permit or license to operate is concerned; and d) among the stockholders, partners or associates themselves. The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is the subject of their controversy. In the absence of any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate 29 matters as only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on
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the nature of the services performed, but on the manner of creation of the office. In the respondents case, he was supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had any relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration. Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice President for Finance and Administration had been gradual but steady, as the following sequence indicates: 1966 Bookkeeper 1968 Senior Accountant 1969 Chief Accountant 1972 Office Supervisor 1973 Assistant Treasurer 1978 Special Assistant for Finance 1980 Assistant Comptroller 1983 Finance and Administrative Manager 1985 Asst. Vice President for Finance and Administration 1987 to April 17, 2000 Vice President for Finance and Administration Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice President for Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an employee of Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was unaffected by his dismissal from employment as Vice President for Finance and Administration.1avvphi1 In Prudential Bank and Trust Company v. Reyes, a case involving a lady bank manager who had risen from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the NLRC, because she was deemed a regular employee of the bank. The Court observed thus: It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President which she occupied until her illegal dismissal on July 19, 1991. The banks contention that she merely holds an elective position and that in effect she is not a regular employee is belied by the nature of her work and her length of service with the Bank. As earlier stated, she rose from the ranks and has been employed with the Bank since 1963 until the termination of her employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn against overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks purchased, including the signing of transmittal letters covering
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the same. It has been stated that "the primary standard of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. Additionally, "an employee is regular because of the nature of work and the length of service, not because of the mode or even the reason for hiring them." As Assistant Vice-President of the Foreign Department of the Bank she performs tasks integral to the operations of the bank and her length of service with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her services may be terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no wonder then that the Bank endeavored to the very end to establish loss of trust and confidence and serious misconduct on the part of private respondent but, as will be discussed later, to no avail. WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of Appeals. Costs of suit to be paid by the petitioners. SO ORDERED.

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