G.R. No. 91889 August 27, 1993 litigation in the amount of P4,000.
00 and attorney's fees in the sum of
MANUEL R. DULAY ENTERPRISES, INC., vs. COURT OF
APPEALS
This is a petition for review on certiorari to annul and set aside the
decision 1 of the Court of Appeals affirming the decision 2 of the
Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P,
and 2880-P, the dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court
hereby renders judgment, as follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay
Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration of
nullity of the decision of the Metropolitan Trial Court, Branch 46,
Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan,
et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack
of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay
Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT
No. 24799 of the Register of Deeds of Pasay City) and reconveyance,
is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises,
Inc. and Virgilio E. Dulay are ordered to surrender and deliver
possession of the parcel of land, together with all the improvements
thereon, described in Transfer Certificate of Title No. 24799 of the
Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel
A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate
administrator of said Manuel A. Torres, Jr.; to account for and return
to said plaintiffs the rentals from dwelling unit No. 8-A of the
apartment building (Dulay Apartment) from June 1980 up to the
present, to indemnify plaintiffs, jointly and severally, expenses of
P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno
Redovan is ordered to pay the current and subsequent rentals on the
premises leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R.
Dulay Enterprises, Inc. and N. Redovan, dismissed for lack of merit.
With costs against the three (3) aforenamed defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation
with the following as members of its Board of Directors: Manuel R.
Dulay with 19,960 shares and designated as president, treasurer and
general manager, Atty. Virgilio E. Dulay with 10 shares and
designated as vice-president; Linda E. Dulay with 10 shares; Celia
Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10
shares and designated as secretary, owned a property covered by TCT
No. 17880 4 and known as Dulay Apartment consisting of sixteen (16)
apartment units on a six hundred eighty-nine (689) square meters lot,
more or less, located at Seventh Street (now Buendia Extension) and
F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained
various loans for the construction of its hotel project, Dulay
Continental Hotel (now Frederick Hotel). It even had to borrow money
from petitioner Virgilio Dulay to be able to continue the hotel project.
As a result of said loan, petitioner Virgilio Dulay occupied one of the
unit apartments of the subject property since property since 1973 while
at the same time managing the Dulay Apartment at his shareholdings
in the corporation was subsequently increased by his father. 5
On December 23, 1976, Manuel Dulay by virtue of Board Resolution
No 18 6 of petitioner corporation sold the subject property to private
respondents spouses Maria Theresa and Castrense Veloso in the
amount of P300,000.00 as evidenced by the Deed of Absolute
Sale. 7 Thereafter, TCT No. 17880 was cancelled and TCT No. 23225
was issued to private respondent Maria Theresa
Veloso. 8 Subsequently, Manuel Dulay and private respondents
spouses Veloso executed a Memorandum to the Deed of Absolute Sale
of December 23, 1976 9 dated December 9, 1977 giving Manuel Dulay
within (2) years or until December 9, 1979 to repurchase the subject
property for P200,000.00 which was, however, not annotated either in
TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the
knowledge of Manuel Dulay, mortgaged the subject property to
private respondent Manuel A. Torres for a loan of P250,000.00 which
was duly annotated as Entry No. 68139 in TCT No. 23225. 10
Upon the failure of private respondent Maria Veloso to pay private
respondent Torres, the subject property was sold on April 5, 1978 to
private respondent Torres as the highest bidder in an extrajudicial
foreclosure sale as evidenced by the Certificate of Sheriff's
Sale 11 issued on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed
of Absolute Assignment of the Right to Redeem 12 in favor of Manuel
Dulay assigning her right to repurchase the subject property from
private respondent Torres as a result of the extra sale held on April 25,
1978.
As neither private respondent Maria Veloso nor her assignee Manuel
Dulay was able to redeem the subject property within the one year
statutory period for redemption, private respondent Torres filed an
Affidavit of Consolidation of Ownership 13 with the Registry of Deeds
of Pasay City and TCT No. 24799 14 was subsequently issued to
private respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the
issuance of a writ of possession against private respondents spouses
Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when
petitioner Virgilio Dulay was never authorized by the petitioner
corporation to sell or mortgage the subject property, the trial court
ordered private respondent Torres to implead petitioner corporation as
an indispensable party but the latter moved for the dismissal of his
petition which was granted in an Order dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan,
real estate administrator of Torres, filed an action against petitioner
corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of
Dulay Apartment Unit No. 8-A for the recovery of possession, sum of
money and damages with preliminary injunction in Civil Case, No.
8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private
respondents spouses Veloso and Torres for the cancellation of the
Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No.
8278-P with the then Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an
action against spouses Florentino and Elvira Manalastas, a tenant of
Dulay Apartment Unit No. 7-B, with petitioner corporation as
intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan
Trial Court of Pasay City which rendered a decision on April 25, 1985,
dispositive portion of which reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff
(herein private respondents) and against the defendants:
1. Ordering the defendants and all persons claiming possession under
them to vacate the premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a
month from May, 1979 until they shall have vacated the premises with
interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of
P2,000.00 and P1,000.00 as other expenses of litigation and for them
to pay the costs of the suit. 15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio
Dulay filed an action against the presiding judge of the Metropolitan
Trial Court of Pasay City, private respondents Pabalan and Torres for
the annulment of said decision with the Regional Trial Court of Pasay
in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court
rendered a decision in favor of private respondents.
Not satisfied with said decision, petitioners appealed to the Court of
Appeals which rendered a decision on October 23, 1989, the
dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being
appealed should be as it is hereby AFFIRMED in
full. 16
On November 8, 1989, petitioners filed a Motion for Reconsideration
which was denied on January 26, 1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres died
on April 3, 1991 as shown in his death certificate 17 and named Torres-
Pabalan Realty & Development Corporation as his heir in his
holographic will 18 dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave
abuse of discretion when it applied the doctrine of piercing the veil of
corporate entity in the instant case considering that the sale of the
subject property between private respondents spouses Veloso and
Manuel Dulay has no binding effect on petitioner corporation as Board
Resolution No. 18 which authorized the sale of the subject property
was resolved without the approval of all the members of the board of
directors and said Board Resolution was prepared by a person not
designated by the corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly
held. Unless the by-laws provide otherwise, any action by the
directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto
is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of
the action and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with
the express or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the
action in question and none of them makes prompt objection
thereto in writing.
If a directors' meeting is held without call or notice, an action
taken therein within the corporate powers is deemed ratified
by a director who failed to attend, unless he promptly files his
written objection with the secretary of the corporation after
having knowledge thereof.
In the instant case, petitioner corporation is classified as a close
corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, corporate action
taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case,
petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has
a personality distinct and separate from its individual stockholders or
members, 19 the veil of corporate fiction may be pierced when it is
used to defeat public convenience justify wrong, protect fraud or
defend crime. 20 The privilege of being treated as an entity distinct and
separate from its stockholder or members is therefore confined to its
legitimate uses and is subject to certain limitations to prevent the
commission of fraud or other illegal or unfair act. When the
corporation is used merely as an alter ego or business conduit of a
person, the law will regard the corporation as the act of that
person. 21 The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to
annul a valid contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its president,
Manuel Dulay, to private respondents spouses Veloso is null and void
as the alleged Board Resolution No. 18 was passed without the
knowledge and consent of the other members of the board of directors
cannot be sustained. As correctly pointed out by the respondent Court
of Appeals:
Appellant Virgilio E. Dulay's protestations of complete
innocence to the effect that he never participated nor was even
aware of any meeting or resolution authorizing the mortgage
or sale of the subject premises (see par. 8, affidavit of Virgilio
E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to
believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is a incorporator and
one of the board of directors designated at the time of the
organization of Manuel R. Dulay Enterprise, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family
corporation". The nomenclature, if imprecise, however, fairly
reflects the cohesiveness of a group and the parochial instincts
of the individual members of such an aggrupation of which
Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, three (3) children
and their father whose name identifies their corporation
(Articles of Incorporation of Manuel R. Dulay Enterprises,
Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975
executed an affidavit 23 that he was a signatory witness to the
execution of the post-dated Deed of Absolute Sale of the subject
property in favor of private respondent Torres indicates that he was
aware of the transaction executed between his father and private
respondents and had, therefore, adequate knowledge about the sale of
the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel
Dulay and the sale of the subject property to private respondents by
Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and
the spouses Maria Theresa V. Veloso and Castrense C.
Veloso, was a corporate act of the former and not a personal
transaction of Manuel R. Dulay. This is so because Manuel R.
Dulay was not only president and treasurer but also the
general manager of the corporation. The corporation was a
closed family corporation and the only non-relative in the
board of directors was Atty. Plaridel C. Jose who appeared on
paper as the secretary. There is no denying the fact, however,
that Maria Socorro R. Dulay at times acted as secretary. . . .,
the Court can not lose sight of the fact that the Manuel R.
Dulay Enterprises, Inc. is a closed family corporation where
the incorporators and directors belong to one single family. It
 cannot be concealed that Manuel R. Dulay as president,
treasurer and general manager almost had absolute control
over the business and affairs of the corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial
judge unless he has plainly overlooked certain facts of substance and
value that, if considered, might affect the result of the case, 25 which
is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired
ownership over the subject property since the latter was never in actual
possession of the subject property nor was the property ever delivered
to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the
contrary do not appear or cannot clearly be inferred.
Under the aforementioned article, the mere execution of the deed of
sale in a public document is equivalent to the delivery of the property.
Likewise, this Court had held that:
Possession of the land then becomes an absolute right of the
purchaser as confirmed owner. 26
Therefore, prior physical delivery or possession is not legally required
since the execution of the Deed of Sale in deemed equivalent to
delivery.
Finally, we hold that the respondent appellate court did not err in
denying petitioner's motion for reconsideration despite the fact that
private respondents failed to submit their comment to said motion as
required by the respondent appellate court from resolving petitioners'
motion for reconsideration without the comment of the private
respondent which was required merely to aid the court in the
disposition of the motion. The courts are as much interested as the
parties in the early disposition of cases before them. To require
otherwise would unnecessarily clog the courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed
from is hereby AFFIRMED.
SO ORDERED.

It is settled that the buyer in a foreclosure sale becomes the

absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale.
As such, he is entitled to the possession of the said property
and can demand it at any time following the consolidation of
ownership in his name and the issuance to him of a new
transfer certificate of title. The buyer can in fact demand
possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 7
of Act No. 3133 as amended. No such bond is required after
the redemption period if the property is not redeemed.
 [G.R. No. 129459. September 29, 1998]
SAN JUAN STRUCTURAL AND STEEL FABRICATORS,
INC., vs. COURT OF APPEALS
May a corporate treasurer, by herself and without any
authorization from the board of directors, validly sell a parcel of land
owned by the corporation? May the veil of corporate fiction be pierced
on the mere ground that almost all of the shares of stock of the
corporation are owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in
resolving the Petition for Review on Certiorari before us, assailing the
March 18, 1997 Decision[1] of the Court of Appeals[2] in CA GR CV
No. 46801 which, in turn, modified the July 18, 1994 Decision of the
Regional Trial Court of Makati, Metro Manila, Branch 63[3] in Civil
Case No. 89-3511. The RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand, the Court of
Appeals ruled:
WHEREFORE, premises considered, the appealed decision
is AFFIRMED WITH MODIFICATION ordering
defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment
of P100,000.00 which she received from plaintiff-
appellant. There is no pronouncement as to costs.[4]
The petition also challenges the June 10, 1997 CA Resolution
denying reconsideration.[5]
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel
Fabricators, Inc.s amended complaint alleged that on 14
February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land
identified as Lot 30, Block 1 of the Acropolis Greens
Subdivision located in the District of Murphy, Quezon City,
Metro Manila, containing an area of Four Hundred Fourteen
(414) square meters, covered by TCT No. (362909) 2876;
that as stipulated in the Agreement of 14 February 1989,
plaintiff-appellant paid the down payment in the sum of One
Hundred Thousand (P100,000.00) Pesos, the balance to be
paid on or before March 2, 1989; that on March 1, 1989, Mr.
Andres T. Co, president of plaintiff-appellant corporation,
wrote a letter to defendant-appellee Motorich Sales
Corporation requesting for a computation of the balance to
be paid; that said letter was coursed through defendant-
appellees broker, Linda Aduca, who wrote the computation
of the balance; that on March 2, 1989, plaintiff-appellant
was ready with the amount corresponding to the balance,
covered by Metrobank Cashiers Check No. 004223, payable
to defendant-appellee Motorich Sales Corporation; that
plaintiff-appellant and defendant-appellee Motorich Sales
Corporation were supposed to meet in the office of plaintiff-
appellant but defendant-appellees treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-appellee
Motorich Sales Corporation despite repeated demands and
in utter disregard of its commitments had refused to execute
the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title; that defendant
ACL Development Corp. is impleaded as a necessary party
since Transfer Certificate of Title No. (362909) 2876 is still
in the name of said defendant; while defendant JNM Realty
& Development Corp. is likewise impleaded as a necessary
party in view of the fact that it is the transferor of right in
favor of defendant-appellee Motorich Sales Corporation;
that on April 6, 1989, defendant ACL Development
Corporation and Motorich Sales Corporation entered into a
Deed of Absolute Sale whereby the former transferred to the
latter the subject property; that by reason of said transfer,
the Registry of Deeds of Quezon City issued a new title in
the name of Motorich Sales Corporation, represented by
defendant-appellee Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571;
that as a result of defendants-appellees Nenita Lee
Gruenberg and Motorich Sales Corporations bad faith in
refusing to execute a formal Transfer of Rights/Deed of
Assignment, plaintiff-appellant suffered moral and nominal
damages which may be assessed against defendants-
appellees in the sum of Five Hundred Thousand
(500,000.00) Pesos; that as a result of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporations
unjustified and unwarranted failure to execute the required
Transfer of Rights/Deed of Assignment or formal deed of
sale in favor of plaintiff-appellant, defendants-appellees
should be assessed exemplary damages in the sum of One
Hundred Thousand (P100,000.00) Pesos; that by reason of
defendants-appellees bad faith in refusing to execute a
Transfer of Rights/Deed of Assignment in favor of plaintiff-
appellant, the latter lost the opportunity to construct a
residential building in the sum of One Hundred Thousand
(P100,000.00) Pesos; and that as a consequence of
defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporations bad faith in refusing to execute a deed
of sale in favor of plaintiff-appellant, it has been constrained
to obtain the services of counsel at an agreed fee of One
Hundred Thousand (P100,000.00) Pesos plus appearance
fee for every appearance in court hearings.
In its answer, defendants-appellees Motorich Sales
Corporation and Nenita Lee Gruenberg interposed as
affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of
the amended complaint; that Mrs. Gruenbergs signature on
the agreement (ref: par. 3 of Amended Complaint) is
inadequate to bind Motorich. The other signature, that of
Mr. Reynaldo Gruenberg, President and Chairman of
Motorich, is required; that plaintiff knew this from the very
beginning as it was presented a copy of the Transfer of
Rights (Annex B of amended complaint) at the time the
Agreement (Annex B of amended complaint) was signed;
that plaintiff-appellant itself drafted the Agreement and
insisted that Mrs. Gruenberg accept the P100,000.00 as
earnest money; that granting, without admitting, the
enforceability of the agreement, plaintiff-appellant
nonetheless failed to pay in legal tender within the stipulated
period (up to March 2, 1989); that it was the understanding
between Mrs. Gruenberg and plaintiff-appellant that the
Transfer of Rights/Deed of Assignment will be signed only
upon receipt of cash payment; thus they agreed that if the
payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and
sign the Transfer of Rights/Deed.However, plaintiff-
appellant informed Mrs. Gruenberg of the alleged
availability of the check, by phone, only after banking
hours.
On the basis of the evidence, the court a quo rendered the
judgment appealed from[,] dismissing plaintiff-appellants
complaint, ruling that:
'The issue to be resolved is: whether plaintiff had
the right to compel defendants to execute a deed of
absolute sale in accordance with the agreement of
February 14, 1989; and if so, whether plaintiff is
entitled to damages.
As to the first question, there is no evidence to show
that defendant Nenita Lee Gruenberg was indeed
authorized by defendant corporation, Motorich
Sales, to dispose of that property covered by T.C.T.
No. (362909) 2876. Since the property is clearly
owned by the corporation, Motorich Sales, then its
disposition should be governed by the requirement
laid down in Sec. 40, of the Corporation Code of the
Philippines, to wit:
Sec. 40, Sale or other disposition of
assets. Subject to the provisions of existing
laws on illegal combination and
monopolies, a corporation may by a
majority vote of its board of directors xxx
sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all
of its property and assets, including its
goodwill xxx when authorized by the vote
of the stockholders representing at least
two third (2/3) of the outstanding capital
stock x x x.
No such vote was obtained by defendant Nenita Lee
Gruenberg for that proposed sale[;] neither was
there evidence to show that the supposed
transaction was ratified by the corporation. Plaintiff
should have been on the look out under these
circumstances. More so, plaintiff himself [owns]
several corporations (tsn dated August 16, 1993, p.
3) which makes him knowledgeable on corporation
matters.
Regarding the question of damages, the Court
likewise, does not find substantial evidence to hold
defendant Nenita Lee Gruenberg liable considering
that she did not in anyway misrepresent herself to
be authorized by the corporation to sell the property
to plaintiff (tsn dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby
renders judgment DISMISSING the complaint at
instance for lack of merit.
Defendants counterclaim is also DISMISSED for
lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced
hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized
and existing under and by virtue of Philippine Laws, with principal
office address at 5510 South Super Hi-way cor. Balderama St., Pio del
Pilar, Makati, Metro Manila, represented herein by its Treasurer,
NENITA LEE GRUENBERG, hereinafter referred to as the
TRANSFEROR;
- and --
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a
corporation duly organized and existing under and by virtue of the
laws of the Philippines, with principal office address at Sumulong
Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by
its President, ANDRES T. CO, hereinafter referred to as the
TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land
identified as Lot 30 Block 1 of the ACROPOLIS GREENS
SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414)
SQUARE METERS, covered by a TRANSFER OF RIGHTS between
JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp.
as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing
premises, the parties have agreed as follows:
1. That the purchase price shall be at FIVE
THOUSAND TWO HUNDRED PESOS
(P5,200.00) per square meter; subject to the
following terms:
a. Earnest money amounting to ONE HUNDRED
THOUSAND PESOS (P100,000.00), will be
paid upon the execution of this agreement
and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of
February 1989 shall be for the account of the
Transferor; and that the monthly amortization
starting March 21, 1989 shall be for the account of
the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-
described property and that there [are] no existing liens and/or
encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date
specified on 1. (b), the earnest money shall be forfeited in favor of the
Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to
execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in
favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands
this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila,
Philippines.
MOTORICH SALES CORPORATION SAN STRUCTURAL &
TRANSFEROR STEEL FABRICATORS
TRANSFEREE
[SGD.] [SGD.]
By: NENITA LEE GRUENBERG By: ANDRES
T. CO
Treasurer President
Signed in the presence of:
[SGD.] [SGD.]
_________________________ _____________________[6]
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a
Deed of Absolute Sale in accordance with the Agreement of
February 14, 1989,
2. Plaintiff is entitled to damages.[7]
As stated earlier, the Court of Appeals debunked petitioners
arguments and affirmed the Decision of the RTC with the modification
that Respondent Nenita Lee Gruenberg was ordered to
refund P100,000 to petitioner, the amount remitted as downpayment
or earnest money. Hence, this petition before us.[8]
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of
corporate fiction is applicable in the instant case
II. Whether or not the appellate court may consider
matters which the parties failed to raise in the
lower court
 III. Whether or not there is a valid and enforceable
contract between the petitioner and the
respondent corporation
IV. Whether or not the Court of Appeals erred in
holding that there is a valid
correction/substitution of answer in the
transcript of stenographic note[s]
V. Whether or not respondents are liable for damages
and attorneys fees[9]
The Court synthesized the foregoing and will thus discuss
them seriatim as follows:
1. Was there a valid contract of sale between petitioner
and Motorich?
2. May the doctrine of piercing the veil of corporate
fiction be applied to Motorich?
3. Is the alleged alteration of Gruenbergs testimony as
recorded in the transcript of stenographic notes
material to the disposition of this case?
4. Are respondents liable for damages and attorneys
fees?
The Courts Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges
that on February 14, 1989, it entered through its president, Andres Co,
into the disputed Agreement with Respondent Motorich Sales
Corporation, which was in turn allegedly represented by its treasurer,
Nenita Lee Gruenberg. Petitioner insists that [w]hen Gruenberg and
Co affixed their signatures on the contract they both consented to be
bound by the terms thereof. Ergo, petitioner contends that the contract
is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the
Agreement according to which a lot owned by Motorich Sales
Corporation was purportedly sold. Such contract, however, cannot
bind Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and may
not be sold by the stockholders or members without express
authorization from the corporations board of directors.[10] Section 23
of BP 68, otherwise known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. -- Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to
be elected from among the holders of stocks, or where there
is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their
successors are elected and qualified.
Indubitably, a corporation may act only through its board of
directors, or, when authorized either by its bylaws or by its board
resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the
articles of incorporation, bylaws, or relevant provisions of
law.[11] Thus, this Court has held that a corporate officer or agent may
represent and bind the corporation in transactions with third persons
to the extent that the authority to do so has been conferred upon him,
and this includes powers which have been intentionally conferred, and
also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to
believe that it has conferred.[12]
Furthermore, the Court has also recognized the rule that persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it (Harry Keeler v.
Rodriguez, 4 Phil. 19).[13] Unless duly authorized, a treasurer, whose
powers are limited, cannot bind the corporation in a sale of its
assets.[14]
In the case at bar, Respondent Motorich categorically denies that
it ever authorized Nenita Gruenberg, its treasurer, to sell the subject
parcel of land.[15] Consequently, petitioner had the burden of proving
that Nenita Gruenberg was in fact authorized to represent and bind
Motorich in the transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court contained no proof
of such authority.[16] It has not shown any provision of said
respondents articles of incorporation, bylaws or board resolution to
prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free
petitioner from the responsibility of ascertaining the extent of her
authority to represent the corporation. Petitioner cannot assume that
she, by virtue of her position, was authorized to sell the property of the
corporation. Selling is obviously foreign to a corporate treasurers
function, which generally has been described as to receive and keep
the funds of the corporation, and to disburse them in accordance with
the authority given him by the board or the properly authorized
officers.[17]
Neither was such real estate sale shown to be a normal business
activity of Motorich. The primary purpose of Motorich is marketing,
distribution, export and import in relation to a general merchandising
business.[18]Unmistakably, its treasurer is not cloaked with actual or
apparent authority to buy or sell real property, an activity which falls
way beyond the scope of her general authority.
Articles 1874 and 1878 of the Civil Code of the Philippines
provides:
ART. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
ART. 1878 Special powers of attorney are necessary in the
following case:
xxxxxxxxx
(5) To enter any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
x x x x x x x x x.
Petitioner further contends that Respondent Motorich has ratified
said contract of sale because of its acceptance of benefits, as evidenced
by the receipt issued by Respondent Gruenberg.[19] Petitioner is
clutching at straws.
As a general rule, the acts of corporate officers within the scope
of their authority are binding on the corporation. But when these
officers exceed their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from
disclaiming them.[20]
In this case, there is a clear absence of proof that Motorich ever
authorized Nenita Gruenberg, or made it appear to any third person
that she had the authority, to sell its land or to receive the earnest
money. Neither was there any proof that Motorich ratified, expressly
or impliedly, the contract. Petitioner rests its argument on the receipt,
which, however, does not prove the fact of ratification. The document
is a hand-written one, not a corporate receipt, and it bears only Nenita
Gruenbergs signature. Certainly, this document alone does not prove
that her acts were authorized or ratified by Motorich.
Article 1318 of the Civil Code lists the requisites of a valid and
perfected contract: (1) consent of the contracting parties; (2) object
certain which is the subject matter of the contract; (3) cause of the
obligation which is established.As found by the trial court[21] and
affirmed by the Court of Appeals,[22] there is no evidence that
Gruenberg was authorized to enter into the contract of sale, or that the
said contract was ratified by Motorich. This factual finding of the two
courts is binding on this Court.[23] As the consent of the seller was not
obtained, no contract to bind the obligor was perfected. Therefore,
there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to
Respondent Gruenberg to sell its parcel of land, we hold that the
February 14, 1989 Agreement entered into by the latter with petitioner
is void under Article 1874 of the Civil Code. Being inexistent and void
from the beginning, said contract cannot be ratified.[24]
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of
Motorich should be pierced, because the latter is a close
corporation. Since Spouses Reynaldo L. Gruenberg and Nenita R.
Gruenberg owned all or almost all or 99.866% to be accurate, of the
subscribed capital stock[25] of Motorich, petitioner argues that
Gruenberg needed no authorization from the board to enter into the
subject contract.[26] It adds that, being solely owned by the Spouses
Gruenberg, the company can be treated as a close corporation which
can be bound by the acts of its principal stockholder who needs no
specific authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue
belatedly,[27] not having done so during the trial, but only when it filed
its sur-rejoinder before the Court of Appeals.[28] Thus, this Court
cannot entertain said issue at this late stage of the proceedings. It is
well-settled that points of law, theories and arguments not brought to
the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first
time on appeal.[29] Allowing petitioner to change horses in midstream,
as it were, is to run roughshod over the basic principles of fair play,
justice and due process.
Second, even if the above-mentioned argument were to be
addressed at this time, the Court still finds no reason to uphold it. True,
one of the advantages of a corporate form of business organization is
the limitation of an investors liability to the amount of the
investment.[30] This feature flows from the legal theory that a corporate
entity is separate and distinct from its stockholders. However, the
statutorily granted privilege of a corporate veil may be used only for
legitimate purposes.[31] On equitable considerations, the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality
or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation.[32]
Thus, the Court has consistently ruled that [w]hen the fiction is
used as a means of perpetrating a fraud or an illegal act or as 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.[33]
We stress that the corporate fiction should be set aside when it
becomes a shield against liability for fraud, illegality or inequity
committed on third persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of proof. In the present
case, however, the Court finds no reason to pierce the corporate veil
of Respondent Motorich. Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality
or inequity at the expense of third persons, like petitioner.
Petitioner claims that Motorich is a close corporation. We rule
that it is not. Section 96 of the Corporation Code defines a close
corporation as follows:
SEC. 96. Definition and Applicability of Title. -- A close
corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All of the
corporations issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2)
All of the issued stock of all classes shall be subject to one
or more specified restrictions on transfer permitted by this
Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation
shall be deemed not a close corporation when at least two-
thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close
corporation within the meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales Corporation
does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering of
such stocks is prohibited. From its articles, it is clear that Respondent
Motorich is not a close corporation.[35] Motorich does not become one
either, just because Spouses Reynaldo and Nenita Gruenberg owned
99.866% of its subscribed capital stock. The [m]ere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities.[36] So too, a narrow
distribution of ownership does not, by itself, make a close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of
Appeals[37] wherein the Court ruled that xxx petitioner corporation is
classified as a close corporation and, consequently, a board resolution
authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president.[38] But
the factual milieu in Dulay is not on all fours with the present
case. In Dulay, the sale of real property was contracted by the
president of a close corporation with the knowledge and acquiescence
of its board of directors.[39] In the present case, Motorich is not a close
corporation, as previously discussed, and the agreement was entered
into by the corporate treasurer without the knowledge of the board of
directors.
The Court is not unaware that there are exceptional cases where
an action by a director, who singly is the controlling stockholder, may
be considered as a binding corporate act and a board action as nothing
more than a mere formality.[40] The present case, however, is not one
of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg
own almost 99.866% of Respondent Motorich.[41] Since Nenita is not
the sole controlling stockholder of Motorich, the aforementioned
exception does not apply.Granting arguendo that the corporate veil of
Motorich is to be disregarded, the subject parcel of land would then be
treated as conjugal property of Spouses Gruenberg, because the same
was acquired during their marriage. There being no indication that said
spouses, who appear to have been married before the effectivity of the
Family Code, have agreed to a different property regime, their
property relations would be governed by conjugal partnership of
gains.[42] As a consequence, Nenita Gruenberg could not have effected
a sale of the subject lot because [t]here is no co-ownership between
the spouses in the properties of the conjugal partnership of
gains. Hence, neither spouse can alienate in favor of another his or her
interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership
has been legally dissolved.[43]
 Assuming further, for the sake of argument, that the spouses
property regime is the absolute community of property, the sale would
still be invalid. Under this regime, alienation of community property
must have the written consent of the other spouse or the authority of
the court without which the disposition or encumbrance
is void.[44] Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the
transcript of stenographic notes(TSN):
Q Did you ever represent to Mr. Co that you were authorized by
the corporation to sell the property?
A Yes, sir.[45]
Petitioner claims that the answer Yes was crossed out, and, in its
place was written a No with an initial scribbled above it.[46] This,
however, is insufficient to prove that Nenita Gruenberg was
authorized to represent Respondent Motorich in the sale of its
immovable property. Said excerpt should be understood in the context
of her whole testimony. During her cross-examination, Respondent
Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that
you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the
property, you did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it
[was] also the president who [was] also authorized to sign on
behalf of the corporation.
Q You did not say that you were not authorized nor did you say
that you were authorized?
A Mr. Co was very interested to purchase the property and he
offered to put up a P100,000.00 earnest money at that
time. That was our first meeting.[47]
Clearly then, Nenita Gruenberg did not testify that Motorich had
authorized her to sell its property. On the other hand, her testimony
demonstrates that the president of Petitioner Corporation, in his great
desire to buy the property, threw caution to the wind by offering and
paying the earnest money without first verifying Gruenbergs authority
to sell the lot.
Fourth Issue:
Damages and Attorneys Fees
Finally, petitioner prays for damages and attorneys fees, alleging
that [i]n an utter display of malice and bad faith, [r]espondents
attempted and succeeded in impressing on the trial court and [the]
Court of Appeals that Gruenberg did not represent herself as
authorized by Respondent Motorich despite the receipt issued by the
former specifically indicating that she was signing on behalf of
Motorich Sales Corporation. Respondent Motorich likewise acted in
bad faith when it claimed it did not authorize Respondent Gruenberg
and that the contract [was] not binding, [insofar] as it [was] concerned,
despite receipt and enjoyment of the proceeds of Gruenbergs
act.[48] Assuming that Respondent Motorich was not a party to the
alleged fraud, petitioner maintains that Respondent Gruenberg should
be held liable because she acted fraudulently and in bad faith [in]
representing herself as duly authorized by [R]espondent
[C]orporation.[49]
 As already stated, we sustain the findings of both the trial and the
appellate courts that the foregoing allegations lack factual
bases. Hence, an award of damages or attorneys fees cannot be
justified. The amount paid as earnest money was not proven to have
redounded to the benefit of Respondent Motorich. Petitioner claims
that said amount was deposited to the account of Respondent
Motorich, because it was deposited with the account of Aren
Commercial c/o Motorich Sales Corporation.[50] Respondent
Gruenberg, however, disputes the allegations of petitioner. She
testified as follows:
expense of another,[54] a principle embodied in Article 2154 of the
Civil Code.[55] Although there was no binding relation between them,
petitioner paid Gruenberg on the mistaken belief that she had the
authority to sell the property of Motorich.[56] Article 2155 of the Civil
Code provides that [p]ayment by reason of a mistake in the
construction or application of a difficult question of law may come
within the scope of the preceding article.
WHEREFORE, the petition is hereby DENIED and the assailed
Decision is AFFIRMED.

Q You voluntarily accepted the P100,000.00, as a matter of fact, SO ORDERED.

that was encashed, the check was encashed.
A Yes, sir, the check was paid in my name and I deposit[ed] it . . .
Q In your account?
A Yes, sir. [51]
In any event, Gruenberg offered to return the amount to petitioner xxx
since the sale did not push through.[52]
Moreover, we note that Andres Co is not a neophyte in the world
of corporate business. He has been the president of Petitioner
Corporation for more than ten years and has also served as chief
executive of two other corporate entities.[53] Co cannot feign ignorance
of the scope of the authority of a corporate treasurer such as
Gruenberg. Neither can he be oblivious to his duty to ascertain the
scope of Gruenbergs authorization to enter into a contract to sell a
parcel of land belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is unsubstantiated
and fails to persuade the Court. Indubitably, petitioner appears to be
the victim of its own officers negligence in entering into a contract
with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita
Gruenberg should be ordered to return to petitioner the amount she
received as earnest money, as no one shall enrich himself at the
 IGLESIA EVANGELICA METODISTA vs. LAZARO
G.R. No. 184088 July 6, 2010
The present dispute resolves the issue of whether or not a
corporation may change its character as a corporation sole into a
corporation aggregate by mere amendment of its articles of
incorporation without first going through the process of dissolution.
The Facts and the Case
In 1909, Bishop Nicolas Zamora established the petitioner
Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF)
as a corporation sole with Bishop Zamora acting as its General
Superintendent. Thirty-nine years later in 1948, the IEMELIF enacted
and registered a by-laws that established a Supreme Consistory of
Elders (the Consistory), made up of church ministers, who were to
serve for four years. The by-laws empowered the Consistory to elect
a General Superintendent, a General Secretary, a General Evangelist,
and a Treasurer General who would manage the affairs of the
organization. For all intents and purposes, the Consistory served as the
IEMELIFs board of directors.
Apparently, although the IEMELIF remained a corporation
sole on paper (with all corporate powers theoretically lodged in the
hands of one member, the General Superintendent), it had always
acted like a corporation aggregate. The Consistory exercised
IEMELIFs decision-making powers without ever being
challenged. Subsequently, during its 1973 General Conference, the
general membership voted to put things right by changing IEMELIFs
organizational structure from a corporation sole to a corporation
aggregate. On May 7, 1973 the Securities and Exchange Commission
(SEC) approved the vote. For some reasons, however, the corporate
papers of the IEMELIF remained unaltered as a corporation sole.
Only in 2001, about 28 years later, did the issue reemerge. In
answer to a query from the IEMELIF, the SEC replied on April 3, 2001
that, although the SEC Commissioner did not in 1948 object to the
conversion of the IEMELIF into a corporation aggregate, that
conversion was not properly carried out and documented. The SEC
said that the IEMELIF needed to amend its articles of incorporation
for that purpose.[1]
Acting on this advice, the Consistory resolved to convert the
IEMELIF to a corporation aggregate. Respondent Bishop Nathanael
Lazaro, its General Superintendent, instructed all their congregations
to take up the matter with their respective members for
resolution. Subsequently, the general membership approved the
conversion, prompting the IEMELIF to file amended articles of
incorporation with the SEC. Bishop Lazaro filed an affidavit-
certification in support of the conversion.[2]
Petitioners Reverend Nestor Pineda, et al., which belonged to
a faction that did not support the conversion, filed a civil case
for Enforcement of Property Rights of Corporation Sole, Declaration
of Nullity of Amended Articles of Incorporation from Corporation Sole
to Corporation Aggregate with Application for Preliminary Injunction
and/or Temporary Restraining Order in IEMELIFs name against
respondent members of its Consistory before the Regional Trial Court
(RTC) of Manila.[3] Petitioners claim that a complete shift from
IEMELIFs status as a corporation sole to a corporation aggregate
required, not just an amendment of the IEMELIFs articles of
incorporation, but a complete dissolution of the existing corporation
sole followed by a re-incorporation.
Unimpressed, the RTC dismissed the action in its October 19,
2005 decision.[4] It held that, while the Corporation Code on Religious
Corporations (Chapter II, Title XIII) has no provision governing the
amendment of the articles of incorporation of a corporation sole, its
Section 109 provides that religious corporations shall be governed
additionally by the provisions on non-stock corporations insofar as
they may be applicable. The RTC thus held that Section 16 of the
Code[5] that governed amendments of the articles of incorporation of
non-stock corporations applied to corporations sole as well. What
IEMELIF needed to authorize the amendment was merely the vote or
written assent of at least two-thirds of the IEMELIF membership.
Petitioners Pineda, et al. appealed the RTC decision to the
Court of Appeals (CA).[6] On October 31, 2007 the CA rendered a
decision,[7] affirming that of the RTC. Petitioners moved for
reconsideration, but the CA denied it by its resolution of August 1,
2008,[8] hence, the present petition for review before this Court.
The Issue Presented
The only issue presented in this case is whether or not the CA
erred in affirming the RTC ruling that a corporation sole may be
converted into a corporation aggregate by mere amendment of its
articles of incorporation.
The Courts Ruling
Petitioners Pineda, et al. insist that, since the Corporation
Code does not have any provision that allows a corporation sole to
convert into a corporation aggregate by mere amendment of its articles
of incorporation, the conversion can take place only by first dissolving
IEMELIF, the corporation sole, and afterwards by creating a new
corporation in its place.
Religious corporations are governed by Sections 109 through
116 of the Corporation Code. In a 2009 case involving IEMELIF, the
Court distinguished a corporation sole from a corporation
aggregate.[9] Citing Section 110 of the Corporation Code, the Court
said that a corporation sole is one formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of a religious
denomination, sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and temporalities of such
religious denomination, sect or church. A corporation aggregate
formed for the same purpose, on the other hand, consists of two or
more persons.
True, the Corporation Code provides no specific mechanism
for amending the articles of incorporation of a corporation sole. But,
as the RTC correctly held, Section 109 of the Corporation Code allows
the application to religious corporations of the general provisions
governing non-stock corporations.
For non-stock corporations, the power to amend its articles of
incorporation lies in its members. The code requires two-thirds of their
votes for the approval of such an amendment. So how will this
requirement apply to a corporation sole that has technically but one
member (the head of the religious organization) who holds in his hands
its broad corporate powers over the properties, rights, and interests of
his religious organization?
Although a non-stock corporation has a personality that is
distinct from those of its members who established it, its articles of
incorporation cannot be amended solely through the action of its board
of trustees. The amendment needs the concurrence of at least two-
thirds of its membership. If such approval mechanism is made to
operate in a corporation sole, its one member in whom all the powers
of the corporation technically belongs, needs to get the concurrence of
two-thirds of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of the
Corporation Code, of its membership.
There is no point to dissolving the corporation sole of one
member to enable the corporation aggregate to emerge from
it. Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be their
number. The increase in the number of its corporate membership does
not change the complexion of its corporate responsibility to third
parties. The one member, with the concurrence of two-thirds of the
membership of the organization for whom he acts as trustee, can self-
will the amendment. He can, with membership concurrence, increase
the technical number of the members of the corporation from sole or
one to the greater number authorized by its amended articles.

Here, the evidence shows that the IEMELIFs General

Superintendent, respondent Bishop Lazaro, who embodied the
corporation sole, had obtained, not only the approval of the Consistory
that drew up corporate policies, but also that of the required two-thirds
vote of its membership.

The amendment of the articles of incorporation, as correctly

put by the CA, requires merely that a) the amendment is not contrary
to any provision or requirement under the Corporation Code, and that
b) it is for a legitimate purpose. Section 17 of the Corporation
Code[10] provides that amendment shall be disapproved if, among
others, the prescribed form of the articles of incorporation or
amendment to it is not observed, or if the purpose or purposes of the
corporation are patently unconstitutional, illegal, immoral, or contrary
to government rules and regulations, or if the required percentage of
ownership is not complied with. These impediments do not appear in
the case of IEMELIF.

Besides, as the CA noted, the IEMELIF worked out the

amendment of its articles of incorporation upon the initiative and
advice of the SEC. The latters interpretation and application of the
Corporation Code is entitled to respect and recognition, barring any
divergence from applicable laws. Considering its experience and
specialized capabilities in the area of corporation law, the SECs prior
action on the IEMELIF issue should be accorded great weight.

WHEREFORE, the Court DENIES the petition

and AFFIRMS the October 31, 2007 decision and August 1,
2008 resolution of the Court of Appeals in CA-G.R. SP 92640.

SO ORDERED.
 G.R. No. L-39050 February 24, 1981
CARLOS GELANO vs. COURT OF APPEALS and INSULAR
SAWMILL, INC.,
Private respondent Insular Sawmill, Inc. is a corporation organized on
September 17, 1945 with a corporate life of fifty (50) years, or up to
September 17, 1995, with the primary purpose of carrying on a general
lumber and sawmill business. To carry on this business, private
respondent leased the paraphernal property of petitioner-wife
Guillermina M. Gelano at the corner of Canonigo and Otis, Paco,
Manila for P1,200.00 a month. It was while private respondent was
leasing the aforesaid property that its officers and directors had come
to know petitioner-husband Carlos Gelano who received from the
corporation cash advances on account of rentals to be paid by the
corporation on the land.
Between November 19, 1947 to December 26, 1950 petitioner Carlos
Gelano obtained from private respondent cash advances of
P25,950.00. The said sum was taken and received by petitioner Carlos
Gelano on the agreement that private respondent could deduct the
same from the monthly rentals of the leased premises until said cash
advances are fully paid. Out of the aforementioned cash advances in
the total sum of P25,950.00, petitioner Carlos Gelano was able to pay
only P5,950.00 thereby leaving an unpaid balance of P20,000.00
which he refused to pay despite repeated demands by private
respondent. Petitioner Guillermina M. Gelano refused to pay on the
ground that said amount was for the personal account of her husband
asked for by, and given to him, without her knowledge and consent
and did not benefit the family.
On various occasions from May 4, 1948 to September 11, 1949
petitioners husband and wife also made credit purchases of lumber
materials from private respondent with a total price of P1,120.46 in
connection with the repair and improvement of petitioners' residence.
On November 9, 1949 partial payment was made by petitioners in the
amount of P91.00 and in view of the cash discount in favor of
petitioners in the amount of P83.00, the amount due private respondent
on account of credit purchases of lumber materials is P946.46 which
petitioners failed to pay.
On July 14, 1952, in order to accommodate and help petitioners renew
previous loans obtained by them from the China Banking Corporation,
private respondent, through Joseph Tan Yoc Su, executed a joint and
several promissory note with Carlos Gelano in favor of said bank in
the amount of P8,000.00 payable in sixty (60) days. For failure of
Carlos Gelano to pay the promissory note upon maturity, the bank
collected from the respondent corporation the amount of P9,106.00
including interests, by debiting it from the corporation's current
account with the bank. Petitioner Carlos Gelano was able to pay
private respondent the amount of P5,000.00 but the balance of
P4,106.00 remained unsettled. Guillermina M. Gelano refused to pay
on the ground that she had no knowledge about the accommodation
made by the corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German Lee, filed a
complaint for collection against herein petitioners before the Court of
First Instance of Manila. Trial was held and when the case was at the
stage of submitting memorandum, Atty. Lee retired from active law
practice and Atty. Eduardo F. Elizalde took over and prepared the
memorandum.
In the meantime, private respondent amended its Articles of
Incorporation to shorten its term of existence up to December 31, 1960
only. The amended Articles of Incorporation was filed with, and
approved by the Securities and Exchange Commission, but the trial
court was not notified of the amendment shortening the corporate
existence and no substitution of party was ever made. On November
20, 1964 and almost four (4) years after the dissolution of the
corporation, the trial court rendered a decision in favor of private
respondent the dispositive portion of which reads as follows:
 WHEREFORE, judgment is rendered, ordering:
1. Defendant Carlos Gelano to pay plaintiff the sum of:
(a) P19,650.00 with interest thereon at the legal rate from the
date of the filing of the complaint on May 29, 1959, until said
sum is fully paid;
(b) P4,106.00, with interest thereon at the legal rate from the
date of the filing of the complaint until said sum is fully paid;
2. Defendants Carlos Gelano and Guillermina Mendoza to pay
jointly and severally the sum of:
(a) P946.46, with interest thereon, at the agreed rate of 12%
per annum from October 6, 1946, until said sum is fully paid;
(b) P550.00, with interest thereon at the legal rate from the
date of the filing of the complaint until the said sum is fully
paid;
(c) Costs of the suit; and
3. Defendant Carlos Gelano to pay the plaintiff the sum of
P2,000.00 attorney's fees.
The Countered of defendants are dismissed.
SO ORDERED. 1
Both parties appealed to the Court of Appeals, private respondent also
appealing because it insisted that both Carlos Gelano and Guillermina
Gelano should be held liable for the substantial portion of the claim.
On August 23, 1973, the Court of Appeals rendered a decision
modifying the judgment of the trial court by holding petitioner spouses
jointly and severally liable on private respondent's claim and
increasing the award of P4,106.00. The dispositive portion of the
decision reads as follows:
WHEREFORE, modified in the sense that the amount of
P4,160.00 under paragraph 1 (b) is raised to P8,160.00 and the
clarification that the conjugal partnership of the spouses is
jointly and severally liable for the obligations adjudged
against defendant Carlos Gelano, the judgment appealed from
is affirmed in all other respects. 2
After petitioners received a copy of the decision on August 24, 1973,
they came to know that the Insular Sawmill Inc. was dissolved way
back on December 31, 1960. Hence, petitioners filed a motion to
dismiss the case and/or reconsideration of the decision of the Court of
Appeals on grounds that the case was prosecuted even after dissolution
of private respondent as a corporation and that a defunct corporation
cannot maintain any suit for or against it without first complying with
the requirements of the winding up of the affairs of the corporation
and the assignment of its property rights within the required period.
Incidentally, after receipt of petitioners' motion to dismiss and/or
reconsideration or on October 28, 1973, private respondent thru its
former directors filed a Petition for Receivership before the Court of
First Instance of Manila, docketed as Special Proceedings No.
92303, 3 which petition is still pending before said court.
On November 5, 1973, private respondent filed comment on the
motion to dismiss and or reconsideration and after the parties have
filed reply and rejoinder, the Court of Appeals on July 5, 1974 issued
a resolution 4 denying the aforesaid motion.
Hence, the present petition for review, petitioners assigning the
following errors:
I DOWN BY THIS HONORABLE COURT IN NUMEROUS
THE "RESPONDENT COURT" ERRED IN DENYING
PETlTIONERS MOTION TO DISMISS THIS CASE DESPITE THE
CLEAR FINDING THAT "RESPONDENT" HAD ALREADY
CEASED TO EXIST AS A CORPORATION SINCE DECEMBER
31, 1960 YET.
II
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT
ACTIONS PENDING FOR OR AGAINST A DEFUNCT
CORPORATION ARE DEEMED ABATED.
III
THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD
THAT EVEN IF THERE WAS NO COMPLIANCE WITH
SECTIONS 77 AND 78 OF THE CORPORATION LAW FOR THE
WINDING UP OF THE AFFAIRS OF THE CORPORATION BY
THE CONVEYANCE OF CORPORATE PROPERTY AND
PROPERTY RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE
APPOINTMENT OF A RECEIVER WITHIN THREE YEARS
FROM THE DISSOLUTION OF SUCH CORPORATION, ANY
LITIGATION FILED BY OR AGAINST THE DISSOLVED
CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER
SUCH DISSOLUTION BUT WHICH COULD NOT BE
TERMINATED WITHIN SAID PERIOD, MAY STILL BE
CONTINUED AS IT IS NOT DEEMED ABATED.
IV
THE "RESPONDENT COURT" ERRED IN THE APPLICATION
TO THIS CASE OF ITS RULING IN PASAY CREDIT AND
FINANCE CORPORATION, VERSUS LAZARO, ET AL., 46 O.G.
(11) 5528, AND IN OVERLOOKING THE DISTINCTION LAID
DECIDED CASES THAT ONLY CASES FILED IN THE NAME OF
ASSIGNEES, TRUSTEES OR RECEIVERS (FOR A DEFUNCT
CORPORATION), AI)POINTED WITHIN THREE YEARS FROM
ITS DISSOLUTION, MAY BE PROSECUTED BEYOND THE
SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS ARE
DEEMED ABATED.
V
THE "RESPONDENT COURT" ERRED IN HOLDING THAT
WITH THE FILING OF SPECIAL PROCEEDINGS NO. 92303 IN
THE COURT OF FIRST INSTANCE OF MANILA BY FORMER
DIRECTORS OF "PRIVATE RESPONDENT" ON OCTOBER
23,1973, OR, THIRTEEN YEARS AFTER ITS DISSOLUTION, A
LEGAL, PERSONALITY WILL BE APPOINTED TO REPRESENT
THE CORPORATION.
VI
THE "RESPONDENT COURT" ERRED IN PRACTICALLY
RULING THAT THE THREE-YEAR PERIOD PROVIDED FOR
BY THE CORPORATION LAW WITHIN WHICH ASSIGNEES,
TRUSTEES FOR RECEIVERS MAY BE APPOINTED MAY BE
EXTENDED.
VII
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT
THE FAILURE OF "PRIVATE RESPONDENT" OR ITS
AUTHORIZED COUNSEL TO NOTIFY THE TRIAL COURT OF
ITS DISSOLUTION OR OF ITS "CIVIL DEATH" MAY BE
CONSIDERED AS AN ABANDONMENT OF ITS CAUSE OF
ACTION AMOUNTING TO A FAILURE TO PROSECUTE AND
RESULTING IN THE ABATEMENT OF THE SUIT.
VIII
THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE
PERSONALITY OF COUNSEL APPEARING FOR PRIVATE
RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT
KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET ANY
OF ITS DIRECTORS AND OFFICERS.
IX
THE "RESPONDENT COURT" ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT HOLDING IN FAVOR OF
"PRIVATE RESPONDENT".
X of said period. 6Commenting on said sections, Justice Fisher said:
THE "RESPONDENT COURT" ERRED IN MODIFYING THE
TRIAL COURT'S DECISION AND HOLDING EVEN THE
CONJUGAL PARTNERSHIP OF PETITIONERS JOINTLY AND
SEVERALLY LIABLE FOR THE OBLIGATION ADJUDGED
AGAINST PETITIONER-HUSBAND, CARLOS GELANO.
The main issue raised by petitioner is whether a corporation, whose
corporate life had ceased by the expiration of its term of existence,
could still continue prosecuting and defending suits after its
dissolution and beyond the period of three years provided for under
Act No. 1459, otherwise known as the Corporation law, to wind up its
affairs, without having undertaken any step to transfer its assets to a
trustee or assignee.
The complaint in this case was filed on May 29, 1959 when private
respondent Insular Sawmill, Inc. was still existing. While the case was
being tried, the stockholders amended its Articles of Incorporation by
shortening the term of its existence from December 31, 1995 to
December 31, 1960, which was approved by the Securities and
Exchange Commission.
In American corporate law, upon which our Corporation Law was
patterned, it is well settled that, unless the statutes otherwise provide,
all pending suits and actions by and against a corporation are abated
by a dissolution of the corporation. 5 Section 77 of the Corporation
Law provides that the corporation shall "be continued as a body
corporate for three (3) years after the time when it would have been ...
dissolved, for the purpose of prosecuting and defending suits By or
against it ...," so that, thereafter, it shall no longer enjoy corporate
existence for such purpose. For this reason, Section 78 of the same law
authorizes the corporation, "at any time during said three years ... to
convey all of its property to trustees for the benefit of members,
Stockholders, creditors and other interested," evidently for the
purpose, among others, of enabling said trustees to prosecute and
defend suits by or against the corporation begun before the expiration
It is to be noted that the time during which the corporation, through its
own officers, may conduct the liquidation of its assets and sue and be
sued as a corporation is limited to three years from the time the period
of dissolution commences; but that there is no time limited within
which the trustees must complete a liquidation placed in their hands.
It is provided only (Corp. Law, Sec. 78) that the conveyance to the
trustees must be made within the three-year period. It may be found
impossible to complete the work of liquidation within the three-year
period or to reduce disputed claims to judgment. The authorities are to
the effect that suits by or against a corporation abate when it ceased to
be an entity capable of suing or being sued (7 R.C.L. Corps., Par. 750);
but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Section 78 may sue and be sued as such in
all matters connected with the liquidation. By the terms of the statute
the effect of the conveyance is to make the trustees the legal owners
of the property conveyed, subject to the beneficial interest therein of
creditors and stockholders. 7
When Insular Sawmill, Inc. was dissolved on December 31, 1960,
under Section 77 of the Corporation Law, it stin has the right until
December 31, 1963 to prosecute in its name the present case. After the
expiration of said period, the corporation ceased to exist for all
purposes and it can no longer sue or be sued. 8
However, a corporation that has a pending action and which cannot be
terminated within the three-year period after its dissolution is
authorized under Section 78 to convey all its property to trustees to
enable it to prosecute and defend suits by or against the corporation
beyond the Three-year period although private respondent (did not
appoint any trustee, yet the counsel who prosecuted and defended the
interest of the corporation in the instant case and who in fact appeared
in behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only. Said
counsel had been handling the case when the same was pending before
the trial court until it was appealed before the Court of Appeals and
finally to this Court. We therefore hold that there was a substantial
compliance with Section 78 of the Corporation Law and as such,
private respondent Insular Sawmill, Inc. could still continue
prosecuting the present case even beyond the period of three (3) years
from the time of its dissolution.
From the above quoted commentary of Justice Fisher, the trustee may
commence a suit which can proceed to final judgment even beyond
the three-year period. No reason can be conceived why a suit already
commenced By the corporation itself during its existence, not by a
mere trustee who, by fiction, merely continues the legal personality of
the dissolved corporation should not be accorded similar treatment
allowed to proceed to final judgment and execution thereof.
The word "trustee" as sued in the corporation statute must be
understood in its general concept which could include the counsel to
whom was entrusted in the instant case, the prosecution of the suit filed
by the corporation. The purpose in the transfer of the assets of the
corporation to a trustee upon its dissolution is more for the protection
of its creditor and stockholders. Debtors like the petitioners herein may
not take advantage of the failure of the corporation to transfer its assets
to a trustee, assuming it has any to transfer which petitioner has failed
to show, in the first place. To sustain petitioners' contention would be
to allow them to enrich themselves at the expense of another, which
all enlightened legal systems condemn.
The observation of the Court of Appeals on the issue now before Us
that:
Under Section 77 of the Corporation Law, when the corporate
existence is terminated in any legal manner, the corporation shall
nevertheless continue as a body corporate for three (3) years after the
time when it would have been dissolved, for the purpose of
prosecuting and defending suits by or against it. According to
authorities, the corporation "becomes incapable of making contracts
or receiving a grant. It does not, however, cease to be a body
corporate for all purposes." In the case of Pasay Credit and Finance
Corp. vs. Isidro Lazaro and others, 46 OG (11) 5528, this Court held
that "a corporation may continue a pending 'litigation even after the
lapse of the 3-year period granted by Section 77 of Act 1459 to
corporation subsequent to their dissolution to continue its corporate
existence for the purpose of winding up their affairs and settling all
the claims by and against same." We note that the plaintiff Insular
Sawmill, Inc. ceased as a corporation on December 30, 1960 but the
case at bar was instituted on May 29, 1959, during the time when the
corporation was still very much alive. Accordingly, it is our view
that "any litigation filed by or against it instituted within the period,
but which could not be terminated, must necessarily prolong that
period until the final termination of said litigation as otherwise
corporations in liquidation would lose what should justly belong to
them or would be exempt from the payment of just obligations
through a mere technicality, something that courts should prevent"
(Philippine Commercial Laws by Martin, 1962 Ed., Vol. 2, p. 1716).
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main case.
Petitioners contend that the obligations contracted by petitioner Carlos
Gelano from November 19, 1947 until August 18, 1950 (before the
effectivity of the New Civil Code) and from December 26, 1950 until
July 14, 1952 (during the effectivity of the New Civil Code) were his
personal obligations, hence, petitioners should not be held jointly and
severally liable. As regards the said issues, suffice it to say that with
the findings of the Court of Appeals that the obligation contracted by
petitioner-husband Carlos Gelano redounded to the benefit of the
family, the inevitable conclusion is that the conjugal property is liable
for his debt pursuant to paragraph 1, Article 1408, Civil Code of
1889 9 which provision incidentally can still be found in paragraph 1,
Article 161 of the New Civil Code. 10 Only the conjugal partnership is
liable, not joint and several as erroneously described by the Court of
Appeals, the conjugal partnership being only a single entity.

WHEREFORE, with the modification that only the conjugal

partnership is liable, the appealed decision is hereby affirmed in all
other respects. Without pronouncement as to costs.

SO ORDERED.
 [G.R. No. 148372. June 27, 2005]
CLARION PRINTING HOUSE, INC., vs. NLRC
Respondent Michelle Miclat (Miclat) was employed on April 21,
1997 on a probationary basis as marketing assistant with a monthly
salary of P6,500.00 by petitioner Clarion Printing House (CLARION)
owned by its co-petitioner Eulogio Yutingco. At the time of her
employment, she was not informed of the standards that would qualify
her as a regular employee.
On September 16, 1997, the EYCO Group of Companies of
which CLARION formed part filed with the Securities and Exchange
Commission (SEC) a Petition for the Declaration of Suspension of
Payment, Formation and Appointment of Rehabilitation Receiver/
Committee, Approval of Rehabilitation Plan with Alternative Prayer
for Liquidation and Dissolution of Corporation[1] the pertinent
allegations of which read:
xxx
5. The situation was that since all these companies were sister
companies and were operating under a unified and centralized
management team, the financial requirements of one company would
normally be backed up or supported by one of the available fundings
from the other companies.
6. The expansion exhausted the cash availability of Nikon, NKI, and
2000 because those fundings were absorbed by the requirements of
NPI and EYCO Properties, Inc. which were placed on real estate
investments. However, at the time that those investments and
expansions were made, there was no cause for alarm because the
market situation was very bright and very promising, hence, the
decision of the management to implement the expansion.
7. The situation resulted in the cash position being spread thin.
However, despite the thin cash positioning, the management still was
very positive and saw a very viable proposition since the expansion
and the additional investments would result in a bigger real estate base
which would be very credible collateral for further expansions. It was
envisioned that in the end, there would be bigger cash procurement
which would result in greater volume of production, profitability and
other good results based on the expectations and projections of the
team itself.
8. Unfortunately, factors beyond the control and anticipation of the
management came into play which caught the petitioners flat-footed,
such as:
a) The glut in the real estate market which has resulted in the
bubble economy for the real estate demand which right now
has resulted in a severe slow down in the sales of properties;
b) The economic interplay consisting of the inflation and the err
atic changes in the peso-dollar exchange rate which
precipitated a soaring banking interest.
c) Labor problems that has precipitated adverse company effect on
the media and in the financial circuit.
d) Liberalization of the industry (GATT) which has resulted in
flooding the market with imported goods;
e) Other related adverse matters.
9. The inability of the EYCO Group of Companies to meet the
obligations as they fall due on the schedule agreed with the bank has
now become a stark reality. The situation therefore is that since the
obligations would not be met within the scheduled due
date, complications and problems would definitely arise that would
impair and affect the operations of the entire
conglomerate comprising the EYCO Group of Companies.
xxx
12. By virtue of this development, there is a need for suspension of all
accounts o[r] obligations incurred by the petitioners in their separate
and combined capacities in the meantime that they are working for the
rehabilitation of the companies that would eventually redound to the
benefit of these creditors.
13. The foregoing notwithstanding, however, the present combined
financial condition of the petitioners clearly indicates that
their assets are more than enough to pay off the credits.
x x x (Emphasis and underscoring supplied)[2]
On September 19, 1997, the SEC issued an Order[3] the pertinent
portions of which read:
xxx
It appearing that the petition is sufficient in form and
substance, the corporate petitioners prayer for the creation of manage
ment or receivership committee and creditors approval of the propos
ed Rehabilitation Plan is hereby set forhearing on October 22, 1997 a
t 2:00 oclock in the afternoon at the SICD, SEC Bldg., EDSA,
Greenhills, Mandaluyong City.
xxx
Finally, the petitioners are hereby enjoined from disposing any and all
of their properties in any manner, whatsoever, except in the ordinary
course of business and from making any payment outside of the
legitimate business expenses during the pendency of the proceedings
and as a consequence of the filing of the Petition, all actions, claims
and proceedings against herein petitioners pending before any court,
tribunal, office board and/or commission are deemed SUSPENDED
until further orders from this Hearing Panel pursuant to the rulings of
the Supreme Court in the cases of RCBC v. IAC et al., 213 SCRA 830
and BPI v. CA, 229 SCRA 223. (Underscoring supplied)
And on September 30, 1997, the SEC issued an
Order[4] approving the creation of an interim receiver for the EYCO
Group of Companies.
On October 10, 1997, the EYCO Group of Companies issued to
its employees the following Memorandum:[5]
This is to formally announce the entry of the Interim Receiver
Group represented by SGV from today until October 22, 1997 or until
further formal notice from the SEC.
This interim receiver groups function is to make sure that all assets of
the company are secured and accounted for both for the protection of
us and our creditors.
Their function will involve familiarization with the different processes
and controls in our organization & keeping physical track of our assets
like inventories and machineries.
Anything that would be required from you would need to be in writing
and duly approved by the top management in order for us to maintain
a clear line.
We trust that this temporary inconvenience will benefit all of us in the
spirit of goodwill. Lets extend our full cooperation to them.
Thank you. (Underscoring supplied)
On October 22, 1997, the Assistant Personnel Manager of
CLARION informed Miclat by telephone that her employment
contract had been terminated effective October 23, 1997. No reason
was given for the termination.
The following day or on October 23, 1997, on reporting for work,
Miclat was informed by the General Sales Manager that her
termination was part of CLARIONs cost-cutting measures.
 On November 17, 1997, Miclat filed a complaint[6] for illegal
dismissal against CLARION and Yutingco (petitioners) before the
National Labor Relations Commission (NLRC).
In the meantime, or on January 7, 1998, the EYCO Group of
Companies issued a Memorandum[7] addressed to company managers
advising them of a temporary partial shutdown of some operations of
the Company commencing on January 12, 1998 up to February 28,
1998:
In view of the numerous external factors such as slowdown in business
and consumer demand and consistent with Art. 286 of the Revised
Labor Code of the Philippines, we are constrained to go on a
temporary partial shutdown of some operations of the Company.
To implement this measure, please submit to my office through your
local HRAD the list of those whom you will require to report for work
and their specific schedules. Upon revalidation and approval of this
list, all those not in the list will not receive any pay nor will it be
credited against their VL.
Please submit the listing no later than the morning of Friday, January
09, 1998.
Shutdown shall commence on January 12, 1998 up to February 28,
1998, unless otherwise recalled at an earlier date.
Implementation of th[ese] directives will be done through your HRAD
departments. (Underscoring supplied)
In her Position Paper[8] dated March 3, 1998 filed before the labor
arbiter, Miclat claimed that she was never informed of the standards
which would qualify her as a regular employee. She asserted, however,
that she qualified as a regular employee since her immediate
supervisor even submitted a written recommendation in her favor
before she was terminated without just or authorized cause.
Respecting the alleged financial losses cited by petitioners as
basis for her termination, Miclat disputed the same, she contending
that as marketing assistant tasked to receive sales calls, produce sales
reports and conduct market surveys, a credible assessment on
production and sales showed otherwise.
In any event, Miclat claimed that assuming that her termination
was necessary, the manner in which it was carried out was illegal, no
written notice thereof having been served on her, and she merely
learned of it only a day before it became effective.
Additionally, Miclat claimed that she did not receive separation
pay, 13th month pay and salaries for October 21, 22 and 23, 1997.
On the other hand, petitioners claimed that they could not be
faulted for retrenching some of its employees including Miclat, they
drawing attention to the EYCO Group of Companies being placed
under receivership, notice of which was sent to its supervisors and
rank and file employees via a Memorandum of July 21, 1997; that in
the same memorandum, the EYCO Group of Companies advised them
of a scheme for voluntary separation from employment with payment
of severance pay; and that CLARION was only adopting the LAST
IN, FIRST OUT PRINCIPLE when it terminated Miclat who was
relatively new in the company.
Contending that Miclats termination was made with due process,
petitioners referred to the EYCO Group of Companies abovesaid July
21, 1997 Memorandum which, so they claimed, substantially
complied with the notice requirement, it having been issued more than
one month before Miclat was terminated on October 23, 1997.
By Decision[9] of November 23, 1998, the labor arbiter found that
Miclat was illegally dismissed and directed her reinstatement. The
dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered ordering the respondent to reinstate complainant to her
former or equivalent position without loss of seniority rights and
benefits and to pay her backwages, from the time of dismissal to
actual reinstatement, proportionate 13th month pay and two (2)
days salary computed as follows:
a.1) Backwages 10/23/97 to 11/30/98
P6,500.00 x 13.25 months = P86,125.00
a.2) Proportionate 13th month pay
1/12 of P86,125 = 7,177.08
b) 13th month pay - 1997
=P6,500 x 9.75 months/12 = 5,281.25
c) Two days salary
=P6,500/26 x 2 days = 500.00
TOTAL P 99,083.33
(Emphasis and underscoring supplied).
Before the National Labor Relations Commission (NLRC) to
which petitioners appealed, they argued that:[10]
1. [CLARION] was placed under receivership thereby evidencing
the fact that it sustained business losses to warrant the
termination of [Miclat] from her employment.
2. The dismissal of [Miclat] from her employment having been
effected in accordance with the law and in good faith,
[Miclat] does not deserve to be reinstated and paid
backwages, 13th month pay and two (2) days salary.
And petitioners pointed out that CLARION had expressed its
decision to shutdown its operations by Memorandum[11] of January 7,
1998 to its company managers.
Appended to petitioners appeal before the NLRC were
photocopies of their balance sheets from 1997 to November 1998
which they claimed to unanimously show that x x x [petitioner]
company experienced business reverses which were made the basis x
x x in retrenching x x x.[12]
By Resolution[13] of June 17, 1999, the NLRC affirmed the labor
arbiters decision. The pertinent portion of the NLRC Resolution reads:
There are three (3) valid requisites for valid retrenchment: (1) the
retrenchment is necessary to prevent losses and such losses are proven;
(2) written notices to the employees and to the Department of Labor
and Employment at least one (1) month prior to the intended date of
retrenchment; and (3) payment of separation pay equivalent to one (1)
month pay or at least month pay for every year of service, whichever
is higher. The two notices are mandatory. If the notice to the workers
is later than the notices sent to DOLE, the date of termination should
be at least one month from the date of notice to the workers.
In Lopez Sugar Corporation v. Federation of Free Workers Philippine
Labor Union Association (PLUA-NACUSIP) and National Labor
Relations Commission, the Supreme Court had the occasion to set
forth four standards which would justify retrenchment, being, firstly,
- the losses expected should be substantial and not merely de minimis
in extent. If the loss purportedly sought to be forestalled by
retrenchment is clearly shown to be insubstantial and inconsequential
in character, the bona fide nature of the retrenchment would appear to
be seriously in question; secondly, - the substantial loss apprehended
must be reasonably imminent, as such imminence can be perceived
objectively and in good faith by the employer. There should, in other
words, be a certain degree of urgency for the retrenchment, which is
after all a drastic course with serious consequences for the livelihood
of the employees retired or otherwise laid-off; thirdly, - because of the
consequential nature of retrenchment, it must be reasonably necessary
and likely to effectively prevent the expected losses. The employer
should have taken other measures prior or parallel to retrenchment to
forestall losses, i.e., cut other cost than labor costs; and lastly, - the
alleged losses if already realized and the expected imminent losses
sought to be forestalled, must be proven by sufficient and convincing
evidence.
The records show that these requirements were not substantially
complied with. And proofs presented by respondents-appellants were
short of being sufficient and convincing to justify valid retrenchment.
Their position must therefore fail. The reason is simple. Evidences on
record presented fall short of the requirement of substantial, sufficient
and convincing evidence to persuade this Commission to declare the
validity of retrenchment espoused by respondents-appellants. The
petition before the Securit[ies] and Exchange Commission for
suspension of payment does not prove anything to come within the
bounds of justifying retrenchment. In fact, the petition itself lends
credence to the fact that retrenchment was not actually reinstated
under the circumstances prevailing when it stated, The foregoing
notwithstanding, however, the present combined financial condition
of the petitioners clearly indicates that their assets are more than
enough to pay off the credits. Verily, reading further into the petition,
We are not ready to disregard the fact that the petition merely seeks to
suspend payments of their obligation from creditor banks and other
financing institutions, and not because of imminent substantial
financial loss. On this account, We take note of paragraph 7 of the
petition which stated: The situation resulted in cash position being
spread thin. However, despite the thin cash positioning, the
management was very positive and saw a very viable proposition since
the expansion and the additional investments would result in a bigger
real estate base which would be a very credible collateral for further
expansions. It was envisioned that in the end, there would a bigger
cash procurement which would result in greater volume of production,
profitability and other good results based on the expectations and
projections of the team itself.Admittedly, this does not create a picture
of retrenchable business atmosphere pursuant to Article 283 of the
Labor Code.
We cannot disregard the fact that respondent-appellants failed in
almost all of the criteria set by law and jurisprudence in justifying
valid retrenchment. The two (2) mandatory notices were violated. The
supposed notice to the DOLE (Annex 4, List of Employees on
Shutdown) is of no moment, the same having no bearing in this case.
Herein complainant-appellee was not even listed therein and the date
of receipt by DOLE, that is, January 18, 1999, was way out of time in
relation to this case. And no proof was adduced to evidence cost
cutting measures, to say the least. Nor was there proof shown that
separation pay had been awarded to complainant-appellee.
WHEREFORE, premises considered, and finding no grave abuse of
discretion on the findings of Labor Arbiter Nieves V. De Castro, the
appeal is DENIED for lack of merit.
The decision appealed from is AFFIRMED in toto. (Italics in the
original; underscoring supplied; citations omitted)
Petitioners Motion for Reconsideration of the NLRC resolution
having been denied by Resolution[14] of July 29, 1999, petitioners filed
a petition for certiorari[15] before the Court of Appeals (CA) raising
the following arguments:
1. PETITIONER CLARION WAS PLACED UNDER
RECEIVERSHIP THEREBY EVIDENCING THE FACT
THAT IT SUSTAINED BUSINESS LOSSES TO
WARRANT THE TERMINATION OF PRIVATE
RESPONDENT MICLAT FROM HER EMPLOYMENT.
2. THE DISMISSAL OF PRIVATE RESPONDENT MICLAT
FROM HER EMPLOYMENT HAVING
BEEN EFFECTED IN ACCORDANCE WITH THE LAW
AND IN GOOD FAITH, PRIVATE RESPONDENT DOES
NOT DESERVE TO BE REINSTATED AND PAID
BACKWAGES, 13TH MONTH PAY AND TWO (2) DAYS
SALARY. (Underscoring supplied)
By Decision[16] of November 24, 2000, the CA sustained the
resolutions of the NLRC in this wise:
In the instant case, Clarion failed to prove its ground for
retrenchment as well as compliance with the mandated procedure of
furnishing the employee and the Department of Labor and
Employment (hereafter, DOLE) with one (1) month written notice and
payment of separation pay to the employee. Clarions failure to
discharge its burden of proof is evident from the following instances:
First, Clarion presented no evidence whatsoever before the Labor
Arbiter. To prove serious business losses, Clarion presented its 1997
and 1998 financial statements and the SEC Order for the Creation of
an Interim Receiver, for
the first time on appeal before the NLRC. The Supreme Court has
consistently disallowed such practice unless the party making the
belated submission of evidence had satisfactorily explained the delay.
In the instant case, said financial statements are not admissible in
evidence due to Clarions failure to explain the delay.
Second, even if such financial statements were admitted in evidence,
they would not alter the outcome of the case as statements have weak
probative value. The required method of proof in such case is the
presentation of financial statements prepared by independent auditors
and not merely by company accountants. Again, petitioner failed in
this regard.
Third, even audited financial statements are not enough. The employer
must present the statement for the year immediately preceding the year
the employee was retrenched, which Clarion failed to do in the instant
case, to prove not only the fact of business losses but more
importantly, the fact that such losses were substantial, continuing and
without immediate prospect of abatement. Hence, neither the NLRC
nor the courts must blindly accept such audited financial statements.
They must examine and make inferences from the data presented to
establish business losses. Furthermore, they must be cautioned by the
fact that sliding incomes or decreasing gross revenues alone are not
necessarily business losses within the meaning of Art. 283 since in the
nature of things, the possibility of incurring losses is constantly present
in business operations.
Last, even if business losses were indeed sufficiently proven, the
employer must still prove that retrenchment was resorted to only after
less drastic measures such as the reduction of both management and
rank-and-file bonuses and salaries, going on reduced time, improving
manufacturing efficiency, reduction of marketing and advertising
costs, faster collection of customer accounts, reduction of raw
materials investment and others, have been tried and found wanting.
Again, petitioner failed to prove the exhaustion of less drastic
measures short of retrenchment as it had failed with the other
requisites.
It is interesting to note that Miclat started as a probationary employee
on 21 April 1997. There being no stipulation to the contrary, her
probation period had a duration of six (6) months from her date of
employment. Thus, after the end of the probation period on 22
October 1997, she became a regular employee as of 23 October
1997 since she was allowed to work after the end of said period. It is
also clear that her probationary employment was not terminated at the
end of the probation period on the ground that the employee failed to
qualify in accordance with reasonable standards made known to her at
the time of engagement.
However, 23 October 1997 was also the day of Miclats termination
from employment on the ground of retrenchment. Thus, we have a
bizarre situation when the first day of an employees regular
employment was also the day of her termination. However, this is
entirely possible, as had in fact happened in the instant case, where the
employers basis for termination is Art. 288, instead of Art. 281 of the
Labor Code. If petitioner terminated Miclat with Art. 281 in mind, it
would have been too late to present such theory at this stage and it
would have been equally devastating for petitioner had it done so
because no evidence exists to show that Miclat failed to qualify with
petitioners standards for regularization. Failure to discharge its burden
of proof would still be petitioners undoing.
Whichever way We examine the case, the conclusion is the
same Miclat was illegally dismissed. Consequently, reinstatement
without loss of seniority rights and full backwages from date of
dismissal on 23 October 1997 until actual reinstatement is in order.
WHEREFORE, the instant petition is hereby DISMISSED and the 29
July 1999 and 7 June 1999 resolutions of the NLRC are SUSTAINED.
(Emphasis and underscoring supplied)
By Resolution[17] of May 23, 2001, the CA denied petitioners
motion for reconsideration of the decision.
Hence, the present petition for review on certiorari, petitioners
contending that:
WITH ALL DUE RESPECT, THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN SUSTAINING THE ASSAILED
DECISIONS OF HONORABLE PUBLIC RESPONDENT
COMMISSION:
A. HOLDING THAT PRIVATE RESPONDENT MICLAT
WAS ILLEGALLY DISMISSED; and
B. ORDERING THE REINSTATEMENT OF PRIVATE
RESPONDENT MICLAT TO HER FORMER OR
EQUIVALENT POSITION WITHOUT LOSS OF
SENIORITY RIGHTS AND BENEFITS AND PAYMENT
OF BACKWAGES, 1[3]TH MONTH PAY AND TWO (2)
DAYS SALARY.[18]
Petitioners argue that the conclusion of the CA that no sufficient
proof of financial losses on the part of CLARION was adduced is
patently erroneous, given the serious business reverses it had gravely
suffered as reflected in its financial statements/balance sheets, thereby
leaving as its only option the retrenchment of its employees including
Miclat.[19]
Petitioners further argue that when a company is under
receivership and a receiver is appointed to take control of its
management and corporate affairs, one of the evident reasons is to
prevent further losses of said company and protect its remaining assets
from being dissipated; and that the submission of financial
reports/statements prepared by independent auditors had been
rendered moot and academic, the company having shutdown its
operations and having been placed under receivership by the SEC due
to its inability to pay or comply with its obligations.[20]
Respecting the CAs holding that the financial statements
CLARION submitted for the first time on appeal before the NLRC are
inadmissible in evidence due to its failure to explain the delay in the
submission thereof, petitioners lament the CAs failure to consider that
technical rules on evidence prevailing in the courts are not controlling
in proceedings before the NLRC which may consider evidence such
as documents and affidavits submitted by the parties for the first time
on appeal.[21]
As to the CAs holding that CLARION failed to prove the
exhaustion of less drastic measures short of retrenching, petitioners
advance that prior to the termination of Miclat, CLARION, together
with the other companies under the EYCO Group of Companies, was
placed under receivership during which drastic measures to continue
business operations of the company and eventually rehabilitate itself
were implemented.[22]
Denying Miclats entitlement to backwages, petitioners proffer
that her dismissal rested upon a valid and authorized cause. And
petitioners assail as grossly erroneous the award of 13th month pay to
Miclat, she not having sought it and, therefore, there was no
jurisdiction to award the same.[23]
The petition is partly meritorious.
 Contrary to the CAs ruling, petitioners could present evidence for
the first time on appeal to the NLRC. It is well-settled that the NLRC
is not precluded from receiving evidence, even for the first time on
appeal, because technical rules of procedure are not binding in labor
cases.
The settled rule is that the NLRC is not precluded from receiving
evidence on appeal as technical rules of evidence are not binding in
labor cases. In fact, labor officials are mandated by the Labor Code to
use every and all reasonable means to ascertain the facts in each
case speedily and objectively, without regard to technicalities of law
or procedure, all in the interest of due process. Thus, in Lawin Security
Services v. NLRC, and Bristol Laboratories Employees Association-
DFA v. NLRC, we held that even if the evidence was not submitted to
the labor arbiter, the fact that it was duly introduced on appeal to the
NLRC is enough basis for the latter to be more judicious in admitting
the same, instead of falling back on the mere technicality that said
evidence can no longer be considered on appeal. Certainly, the first
course of action would be more consistent with equity and the basic
notions of fairness. (Italics in the original; citations omitted)[24]
It is likewise well-settled that for retrenchment to be justified, any
claim of actual or potential business losses must satisfy the following
standards: (1) the losses are substantial and not de minimis; (2) the
losses are actual or reasonably imminent; (3) the retrenchment
is reasonably necessary and is likely to be effective in preventing
expected losses; and (4) the alleged losses, if already incurred, or the
expected imminent losses sought to be forestalled, are proven by
sufficient and convincing evidence.[25] And it is the employer who has
the onus of proving the presence of these standards.
Sections 5 and 6 of Presidential Decree No. 902-A (P.D. 902-A)
(REORGANIZATION OF THE SECURITIES AND EXCHANGE
COMMISSION WITH ADDITIONAL POWERS AND PLACING
SAID AGENCY UNDER THE ADMINISTRATIVE
SUPERVISION OF THE OFFICE OF THE PRESIDENT),[26] as
amended, read:
SEC. 5 In addition to the regulatory and adjudicative functions of THE
SECURITIES AND EXCHANGE COMMISSION over corporations,
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
xxx
(d) Petitions of corporations, partnerships or associations
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient
property to cover all debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where the
corporation, partnership, association has no sufficient assets to
cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to this Decree.
SEC. 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
xxx
(c) To appoint one or more receivers of the property, real and
personal, which is the subject of the action pending before the
Commission in accordance with the provisions of the Rules of Court
in such other cases whenever necessary in order to preserve the rights
of the parties-litigants and/or protect the interest of the investing
public and creditors: Provided, however, That the Commission
may in appropriate cases, appoint a rehabilitation receiver of
corporations, partnerships or other associations not supervised or
regulated by other government agencies who shall have, in
addition to powers of the regular receiver under the provisions of
the Rules of Court, such functions and powers as are provided for
in the succeeding paragraph (d) hereof: x x x
(d) To create and appoint a management committee, board or body
upon petition or motu propio to undertake the management of
corporations, partnership or other associations not supervised or
regulated by other government agencies in appropriate cases when
there is imminent danger of dissipation, loss, wastage or
destruction of assets or other properties or paralization of
business operations of such corporations or entities which may be
prejudicial to the interest of minority stockholders, parties-
litigants of the general public: x x x (Emphasis and underscoring
supplied).
From the above-quoted provisions of P.D. No. 902-A, as
amended, the appointment of a receiver or management committee by
the SEC presupposes a finding that, inter alia, a company possesses
sufficient property to cover all its debts but foresees the impossibility
of meeting them when they respectively fall due and there is imminent
danger of dissipation, loss, wastage or destruction of assets of other
properties or paralization of business operations.
That the SEC, mandated by law to have regulatory functions over
corporations, partnerships or associations,[27] appointed an
interim receiver for the EYCO Group of Companies on its petition in
light of, as quoted above, the therein enumerated factors beyond the
control and anticipation of the management rendering it unable to meet
its obligation as they fall due, and thus resulting to complications and
problems . . . to arise that would impair and affect [its] operations . . .
shows that CLARION, together with the other member-companies of
the EYCO Group of Companies, was suffering business reverses
justifying, among other things, the retrenchment of its employees.
This Court in fact takes judicial notice of the Decision[28] of the
Court of Appeals dated June 11, 2000 in CA-G.R. SP No.
55208, Nikon Industrial Corp., Nikolite Industrial Corp., et
al. [including CLARION],otherwise known as the EYCO Group of
Companies v. Philippine National Bank, Solidbank Corporation, et
al., collectively known and referred as the Consortium of Creditor
Banks, which was elevated to this Court via Petition for Certiorari and
docketed as G.R. No. 145977, but which petition this Court dismissed
by Resolution dated May 3, 2005:
Considering the joint manifestation and motion to dismiss of
petitioners and respondents dated February 24, 2003, stating that the
parties have reached a final and comprehensive settlement of all the
claims and counterclaims subject matter of the case and accordingly,
agreed to the dismissal of the petition for certiorari, the Court
Resolved to DISMISS the petition for certiorari (Underscoring
supplied).
The parties in G.R. No. 145977 having sought, and this Court
having granted, the dismissal of the appeal of the therein petitioners
including CLARION, the CA decision which affirmed in toto the
September 14, 1999 Order of the SEC, the dispositive portion of which
SEC Order reads:
WHEREFORE, premises considered, the appeal is as it is hereby,
granted and the Order dated 18 December 1998 is set aside. The
Petition to be Declared in State of Suspension of payments is
hereby disapproved and the SAC Plan terminated. Consequently, all
committee, conservator/ receivers created pursuant to said Order are
dissolved and discharged and all acts and orders issued therein are
vacated.
The Commission, likewise, orders the liquidation and dissolution
of the appellee corporations. The case is hereby remanded to the
hearing panel below for that purpose.
x x x (Emphasis and underscoring supplied),
has now become final and executory. Ergo, the SECs disapproval
of the EYCO Group of Companies Petition for the Declaration of
Suspension of Payment . . . and the order for the liquidation and
dissolution of these companies including CLARION, must be deemed
to have been unassailed.
 That judicial notice can be taken of the above-said case of Nikon
Industrial Corp. et al. v. PNB et al., there should be no doubt.
As provided in Section 1, Rule 129 of the Rules of Court:
SECTION 1. Judicial notice, when mandatory. A court shall take
judicial notice, without the introduction of evidence, of the existence
and territorial extent of states, their political history, forms of
government and symbols of nationality, the law of nations, the
admiralty and maritime courts of the world and their seals, the political
constitution and history of the Philippines, the official acts of
the legislative, executive and judicial departments of the Philippines,
the laws of nature, the measure of time, and the geographical divisions.
(Emphasis and underscoring supplied)
which Mr. Justice Edgardo L. Paras interpreted as follows:
A court will take judicial notice of its own acts and records in the
same case, of facts established in prior proceedings in the same case,
of the authenticity of its own records of another case between the same
parties, of the files of related cases in the same court, and of public
records on file in the same court. In addition judicial notice will be
taken of the record, pleadings or judgment of a case in another court
between the same parties or involving one of the same parties, as well
as of the record of another case between different parties in the same
court. Judicial notice will also be taken of court personnel. (Emphasis
and underscoring supplied)[29]
In fine, CLARIONs claim that at the time it terminated Miclat it
was experiencing business reverses gains more light from the
SECs disapproval of the EYCO Group of Companies petition to be
declared in state of suspension of payment, filed before Miclats
termination, and of the SECs consequent order for the group of
companies dissolution and liquidation.
This Courts finding that Miclats termination was justified
notwithstanding, since at the time she was hired on probationary basis
she was not informed of the standards that would qualify her as a
regular employee, under Section 6, Rule I of the Implementing Rules
of Book VI of the Labor Code which reads:
SEC. 6. Probationary employment. There is probationary employment
where the employee, upon his engagement, is made to undergo a trial
period during which the employer determines his fitness to qualify for
regular employment, based on reasonable standards made known to
him at the time of engagement.
Probationary employment shall be governed by the following rules:
(d) In all cases of probationary employment, the employer shall
make known to the employee the standards under which he will
qualify as a regular employee at the time of his engagement. Where
no standards are made known to the employee at that time, he shall be
deemed a regular employee (Emphasis and underscoring supplied),
she was deemed to have been hired from day one as a regular
employee.[30]
CLARION, however, failed to comply with the notice
requirement provided for in Article 283 of the Labor Code, to wit:
ART. 283. CLOSURE OF ESTABLISHMENT AND REDUCTION
OF PERSONNEL. The employer may also terminate the employment
of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation
of operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by
serving a written notice on the worker and the Ministry of Labor
and Employment at least one (1) month before the intended date
thereof. x x x (Emphasis and underscoring supplied)
This Court thus deems it proper to award the amount equivalent
to Miclats one (1) month salary of P6,500.00 as nominal damages to
deter employers from future violations of the statutory due process
rights of employees.[31]
Since Article 283 of the Labor Code also provides that [i]n case
of retrenchment to prevent losses, . . . the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month
pay for every year of service, whichever is higher. . . , [a] fraction of
at least six (6) months [being] considered one (1) whole year, this
Court holds that Miclat is entitled to separation pay equivalent to one
(1) month salary.
As to Miclats entitlement to 13th month pay, paragraph 6 of the
Revised Guidelines on the 13th Month Pay Law provides:
6. 13th Month Pay of Resigned or Separated Employee
An employee x x x whose services were terminated any time before
the time for payment of the 13th month pay is entitled to this monetary
benefit in proportion to the length of time he worked during the
calendar year up to the time of his resignation or termination from the
service. Thus if he worked only from January up to September his
proportionate 13th month pay shall be equivalent to 1/12 of his total
basic salary he earned during that period.
xxx
Having worked at CLARION for six months, Miclats 13th month
pay should be computed as follows:
(Monthly Salary x 6 ) / 12 = Proportionate 13th month pay
(P6,500.00 x 6) / 12 = P3,250.00
With the appointment of a management receiver in September
1997, however, all claims and proceedings against CLARION,
including labor claims,[32] were deemed suspended during the
existence of the receivership.[33] The labor arbiter, the NLRC, as well
as the CA should not have proceeded to resolve respondents complaint
for illegal dismissal and should instead have directed respondent to
lodge her claim before the then duly-appointed receiver of CLARION.
To still require respondent, however, at this time to refile her labor
claim against CLARION under the peculiar circumstances of the case
that 8 years have lapsed since her termination and that all the
arguments and defenses of both parties were already ventilated before
the labor arbiter, NLRC and the CA; and that CLARION is already in
the course of liquidation this Court deems it most expedient and
advantageous for both parties that CLARIONs liability be determined
with finality, instead of still requiring respondent to lodge her claim at
this time before the liquidators of CLARION which would just entail
a mere reiteration of what has been already argued and pleaded.
Furthermore, it would be in the best interest of the other creditors of
CLARION that claims against the company be finally settled and
determined so as to further expedite the liquidation proceedings. For
the lesser number of claims to be proved, the sooner the claims of all
creditors of CLARION are processed and settled.
WHEREFORE, the Court of Appeals November 24, 2000
Decision, together with its May 23, 2001 Resolution, is SET ASIDE
and another rendered declaring the legality of the dismissal of
respondent, Michelle Miclat. Petitioners are ORDERED, however, to
PAY her the following in accordance with the foregoing discussions:
1) P6,500.00 as nominal damages for non-compliance with
statutory due process;
2) P6,500.00 as separation pay; and
3) P3,250.00 as 13th month pay.
Let a copy of this Decision be furnished the SEC Hearing Panel
charged with the liquidation and dissolution of petitioner corporation
for inclusion, in the list of claims of its creditors, respondent Michelle
Miclats claims, to be satisfied in accordance with Article 110 of the
Labor Code in relation to the Civil Code provisions on Concurrence
and Preference of Credits. Costs against petitioners. SO ORDERED.
 LINGKOD MANGGAGAWA SA RUBBERWORLD vs.
RUBBERWORLD (PHILS.)
G.R. No. 153882 January 29, 2007
Assailed and sought to be set aside in this petition for review under
Rule 45 of the Rules of Court is the Decision[1] dated January 18,
2002 of the Court of Appeals (CA) in CA-G.R. SP No. 53356, as
reiterated in its Resolution[2] of June 5, 2002, denying the petitioners
motion for reconsideration. The assailed CA decision
annulled and set aside an earlier decision of the Labor Arbiter, as well
as the resolution/order and writ of execution issued by the National
Labor Relations Commission (NLRC) in a labor dispute between the
petitioners and the respondents over which a suspension order had
been issued by the Securities and Exchange Commission (SEC).
Petitioner Lingkod Manggagawa sa Rubberworld, Adidas-Anglo is a
legitimate labor union whose members were employees of the
principal respondent, Rubberworld Philippines, Inc.(Rubberworld, for
short), a domestic corporation engaged in the manufacture of
footwear, bags and garments.
The facts:
On August 26, 1994, Rubberworld filed with the Department of Labor
and Employment (DOLE) a Notice of Temporary Partial
Shutdown due to severe financial crisis, therein announcing the formal
actual company shutdown to take effect on September 26, 1994.
A copy of said notice was served on the recognized labor union of
Rubberworld, the Bisig Pagkakaisa-NAFLU, the union with which
the corporation had a collective bargaining agreement.
On September 1, 1994, Bisig Pagkakaisa-NAFLU staged a strike. It
set up a picket line in front of the premises of Rubberworld and even
welded its gate. As a result, Rubberworld's premises closed
prematurely even before the date set for the start of its temporary
partial shutdown.
On September 9, 1994, herein petitioner union, the Lingkod
Manggagawa Sa Rubberworld, Adidas-Anglo (Lingkod, for
brevity), represented by its President, Sonia Esperanza, filed a
complaint against Rubberworld and its Vice Chairperson, Mr. Antonio
Yang, for unfair labor practice (ULP), illegal shutdown, and non-
payment of salaries and separation pay. In its complaint, docketed as
NLRC-NCR-Case No. 00-09-06637 (hereinafter referred to as ULP
Case, for brevity), petitioner union alleged that it had filed a
petition for certification election during the freedom period,
which petition was granted by the DOLE Regional Director. In the
same complaint, petitioner union claimed that the strike staged
by Bisig Pagkakaisa-NAFLU was company-instigated/supported. The
said complaint was referred to Labor Arbiter Ernesto Dinopol for
appropriate action.
On November 22, 1994, while the aforementioned complaint was
pending with Labor Arbiter Dinopol, Rubberworld filed with the
SEC a Petition for Declaration of a State of Suspension of Payments
with Proposed Rehabilitation Plan. The petition, docketed as SEC
Case No. 11-94-4920, was granted by the
SEC in its Order[3] dated December 28, 1994, to wit:
Accordingly, with the creation of the Management
Committee, all actions for claims against
Rubberworld Philippines, Inc. pending before any
court, tribunal, office, board, body, Commission or
sheriff are hereby deemed SUSPENDED.
Consequently, all pending incidents for preliminary
injunctions, writ of attachments, foreclosures and the
like are hereby rendered moot and academic.
SO ORDERED.
Notwithstanding the SEC's aforementioned suspension order
and despite Rubberworld's submission on January 10, 1995 of
a Motion to Suspend Proceedings,[4] Labor Arbiter Dinopol went
ahead with the ULP case and rendered his
[5]
decision thereon on August 16, 1995, saying in part, thus:
x x x [I]t is crystal clear that the SEC Order
notwithstanding, Labor Arbiters and the National
Labor Relations Commission should not abdicate the
jurisdiction which Article 217 of the Labor Code has
conferred upon them subject to the condition that
awards, if any, should be presented to the
Management Committee for processing and payment,
and disposing as follows:
WHEREFORE, decision is hereby rendered:
1) denying respondents motion to
suspend proceedings;
2) declaring respondent
Rubberworld Phils., Inc. to have
committed unfair labor practice;
3) declaring the temporary
shutdown to have been officially
ended as of March 26, 1995;
4) ordering respondent
Rubberworld Phils., Inc. to reinstate
complainant-Union's members who
indicate their intention to be so
reinstated within one month from the
receipt of this decision by
complainants' counsel;
5) ordering respondent
Rubberworld Phils., Inc. to pay the
members of the complainant-Union
their backwages computed
from April 26, 1995 and separation
pay if reinstatement is no longer
possible plus 10% of the total award
of attorney's.
For purposes of quantifying the backwages and
separation pay, and identifying the recipients thereof,
Mr. Ricardo Atienza of the Research and Information
Unit of this Commission is hereby directed to proceed
to the office of the respondent Rubberworld whose
responsible officers are ordered to allow Mr. Atienza
or his representative access to such records as may be
necessary and render a report thereon within 30 days
from his receipt of this Decision.
For purposes of any appeal, the appeal bond is
tentatively set at P500,000.00.
SO ORDERED.
On September 21, 1995, Rubberworld went on appeal to the
NLRC, posting therefor a temporary appeal bond in the amount
of P500,000.00 as tentatively fixed by the Labor Arbiter. Meanwhile,
on October 10, 1995, Ricardo Atienza of the NLRCs Research and
Information Unit submitted his report on the computation of the
monetary awards, as ordered by the Labor Arbiter. He came out
withthe total amount of Twenty Seven Million Five Hundred Six
Thousand and Two Hundred Fifty-Five Pesos and 70/100
(P27,506,255.70). Despite Rubberworlds vigorous opposition, the
First Division of the NLRC, in its Order[6] of January 22,
1996, required the corporation to post an appeal bond
in an amount equivalent to Mr. Atienzas computation, with a warning
that failure to do so shall result in the dismissal of its appeal for non- Finding that the continuance in business [of
perfection, thus: Rubberworld] would neither be feasible/profitable
nor work to the best of interest of the stockholders,
Accordingly, respondents-appellants are hereby parties-litigants, creditors, or the general
directed to upgrade or complete their Appeal Bond in public, xxx Rubberworld Philippines, Inc. is
the amount equivalent to Twenty Seven Million Five hereby DISSOLVED under Section 6(d) of P.D.
Hundred Six Thousand Two Hundred Fifty-Five 902-A. Accordingly, the suspension Order
Pesos and 70/100 (P27,506,255.70) pursuant to the is LIFTED.
award as computed by Ricardo O. Atienza within ten
(10) days from receipt of this Order. The Laya Mananghaya Salgado & Co., CPAs is
hereby appointed as liquidator to effect the
Failure of the respondents-appellants to comply with dissolution of the petitioner.
this directive will give this Commission no choice but
to dismiss their appeal for non-perfection thereof. SO ORDERED.

Its motion for reconsideration of the same Order having been denied
by the NLRC in its Resolution[7] of March 29, On August 18, 1995, a writ of execution[12] was issued by the NLRC
1996, Rubberworld directly went to this Court on a Petition in favor of the petitioner union with a copy thereof served on
for Certiorari,[8]interposing the sole issue of whether or not the NLRC the respondent corporation. Faced with this dilemma, Rubberworld
acted without or in excess of jurisdiction or with grave abuse of filed with the Court an Urgent Omnibus Motion to declare null and
discretion amounting to lack or excess of jurisdiction in requiring the void the execution/garnishment made pursuant to the same writ. The
corporation to post the upgraded appeal motion, however, was denied by the Court in its Resolution
bond of P27,506,255.70 based on the computation of Mr. Atienza. of November 18, 1998.

Meanwhile, on account of Rubberworlds failure to upgrade or On February 8, 1999, Rubberworld filed with the Court a Motion
complete its appeal bond as indicated in the NLRCs January 22, to Admit its Amended Petition for Certiorari[13] and its
1996 Order, the Commission, in a decision[9] dated June 28, 1996, did [14]
Supplement, alleging therein that pursuant to the SEC Order
dismiss Rubberworlds appeal. Owing to this development, dated December 28, 1994, supra, the proceedings before the Labor
Rubberworld filed with the Court a Supplemental Petition Arbiter should have been suspended. Hence, since the Labor Arbiter
for Certiorari,[10] therein incorporating its challenge to disregarded the SECs suspension order, the subsequent
the said dismissal order of the NLRC, contending proceedings before it were null and void.
that the labor tribunal acted without or in excess of jurisdiction.
Consistent with its ruling in St. Martin Funeral Homes v.
On April 22, 1998, the SEC issued an Order[11] declaring Rubberworld NLRC,[15] the Court, in its Resolution of February 29, 1999,
as dissolved and lifting its earlier suspension order, to wit: referred Rubberworlds amended petition for certiorari and its
supplement to the CA for appropriate action, whereat it was docketed
as CA- G.R. SP No. 53356.
For its part, the CA, in its Resolution[16] of May 11, 2000, over the
vehement opposition of the petitioner union, resolved to
admit Rubberworlds aforementioned amended petition and the
supplement thereto in the interest of justice.
Eventually, in the herein assailed Decision[17] dated January 18, 2002,
the CA granted Rubberworlds petition in CAG.R. SP. No. 53356 on
the finding that the Labor Arbiter had indeed committed grave abuse
of discretion when it proceeded with
the ULP case despite the SECs suspension order of December 28,
1994, and accordingly declared the
proceedings before it, including the subsequent orders by the
NLRC dismissing Rubberworlds appeal and the writ of execution, null
and void.
With their motion for reconsideration having been denied in the CA in
its Resolution[18] of June 5, 2002, petitioners are now with the
Court via the instant recourse, raising the following issues:
1) Whether the CA had committed grave abuse of
discretion amounting to lack of jurisdiction or
an excess in the exercise thereof when it gave
due course to the petition filed by
Rubberworld (Phils.), Inc. and annulled and
set aside the decisions rendered by the labor
arbiter a quo and the NLRC, when the said
decisions had become final and executory
warranting the outright dismissal of the
aforesaid petition;
2) Whether the CA had committed grave abuse of
discretion and reversible error when it
applied Section 5(d) and Section 6 (c) of P.D.
No. 902-A, as amended, to the case at bar;
3) Whether the CA had committed reversible error
when it adopted and applied the rulings in the
cases of Rubberworld (Phils.), Inc., or Julie
Yap Ong v. NLRC, Marilyn F.
Arellano, et. al.[19] and Rubberworld (Phils.),
Inc. and Julie Y. Ong v. NLRC, Aquino
Magsalin, et. al.[20] to the case at bar.
We DENY.
It is the petitioners submission that the decision of the Labor Arbiter,
the affirmatory decision of the NLRC and the latters dismissal of
Rubberworlds appeal, as well the writ of execution subsequently
issued, can no longer be annulled and set aside, the same
having all become final and executory. Additionally, petitioners argue
that no appeal from the decision of the Labor Arbiter was ever
perfected due to Rubberworld's failure to upgrade or post additional
bond as ordered by the NLRC. Hence, they submit that the CA acted
in grave abuse of discretion in even giving due course
to Rubberworldspetition in CA-G.R. SP No. 53356, let alone rendering
a decision thereon annulling and setting aside the proceedings before
the Labor Arbiter and the NLRCs dismissal
of Rubberworlds appeal and the writ of execution issued following the
dismissal of said appeal.
The Court disagrees.
While posting an appeal bond is indeed a requirement for the
perfection of an appeal from the decision of the Labor Arbiter to the
NLRC, Rubberworlds failure to upgrade its appeal bond cannot bar, in
this particular instance, the review by the CA of the
lower court proceedings.
Given the factual milieu obtaining in this case, it cannot be said
that the decision of the Labor Arbiter, or the decision/dismissal order
and writ of execution issued by the NLRC, could ever attain final and
executory status. The Labor Arbiter completely disregarded and
violated Section 6(c) of Presidential Decree 902-A, as
amended, which categorically mandates the suspension of all actions
for claims against a corporation placed under a management
committee by the SEC. Thus, the proceedings before
the Labor Arbiter and the order and writ subsequently issued by the
NLRC are all null and void for having been undertaken or issued in
violation of the SEC suspension Order dated December 28, 1994. As
such, the Labor Arbiters decision, including the dismissal by the
NLRC of Rubberworls appeal, could not have achieved a final and
executory status.
Acts executed against the provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their
validity.[21] The Labor Arbiter's decision in this case is void ab
initio, and therefore, non-existent.[22] A void judgment is in effect no
judgment at all. No rights are divested by it nor obtained from it. Being
worthless in itself, all proceedings upon which the judgment
is founded are equally worthless. It neither binds nor bars anyone. All
acts performed under it and all claims flowing out of it are void.[23] In
other words, a void judgment is regarded as a nullity, and the situation
is the same as it would be if there were no judgment. It
accordingly leaves the party-litigants in the same position they were
in before the trial.[24]
In fact, it is immaterial whether an appeal from the Labor Arbiter's
decision was perfected or not, since a judgment void ab initio is non-
existent and cannot acquire finality.[25] The judgment is vulnerable to
attack even when no appeal has been taken. Hence, such judgment
does not become final in the sense of depriving a party of his right to
question its validity.[26] Hence, no grave abuse of discretion attended
the CA's taking cognizance of the petition in CA-G.R. SP No. 53356.
Besides, the Labor Arbiter, by simultaneously ruling in
his decision of August 16, 1995 on both the merits of
the ULP case and the motion of Rubberworld to
suspend the proceedings thereon,effectively required the
respondent corporation to post a surety bond before the same
respondent could have questioned the arbiters action in not
suspending the proceedings before him.
A bond is only mandatory from an appeal of the decision itself on the
merits of the laborers' money claims to ensure payment thereof. Had
the Labor Arbiter taken heed of Rubberworlds motion to suspend
proceedings when that motion was filed, and ruled upon it separately,
no bond would have been required for a review
of his resolution thereon. As it were, the Labor Arbiter chose to
continue to decide the main case, then to incorporate in his
decision the denial of Rubberworlds motion to suspend
proceedings, thereby effectively requiring a bond on a question which
would not have ordinarily required one.
We shall now address the more substantial issue in this case,
namely, the applicability of the provisions of Section 5 (d) and
Section 6 (c) of P.D. No. 902-A, as amended, reorganizing the SEC,
vesting it with additional powers and placing it under the Office of the
President, which respectively read:
Section 5. In addition to the regulatory adjudicative
functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of
associations registered with it as expressly granted
under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases
involving:
xxx xxx xxx
d) Petitions of corporations, partnerships or
associations to be declared in the state of suspension
of payments in cases where the corporation,
partnership or association possesses sufficient
property to cover all its debts but foresees the
impossibility of meeting them when they respectively
fall due or in cases where the corporation, partnership
or association has no sufficient assets to cover its
liabilities, but is under the management of a
rehabilitation receiver or management committee
created pursuant to this Decree.
Section 6. In order to effectively exercise such
jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property,
real or personal, which is the subject of the action
pending before the Commission in accordance with
the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve
the rights of the parties-litigants and/or protect the
interest of the investing public and creditors: x x
x Provided, finally, That upon appointment of a
management committee, the rehabilitation
receiver, board or body, pursuant to this Decree,
all actions for claims against corporations,
partnerships, or associations under management
or receivership pending before any court, tribunal,
board or body shall be suspended
accordingly. [Emphasis supplied]
As correctly ruled by the CA, the issue of applicability in labor cases
of the aforequoted provisions of PD 902-A, as amended, had already
been resolved by this Court in its earlier decisions inRubberworld
(Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano,
et. al.[27] and Rubberworld (Phils.), Inc. and Julie Y. Ong v.
NLRC, Aquino, Magsalin, et. al,[28] supra.
In the first Rubberworld case, the Court upheld the applicability of PD
902-A to labor cases pursuant to Section 5(d) and Section 6(c)
thereof, with the following pronouncements:
It is plain from the foregoing provisions of the law
that upon the appointment [by the SEC] of a
management committee or a rehabilitation receiver,
all actions for claims against the corporation pending
before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of
all pending actions for claims is to enable the
management committee or the rehabilitation receiver
to effectively exercise its/his powers free from any
judicial or extra-judicial interference that might
unduly hinder or prevent the rescue of the debtor
company. To allow such other actions to continue
would only add to the burden of the management
committee or rehabilitation receiver, whose time,
effort and resources would be wasted in defending
claims against the corporation instead of being
directed toward its restructuring and rehabilitation.[29]
xxx xxx xxx
x x x The law is clear: upon the creation of a
management committee or the appointment of a
rehabilitation receiver, all claims for actions shall
be suspended accordingly. No exception in favor of
labor claims is mentioned in the law. Since the law
makes no distinction or exemptions, neither
should this Court. Ubi lex non distinguit nec nos
distinguere debemos. Allowing labor cases to
proceed clearly defeats the purpose of the automatic
stay and severely encumbers the management
committee's time and resources. The said committee
would need to defend against these suits, to the
detriment of its primary and urgent duty to work
towards rehabilitating the corporation and making it
viable again. To rule otherwise would open the
floodgates to other similarly situated claimants and
forestall if not defeat the rescue efforts. Besides, even
if the NLRC awards the claims of private respondents,
its ruling could not be enforced as long as the
petitioner is under the management committee.[30]
In Chua v. National Labor Relations Commission, we
ruled that labor claims cannot proceed independently
of a bankruptcy liquidation proceeding, since these
claims would spawn needless controversy, delays,
and confusion.[31] With more reason, allowing labor
claims to continue in spite of a SEC suspension order
in a rehabilitation case would merely lead to such
results.
xxx xxx xxx
Article 217 of the Labor Code should be construed
not in isolation but in harmony with PD 902-A,
according to the basic rule in statutory construction
that implied repeals are not favored.[32] Indeed, it is
axiomatic that each and every statute must be
construed in a way that would avoid conflict with
existing laws. True, the NLRC has the power to
hear and decide labor disputes, but such authority
is deemed suspended when PD 902-A is put into
effect by the Securities and Exchange
Commission. [Emphasis supplied]
The second Rubberworld case reiterates the
above pronouncements of the Court:
Presidential Decree No. 902-A is clear that all actions
for claims against corporations, partnerships or
associations under management or receivership
pending before any court, tribunal, board or body
shall be suspended accordingly. The law did not make
any exception in favor of labor claims.
xxx xxx xxx
Thus, when NLRC proceeded to decide the case
despite the SEC suspension order, the NLRC acted
without or in excess of its jurisdiction to hear and
decide cases. As a consequence, any resolution,
decision or order that it rendered or issued
without jurisdiction is a nullity. [Emphasis
supplied]
Petitioners argue, however, that the doctrines laid down in the
two aforecited cases cannot be made to
apply to the instant controversy because the SEC order therein only
mandates that all pendingcases against Rubberworld Philippines,
Inc. should be deemed suspended. Petitioners contend that the
decision of the Labor Arbiter in the present case, as well the order of
dismissal and writ of execution issued by NLRC, have become final
and executory by reason of Rubberworlds failure to perfect its appeal
by not upgrading or completing the required cash or surety bond as
ordained by the NLRC. Petitioners thus conclude that the doctrine
of stare decisis cannot apply to the instant case.
Petitioners are in error.

It is incontrovertible that the denial of Rubberworlds motion to

suspend proceedings in the principal case was incorporated in the
decision of the Labor Arbiter. Obviously, then, the Labor Arbiters
decision of August
16, 1995 was rendered at a time when Lingkods complaint against
Rubberworld in NLRC-NCR-Case No. 00-09-06637-94 ought to have
been suspended.

In short, at the time the SEC issued its suspension Order of December
28, 1994, the proceedings before the Labor Arbiter were still very
much pending. As such, no final and executory decision could
have validly emanated therefrom. Like the CA, we do not see any
reason why the doctrine of stare decisis will not apply to this case.

For being well-grounded in fact and law, the assailed CA decision and
resolution in CA-G.R. SP No. 53356 cannot be said to have been
tainted with grave abuse of discretion or issued in excess or want of
jurisdiction. We find no reason to overturn such rulings.

WHEREFORE, the instant petition is DENIED and the assailed

decision and resolution of the CA are AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. 164856 August 29, 2007
JUANITO A. GARCIA vs. PHILIPPINE AIRLINES, INC.,
This petition for review assails both the Decision1 dated December 5,
2003 and the Resolution2 dated April 16, 2004 of the Court of Appeals
in CA-G.R. SP No. 69540, which had annulled the Resolutions3 dated
November 26, 2001 and January 28, 2002 of the National Labor
Relations Commission (NLRC) in NLRC Injunction Case No.
0001038-01, and also denied the motion for reconsideration,
respectively.
The antecedent facts of the case are as follows:
Petitioners Alberto J. Dumago and Juanito A. Garcia were employed
by respondent Philippine Airlines, Inc. (PAL) as Aircraft Furnishers
Master "C" and Aircraft Inspector, respectively. They were assigned
in the PAL Technical Center.
On July 24, 1995, a combined team of the PAL Security and National
Bureau of Investigation (NBI) Narcotics Operatives raided the
Toolroom Section Plant Equipment Maintenance Division (PEMD)
of the PAL Technical Center. They found petitioners, with four others,
near the said section at that time. When the PAL Security searched the
section, they found shabu paraphernalia inside the company-issued
locker of Ronaldo Broas who was also within the vicinity. The six
employees were later brought to the NBI for booking and proper
investigation.
On July 26, 1995, a Notice of Administrative Charge4 was served on
petitioners. They were allegedly "caught in the act of sniffing shabu
inside the Toolroom Section," then placed under preventive
suspension and required to submit their written explanation within ten
days from receipt of the notice.
Petitioners vehemently denied the allegations and challenged PAL to
show proof that they were indeed "caught in the act of sniffing shabu."
Dumago claimed that he was in the Toolroom Section to request for
an allen wrench to fix the needles of the sewing and zigzagger
machines. Garcia averred he was in the Toolroom Section to inquire
where he could take the Tracksters tire for vulcanizing.
On October 9, 1995, petitioners were dismissed for violation of
Chapter II, Section 6, Article 46 (Violation of Law/Government
Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs)
of the PAL Code of Discipline.5 Both simultaneously filed a case for
illegal dismissal and damages.
In the meantime, the Securities and Exchange Commission (SEC)
placed PAL under an Interim Rehabilitation Receiver due to severe
financial losses.
On January 11, 1999, the Labor Arbiter rendered a decision6 in
petitioners favor:
WHEREFORE, conformably with the foregoing, judgment is hereby
rendered finding the respondents guilty of illegal suspension and
illegal dismissal and ordering them to reinstate complainants to their
former position without loss of seniority rights and other privileges.
Respondents are hereby further ordered to pay jointly and severally
unto the complainants the following:
Alberto J. Dumago - P409,500.00 backwages as of 1/10/99
34,125.00 for 13th month pay
Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99
107,562.00 for 13th month pay
The amounts of P100,000.00 and P50,000.00 to each complainant as
and by way of moral and exemplary damages; and
The sum equivalent to ten percent (10%) of the total award as and for
attorneys fees.
Respondents are directed to immediately comply with the
reinstatement aspect of this Decision. However, in the event that
reinstatement is no longer feasible, respondent[s] are hereby ordered,
in lieu thereof, to pay unto the complainants their separation pay
computed at one month for [e]very year of service.
SO ORDERED.7
Meanwhile, the SEC replaced the Interim Rehabilitation Receiver
with a Permanent Rehabilitation Receiver.
On appeal, the NLRC reversed the Labor Arbiters decision and
dismissed the case for lack of merit.8Reconsideration having been
denied, an Entry of Judgment9 was issued on July 13, 2000.
On October 5, 2000, the Labor Arbiter issued a Writ of
Execution10 commanding the sheriff to proceed:
xxxx
1. To the Office of respondent PAL Building I, Legaspi St.,
Legaspi Village, Makati City or to any of its Offices in the
Philippines and cause reinstatement of complainants to their
former position and to cause the collection of the amount of
[P]549,309.60 from respondent PAL representing the
backwages of said complainants on the reinstatement aspect;
2. In case you cannot collect from respondent PAL for any
reason, you shall levy on the office equipment and other
movables and garnish its deposits with any bank in the
Philippines, subject to the limitation that equivalent amount
of such levied movables and/or the amount garnished in your
own judgment, shall be equivalent to [P]549,309.60. If still
insufficient, levy against immovable properties of PAL not
otherwise exempt from execution.
x x x x11
Although PAL filed an Urgent Motion to Quash Writ of Execution,
the Labor Arbiter issued a Notice of Garnishment12 addressed to the
President/Manager of the Allied Bank Head Office in Makati City for
the amount of P549,309.60.
PAL moved to lift the Notice of Garnishment while petitioners moved
for the release of the garnished amount. PAL opposed petitioners
motion. It also filed an Urgent Petition for Injunction which the NLRC
resolved as follows:
WHEREFORE, premises considered, the Petition is partially
GRANTED. Accordingly, the Writ of Execution dated October 5,
2000 and related [N]otice of Garnishment [dated October 25, 2000]
are DECLARED valid. However, the instant action is SUSPENDED
and REFERRED to the Receiver of Petitioner PAL for appropriate
action.
SO ORDERED.13
PAL appealed to the Court of Appeals on the grounds that: (1) by
declaring the writ of execution and the notice of garnishment valid,
the NLRC gave petitioners undue advantage and preference over
PALs other creditors and hampered the task of the Permanent
Rehabilitation Receiver; and (2) there was no longer any legal or
factual basis to reinstate petitioners as a result of the reversal by the
NLRC of the Labor Arbiters decision.
The appellate court ruled that the Labor Arbiter issued the writ of
execution and the notice of garnishment without jurisdiction. Hence,
the NLRC erred in upholding its validity. Since PAL was under
receivership, it could not have possibly reinstated petitioners due to
retrenchment and cash-flow constraints. The appellate court declared
that a stay of execution may be warranted by the fact that PAL was
under rehabilitation receivership. The dispositive portion of the
decision reads:
WHEREFORE, premises considered and in view of the foregoing, the
instant petition is hereby GIVEN DUE COURSE. The assailed
November 26, 2001 Resolution, as well as the January 28, 2002
Resolution of public respondent National Labor Relations
Commission is hereby ANNULLED and SET ASIDE for having
been issued with grave abuse of discretion amounting to lack or excess
of jurisdiction. Consequently, the Writ of Execution and the Notice of
Garnishment issued by the Labor Arbiter are hereby
likewise ANNULLED and SET ASIDE.
SO ORDERED.14
Hence, the instant petition raising a single issue as follows:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE PETITIONERS ARE ENTITLED TO
THEIR ACCRUED WAGES DURING THE PENDENCY OF PALS
APPEAL.15
Simply put, however, there are really two issues for our consideration:
(1) Are petitioners entitled to their wages during the pendency of
PALs appeal to the NLRC? and (2) In the light of new developments
concerning PALs rehabilitation, are petitioners entitled to execution
of the Labor Arbiters order of reinstatement even if PAL is under
receivership?
We shall first resolve the issue of whether the execution of the Labor
Arbiters order is legally possible even if PAL is under receivership.
We note that during the pendency of this case, PAL was placed by the
SEC first, under an Interim Rehabilitation Receiver and finally, under
a Permanent Rehabilitation Receiver. The pertinent law on this matter,
Section 5(d) of Presidential Decree (P.D.) No. 902-A, as amended,
provides that:
SECTION 5. In addition to the regulatory and adjudicative functions
of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
xxxx
d) Petitions of corporations, partnerships or associations to be declared
in the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all of its debts
but foresees the impossibility of meeting them when they respectively
fall due or in cases where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is under the
[management of a rehabilitation receiver or] Management Committee
created pursuant to this Decree.
The same P.D., in Section 6(c) provides that:
SECTION 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
xxxx
c) To appoint one or more receivers of the property, real or personal,
which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the investing public and
creditors:Provided, finally, That upon appointment of a
management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be suspended
accordingly.
xxxx
Worth stressing, upon appointment by the SEC of a rehabilitation
receiver, all actions for claims against the corporation pending before
any court, tribunal or board shall ipso jure be suspended. The purpose
of the automatic stay of all pending actions for claims is to enable the
rehabilitation receiver to effectively exercise its/his powers free from
any judicial or extra-judicial interference that might unduly hinder or
prevent the rescue of the corporation.16
More importantly, the suspension of all actions for claims against the
corporation embraces all phases of the suit, be it before the trial court
or any tribunal or before this Court.17 No other action may be taken,
including the rendition of judgment during the state of suspension. It
must be stressed that what are automatically stayed or suspended are
the proceedings of a suit and not just the payment of claims during the
execution stage after the case had become final and executory.18
Furthermore, the actions that are suspended cover all claims against
the corporation whether for damages founded on a breach of contract
of carriage, labor cases, collection suits or any other claims of a
pecuniary nature.19 No exception in favor of labor claims is mentioned
in the law.201avvphi1
This Courts adherence to the above-stated rule has been resolute and
steadfast as evidenced by its oft-repeated application in a plethora of
cases involving PAL, the most recent of which is Philippine Airlines,
Inc. v. Zamora.21
Since petitioners claim against PAL is a money claim for their wages
during the pendency of PALs appeal to the NLRC, the same should
have been suspended pending the rehabilitation proceedings. The
Labor Arbiter, the NLRC, as well as the Court of Appeals should have
abstained from resolving petitioners case for illegal dismissal and
should instead have directed them to lodge their claim before PALs
receiver.22
However, to still require petitioners at this time to re-file their labor
claim against PAL under the peculiar circumstances of the case that
their dismissal was eventually held valid with only the matter of
reinstatement pending appeal being the issue this Court deems it
legally expedient to suspend the proceedings in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED in
that the instant proceedings herein are SUSPENDED until further
notice from this Court. Accordingly, respondent Philippine Airlines,
Inc. is hereby DIRECTED to quarterly update the Court as to the
status of its ongoing rehabilitation. No costs.
SO ORDERED.
SOBREJUANITE vs. ASB DEVELOPMENT CORPORATION
G.R. No. 165675 September 30, 2005
This petition for review on certiorari assails the June 29, 2004
Decision of the Court of Appeals in CA-G.R. SP No. 79420 which
reversed and set aside the Decision of the Office of the President; and
its October 18, 2004 Resolution denying reconsideration thereof.
The antecedent facts show that on March 7, 2001, spouses Eduardo
and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint[1] for
rescission of contract, refund of payments and damages, against ASB
Development Corporation (ASBDC) before the Housing and Land
Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with
ASBDC over a condominium unit and a parking space in the BSA
Twin Tower-B Condominum located at Bank Drive, Ortigas Center,
Mandaluyong City. They averred that despite full payment and
demands, ASBDC failed to deliver the property on or before
December 1999 as agreed. They prayed for the rescission of the
contract; refund of payments amounting to P2,674,637.10; payment of
moral and exemplary damages, attorneys fees, litigation expenses,
appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of
the approval by the Securities and Exchange Commission (SEC) on
April 26, 2001 of the rehabilitation plan of ASB Group of Companies,
which includes ASBDC, and the appointment of a rehabilitation
receiver. The HLURB arbiter however denied the motion and ordered
the continuation of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC
should have delivered the property to Sobrejuanite in December 1999;
that the latter had fully paid their obligations except the P50,000.00
which should be paid upon completion of the construction; and that
rescission of the contract with damages is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing
judgment is rendered ordering the rescission of the
contracts to sell between the parties, and further
ordering the respondent [ASBDC] to pay the
complainants [Sobrejuanite] the following:
a) all amortization payments by the
complainants amounting to P2,674,637.10 plus 12%
interest from the date of actual payment of each
amortization;
b) moral damages amounting to P200,000.00;
c) exemplary damages amounting to
P100,000.00;
d) attorneys fees amounting to P100,000.00;
e) litigation expenses amounting to
P50,000.00.
All other claims and all counter-claims are
hereby dismissed.
IT IS SO ORDERED.[2]
The HLURB Board of Commissioners[3] affirmed the ruling
of the arbiter that the approval of the rehabilitation plan and the
appointment of a rehabilitation receiver by the SEC did not have the
effect of suspending the proceedings before the HLURB. The board
held that the HLURB could properly take cognizance of the case since
whatever monetary award that may be granted by it will be ultimately
filed as a claim before the rehabilitation receiver. The board also found
that ASBDC failed to deliver the property to Sobrejuanite within the
prescribed period. The dispositive portion of the Decision reads:
Wherefore the petition for review is denied
and the decision of the office below is affirmed. It
 shall be understood that all monetary awards shall still NOT THE HLURB, HAS JURISDICTION OVER
be filed as claims before the rehabilitation receiver.[4] PETITIONERS COMPLAINT, IN
ASBDC filed an appeal[5] before the Office of the President which was CONTRAVENTION TO LAW AND THE RULING
dismissed[6] for lack of merit. Hence, ASBDC filed a petition[7] under OF THIS HONORABLE COURT IN
Section 1, Rule 43 of the Rules of Court before the Court of Appeals, THE ARRANZA CASE.
docketed as CA-G.R. SP No. 79420.
2. THE COURT OF APPEALS COMMITTED
On June 29, 2004, the Court of Appeals rendered its assailed REVERSIBLE ERROR AND GRAVELY ABUSED
Decision,[8] the dispositive portion of which reads: ITS DISCRETION WHEN IT RULED THAT THE
APPROVAL OF THE CORPORATE
WHEREFORE, premises considered, the REHABILITATION PLAN AND THE
instant petition is GRANTED. The impugned APPOINTMENT OF A RECEIVER HAD THE
decision dated June 27, 2003 of the Office of the EFFECT OF SUSPENDING THE PROCEEDING
President is hereby REVERSED AND SET ASIDE. IN THE HLURB, AND THAT THE MONETARY
No pronouncement as to costs. AWARD GIVEN BY THE HLURB COULD NOT
[BE] FILED IN THE SEC FOR PROPER
SO ORDERED.[9] DISPOSITION, NOT BEING IN ACCORDANCE
WITH LAW AND JURISPRUDENCE.
The Court of Appeals held that the approval by the SEC of the
rehabilitation plan and the appointment of the receiver caused the 3. THE COURT OF APPEALS
suspension of the HLURB proceedings. The appellate court noted that COMMITTED REVERSIBLE ERROR AND
Sobrejuanites complaint for rescission and damages is a claim under GRAVELY ABUSED ITS DISCRETION IN
the contemplation of Presidential Decree (PD) No. 902-A or the SEC RULING THAT RESPONDENT IS JUSTIFIED IN
Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of EXTENDING THE AGREED DATE OF
Procedure on Corporate Rehabilitation, because it sought to enforce DELIVERY BY INVOKING AS GROUND THE
a pecuniary demand. Therefore, jurisdiction lies with the SEC and not FINANCIAL CONSTRAINTS IT EXPERIENCED,
HLURB. It also ruled that ASBDC was obliged to deliver the property BEING CONTRARY TO LAW AND IN EEFECT
in December 1999 but its financial reverses warranted the extension AN UNLAWFUL NOVATION OF THE
of the period. AGREEMENT OF THE DATE OF DELIVERY
ENTERED INTO BY PETITIONERS AND
Sobrejuanites motion for reconsideration was denied[10] hence the RESPONDENT.[11]
instant petition which raises the following issues:
The petition lacks merit.
1. THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR AND GRAVELY ABUSED Section 6(c) of PD No. 902-A empowers the SEC:
ITS DISCRETION IN RULING THAT THE SEC,
 c) To appoint one or more receivers of the property, In Finasia Investments and Finance Corp. v. Court of Appeals,[15] we
real and personal, which is the subject of the action construed claim to refer only to debts or demands pecuniary in nature.
pending before the Commission whenever necessary Thus:
in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and [T]he word claim as used in Sec. 6(c) of P.D. 902-A
creditors: Provided, finally, That upon appointment of refers to debts or demands of a pecuniary nature. It
a management committee, rehabilitation receiver, means the assertion of a right to have money paid. It
board or body, pursuant to this Decree, all actions for is used in special proceedings like those before
claims against corporations, partnerships or administrative court, on insolvency.
associations under management or receivership The word claim is also defined as:
pending before any court, tribunal, board or body
shall be suspended accordingly. [Emphasis added] Right to payment, whether or not
such right is reduced to judgment,
The purpose for the suspension of the proceedings is to liquidated, unliquidated, fixed,
prevent a creditor from obtaining an advantage or preference over contingent, matured, unmatured,
another and to protect and preserve the rights of party litigants as well disputed, undisputed, legal,
as the interest of the investing public or creditors.[12] Such suspension equitable, secured, or unsecured; or
is intended to give enough breathing space for the management right to an equitable remedy for
committee or rehabilitation receiver to make the business viable again, breach of performance if such breach
without having to divert attention and resources to litigations in gives rise to a right to payment,
various fora.[13] The suspension would enable the management whether or not such right to an
committee or rehabilitation receiver to effectively exercise its/his equitable remedy is reduced to
powers free from any judicial or extra-judicial interference that might judgment, fixed, contingent,
unduly hinder or prevent the rescue of the debtor company. To allow matured, unmatured, disputed,
such other action to continue would only add to the burden of the undisputed, secured, unsecured.
management committee or rehabilitation receiver, whose time, effort
and resources would be wasted in defending claims against the In conflicts of law, a receiver may be
corporation instead of being directed toward its restructuring and appointed in any state which has
rehabilitation.[14] jurisdiction over the defendant who
owes a claim.
Thus, in order to resolve whether the proceedings before the HLURB
should be suspended, it is necessary to determine whether the As used in statutes requiring the presentation of
complaint for rescission of contract with damages is a claim within the claims against a decedents estate, claim is generally
contemplation of PD No. 902-A. construed to mean debts or demands of a pecuniary
nature which could have been enforced against the
deceased in his lifetime and could have been reduced
 to simple money judgments; and among these are
those founded upon contract.
In Arranza v. B.F. Homes, Inc.,[16] claim is defined as referring to
actions involving monetary considerations.
Finasia Investments and Finance Corp. v. Court of
Appeals and Arranza v. B.F. Homes, Inc. were promulgated prior to
the effectivity of the Interim Rules of Procedure on Corporate
Rehabilitation on December 15, 2000. The interim rules define
a claim as referring to all claims or demands, of whatever nature or
character against a debtor or its property, whether for money or
otherwise. The definition is all-encompassing as it refers to all actions
whether for money or otherwise. There are no distinctions or
exemptions.
Incidentally, although the petition for rehabilitation with prayer for
suspension of actions and proceedings was filed before the SEC on
May 2, 2000,[17] or prior to the effectivity of the interim rules, the same
would still apply pursuant to Section 1, Rule 1 thereof which provides:
Section 1. Scope These Rules shall apply to petitions
for rehabilitation filed by corporations, partnerships,
and associations pursuant to Presidential Decree No.
902-A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined
under the Interim Rules of Procedure on Corporate
Rehabilitation. Even under our rulings in Finasia Investments and
Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes,
Inc., the complaint for rescission with damages would fall under the
category of claim considering that it is for pecuniary considerations.
In their complaint, Sobrejuanite pray for the rescission of the contract
and the refund of P2,674,637.10 representing their total payments to
ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary
damages; P100,000.00 as attorneys fees; P50,000.00 as litigation
expenses; P1,500.00 per hearing as appearance fees; and costs of the
suit.
In the decision of the HLURB arbiter, ASBDC was ordered to
pay P2,674,637.10 plus 12% interest from the date of actual payment
of each amortization, representing the refund of all the amortization
payments made by Sobrejuanite; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; P100,000.00 as attorneys fees;
and P50,000.00 as litigation expenses.
As such, the HLURB arbiter should have suspended the
proceedings upon the approval by the SEC of the ASB Group of
Companies rehabilitation plan and the appointment of its rehabilitation
receiver. By the suspension of the proceedings, the receiver is allowed
to fully devote his time and efforts to the rehabilitation and
restructuring of the distressed corporation.
It is well to note that even the execution of final judgments may be
held in abeyance when a corporation is under rehabilitation.[18] Hence,
there is more reason in the instant case for the HLURB arbiter to order
the suspension of the proceedings as the motion to suspend was filed
soon after the institution of the complaint. By allowing the
proceedings to proceed, the HLURB arbiter unwittingly gave undue
preference to Sobrejuanite over the other creditors and claimants of
ASBDC, which is precisely the vice sought to be prevented by Section
6(c) of PD 902-A. Thus:
As between creditors, the key phrase is equality is
equity. When a corporation threatened by bankruptcy
is taken over by a receiver, all the creditors should
stand on equal footing. Not anyone of them should be
given any preference by paying one or some of them
ahead of the others. This is precisely the reason for
the suspension of all pending claims against the
corporation under receivership. Instead of creditors
vexing the courts with suits against the distressed
 firm, they are directed to file their claims with the
receiver who is a duly appointed officer of the
SEC.[19]
Petitioners reliance on Arranza v. B.F. Homes, Inc.[20] is
misplaced. In that case, we held that the HLURB retained its
jurisdiction despite the rehabilitation proceedings since the claim filed
by the homeowners did not involve pecuniary considerations. The
claim therein was for specific performance to enforce the homeowners
rights as regards right of way, open spaces, road and perimeter wall
repairs, and security. However, it can also be deduced therefrom that
if the claim was for monetary awards, the proceedings before the
HLURB should be suspended during the rehabilitation. Thus:
No violation of the SEC order suspending
payments to creditors would result as far as
petitioners complaint before the HLURB is
concerned. To reiterate, what petitioners seek to
enforce are respondents obligations as a subdivision
developer. Such claims are basically not pecuniary in
nature although it could incidentally involve
monetary considerations. All that petitioners claims
entail is the exercise of proper subdivision
management on the part of the SEC-appointed Board
of Receivers towards the end that homeowners shall
enjoy the ideal community living that respondent
portrayed they would have when they bought real
estate from it.
Neither may petitioners be considered as
having claims against respondent within the context
of the following proviso of Section 6 (c) of P.D. No.
902-A, to warrant suspension of the HLURB
proceedings.
.
In this case, under the complaint for specific
performance before the HLURB, petitioners do not
aim to enforce a pecuniary demand. Their claim for
reimbursement should be viewed in the light of
respondents alleged failure to observe its statutory
and contractual obligations to provide petitioners a
decent human settlement and ample opportunities for
improving their quality of life. The HLURB, not the
SEC, is equipped with the expertise to deal with that
matter.[21]
Finally, we agree with the Court of Appeals that under the Contract to
Sell, ASBDC was obliged to deliver the property to Sobrejuanite on
or before December 1999. Nonetheless, the same was deemed
extended due to the financial reverses experienced by the company.
Section 7 of the Contract to Sell allows the developer to extend the
period of delivery on account of causes beyond its control, such as
financial reverses.
WHEREFORE, the petition is DENIED. The assailed Decision of
the Court of Appeals dated June 29, 2004 in CA-G.R. SP No. 79420
and its Resolution dated October 18, 2004, are AFFIRMED.
SO ORDERED.
 PANLILIO vs. RTC
G.R. No. 173846 February 2, 2011
Before this Court is a petition for review on certiorari[1] under Rule
45 of the Rules of Court, seeking to set aside the April 27, 2006
Decision[2] and August 2, 2006 Resolution[3] of the Court of the
Appeals (CA) in CA-G.R. SP No. 90947.
The facts of the case are as follows:
On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio,
Nicole Morris and Marlo Cristobal (petitioners), as corporate officers
of Silahis International Hotel, Inc. (SIHI), filed with the Regional Trial
Court (RTC) of Manila, Branch 24, a petition for Suspension of
Payments and Rehabilitation[4] in SEC Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24, issued
an Order[5] staying all claims against SIHI upon finding the petition
sufficient in form and substance. The pertinent portions of the Order
read:
Finding the petition, together with its annexes, sufficient in
form and substance and pursuant to Section 6, Rule 4 of the Interim
Rules on Corporate Rehabilitation, the Court hereby:
xxxx
2) Stays the enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or
otherwise, against the debtor, its guarantors and sureties not solidarily
liable with the debtor.[6]
At the time, however, of the filing of the petition for
rehabilitation, there were a number of criminal charges[7] pending
against petitioners in Branch 51 of the RTC of Manila. These criminal
charges were initiated by respondent Social Security System (SSS)
and involved charges of violations of Section 28 (h)[8] of Republic Act
8282, or the Social Security Act of 1997 (SSS law), in relation to
Article 315 (1) (b)[9] of the Revised Penal Code, or
Estafa. Consequently, petitioners filed with the RTC of Manila,
Branch 51, a Manifestation and Motion to Suspend
Proceedings.[10]Petitioners argued that the stay order issued by Branch
24 should also apply to the criminal charges pending in Branch
51. Petitioners, thus, prayed that Branch 51 suspend its proceedings
until the petition for rehabilitation was finally resolved.
On December 13, 2004, Branch 51 issued an
[11]
Order denying petitioners motion to suspend the proceedings. It
ruled that the stay order issued by Branch 24 did not cover criminal
proceedings, to wit:
xxxx
Clearly then, the issue is, whether the stay order issued by the
RTC commercial court, Branch 24 includes the above-captioned
criminal cases.
The Court shares the view of the private complainants and the
SSS that the said stay order does not include the prosecution of
criminal offenses. Precisely, the law criminalizes the non-remittance
of SSS contributions by an employer to protect the employees from
unscrupulous employers. Clearly, in these cases, public interest
requires that the said criminal acts be immediately investigated and
prosecuted for the protection of society.
From the foregoing, the inescapable conclusion is that the stay
order issued by RTC Branch 24 does not include the above-captioned
cases which are criminal in nature.[12]
Branch 51 denied the motion for reconsideration filed by
petitioners.
On August 19, 2005, petitioners filed a petition
for certiorari[13] with the CA assailing the Order of Branch 51.

On April 27, 2006, the CA issued a Decision denying the
petition, the dispositive portion of which reads:
WHEREFORE, premises considered, the
Petition is hereby DENIED and is accordingly
DISMISSED. No costs.[14]
The CA discussed that violation of the provisions of the SSS
law was a criminal liability and was, thus, personal to the offender. As
such, the CA held that the criminal proceedings against the petitioners
should not be considered a claim against the corporation and,
consequently, not covered by the stay order issued by Branch 24.
Petitioners filed a Motion for Reconsideration,[15] which was,
however, denied by the CA in a Resolution dated August 2, 2006.
Hence, herein petition, with petitioners raising a lone issue for
this Courts resolution, to wit:
x x x WHETHER OR NOT THE STAY ORDER ISSUED BY
BRANCH 24, REGIONAL TRIAL COURT OF MANILA, IN SEC
CORP. CASE NO. 04-111180 COVERS ALSO VIOLATION OF
SSS LAW FOR NON-REMITTANCE OF PREMIUMS AND
VIOLATION OF [ARTICLE] [3] 515 OF THE REVISED PENAL
CODE.[16]
The petition is not meritorious.
To begin with, corporate rehabilitation connotes the
restoration of the debtor to a position of successful operation and
solvency, if it is shown that its continued operation is economically
feasible and its creditors can recover more, by way of the present value
of payments projected in the rehabilitation plan, if the corporation
continues as a going concern than if it is immediately liquidated.[17] It
contemplates a continuance of corporate life and activities in an effort
to restore and reinstate the corporation to its former position of
successful operation and solvency, the purpose being to enable the
company to gain a new lease on life and allow its creditors to be paid
their claims out of its earnings.[18]
A principal feature of corporate rehabilitation is the
suspension of claims against the distressed corporation. Section 6 (c)
of Presidential Decree No. 902-A, as amended, provides for
suspension of claims against corporations undergoing rehabilitation,
to wit:
Section 6 (c). x x x
x x x Provided, finally, that upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships or
associations under management or receivership pending before any
court, tribunal, board or body, shall be suspended accordingly.[19]
In November 21, 2000, this Court En Banc promulgated the
Interim Rules of Procedure on Corporate Rehabilitation,[20] Section 6,
Rule 4 of which provides a stay order on all claims against the
corporation, thus:
Stay Order. - If the court finds the petition to be sufficient in
form and substance, it shall, not later than five (5) days from the filing
of the petition, issue an Order x x x; (b) staying enforcement of all
claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its
guarantors and sureties not solidarily liable with the debtor; x x x[21]
In Finasia Investments and Finance Corporation v. Court of
Appeals,[22] the term "claim" has been construed to refer to debts or
demands of a pecuniary nature, or the assertion to have money paid.
The purpose for suspending actions for claims against the corporation
in a rehabilitation proceeding is to enable the management committee
or rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extrajudicial interference that might unduly hinder
or prevent the rescue of the debtor company.[23]
The issue to be resolved then is: does the suspension of all
claims as an incident to a corporate rehabilitation also contemplate the
suspension of criminal charges filed against the corporate officers of
the distressed corporation?
This Court rules in the negative.
In Rosario v. Co[24] (Rosario), a case of recent vintage, the
issue resolved by this Court was whether or not during the pendency
of rehabilitation proceedings, criminal charges for violation of Batas
Pambansa Bilang 22 should be suspended, was disposed of as
follows:
x x x the gravamen of the offense punished by B.P. Blg. 22 is the
act of making and issuing a worthless check; that is, a check that
is dishonored upon its presentation for payment. It is designed to
prevent damage to trade, commerce, and banking caused by
worthless checks. In Lozano v. Martinez, this Court declared that
it is not the nonpayment of an obligation which the law punishes.
The law is not intended or designed to coerce a debtor to pay his
debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making and circulation of worthless checks.
Because of its deleterious effects on the public interest, the
practice is proscribed by the law. The law punishes the act not as
an offense against property, but an offense against public order.
The prime purpose of the criminal action is to punish the offender
in order to deter him and others from committing the same or
similar offense, to isolate him from society, to reform and
rehabilitate him or, in general, to maintain social order. Hence,
the criminal prosecution is designed to promote the public
welfare by punishing offenders and deterring others.
Consequently, the filing of the case for violation of
B.P. Blg. 22 is not a "claim" that can be enjoined within the
purview of P.D. No. 902-A. True, although conviction of the
accused for the alleged crime could result in the restitution,
reparation or indemnification of the private offended party
for the damage or injury he sustained by reason of the
felonious act of the accused, nevertheless, prosecution for
violation of B.P. Blg. 22 is a criminal action.
A criminal action has a dual purpose, namely, the
punishment of the offender and indemnity to the offended party.
The dominant and primordial objective of the criminal action is
the punishment of the offender. The civil action is merely
incidental to and consequent to the conviction of the accused. The
reason for this is that criminal actions are primarily intended to
vindicate an outrage against the sovereignty of the state and to
impose the appropriate penalty for the vindication of the
disturbance to the social order caused by the offender. On the
other hand, the action between the private complainant and the
accused is intended solely to indemnify the former.[25]
Rosario is at fours with the case at bar. Petitioners are charged with
violations of Section 28 (h) of the SSS law, in relation to Article 315
(1) (b) of the Revised Penal Code, or Estafa. The SSS law clearly
criminalizes the non-remittance of SSS contributions by an employer
to protect the employees from unscrupulous employers. Therefore,
public interest requires that the said criminal acts be immediately
investigated and prosecuted for the protection of society.
The rehabilitation of SIHI and the settlement of claims against
the corporation is not a legal ground for the extinction of petitioners
criminal liabilities. There is no reason why criminal proceedings
should be suspended during corporate rehabilitation, more so,
since the prime purpose of the criminal action is to punish the offender
in order to deter him and others from committing the same or similar
offense, to isolate him from society, reform and rehabilitate him or, in
general, to maintain social order.[26] As correctly observed The Stay or Suspension Order shall not apply:
in Rosario,[27] it would be absurd for one who has engaged in criminal
conduct could escape punishment by the mere filing of a petition for xxxx
rehabilitation by the corporation of which he is an officer.
(g) any criminal action against individual debtor or
The prosecution of the officers of the corporation has no owner, partner, director or officer of a debtor shall
bearing on the pending rehabilitation of the corporation, especially not be affected by any proceeding commenced
since they are charged in their individual capacities. Such being the under this Act.
case, the purpose of the law for the issuance of the stay order is not
compromised, since the appointed rehabilitation receiver can still fully
discharge his functions as mandated by law. It bears to stress that the Withal, based on the foregoing discussion, this Court rules that there
rehabilitation receiver is not charged to defend the officers of the is no legal impediment for Branch 51 to proceed with the cases filed
corporation. If there is anything that the rehabilitation receiver might against petitioners.
be remotely interested in is whether the court also rules that petitioners
are civilly liable. Such a scenario, however, is not a reason to suspend WHEREFORE, premises considered, the petition
the criminal proceedings, because as aptly discussed in Rosario, is DENIED. The April 27, 2006 Decision and August 2,
should the court prosecuting the officers of the corporation find that 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 90947
an award or indemnification is warranted, such award would fall under are AFFIRMED. The Regional Trial Court of Manila, Branch 51,
the category of claims, the execution of which would be subject to the is ORDERED to proceed with the criminal cases filed against
stay order issued by the rehabilitation court.[28] The penal sanctions as petitioners.
a consequence of violation of the SSS law, in relation to the revised
penal code can therefore be implemented if petitioners are found guilty SO ORDERED.
after trial. However, any civil indemnity awarded as a result of their
conviction would be subject to the stay order issued by the
rehabilitation court. Only to this extent can the order of suspension be
considered obligatory upon any court, tribunal, branch or body where
there are pending actions for claims against the distressed
corporation.[29]

On a final note, this Court would like to point out that

Congress has recently enacted Republic Act No. 10142, or the
Financial Rehabilitation and Insolvency Act of 2010.[30] Section 18
thereof explicitly provides that criminal actions against the individual
officer of a corporation are not subject to the Stay or Suspension Order
in rehabilitation proceedings, to wit:
 G.R. No. 172843 September 24, 2014
ALFREDO L. VILLAMOR, JR., vs.
JOHN S. UMALE
Before us is a petition for review on certiorari1 under Rule 45 of the
Rules of Court, assailing the decision2 of the Court of Appeals dated
March 2, 2006 and its resolution3 dated May 29, 2006, denying
petitioners motions for reconsideration. The Court of Appeals placed
Pasig Printing Corporation (PPC) under receivership and appointed an
interim management committee for the corporation.4
MC Home Depot occupied a prime property (Rockland area) in Pasig.
The property was part of the area owned by Mid-Pasig Development
Corporation (Mid-Pasig).5
On March 1, 2004, PPC obtained an option to lease portions of
MidPasigs property, including the Rockland area.6
On November 11, 2004, PPCs board of directors issued a
resolution7 waiving all its rights, interests, and participation in the
option to lease contract in favor of the law firm of Atty. Alfredo
Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC received
no consideration for this waiver in favor of Villamors law firm.8
On November 22, 2004, PPC, represented by Villamor, entered into a
memorandum of agreement (MOA) with MC Home Depot.9 Under the
MOA, MC Home Depot would continue to occupy the area as PPCs
sublessee for four (4) years, renewable for another four (4) years, at a
monthly rental of P4,500,000.00 plus goodwill of P18,000,000.00.10
In compliance with the terms of the MOA, MC Home Depot issued 20
post-dated checks representing rentalpayments for one year and the
goodwill money. The checks were given to Villamor who did not turn
these or the equivalent amount over to PPC, upon encashment.11
Hernando Balmores, respondent inG.R. No. 172843 and G.R. No.
172881 and a stockholder and director of PPC,12wrote a letter
addressed to PPCs directors, petitioners inG.R. No. 172881, on April
4, 2005.13 He informed them that Villamor should bemade to deliver
to PPC and account for MC Home Depots checks or their equivalent
value.14
Due to the alleged inaction of the directors, respondent Balmores filed
with the Regional Trial Court an intra-corporate controversy
complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-
Corporate Controversies15 (Interim Rules) against petitioners for their
alleged devices or schemes amounting to fraud or misrepresentation
"detrimental to the interest of the corporation and its stockholders."16
Respondent Balmores alleged in his complaint that because of
petitioners actions, PPCs assets were ". . . not only in imminent
danger, but have actually been dissipated,lost, wasted and
destroyed."17
Respondent Balmores prayed that a receiver be appointed from his list
of nominees.18 He also prayed for petitioners prohibition from
"selling, encumbering, transferring or disposing in any manner any of
[PPCs] properties, including the MC Home [Depot] checks and/or
their proceeds."19 He prayed for the accounting and remittance to PPC
of the MC Home Depot checks or their proceeds and for the annulment
of the boards resolution waiving PPCs rights in favor of Villamors
law firm.20
Ruling of the Regional Trial Court
In its resolution21 dated June 15, 2005, the Regional Trial Court denied
respondent Balmores prayer for the appointment of a receiver or the
creation of a management committee.The dispositive portion reads:
WHEREFORE, premises considered the appointment of a Receiver
and the creation of a Management Committee applied for by plaintiff
Hernando F. Balmores are, as they are hereby, DENIED.22 (Emphasis
in the original)
According to the trial court, PPCs entitlement to the checks was
doubtful. The resolution issued by PPCs board of directors, waiving
its rights to the option to lease contract infavor of Villamors law firm,
must be accorded prima facie validity.23
The trial court also noted that there was a pending case filed by one
Leonardo Umale against Villamor, involving the same checks. Umale
was also claiming ownership of the checks.24 This, according to the
trial court, weakened respondent Balmores claim that the checks were
properties of PPC.25
The trial court also found that there was "no clear and positive showing
of dissipation, loss, wastage, or destruction of [PPCs] assets . . . [that
was] prejudicial to the interestof the minority stockholders,
partieslitigants or the general public."26 The boards failure to recover
the disputed amounts was not an indication of mismanagement
resulting in the dissipation of assets.27
The trial court noted that PPC was earning substantial rental income
from its other sub-lessees.28
The trial court added that the failure to implead PPCwas fatal. PPC
should have been impleaded as an indispensable party, without which,
there would be no final determination of the action.29
Ruling of the Court of Appeals
Respondent Balmores filed with the Court of Appeals a petition for
certiorari under Rule 65 of the Rules of Court.30He assailed the
decision of the trial court, which denied his "application for the
appointment of a [r]eceiver and the creation ofa [m]anagement
[c]ommittee."31
In the decision promulgated on March 2, 2006, the Court of Appeals
gave due course to respondent Balmores petition. It reversed the trial
courts decision, and issued a new order placing PPC under
receivership and creating an interim management committee.32 The
dispositive portion reads:
WHEREFORE, premises considered, the instant petition is hereby
GRANTED and GIVEN DUE COURSE and the June 15, 2005
Order/Resolution of the commercial court, the Regional Trial Court of
Pasig City, Branch 167, in S.E.C. Case No. 05-62, is hereby
REVERSED and SET ASIDE and a NEW ORDER is ISSUED that,
during the pendency of the derivative suit, untiljudgment on the merits
is rendered by the commercial court, in order toprevent dissipation,
loss, wastage or destruction of the assets, in order to prevent
paralization of business operations which may be prejudicial to the
interest of stockholders, parties-litigants or the general public, and in
order to prevent violations of the corporation laws: (1) Pasig Printing
Corporation (PPC) is hereby placed under receivership pursuant to the
Rules Governing Intra-Corporate Controversies under R.A. No.
8799;(2) an Interim Management Committee is hereby created for
Pasig Printing Corporation (PPC) composed of Andres Narvasa, Jr.,
Atty. Francis Gustilo and Ms Rosemarie Salvio-Leonida; (3) the
interim management committee is hereby directed to forthwith, during
the pendency of the derivative suit until judgment on the merits is
rendered by the commercial court, to: (a) take over the business of
Pasig Printing Corporation (PPC), (b) take custody and control of all
assets and properties owned and possessed by Pasig Printing
Corporation (PPC), (c) take the place of the management and the board
of directors of Pasig Printing Corporation (PPC), (d) preserve Pasig
Printing Corporations assets and properties, (e) stop and prevent any
disposal, in any manner, of any of the properties of Pasig Printing
Corporation (PPC) including the MC Home Depot checks and/or their
proceeds; and (3) [sic] restore the status quo ante prevailing by
directing respondents their associates and agents to account and return
to the Interim Management Committee for Pasig Printing Corporation
(PPC) all the money proceeds of the 20 MC Home Depot checks taken
by them and to account and surrender to the Interim Management
Committee all subsequent MC Home Depot checks or
proceeds.33(Citation omitted)
The Court of Appeals characterizedthe assailed order/resolution of the
trial court as an interlocutory order that is not appealable.34 In
reversing the trial court order/resolution, the Court of Appeals
considered the danger of dissipation, wastage, and loss of PPCs assets
if the review of the trial courts judgment would be delayed.35
The Court of Appeals ruled that the case filed by respondent Balmores
with the trial court "[was] a derivative suit because there were
allegations of fraud or ultra vires acts . . . by [PPCs directors]."36
According to the Court of Appeals,the trial court abandoned its duty
to the stockholders in a derivative suit when it refused to appoint a
receiver or create a management committee, all during the pendency
of the proceedings. The assailed order ofthe trial court removed from
the stockholders their right, in an intra-corporate controversy, to be
allowed the remedy of appointment of a receiverduring the pendency
of a derivative suit, leaving the corporation under the control of an
outsider and its assets prone to dissipation.37 The Court of Appeals
also ruled that this amounts to "despotic, capricious, or
whimsicalexercise of judicial power"38 on the part of the trial court.
In justifying its decision to place PPCunder receivership and to create
a management committee, the Court of Appeals stated that the boards
waiver of PPCs rights in favor ofVillamors law firm without any
consideration and its inaction on Villamors failure to turn over the
proceeds of rental payments to PPC warrant the creation of a
management committee.39 The circumstances resulted in the imminent
danger of loss, waste, or dissipation of PPCs assets.40
Petitioners filed separatemotions for reconsideration. Both motions
were denied by the Court of Appeals on May 29, 2006. The dispositive
portion of the Court of Appeals resolution reads:
WHEREFORE, for lack of merit, respondents March 10, 2006 and
March 20, 2006 Motions for Reconsideration are hereby DENIED.41
Petitioners filed separatepetitions for review under Rule 45, raising the
following threshold issues:
I. Whether the Court of Appeals correctly characterized
respondent Balmores action as a derivative suit
II. Whether the Court of Appeals properly placed PPC under
receivership and created a receiver or management committee
PPCs directors argued that the Court of Appeals erred in
characterizing respondent Balmores suit as a derivative suit because
of his failure to implead PPC as party in the case. Hence, the appellate
court did not acquire jurisdiction over the corporation, and the
appointment of a receiver or management committee is not valid.42
The directors further argued that the requirements for the appointment
of a receiver or management committee under Rule 943 of the Interim
Rules were not satisfied. The directors pointed out that respondent
Balmores failed to prove that the assets of the corporation were in
imminent danger of being dissipated.44
According to the directors, assuming that a receiver or management
committee may be appointed in the case, it is the Regional Trial Court
only and not the Court of Appeals that must appoint them.45
Meanwhile, Villamor argued that PPCs entitlement to the checks or
their proceeds was still in dispute. In a separate civil case against
Villamor, a certain Leonardo Umale was claiming ownership of the
checks.46
Villamor also argued that the Court of Appeals order to place PPC
under receivership and to appoint a management committee does not
endanger PPCs assets because the MC Home Depot checks were not
the only assets of PPC.47 Therefore, it would not affect the operation
of PPC or result in its paralysation.48
In his comment, respondent Balmores argued that Villamors and the
directors petitions raise questions of facts, which cannot be allowed
in a petition for review under Rule 45.49
On the appointment of a receiver or management committee,
respondent Balmores stated that the ". . . very practice of waiving
assets and income for no consideration can in factlead, not only to the
paralyzation of business, but to the complete loss or cessation of
business of PPC[.] It is
precisely because of this fraudulent practice that a
receiver/management committee must be appointed to protect the
assets of PPC from further fraudulent acts, devices and schemes."50
The petitions have merit.
I Respondent Balmores action in the trial court is not a derivative suit
Petition for review on certiorari under Rule 45 was proper
First, we rule on the issue of whether petitioners properly filed a
petition for review on certiorari under Rule 45.
Respondent Balmores argued that the petition raises questions of fact.
Under Rule 45, only questionsof law may be raised.51 There is a
question of law "when there is doubt or controversy as to what the law
is on a certain [set] of facts."52 The test is "whether the appellate court
can determine the issue raised without reviewing or evaluating the
evidence."53 Meanwhile, there is a question of fact when there is
"doubt . . . as to the truth or falsehood of facts." 54 The question must
involve the examination of probative value of the evidence presented.
In this case, petitioners raise issues on the correctness of the Court of
Appeals conclusions. Specifically, petitioners ask (1) whether
respondent Balmores failure to implead PPC in his action with the
trial court was fatal; (2) whether the Court of Appeals correctly
characterized respondent Balmores action as a derivative suit; (3)
whether the Court of Appeals appointment of a management
committee was proper; and (4) whether the Court of Appeals may
exercise the power to appoint a management committee.
These are questions of law that may be determined without looking
into the evidence presented. The question of whether the conclusion
drawn by the Court of Appeals from a set of facts is correct is a
question of law, cognizable by this court.55
Petitioners, therefore, properly filed a petition for review under Rule
45.
II
A derivative suit is an action filed by stockholders to enforce a
corporate action.56 It is an exception to the general rule that the
corporations power to sue57 is exercised only by the board of directors
or trustees.58
Individual stockholders may be allowed to sue on behalf of the
corporation whenever the directors or officers of the corporation
refuse to sue to vindicate the rights of the corporation or are the ones
to be sued and are in control of the corporation.59 It is allowed when
the "directors [or officers] are guilty of breach of . . . trust, [and] not
of mere error of judgment."60
In derivative suits, the real party in interest is the corporation, and the
suing stockholder is a mere nominal party.61
Thus, this court noted:
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. In effect, the suit isan 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 adopt suitable measures for its protection.62
Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate
Controversies (Interim Rules) provides the five (5) requisites63 for
filing derivative suits:
SECTION 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, toexhaust 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.
In case of nuisance or harassment suit, the court shall forthwith
dismiss the case.
The fifth requisite for filing derivative suits, while not included in the
enumeration, is implied in the first paragraph of Rule 8, Section 1 of
the Interim Rules: The action brought by the stockholder or member
must be "in the name of [the] corporation or association. . . ." This
requirement has already been settled in jurisprudence.
Thus, in Western Institute of Technology, Inc., et al. v. Salas, et
al.,64 this court said that "[a]mong the basic requirements for a
derivative suit to prosper is that the minority shareholder who is suing
for and on behalf of the corporation must allege in his complaint
before the proper forum that he is suing on a derivative cause of action
on behalf of the corporation and all other shareholders similarly
situated who wish to join [him]."65 This principle on derivative suits
has been repeated in, among other cases, Tam Wing Tak v. Hon.
Makasiar and De Guia66 and in Chua v. Court of Appeals,67 which was
cited in Hi-Yield Realty, Incorporated v. Court of
Appeals.68
Moreover, it is important that the corporation be made a party to the
case.69
This court explained in Asset Privatization Trust v. Court of
Appeals70 why it is a condition sine qua nonthat the corporation be
impleaded as party in derivative suits. Thus:
Not only is the corporation an indispensible party, but it is also the
present rule that it must be served with process. The reason given is
that the judgment must be made binding upon the corporation inorder
that the corporation may get the benefit of the suit and may not bring
a subsequent suit against the same defendants for the same cause of
action. In other words the corporation must be joined as party because
it is its cause of action that is being litigated and because judgment
must be a res judicata against it.71
In the same case, this court enumerated the reasons for disallowing a
direct individual suit.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder
in a corporation has no title legal or equitable to the corporate
property; that both of these are in the corporation itself for the
benefit of the stockholders." Inother words, to allow
shareholders to sue separately would conflict with the separate
corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced.
Thus, our Supreme Court held in the case of Evangelista v.
Santos, that the stockholders may not directly claim those
damages for themselves for that would result in the
appropriation by, and the distribution among them of part of
the corporate assets before the dissolution of the corporation
and the liquidation of its debts and liabilities, something
which cannot be legally donein view of Section 16 of the
Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of
partial recovery by an individual on the damages recoverable
by the corporation for the same act.72
While it is true that the basis for allowing stockholders to file
derivative suits on behalf of corporations is based on equity, the above
legal requisites for its filing must necessarily be complied with for its
institution.73
Respondent Balmores action in the trial court failed to satisfy all the
requisites of a derivative suit.
Respondent Balmores failed to exhaust all available remedies to
obtain the reliefs he prayed for. Though he tried to communicate with
PPCs directors about the checks in Villamors possession before he
filed an action with the trial court, respondent Balmores was not able
to show that this comprised all the remedies available under the
articles of incorporation, bylaws, laws, or rules governing PPC.
An allegation that appraisal rights were not available for the acts
complained of is another requisite for filing derivative suits under Rule
8, Section 1(3) of the Interim Rules.
Section 81 of the Corporation Code provides the instances of appraisal
right:
SEC. 81. Instances of appraisal right. Any stockholder of a
corporation shall have the right to dissent and demand payment of the
fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has
the effect of changing or restricting the rights of any
stockholders or class of shares, or of authorizing preferences
in any respect superior to those of outstanding shares of any
class, or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the corporate
property and assets as provided in this Code; and
3. In case of merger or consolidation.
Section 82 of the Corporation Codeprovides that the stockholder may
exercise the right if he or she voted against the proposed corporate
action and if he made a written demand for payment on the corporation
within thirty (30) days after the date of voting.
Respondent Balmores complained aboutthe alleged inaction of PPCs
directors in his letter informing themthat Villamor should be made to
deliver to PPC and accountfor MC Home Depots checks or their
equivalent value. He alleged that these are devices or schemes
amounting to fraud or misrepresentation detrimental to the
corporations and the stockholders interests. He also alleged that the
directors inaction placed PPCs assets in imminent and/or actual
dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores attempt to communicate with
the other PPC directors already comprised all the available remedies
that he could have exhausted and (b) the corporation was under full
control of petitioners that exhaustion of remedies became impossible
or futile,74 respondent Balmores failed toallege that appraisal rights
were not available for the acts complained of here.
Neither did respondent Balmores implead PPC as party in the case nor
did he allege that he was filing on behalf of the corporation.
The non-derivative character of respondent Balmores action may also
be gleaned from his allegations in the trial court complaint. In the
complaint, he described the nature ofhis action as an action under Rule
1, Section 1(a)(1) of the Interim Rules, and not an action under Rule
1, Section 1(a)(4) of the Interim Rules, which refers to derivative suits.
Thus, respondent Balmores said:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim
Rules of Procedure for Intra-corporate Controversies, involving
devices or schemes employed by, or acts of, the defendants as board
of directors, business associates and officers of Pasig Printing
Corporation (PPC), amounting to fraud or misrepresentation, which
are detrimental to the interest of the plaintiff as stockholder of
PPC.75 (Emphasis supplied)
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board,
associates, and officers, amounting to fraud or misrepresentation,
which may be detrimental to the interest of the stockholders. This is
different from a derivative suit.
While devices and schemes of the board of directors, business
associates, or officers amounting to fraud under Rule 1, Section
1(a)(1) of the Interim Rules are causes of a derivative suit, it is not
always the case that derivative suits are limited to such causes or that
they are necessarily derivative suits. Hence, they are separately
enumerated in Rule 1, Section 1(a) of the Interim Rules:
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 orappointment of directors,
trustees, officers, or managers ofcorporations, partnerships, or
associations;
(4) Derivative suits;and
 (5) Inspection of corporate books. (Emphasis supplied)
Stockholder/s suits based on fraudulent or wrongful acts of directors,
associates, or officers may also beindividual suits or class suits.
Individual suits are filed when the cause of action belongs to the
individual stockholder personally, and notto the stockholders as a
group or to the corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder.76 If the cause of action belongs
to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to
protect the stockholders in the group.77
In this case, respondent Balmores filed an individual suit. His intent
was very clear from his manner of describing the nature of his action:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim
Rules of Procedure for Intra-corporate Controversies, involving
devices or schemes employed by, or acts of, the defendants as board
of directors, business associates and officers of Pasig Printing
Corporation (PPC),amounting to fraud or misrepresentation, which
are detrimental to the interest of the plaintiff as stockholder of PPC.78
(Emphasis supplied)
His intent was also explicit from his prayer:
WHEREFORE, plaintiff respectfully prays that the Honorable Court
....
2. After notice and due proceedings
Declare that the acts of defendant Directorsin allowing defendant
VILLAMOR to retain custody of the MC Home checks and encash
them upon maturity, as well as their refusal or failure to take any action
against defendant VILLAMOR to make him account and deliver the
MC Home checks and/or their proceeds to Pasig Printing Corporation
are devices, schemes or acts amounting to fraud that are detrimental
to plaintiffs interest as a stockholder of PPC;79 (Emphasis supplied)
Respondent Balmores did not bring the action for the benefit of the
corporation. Instead, hewas alleging that the acts of PPCs directors,
specifically the waiver of rights in favor of Villamors law firm and
their failure to take back the MC Home Depot checks from Villamor,
were detrimental to his individual interest as a stockholder. In filing
an action, therefore, his intention was to vindicate his individual
interest and not PPCs or a group of stockholders.
The essence of a derivative suit is thatit must be filed on behalf of the
corporation. This is because the cause of action belongs, primarily, to
the corporation. The stockholder who sues on behalf of a corporation
is merely a nominal party.
Respondent Balmores intent to file an individual suit removes it from
the coverage of derivative suits.
III
Respondent Balmores has no cause of action that would
entitle him to the reliefs sought
Corporations have a personality that is separate and distinct from their
stockholders and directors. A wrong tothe corporation does not
necessarily create an individual cause of action. "A cause of action is
the act or omission by which a party violates the right of another."80 A
cause of action must pertain to complainant if he or she is to be entitled
to the reliefs sought. Thus, in Cua v. Tan,81 this court emphasized:
. . . where the acts complainedof constitute a wrong to the corporation
itself, the cause of action belongs to the corporation and not to the
individual stockholder or member. Although in most every case of
wrong to the corporation, each stockholder is necessarily affected
because the value of his interest therein would beimpaired, this fact of
itself is not sufficient to give him an individual cause of action since
the corporation is a person distinct and separate from him, and can and
should itself sue the wrongdoer. Otherwise, not only would the theory
of separate entity be violated, but there would be multiplicity of suits
as well as a violation of the priority rights of creditors. Furthermore,
there is the difficulty of determining the amount of damages that
should be paid to each individual stockholder.82
In this case, respondent Balmores did not allege any cause of action
that is personal to him. His allegations are limited to the facts that
PPCs directors waived their rights to rental income in favor of
Villamors law firm without consideration and that they failed to take
action when Villamor refused to turn over the amounts to PPC. These
are wrongsthat pertain to PPC. Therefore, the cause of action belongs
to PPC not to respondent Balmores or any stockholders as
individuals.
For this reason, respondent Balmoresis not entitled to the reliefs
sought in the complaint. Only the corporation, or arguably the
stockholders as a group, is entitled to these reliefs, which should have
been sought in a proper derivative suit filed on behalf of the
corporation.
PPC will not be bound by a decision granting the application for the
appointment of a receiver or management committee. Since it was not
impleaded in the complaint, the courtsdid not acquire jurisdiction over
it. On this matter, it is an indispensable party, without which, no final
determination can be had.
Hence, it is not only respondent Balmores failure to implead PPC that
is fatal to his action, as petitioners point out. It is the fact that he
alleged no cause of action that pertains personally to him that
disqualifies him from the reliefs he sought in his complaint.
On this basis alone, the Court of Appeals erred in giving due course to
respondent Balmores petition for certiorari, reversing the trial courts
decision, and issuing a new order placing PPC under receivership and
creating an interim management committee.
IV
Appointment of a management committee was not proper
Assuming that respondent Balmores has an individual cause of action,
the Court of Appeals still erred in placing PPC under receivership and
in creating and appointing a management committee.
A corporation may be placed under receivership, or management
committees may be created to preserveproperties involved in a suit and
to protect the rights of the parties under the control and supervision of
the court.83Management committees and receivers are appointed when
the corporation is in imminent danger of "(1) [d]issipation, loss,
wastage or destruction of assets or other properties; and (2)
[p]aralysation of its business operations that may be prejudicial to the
interest of the minority stockholders, parties-litigants, or the general
public."84
Applicants for the appointment of a receiver or management
committee need to establish the confluence of these two
requisites.1wphi1 This is because appointed receivers and
management committees will immediately take over the management
of the corporation and will have the management powers specified in
law.85 This may have a negative effect on the operations and affairs of
the corporation with third parties,86 as persons who are more familiar
with its operations are necessarily dislodged from their positions in
favor of appointees who are strangers to the corporations operations
and affairs.
Thus, in Sy Chim v. Sy Siy Ho & Sons, Inc.,87 this court said:
. . . the creation and appointment of a management committee and a
receiver is an extra ordinary and drastic remedy to be exercised with
care and caution; and only when the requirements under the Interim
Rules are shown. It is a drastic course for the benefit of the minority
stockholders, the parties-litigants or the general public are allowed
only under pressing circumstances and, when there is inadequacy,
ineffectual or exhaustion of legal or other remedies . . . The powerof
the court to continue a business of a corporation . . . must be exercised
with the greatest care and caution. There should be a full consideration
ofall the attendant facts, including the interest of all the parties
concerned.88
PPC waived its rights, without any consideration in favor of Villamor.
The checks were already in Villamors possession. Some of the checks
may have already been encashed. This court takes judicial notice that
the goodwill money of P18,000,000.00 and the rental payments
of P4,500,000.00 every month are not meager amounts only to be
waived without any consideration. It is, therefore, enough to constitute
loss or dissipation of assets under the Interim Rules.
Respondent Balmores, however, failed to show that there was an
imminent danger of paralysis of PPCs business operations.
Apparently, PPC was earning substantial amounts from its other sub-
lessees. Respondent Balmores did not prove otherwise. He, therefore,
failed to show at least one of the requisites for appointment of a
receiver or management committee.
V SO ORDERED.
The Court of Appeals had no jurisdiction to appoint the receiver or
management committee
The Court of Appeals has no power to appoint a receiver or
management committee. The Regional Trial Court has original and
exclusive jurisdiction89 to hear and decide intra-corporate
controversies,90 including incidents of such controversies.91 These
incidents include applications for the appointment of receivers or
management committees.
"The receiver and members of the management committee . . . are
considered officers of the court and shall be under its control and
supervision."92 They are required to report tothe court on the status of
the corporation within sixty (60) days from their appointment and
every three (3) months after.93
When respondent Balmores filed his petition for certiorari with the
Court of Appeals, there was still a pending action in the trial court. No
less than the Court of Appeals stated that it allowed respondent
Balmores petition under Rule 65 because the order or resolution in
question was an interlocutory one. This means that jurisdiction over
the main case was still lodged with the trial court.
The court making the appointment controls and supervises the
appointed receiver or management committee.1wphi1 Thus, the
Court of Appeals appointment of a management committee would
result in an absurd scenario wherein while the main case is still
pending before the trial court, the receiver or management committee
reports to the Court of Appeals.
WHEREFORE, the petitions are GRANTED. The decision of the
Court of Appeals dated March 2, 2006 and its resolution dated May
29, 2006 are SET ASIDE.